Cherry v R [2013] NZCA 636 (11 December 2013)

Last Updated: 24 December 2013

IN THE COURT OF APPEAL OF NEW ZEALAND
CA8/2013 [2013] NZCA 636
BETWEEN	EVAN PAUL CHERRY Appellant
AND	THE QUEEN Respondent

Hearing:	21 November 2013
Court:	Harrison, Simon France and Dobson JJ
Counsel:	S N B Wimsett for Appellant T Simmonds for Respondent
Judgment:	11 December 2013 at 11.00 am

JUDGMENT OF THE COURT

The appeal against sentence, including imposition of a minimum period of imprisonment, is dismissed.
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REASONS OF THE COURT

(Given by Dobson J)

[1] On 11 December 2012, Mr Cherry was sentenced by Judge Dawson in the District Court at North Shore on two charges of making false statements by a promoter, one charge of theft by misappropriation and one charge of theft by a person in a special relationship. Mr Cherry had pleaded guilty to the charges. He was sentenced to six years and two months’ imprisonment, with the sentencing Judge also imposing a minimum period of imprisonment of three and a half years.^[1]
[2] Mr Cherry has appealed against the sentence on the basis that it was manifestly excessive, and also against the imposition of a minimum period of imprisonment, which he argued should not have been imposed.

Circumstances of the offending

[3] Throughout the period to which the charges related, from June 2002 until February 2007, Mr Cherry was in business as an independent financial adviser. He took money from clients of his business for investment on specified terms and with Mr Cherry’s company undertaking to invest funds in good faith, in the best interests of the client, and with the level of care, skill, prudence and diligence that a prudent professional custodian would exercise.
[4] Over the relevant period, Mr Cherry received some $9,073,400 from investors. He was sentenced on the basis that, of that amount, $4,727,720 was dishonestly misappropriated or stolen. On the collapse of his business, sums invested by clients totalling approximately $5,305,000 were lost.
[5] In providing reports to clients, Mr Cherry had a pattern of providing a false opening value of the client’s portfolio, suggesting gains had been made, when the funds had not been invested as those reports suggested. The sentencing Judge concluded that the false statements were intended to induce the clients to maintain their investments with his company, and indeed to encourage the investment of further funds with it.
[6] The investing clients appear to have been predominantly investors of relatively modest means, for whom the losses that were suffered on the collapse of Mr Cherry’s business have had catastrophic impacts on their retirement. In some cases, Mr Cherry encouraged the investors to borrow against the equity in their homes, to place further funds for investment with him.
[7] The Judge sentenced Mr Cherry on the basis that he had not paid any reparation to the clients who suffered the significant losses involved.

Grounds of appeal

[8] Mr Wimsett raised the following grounds for challenging the sentence as manifestly excessive:

• that counsel appearing for Mr Cherry on sentencing (Mr Dixon) incompetently treated the Crown’s summary of facts provided to the Court for sentencing as being agreed by Mr Cherry, when he disputed material aspects of it;
• that Mr Dixon incompetently failed to draw to the Judge’s attention that Mr Cherry had made significant payments as reparation to clients who had suffered losses;
• that the Judge erred in determining the relative seriousness of the offending when comparing it with appellate consideration of sentencings in other cases of fraud and misappropriation, particularly the decision in Watson v R;^[2] and
• that the Judge approached consideration of s 86 of the Sentencing Act 2002 in relation to the imposition of a minimum period of imprisonment on a wrong basis, and no minimum period should have been imposed.

Accuracy of summary of facts

[9] Mr Cherry completed an affidavit in which he recalled his version of communications with Mr Dixon, purportedly instructing that aspects of the proposed summary of facts were not accepted by him.
[10] Mr Dixon also completed an affidavit, rejecting these criticisms. He acknowledged substantial dialogue with Mr Cherry as to the content of the summary of facts to be put to the Court, and on other aspects of the plea in mitigation. No protest was made by Mr Cherry during the sentencing hearing that the Court was proceeding on a summary of facts that he did not accept.
[11] Mr Cherry claimed not to have seen the final form of the summary of facts to be relied on at sentencing. In disputing that, Mr Dixon deposed that Mr Cherry had been intimately involved with him in negotiating the terms of it with representatives of the Serious Fraud Office (SFO) and counsel acting for it. Mr Dixon deposed that he provided a copy of the Crown sentencing submissions to Mr Cherry before the sentencing. A copy of the final form of the summary of facts to be relied on at the sentencing was appended to a copy of the Crown submissions, which Mr Dixon sent to Mr Cherry before the sentencing.

Absence of submission regarding reparation payments

[12] Mr Cherry’s affidavit contained a list of payments that had been made from either his family trust or personal bank accounts to clients over the period from May 2004 to May 2011, totalling $1,057,203. He claimed that such payments should have been treated as reparation, for which he should have been given credit at sentencing.
[13] On this aspect of the appeal, Mr Dixon deposed that he did not believe that a submission could be advanced regarding reparation payments by Mr Cherry to clients who had suffered losses. On the view he took, Mr Cherry could not make out that any payments made to clients were from sources independent of the business that was funded by those or other clients’ investments.
[14] As Mr Simmonds submitted, the short point is that the amount of loss cited in the summary of facts reflected the amount of capital invested by clients of Mr Cherry that had not been repaid. That sum was some $5.3 million, and it was not appropriate to acknowledge any recoveries against that sum to reduce it. Mr Simmonds’ point was that if the calculations had included the misrepresentations by Mr Cherry as to the returns supposedly earned on the sums clients had invested, then the losses claimed would have been dramatically higher.
[15] Certainly until the point of collapse of Mr Cherry’s business, all such payments were treated as returns on the clients’ investments. There was therefore no scope for Mr Cherry to subsequently claim that they constituted a return of capital. In any event, the SFO had real issues as to where the money for those payments had come from, given that the extent of payments out of the business to the trust and personal bank accounts may well have been the source of funds (or at least part of them) comprised in those payments to clients.
[16] Although the Judge on sentencing did not characterise it as such, we are satisfied Mr Simmonds was entitled to treat this as a component of a classic Ponzi scheme.
[17] There are numerous differences of recollection between Messrs Cherry and Dixon. However they are resolved would not alter our view on the risk that the sentencing proceeded on a materially incorrect view of the facts. The differences Mr Cherry sought to make out are either irrelevant or not credible. Mr Cherry has failed to establish that the agreed summary was wrong in any material respect or that the Judge sentenced on an erroneous factual basis. We are satisfied that Mr Dixon did not err in choosing not to characterise the repayments to investors as some form of reparation.

Other concerns

[18] We note Mr Dixon’s concern, as expressed in his affidavit, that he considered the sentencing hearing was conducted in an unruly atmosphere. He cited frequent abusive interruptions from investors who had suffered losses at Mr Cherry’s hands, and an apparent reluctance on the part of the Judge to give any credence to the submissions being made by Mr Dixon on behalf of Mr Cherry. Mr Dixon had submitted for an end sentence of four years’ imprisonment, with no minimum period of imprisonment imposed, but acknowledges that he did not “appear to make any headway with the Judge”. That concern at the atmosphere in which the sentencing hearing was conducted cannot, of itself, contribute to an analysis of whether the sentence imposed was manifestly excessive.
[19] In the same way, no relevance can attach to Mr Wimsett’s submission that the Judge was unjustifiably sceptical about the prospect that Mr Cherry had hidden assets in a trust. At the sentencing hearing, the Judge had questioned Mr Dixon as to how he could know what other assets might have been transferred to that trust. When informed by Mr Dixon that his instructions were that there were no assets in the trust, the Judge appeared to express frustration in questioning:

So I have a man here for sentencing on major dishonesty matters and I need to take his word on this?

[20] Mr Wimsett did not cite any aspect of the Judge’s remarks on sentencing that reflected adversely on Mr Cherry because of any assumption that he had hidden assets that might otherwise have been applied to reduce the losses suffered by his clients.

Appropriateness of starting point

[21] The sentencing Judge adopted a starting point of eight years’ imprisonment on the facts as he was justified to assume they were. In the most influential comparator, Watson, this Court did not question a starting point of eight years’ imprisonment for what the sentencing Judge implicitly treated as similar offending. Mr Wimsett argued that the offending in Watson was more serious than in the present case. That case involved an accountant who stole some $5.495 million from a group of family companies by which he was employed, in the period from October 2000 to February 2009.
[22] Mr Watson claimed that most of the stolen money had been spent at a casino. The offending had come to light when the owners of the group of companies decided that there ought to be an audit. Some months later the offender confessed, initially to his wife, and then to a member of the family. It was not a fulsome admission, relating to somewhat less than half the amount subsequently established as having been stolen. Members of the family who owned the companies had been required to inject further money to keep the companies going, and the companies themselves had borrowed $2 million to finance ongoing operations. The Judge in that case emphasised the breach of trust involved in Mr Watson’s offending.
[23] Here, the offending spanned a somewhat shorter period, and was of a comparable amount, but inflicted more widespread and serious financial harm on a larger number of victims. The seriousness of the harm is increased by the fact that the misappropriated amounts were retirement savings for investors of modest means who clearly trusted Mr Cherry. It was a trust he grossly abused, particularly in those cases where he encouraged investors to borrow against equity in their homes to invest with him. The breach of trust involved was, if anything, more audacious than that in Watson.
[24] We are therefore satisfied that the starting point was entirely appropriate.
[25] Once the prospect of taking reparation into account is dismissed, the sequence of deductions comprising three per cent for previous good character, and 20 per cent for early guilty pleas, is unimpeachable. Mr Wimsett sought to make something of the Judge’s rejection of remorse as a mitigating factor, but that was a view entirely open to the sentencing Judge. We are not inclined to see the prospect of remorse as a mitigating factor any differently, particularly when, on his appeal, Mr Cherry has sought to take credit for reparation payments which, on accurate analysis, cannot be characterised as such.
[26] Accordingly, the appeal against the sentence of six years and two months’ imprisonment is dismissed.

Imposition of minimum period of imprisonment

[27] We are satisfied there was no error in the sentencing Judge’s approach to the considerations under s 86 of the Sentencing Act. The Judge identified the need to reflect denunciation and deterrence in the sentence imposed. That was relevant in this case, as is often the case with large-scale fraud where minimum periods are imposed. In Watson, this Court upheld the imposition of a minimum period of imprisonment of 50 per cent of the end sentence of six and a half years’ imprisonment. In the present case, the Judge imposed a minimum period which amounts to 57 per cent of the end sentence.
[28] The circumstances confronting the Judge on sentencing were that, without a minimum period, Mr Cherry would be eligible for parole after two years, including the period of the remand in custody pending sentencing. The effect of the order is to lift that by a further 18 months. Doing so does not overstate the importance of denunciation and deterrence. This was large-scale fraud with widespread and very significant impact on a large number of victims. We are satisfied that s 86 was appropriately applied, and that the otherwise applicable minimum period would be insufficient to denounce and deter this conduct. Accordingly, the appeal from the imposition of a minimum period of imprisonment is also dismissed.

Solicitors:
Graham & Co, Auckland for Appellant
Crown Law Office, Wellington for Respondent

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^[1] Serious Fraud Office v Cherry DC North Shore CRI-2012-044-5385, 11 December 2012.

^[2] Watson v R [2012] NZCA 17.