Ministry of Business, Innovation and Employment v Brewer [2014] NZHC 735 (9 April 2014)

Last Updated: 10 April 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2013-404-373 [2014] NZHC 735

BETWEEN	MINISTRY OF BUSINESS INNOVATION AND EMPLOYMENT Appellant
AND	MARK RAYMOND BREWER Respondent

Hearing:	7 April 2014
Counsel:	R See and S Symon for Appellant B O'Callaghan and A C Poole for Respondent
Judgment:	9 April 2014

_{JUDGMENT OF FOGARTY J}

This judgment was delivered by me on 9 April 2014 at 4.30 p.m., pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ...............................

Solicitors: Meredith Connell, Auckland

Carter Kirkland Morrison Lawyers, Auckland

MINISTRY OF BUSINESS INNOVATION AND EMPLOYMENT v BREWER [2014] NZHC 735 [9 April

2014]

Introduction

[1] By leave of the Solicitor-General, the appellant, the Ministry of Business, Innovation and Employment (MBIE), appeals against a sentence of a $5,000 fine and a reparation order of $190,000 imposed on the respondent, Mr Brewer, in October

2003. The sentence was imposed by Judge O’Driscoll, a very experienced

sentencing judge.

Narrative background

[2] The respondent was adjudicated bankrupt by a creditor petition on 9 March

2010. On 11 June 2013, near the end of the statutory period of bankruptcy, the bankruptcy was annulled after the respondent had satisfied all of his debts as well as the Assignee’s fees and costs incurred in his bankruptcy.

[3] The following month, the respondent pleaded guilty to the offence of taking part in the management of a business while bankrupt without the consent of either the Official Assignee or the Court and was convicted.

[4] The offending centred upon the respondent managing the business of a company called Intervest Global New Zealand Limited (Intervest). Intervest sold horseracing software known as “Trilogics”. It had advertised for a national sales manager and the respondent obtained this position. He also made an offer to contract to Intervest for six months whereby he would subsequently buy the distribution rights for New Zealand for the software sold by Intervest. A contract to that effect was signed.

[5] The respondent’s obligations were to include generating sales, product demonstrations, client and prospect visits, staff management, administration system design and implementation and general administration relating to a successful establishment of Intervest as a sales agent for the software.

[6] Of course the respondent knew he was bankrupt when he signed this agreement and he did not apply to the Official Assignee for permission. At no time did he tell the incorporator of Intervest that he had been adjudged bankrupt.

[7] For nearly a year and a half he managed the Intervest business. In that time issues arose around the way he was managing the business relating to him selling the Trilogics software for less than the agreed amount and for he himself failing to make payments on the purchase of the shares. At the end of that period, on 4 August 2011, he was locked out of the office of Intervest and his employment terminated. Outstanding licensing fees owed to the counterparty amounted to approximately

$190,000.

[8] In July 2013, there was a sentencing indication hearing before Judge

O’Driscoll. There the Judge said:

[1] Mr Brewer, I indicate that should there be a plea of guilty to the charge that is before me, I would not impose a sentence of imprisonment. I would look to impose home-detention. You would be remanded on bail for the purpose of getting a pre-sentence report with an appendix.

[2] I will not give any indication as to quantum as I do not yet have a pre-sentence report and I am not sure what issue there is going to be in terms of reparation, which would all be taken into account in any quantum.

[9] The reference to reparation is a brief note on the prospect of a reparation payment of a whole amount being made in the course of the sentence indication hearing. About three months later, the respondent was sentenced by Judge O’Driscoll. The Judge reviewed in summary form his earlier sentence indication, emphasising that he had specifically considered that home detention was the appropriate sentence taking into account the cases that had been put before him and noting that there was no tariff for this type of offending. Having briefly referred to

the offence, he went on:¹

[7] Reparation is sought in respect of $190,000 which is said to be the outstanding licensing fees under a distribution agreement. I readily acknowledge that there are disputes between you and certain matters in the summary of facts as to whether or not other persons knew of your bankruptcy. There are issues as far as you are concerned with the

¹ MED v Brewer DC Auckland CRI-2012-004-013463, 22 October 2013.

performance of the software. There may have been issues as to the nature and extent of the loss which occurred to the company as a result of your involvement. There are also perhaps legal issues that may have arisen as to whether the losses should be off-set by any profits but at the end of the day it seems to me that those matters have hopefully now been resolved.

...

[10] The purposes of sentencing must be that of deterrence to attempt to deter you and others from operating businesses without the written consent of the official assignee. It must be to protect the public and it also must be to hold you accountable.

[11] The Court said in a case called [sic] Dallimore vR² that often sentences of imprisonment will be imposed, particularly for the need for deterrence, although in saying that, it is acknowledged that there is no tariff for this type of offending. There are a number of other cases that have been referred to me, which say that any sentence imposed by the Court should be to encourage those who are bankrupt to comply with restrictions placed on them and to show that it is simply not worth the risk of breaching the restrictions.

...

[14] One of the concerns is the amount of the loss here. I view the loss as being one factor and only one factor to take into account. All matters should be taken into account when it comes to issues of sentencing.

[15] Sentencing is not simply a mathematical exercise to be determined on any loss that may occur where a person does operate a business during the course of a bankruptcy. All matters need to be taken into account.

[16] There is a PAC before me which sets out your background and personal circumstances. You are said to be at low risk of re-offending. You are described as remorseful. The recommendation in the report is one of home detention. I should also say I have taken into account and read the references and testimonials that have been placed before me today.

[17] Things have changed in my view between the date I gave you the sentence indication and today. While the issue of reparation was something which was clearly considered and discussed at the sentence indication, Judges usually view promises to pay with a degree of scepticism, and that is because often promises to pay in the future are made and not honoured.

[18] In your case there was also a dispute in terms of the issue of reparation. The matter became even more confused when I read in the pre- sentence report that you had made an offer to pay a sum of money, namely

$113,000 which equated to the amount of the creditors’ petition which

brought you into bankruptcy. The amount of reparation that was being sought here was $190,000.

² Dallimore v R [2012] NZCA 437.

[19] One of the reasons for delay in sentencing today was to see what could occur in terms of the $190,000 reparation that was being sought by the prosecution.

[20] I regard an offer to pay reparation as having some weight in the sentencing process. However, as I have previously said, the matter goes to another level when an offer of reparation is extended to a payment of reparation. The reason for that, as I have said, is obvious because promises to pay in the future are not often met.

[21] I have decided to change the sentence that I was originally going to impose on you of home detention and deal with you by way of a fine and reparation. The reason for that is that one of the purposes of sentencing is to provide for the interests of the victim and to provide for the victims of offences. I do not see this or the payment of reparation in the ordering of reparation as being buying your way out of a sentence of home detention. I see the sentence of reparation and the fine as a way of providing for the interests of the victim and from the material before me should a sentence of home detention be imposed. It seems that the victim is unlikely to be paid the reparation that would be sought and it would be highly probable I would have thought that any civil proceedings might be protracted and delayed. So what I am in effect doing is giving you the maximum credit for being able to come along today and offering $190,000 in reparation to go to the liquidators of the company, and that is Intervest Global (NZ) Limited.

[22] On the charge before me, taking into account all the matters that I have raised, you will be convicted. You will be fined the sum of $5,000 and that is to be paid in the normal way within the statutory 28 days. I make an order for reparation to the victim in the sum of $190,000. I order that

$100,000 which is in your solicitor’s trust account, be paid immediately to the liquidators upon that cheque being cleared. I also have sentenced you on the basis that a further $30,000 will be made in three payments over a period of 30 days.

[23] The view that I have taken Mr Brewer is that the order for fine and reparation is appropriate because of the assurance that I have been given that the $100,000 is available immediately and the further $90,000 will be paid within the timeframe.

[24] If, for any reason, those payments are not made within that timeframe, I will indicate to you that the informant should seek a rehearing or an appeal should be lodged on the basis that new material is before the Court, that is the non-payment of the $90,000. And if that was the case, then you would be re-sentenced and re-sentenced on the basis of not only the sentence indication that I have given but you could also be re-sentenced on the basis that any re-sentencing would take into account that the indication that was given to the Court had not been honoured. You know exactly what that means and you need to ensure that those three payments of $30,000 within 30 days, a further $30,000 the following 30 days, and $30,000 the 30 days after that, are made. Mr Brewer do not do anything silly again in the future.

[10] The Judge knew that this reparation order would be put into effect by reason of a loan to the respondent from a business colleague, who had faith in him.

Following the judgment and before the respondent had notice of the appeal by the Solicitor-General, the business acquaintance paid $135,000 in accordance with the schedule of payments which were $100,000 and then three payments of $30,000, plus of course he has added the payment for the fine. $135,000 has in fact then been on-paid to Intervest, the victim of the offending.

[11] Second, in accordance with the plan and as part of the consideration by the respondent for the loan being advanced to him, the respondent now resides in Ireland where he is working for a company controlled by the business associate. The business associate gave evidence before Judge O’Driscoll that he needed the respondent to be involved in the business, which is a new business, urgently. The respondent is judged by the funder to be a very skilled salesman and also important to forming and supporting the new sales team in the Irish business. In an affidavit provided to the Court, the funder has also advised that if the appeal is allowed, the Irish business may fail. He has also advised that because of the appeal, he has not completed making the last two payments.

Submissions from counsel

[12] The appellant Crown agency submits that a sentence of a fine of $5,000 and reparation of $190,000 is not consistent with comparable sentencing authorities:

(a) That the Judge prioritised the desire to make reparation available above all other sentencing purposes and principles, including those of accountability, responsibility, deterrence and denunciation. The appellant submits the sentence is clearly inappropriate because the respondent was to fund payment of the fine and reparation through borrowings from a third party which is inconsistent with the policy behind offending of this type to prevent further financial mismanagement.

(b) That a third party, the lender, stipulated conditions upon which the funds would be lent which had the effect of inappropriately fettering the sentencing Judge’s discretion.

(c) That there were substantial facts relating to the respondent’s proposed employment that were not before the Court, namely, that Phoenix Forex Limited would be going into liquidation shortly after the sentencing and that the Judge erred in taking into account that the victim was unlikely to be repaid the reparation sought but for the reparation order and that any civil proceedings might be protracted and delayed.

(d) That the Judge failed to enunciate the starting point adopted and the amount of discount to be given to each of the mitigating features.

(e) That the Judge considered the sentence dependent on the respondent making reparation payments within the timeframe stipulated and recommended that the appellant appeal otherwise but did not have the jurisdiction to do so.

In summary, the Crown submits that the sentence imposed was wrong in principle as the offer and payment of reparation was not a material change in the circumstances warranting a departure from the sentence indication of home detention given on 25

July 2013.

[13] The Crown arguments essentially contend that imposing a sentence which entailed the victim being repaid in full was a less important outcome than punishing the guilty person in order to deter others.

[14] By contrast, the respondent’s argument is that s 7 of the Sentencing Act deliberately confers a discretion on the sentencing Judge as to which of the eight purposes of sentencing should dominate in a sentence. Section 7 provides:

7 Purposes of sentencing or otherwise dealing with offenders

(1) The purposes for which a court may sentence or otherwise deal with an offender are—

(a) to hold the offender accountable for harm done to the victim and the community by the offending; or

(b) to promote in the offender a sense of responsibility for, and an acknowledgment of, that harm; or

(c) to provide for the interests of the victim of the offence; or

(d) to provide reparation for harm done by the offending; or

(e) to denounce the conduct in which the offender was involved;

or

(f) to deter the offender or other persons from committing the same or a similar offence; or

(g) to protect the community from the offender; or

(h) to assist in the offender's rehabilitation and reintegration; or

(i) a combination of 2 or more of the purposes in paragraphs (a)

to (h).

(2) To avoid doubt, nothing about the order in which the purposes appear in this section implies that any purpose referred to must be given greater weight than any other purpose referred to.

[15] By contrast, the Crown relies on s 8 pointing out that the considerations there are mandatory. Section 8 provides:

8 Principles of sentencing or otherwise dealing with offenders

In sentencing or otherwise dealing with an offender the court—

(a) must take into account the gravity of the offending in the particular case, including the degree of culpability of the offender; and

(b) must take into account the seriousness of the type of offence in comparison with other types of offences, as indicated by the maximum penalties prescribed for the offences; and

(c) offending is within the most serious of cases for which that penalty is prescribed, unless circumstances relating to the offender make that inappropriate; and

(d) must impose a penalty near to the maximum prescribed for the offence if the offending is near to the most serious of cases for which that penalty is prescribed, unless circumstances relating to the offender make that inappropriate; and

(e) must take into account the general desirability of consistency with appropriate sentencing levels and other means of dealing with offenders in respect of similar offenders committing similar offences in similar circumstances; and

(f) must take into account any information provided to the court concerning the effect of the offending on the victim; and

(g) must impose the least restrictive outcome that is appropriate in the circumstances, in accordance with the hierarchy of sentences and orders set out in section 10A; and

(h) must take into account any particular circumstances of the offender that mean that a sentence or other means of dealing with the offender that would otherwise be appropriate would, in the particular instance, be disproportionately severe; and

(i) must take into account the offender's personal, family, whanau, community, and cultural background in imposing a sentence or other means of dealing with the offender with a partly or wholly rehabilitative purpose; and

(j) must take into account any outcomes of restorative justice processes that have occurred, or that the court is satisfied are likely to occur, in relation to the particular case (including, without limitation, anything referred to in section 10).

[16] Both counsel agree that there is little authority on the interplay between ss 7 and 8.

[17] All counsel agreed that the normal circumstance is that orders of reparation tend to be only a contribution to the loss made and tend to be at the minor end of the total penalty or sentence fixed. The case of R v Rouse³ was frequently cited in argument and in support of the Crown’s position. This is one of the few cases whereby a bankrupt was being charged with taking part in the management and control of the business without the consent of the Assignee or the Court. Counsel

agreed that only rarely are these charges laid. There is some doubt in the judgment as to how much the shortfall would be consequent upon the management of the business by the bankrupt. After a guarantor met liabilities, the Judge observed that there remained a deficit of about $150,000.⁴ It is uncertain as to what extent the liabilities of the guarantor of $600,000 would be recovered by a profit in the venture as the guarantor stood to share in substantial profits as the project had been

commercially successful.

[18] The defendant offered $5,000 by way of reparation in respect of each of the two counts, $10,000 in all, borrowing the money from his mother. The Judge

_{imposed a sentence of 150 hours community work on each of the two counts and 100}

³ _{R v Rouse HC Auckland CRI-2005-044-3195.}

⁴ At [5].

hours community work on count 3, all sentences to be served concurrently so that the total penalty was 150 hours and directed reparation of $5,000 in each of counts 1 and

2, a total of $10,000.

[19] In substance, counsel for the respondent pointed out that in this case the reparation of $190,000 completely restored the victim, assuming that the loss was or caused by the management of the bankrupt and drew attention to the fact that the punishment otherwise in Rouse was of the order of 150 community hours of work. In essence, the argument for the respondent is that it was for a very good reason that the experienced sentencing Judge replaced his original sentencing indication, which would have been a term of home detention of the order of three to four months, with a $5,000 fine because of the scale of the reparation order and, even more importantly, that it would be paid in full.

[20] Furthermore, there would be injustice if the appeal is set aside to the funder of the reparation payment. For he has transferred $135,000 to Intervest and there will be no prospect of Intervest returning those funds. This was done, as already noted, at a time when the respondent and his funder were unaware that the Solicitor- General was going to appeal the decision.

Resolution of issues

Effect of the sentencing indication

[21] Although this was pleaded by the appellant, there was little weight given to it. Section 116 of the Criminal Procedure Act 2011 provides:

116 Effect of sentence indication

(1) This section applies to a sentence indication given under section 61 if the defendant pleads guilty to the offence in respect of which it was given within the period that it has effect.

(2) The sentence indication is binding on the judicial officer that gave it unless—

(a) information becomes available to the court after the sentence indication was given but before sentencing; and

(b) the judicial officer is satisfied that the information materially affects the basis on which it was given.

(3) The sentence indication is not binding on a judicial officer other than the judicial officer who gave the indication.

[22] It is plain from the narrative that the Judge was aware of the prospect of a very valuable reparation proposal being developed at the time of the sentence indication, that that only crystallised prior to the sentence which was delayed to enable it to be confirmed. I am satisfied in that context that s 116(2)(a) and (b) both justified Judge O’Driscoll amending the sentence indication.

The need for a significant error in principle by the District Court Judge

[23] Counsel were agreed that there must be a significant error vitiating the exercise of the original sentencing discretion.⁵ This is sometimes known as the “error principle”.

Application of the “error principle”

[24] The Crown submit that the purpose of requiring a bankrupt to have the Official Assignee’s consent before managing a business is to protect the public from loss resulting from imprudent management. Viewed against this purpose, the Crown submits that the Court would be sending the wrong message to encourage the discharged bankrupt to borrow funds from a lender who has a vested interest in his role as a sales manager in a new company in order to meet a substantial reparation order and fine. The Crown argued such a sentence may encourage further financial mismanagement.

[25] I find that submission particularly unmeritorious. Persons who lend large sums of money in this context are, and here there is no dispute about it, astute business people who readily understand the risk of lending funds to a discharged bankrupt. It is a material fact here though that this is a bankrupt who paid all his debts shortly prior to the annulment of his bankruptcy. Very few bankrupts do this. The lender wrote directly to the Judge and filed an affidavit in these proceedings identifying himself, explaining his business background and his relationship with the respondent. He explained the new business venture and the role of the respondent in

_{it and what he saw as the need for the respondent to travel urgently to Ireland to}

⁵ R v Shipton [2007] 2 NZLR 218 at [138].

develop and lead the sales force of the new business. Indeed, he has filed a further affidavit to this Court pointing out that the money he has paid and the consequences to the business which he says could fail if the respondent has to return from Ireland to take up a sentence of home detention in New Zealand, even if it is only for a few months.

[26] As I put it to counsel, if a few months home detention was of no moment to the commencement of the new venture in Ireland, there would have been no commercial reason for the funder to have committed to $190,000 in the first place.

Sentence imposed is wrong in principle

[27] It became plain that the Crown’s submissions were attacking the very structure of a sentence, any sentence, which put the order of reparation as the principal penalty ahead of a fine or some form of imprisonment. This is not reparation paid on the offender’s behalf. It is a loan to him which he will have to repay. It is clearly a penalty. The prosecution simply proceeded on the fact that he managed the company and the company made a loss. There is little in the summary of facts which suggests that the company made a loss because of bad decisions by him as manager. Judge O’Driscoll was right to apprehend that were the matter to be resolved by civil litigation, it would take a long time with uncertain outcomes as to whether or not Intervest would ever receive a clean $190,000. There were very substantial advantages to Intervest in the reparation order, essentially removing their loss.

[28] It is quite plain that s 7(2) gives a freedom to the sentencing Judge as to ordering the purposes of sentencing. Section 8 is mandatory but there is nothing in s 8 which prevents a Court from forming a judgment that a full reparation order, which will in fact be paid, imposing all the cost on the offender, is taking into account the gravity of the offending and the culpability of the offender, the seriousness of the offence and imposing the least restrictive outcome that is appropriate in the circumstances. It was not suggested that ss 8(c) or (d) apply. Crown counsel did, however, argue for s 8(e), arguing that the general desirability of consistency meant that the Court should have imposed a sentence of home detention,

discounting it by an additional 10 to 15 per cent by reason of the generous indemnity by way of reparation order.

[29] There have been very few prosecutions of this offence. It is agreed that there is no tariff. It is agreed that there is no one way of sentencing for this case. Section

8(e) does not require consistency for its own sake but, rather, is seeking equality of justice. I heard Crown counsel endeavouring to argue that the balance was right in Rouse. But there the $10,000 payment of reparation was, in any view of it, less than

10 per cent of the sum lost. Of course, in that instance, there was a need for a more significant penalty than community hours. By contrast, where the reparation is of the order of $190,000 and is a 100 per cent repayment of the loss, as a comparison with Rouse, it must drive down any other penalties being imposed, if in any way both defendants are to be seen to have been treated like for like.

Residual discretion

[30] It is a very material concern to this Court that the funder has acted in good faith on the strength of the judgment of the District Court and given effect to the reparation order. If this sentence is overturned and the reparation order withdrawn, the funder faces not only loss of the amount he has already advanced, but also the risk of losing the investment he has made in Ireland in the new business. I should note in this regard, it was agreed in the course of argument that the liquidation of Phoenix Forex Limited is of no moment. It has been replaced by another company. The substance of the proposal adopted by the Judge remained unchanged.

Result

[31] For these reasons, I am quite satisfied that there was no error of principle by

Judge O’Driscoll and the appeal fails.