R v Taylor [2012] NZHC 3531 (19 December 2012)

Last Updated: 13 February 2013

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CRI-2011-041-1486 [2012] NZHC 3531

THE QUEEN

v

BRETT COLIN TAYLOR

Defendant

Hearing: 10 December 2012

Counsel: F E Cleary for Crown

C R Carruthers QC and R P Harley for Defendant

Judgment: 19 December 2012

Reasons: 19 December 2012

_{REASONS FOR JUDGMENT OF MACKENZIE J}

[1] The accused is charged with one representative count of causing loss by deception. His trial before a judge alone is set down for 18 February 2013. He has applied for discharge pursuant to s 347 of the Crimes Act 1961 on the grounds that there is insufficient evidence to justify arraignment at trial, and that it is in the interests of justice that the accused be discharged. I have, in open court, made an order directing that the accused not be arraigned on the indictment and that he be discharged. These are my reasons for making that order.

_{[2] I set out first the facts as the Crown alleges them to be.}

R V TAYLOR HC NAP CRI-2011-041-1486 [19 December 2012]

[3] Prior to 1 November 2004, the accused owned and operated Taylor Corporate Services Ltd (“TCSL”), an incorporated accountancy company located in Napier. The accused and another chartered accountant, Mr Ogier, subsequently formed Taylor Ogier Ltd (“TOL”), a chartered accountancy practice. TOL purchased the practice, assets and clients of TCSL. The accused and Mr Ogier were the sole directors of TOL. The arrangements that governed their relationship were contained in a shareholders’ agreement. All work performed by the directors and staff was required to be billed through TOL. The directors were prohibited by the shareholders agreement from providing professional services in their personal names.

[4] Everyone at TOL was required to account for their time on a daily basis. Time spent working for a client was recorded in a computer system. Both chargeable and non-chargeable time were recorded in the system. In order to bill clients, the practice manager reviewed the monthly work-in-progress reports at the end of each month and made recommendations to the directors regarding fees or write-offs. After the work-in-progress reports were reviewed by the directors, the office administrator would prepare the invoices. Only chargeable time was included in the work in progress reports.

[5] In February 2010, Mr Ogier discovered that the accused had been spending a significant amount of time working for one particular client, Mr Clare. Mr Ogier discovered that the time the accused spent working for Mr Clare had not been billed for 18 months. Rather he had charged his time to an honorary code, which was generally used for non-chargeable work.

[6] Mr Ogier subsequently located a spreadsheet on the TOL work server prepared by the accused called “Loan Clare”. The spreadsheet showed that the accused or entities associated with him had borrowed considerable sums of money from Mr Clare.

[7] The Crown says that the spreadsheet also showed that the value of the unbilled time had been offset against the amount owing to Mr Clare under the loans in the months in which the services were provided, to an amount totalling over

$40,000. An email from the accused to Mr Clare dated 12 May 2008 was also located which said “here is a spreadsheet on what I owe you for the loans”, and attached the “Loan Clare” spreadsheet. No invoices detailing time for services rendered by the accused were issued to Mr Clare by TOL prior to the issue being discovered.

[8] The Crown alleges that the act of crediting the value of the chargeable time against the loan was in fact charging for those services and consequently causing a loss to the company. When Mr Ogier questioned the accused about using the honorary code, he was told that it was deliberate and that Mr Clare had no money to pay the fees. The accused further said that he had been meaning to discuss it with Mr Ogier for some time and that it seemed a bit unfair to charge Mr Clare when he (the accused) personally owed him money. He also said that when he could afford to pay the loan back, Mr Clare would be able to pay the fees and TOL would bill it at that stage.

[9] The foregoing description is a summary of the Crown case. That, ordinarily, would constitute the evidence to be considered on an application to discharge on the grounds of insufficiency of evidence. However, in this case the accused has filed three affidavits on which he seeks to rely in support of the application. There are affidavits from Mr Doole, the solicitor acting for Mr Clare, Mr Harley, counsel instructed by Mr Doole to act on behalf of Mr Clare, and an affidavit from Mr Taylor himself.

[10] It is necessary for me first to address the admissibility of that evidence on the application for discharge. Mr Carruthers QC draws attention to s 347(1)(c) which provides that the power to discharge is exercisable by the judge “after perusal of the depositions and consideration of such other evidence and other matters as are submitted for his consideration by the prosecutor or the accused”. The issue here is the extent to which other evidence is permissible where the grounds of the application for discharge are that the Crown evidence is insufficient.

[11] The grounds upon which a discharge may be ordered are not particularised in s 347. The courts have developed several quite well-defined categories within which

such applications are ordinarily considered. These include claims of abuse of process, unfair or unconscionable conduct by the prosecution, unfair or unreasonable delay, a risk of an unfair trial or the appearance of unfairness, and, relevant to this case, insufficient evidence to justify trial. Some of those grounds potentially raise issues on which evidence is necessary. The ground of insufficiency of evidence is rather different. The crucial question is whether as a matter of law a properly directed jury could reasonably convict on the evidence properly admissible. Questions of credibility and weight must in all but exceptional cases be determined by the finder of fact. For the purposes of argument, the evidence must be given the construction most favourable to the Crown, and if there is evidence from which a jury could reasonably draw an inference of guilt a judge should not intervene. Those principles will generally mean that on an application for discharge based on insufficiency of evidence, defence evidence will not be appropriate. If there is to be a challenge to any aspect of the credibility of the Crown evidence, or to the weight to be attached to it, that must be left for trial.

[12] Mr Carruthers acknowledges that point. However, he submits that evidence which does not seek to challenge the Crown evidence, but which seeks to put it in context, is admissible. He advances the affidavits on this application on that basis. Ms Cleary for the Crown acknowledges that evidence of background and context may be admissible.

[13] I consider that two conditions must be met if the affidavits adduced by the defence are to be taken into account on this application. The first is that the evidence is confined to background matters necessary to put the Crown evidence in context and not to challenge the Crown evidence. The second is that the evidence is not contested by the Crown in such a way as to require a finding of disputed fact on this application. I rule as admissible on this application such of the defence evidence as meets those two conditions. I err on the conservative side in deciding whether it does meet them.

[14] Applying those principles, I describe such of the defence evidence as is admissible on that basis for the purposes of this application.

[15] Mr Doole explains that he and his firm, Carlile Dowling, have acted for Mr and Mrs Clare since 2002. Mr and Mrs Clare were the subject of a review by the Inland Revenue Department (IRD) from 2006. Mr Taylor had been the accountant for the Clares at the time the relevant tax returns under challenge were filed and his firm was engaged in 2006 to assist with the IRD investigation. In the course of that investigation, IRD issued a notice under s 157 of the Tax Administration Act 1994 against funds held in the name of Mr or Mrs Clare in the Carlile Dowling trust account. The effect of that notice was to compel Carlile Dowling to pay any money held to their credit in the trust account to IRD. Carlile Dowling engaged Mr Carruthers and Mr Harley to act on Mr and Mrs Clare’s behalf. Mr Harley reached an agreement with IRD in November 2006 to the effect that the monies held would remain in the Carlile Dowling trust account but could not be used without IRD consent. IRD agreed in December 2009 that funds could be released from the trust account for the sole purpose of payment of legal and accounting fees. An account was received from Mr Taylor’s firm in April 2010. That account was subsequently paid by Mr and Mrs Clare.

[16] Mr Doole describes in some detail the interactions with IRD over the period when the notice was in force, and discussions over how the fees of the various professionals advising Mr and Mrs Clare might be met in the light of the non- availability of the frozen funds in the trust account. Some of that evidence goes beyond what I regard as necessary context to the Crown allegations. I do not consider it appropriate to have regard to it on this application.

[17] Mr Harley’s affidavit gives further detail of the dealings with IRD, and of his dealings with Mr and Mrs Clare and Mr Taylor. There is no material in that affidavit, additional to that which I have described from Mr Doole, which needs to be included in the description of the contextual evidence to which I consider it appropriate to have regard.

[18] Mr Taylor’s affidavit describes how he established his own accounting practice, TCSL in March 1998. In October 1998, TCSL employed Mr Ogier as a senior accountant. In August 1999, Mr Ogier’s wife began working part time for the firm. Mr and Mrs Clare became clients of the firm from about 2003. In March 2010

Mr Ogier requested a meeting with Mr Taylor, at the conclusion of which Mr Ogier sought an explanation from Mr Taylor for time coded at the honorary time charge code. Subsequently, the business relationship between Mr Ogier and Mr Taylor deteriorated to the point where they needed to go their separate ways.

[19] The principles to be applied on an application for discharge on the ground of insufficiency of evidence are well established by the leading authorities of R v Flyger[1] and Parris v Attorney-General.[2] They are encapsulated in Parris as follows.[3]

... The test must be administered pre-trial or during trial on the basis that in all but the most unusual or extreme circumstances questions of credibility and weight must be determined by the jury. The issue is not what the Judge may or may not consider to be a reasonable outcome. Rather, and crucially, it is whether as a matter of law a properly directed jury could reasonably convict. Unless the case is clear-cut in favour of the accused, it should be left for the jury to decide. If there is a conviction this Court on appeal has the reserve power to intervene on evidentiary grounds. The constitutional divide between trial Judge (law) and jury (fact) mandates that trial Judges intervene in the factual area only when, as a matter of law, the evidence is clearly such that the jury could not reasonably convict or any such conviction would not be supported by the evidence. ...

[20] The same test applies to a judge alone trial.[4]

[21] Section 240, as relevant, provides:

Obtaining by deception or causing loss by deception

(1) Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—

(a) obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or

(b) in incurring any debt or liability, obtains credit; or

(c) induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or

(d) causes loss to any other person. (2) In this section, deception means—

(a) a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—

(i) knows that it is false in a material particular; or

(ii) is reckless as to whether it is false in a material particular; or

(b) an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or

(c) a fraudulent device, trick, or stratagem used with intent to deceive any person.

[22] There are three elements:

(a) There must be a deception.

(b) There must be no claim of right.

(c) The deception must cause loss to another person.

[23] Ms Cleary expressed the Crown case on the first element, the deception, in these terms:

17. The relevant conduct, which the Crown asserts forms the basis of the deception, is as follows:
    

17.1 All of the applicant’s time spent working for his client, Mr Gray and Juliet Clare (“the Clares”), in the period from June 2008 up until the conduct was discovered by the complainant company in February 2010, was recorded using a non chargeable or “honorary” time code rather than a code which reflected the applicant’s usual charge out rate of $260 per hour;

17.2 During this time period no invoices were rendered by the applicant with respect to the Clares;

17.3 Rather, the applicant was maintaining an excel spreadsheet which offset the value of the applicant’s time spent working for the Clares (at the full rate) against monies owed to the Clares by the applicant;

17.4 On 22 June 2009 the applicant sent an email to Mr Clare to the effect that he was not billing any of the time relating to the work he had done for the Clares but that he would accumulate the value of it and offset it against his personal indebtedness to the Clares.

18. The Crown submits that the applicant was effectively charging the Clares for his time spent working for them but rather than accounting for this time through Taylor Ogier Limited (“TOL”), as he was required to do under the shareholders agreement, he was offsetting the value of this time against what he owed the Clares in a personal capacity.

(footnotes omitted)

[24] Under s 240(2)(a), there must be a representation. Under para (b), there must be an omission to disclose. The only matter capable of falling within these terms is the recording of the time to a non-chargeable code. Under s 240(2)(c), what the Crown must establish is that this conduct involved a fraudulent device, trick or stratagem used with intent to deceive TOL or his co-principal, Mr Ogier. The whole of the conduct is potentially relevant to that paragraph.

[25] The recording of the time as non-chargeable is capable of constituting a representation that the time spent working on the Clare’s affairs was not recoverable by the firm. However, I consider that the Crown case faces a considerable hurdle on this element. The Crown must exclude the existence of a claim of right by the accused to record the time in that way. As a principal in the firm, Mr Taylor must have had the capacity to determine how his time spent on TOL’s business should be recorded. Mr Ogier’s statement, which is the only evidence on which the Crown could rely to exclude a claim of right to do that, does not suggest that the principals did not have the ability to make that decision in respect of the clients for whom they were responsible. To exclude a claim of right, the Crown must also establish that the recording of the time as non-chargeable was not the consequence of a judgment by Mr Taylor that the prospects of billing the time spent did not justify its being recorded as work in progress. The uncontested defence evidence about the freezing of the Clare’s funds presents a very considerable obstacle to that.

[26] The next conduct on which the Crown relies to prove a deception is the maintaining of a spreadsheet to offset the value of the time spent working for the

Clares against the accused’s debt under the loans. That conduct is relied on as part of the alleged fraudulent device, trick, or stratagem. There is no evidence that the spreadsheet was itself used to deceive anyone. The Crown case is that it was kept by Mr Taylor and not disclosed by him. As I have described at [7] there is evidence that a copy of the “Loan Clare” spreadsheet was sent to Mr Clare in May 2008. That is before the period alleged in the indictment. At that stage, there were no time record entries in the spreadsheet.

[27] The Crown must prove that the spreadsheet recorded an offset which had existed, or was to be effected, between fees and loans. The existence or efficacy of such an offset would have been dependent on the agreement of the Clares to a reduction in the amount owed by the accused under the loans. The only evidence to which the Crown can point on this issue is an email sent by Mr Taylor to Mr Clare on 22 June 2009 which reads:

I am not billing any of this time re the IRD work – I thought I would just accumulate the value and net it off against what I owe you.

Is this ok with you?

[28] The e-mail is the high point of the Crown case. It is however not evidence that an offset was agreed. There is no evidence of a response. In the absence of a response, the email and the spreadsheet could go no further than to establish an intention to offset the value of the time recorded against the loans. An uncompleted intention on the part of Mr Taylor to offset could not by itself constitute a deception by a fraudulent device.

[29] The third element which the Crown must establish is that the deception caused someone a loss. The Crown case on this element is expressed in these terms:

27. The Crown’s case is by not invoicing the Clares at any time between June 2008 and March 2010 and by not recording his time to a billable code the applicant has deprived TOL of the money that would otherwise have been owed to TOL by the Clares during that period. The Crown submission is that there were funds available to the Clares during this time to meet at least some of these fees. However, as no TOL invoices were rendered during this time and no time recorded at a billable rate, TOL had rendered services to the Clares but did not even have an actionable debt against them. The Crown asserts that rather than billing the Clares on behalf of TOL

the applicant was billing them in a personal capacity by using the value of the time spent to reduce his personal indebtedness. Accordingly, he was effectively stealing from TOL and causing them a loss.

[30] Ms Cleary confirmed in her oral submissions that the loss alleged is a loss of the fees themselves, not a loss by reason of a delay in the billing of the fees. The amount of the fees allegedly lost is about $46,000.

[31] It is not in dispute that, when the funds in the Carlile Dowling trust account were released, TOL was able to recover fees reflecting the value of the accused’s time. That is not necessarily fatal to the proposition that TOL had earlier suffered a loss of the fees. As Cai v R establishes, a subsequent recovery of an amount which

has been lost does not necessarily mean that there has been no loss.[5] In this case

however, the issue is different. The subsequent payment of the fees precludes the drawing of an inference, from the e-mail and other evidence, that an offset had been agreed. To establish the loss it alleges, the Crown must prove that the fees were actually paid by the Clares, by offsetting them against the loan amount. For the reasons I have given, the evidence relied on by the Crown does not establish that the fees were paid by an offset. The Crown would have to rely on inference. The subsequent payment of the fees by the Clares presents an obstacle to the Crown case which is not avoided by the proposition in Cai as I have stated it. There is no evidence from Mr or Mrs Clare to explain why the fees were paid to TOL, when, on the Crown case they had earlier been paid by offset. It is improbable that they would pay the fees twice. There is no evidence to establish either an original offset, or a later reversal of that offset.

[32] I deal briefly with the possible argument that a loss to TOL may have resulted from a delay in the billing of the fees. To establish a loss of this nature, the Crown would have to prove that the fees could have been billed earlier, and that the reason only they were not was a deception by the accused. Mr Ogier’s evidence is that one of his tasks was to review monthly work in progress reports and recommend the amounts to be invoiced, written off, or carried forward. The recording of the time as

_{non-chargeable meant that the time was not included in the monthly reports and was}

not subject to that review. There is no evidence to establish what would have been done if it had been included. Mr Ogier’s reference to work in progress being carried forward shows that it was not TOL’s invariable practice to bill all work-in-progress monthly. In the light of the uncontested evidence about the freezing of the funds in the Carlile Dowling trust account, and the ongoing tax investigation, I do not consider that the Crown evidence is capable of establishing, beyond reasonable doubt that, if the time had appeared in work in progress reports, it would have been billed earlier than it was, or, if it had been billed, that there was a realistic prospect of payment.

[33] For these reasons, I concluded that there is insufficient evidence to allow the matter to proceed to trial, and that it is in the interests of justice that the accused be

_{discharged. I have discharged him accordingly.}

_{Solicitors: Elvidge & Partners, Napier, for Applicant}

“A D MacKenzie J”

Colin Carruthers QC, Wellington and Rayleen Harley, Barrister, Wellington for

Defendant

---

[1] _{R v Flyger [2001] 2 NZLR 721 (CA).}
[2] _{Parris v Attorney-General [2004] 1 NZLR 519 (CA).}
[3] _{At [14].}
[4] Haw Tua Tau v Public Prosecutor [1982] AC 136 (PC) at 151-152.

[5] Cai v R [2011] NZCA 604.