R v Turnock [2016] NZHC 1364 (22 June 2016)

Last Updated: 7 August 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CRI-2013-004-010074 [2016] NZHC 1364

THE QUEEN

v

_{MARK ANDREW TURNOCK}

Hearing:	22 June 2016
Appearances:	K Chang for the Crown S Lance for the Defendant
Sentence:	22 June 2016

_{JUDGMENT OF HINTON J}

Counsel/Solicitors:

K Chang, Meredith Connell, Auckland

S Lance, Barrister, Auckland

R v TURNOCK [2016] NZHC 1364 [22 June 2016]

Introduction

[1] Mr Turnock, you appear for sentencing after pleading guilty to one charge under s 41(1)(a) of the Financial Reporting Act 1993, of knowingly making a false or misleading statement in a document required by that Act.

[2] The charge is a consolidation of two original charges relating to making false statements in the 2008 and 2009 financial statements of SPG Investment Company No. 1 Ltd (SPGI).

[3] This carries a maximum penalty of five years’ imprisonment or a $200,000

fine.

Facts

[4] You were one of two directors of SPGI, which was set up to hold investments, including property developments.

[5] The other director was Mr Andrew Robinson.

[6] The company sought and attracted 20 shareholders, who paid $1.122 million for their shares. They held their shares pursuant to a Deed of Participation dated

31 July 2007.

[7] Clause 8.7 of the Deed prohibited SPGI from entering into related party transactions except as expressly provided in the Deed, or by extraordinary resolution. There were no extraordinary resolutions in 2008 or 2009, and the Deed did not otherwise provide for related party transactions.

[8] Financial statements were prepared for 2008 and 2009, and each stated that there were no related party transactions during the year under review. These were both signed by you and Mr Robinson as directors, and distributed to shareholders to assist them with their continued investment.

[9] These statements were false. The 2008 financial statements recorded a transaction called “Pahia Road” under the heading “Investments and Non-current Assets”, of $256,761. In the 2009 financial statements, the transaction recorded as “Pahia Road/Titirangi Developments” was included under “Investments and Non-current Assets” in the amount of $611,761. This represented more than

50 per cent of the investors’ funds in SPGI.

[10] The investment described as “Pahia Road” (in 2008) and “Pahia Road/Titirangi Developments” (in 2009) was in fact a loan (or similar) to a company called Heka Development Ltd, of which you were the sole director and

50 per cent shareholder.

[11] None of the proceeds of the loans to Heka have been recovered. Heka is now in liquidation and there is no surplus available after the sale of the property. The liquidator’s report indicates that there will be no further money available for SPGI investors.

[12] In a sworn affidavit, you said you had signed the accounts in error as you “simply did not read the material thoroughly enough before signing”. By my decision of 2 June 2016, following a disputed facts hearing, I rejected that position, holding that you were aware the related party statements were present in the 2008 and 2009 financial statements.

Pre-sentence reports

[13] I have two pre-sentence reports before me. The first is dated 17 November

2015. The second report is dated 17 June 2016.

[14] In both reports, your risk of reoffending and harm to others was assessed as low.

[15] You said that although you “felt bad for [your] clients”, they were nevertheless experienced investors who were aware of the high risk involved in SPGI’s investment arrangements.

[16] The reports record that, while showing some elements of remorse, you show strong elements of self-entitlement and minimisation.

[17] Since the last report, you are no longer involved in the accounting industry. You are now employed as a sports development manager at a rugby, football and sports club.

[18] You live with your wife and three daughters, and you have good support from all of them.

[19] A sentence of home detention or community work was considered suitable by the report writer.

Victim impact statement

[20] Mr Turnock, you emphasise, and this is a key part of your approach to this matter, that most of the investors were business people who have invested in your company under what you term a “high risk/high reward” approach. I accept that this is largely so. However, they quite clearly were not taking the risk of undisclosed related party investments. The charge for which you are being sentenced today, in any event, has nothing to do with the level of risk the investors were prepared or not prepared to take, but with failing to act honestly and with integrity.

[21] Further, your offending did impact on some who were not business people. I have before me a victim impact statement by Mrs Jackie Hijorth, who is a trustee of the Redwood Family Trust. This Trust first invested in SPGI in February 2007 when they were approached by Mr Robinson. Mrs Hijorth says that the Trust’s investment in SPGI was part of its investment portfolio which is designed to support the primary beneficiaries in their retirement.

[22] Mrs Hijorth says that she has been distressed by learning of your offending. She wrote:

Please note as soon as we received the 2010 financial statements which made reference to Heka Developments, we commenced immediate enquiries including title searches on the associated properties. Until that point we had

been under the impression that SPGI owned the properties and it was these title searches that revealed we did not have a direct investment at all, but it was in fact actually an unsecured loan.

To date we have not received any of our $50,000 investment in SPGI nor received any form of dividends in relation to this investment.

Submissions

[23] For the Crown, Ms Chang submits I should adopt a starting point in the vicinity of 16 months’ imprisonment. She says there is no guideline authority in a case such as this, except for Mr Robinson’s sentencing, where a starting point of

12 months’ imprisonment was adopted in relation to the same set of offending. She says you have a higher culpability because you stood to benefit, whereas Mr Robinson did not.

[24] In her submission, the aggravating features of your offending are the extent of the offending and the damage flowing from your offending; the vulnerability of your victims; and the moderate abuse of trust, which the Crown acknowledges is less than your co-offender, Mr Robinson.

[25] Although you have no previous convictions, Ms Chang submits I should be minded to afford little or no discount for good character, given that your offending was sustained over a period of time.

[26] A discount of no more than five per cent is appropriate for the entering of a

guilty plea, in Ms Chang’s submission.

[27] You initially sought a discharge without conviction, but that application is not pursued following the finding in the disputed facts hearing.

[28] Your counsel, Mr Lance, submits that although the outcome of the disputed facts hearing was not favourable to you, in the sense that your affidavit evidence was in substance rejected by the Court, the matters raised there still count in mitigation. For example, you had no accounting experience, and it was not you, but Mr Maitland, who had prepared the accounts. Also, that Mr Maitland accepted that upon raising the error with you directly, you agreed that a correction was

appropriate. Lastly, you maintain there was no actual loss stemming from the misrepresentation. Mr Lance also emphasises your offending and conviction has played a toll on you in that you have lost your career and reputation, and that you are genuinely remorseful. All in all, Mr Lance submits that your offending can be dealt with by way of a fine.

Approach to sentencing

[29] In sentencing you today, I have to take into account the relevant purposes of sentencing set out in s 7 of the Sentencing Act 2002. These include the need to hold you accountable for the harm you have done to the victims of your offending; to promote in you a sense of responsibility for, and acknowledgement of that harm; to denounce and deter your conduct; and to assist in your rehabilitation and reintegration.

[30] Regarding the principles of sentencing set out under s 8 of the Act, I have to take into account the gravity of the offending; the seriousness of the type of offence; consistency with appropriate sentencing levels and similar offenders who have committed similar offences; and the need to impose the least restrictive outcome appropriate in the circumstances.

[31] There is a three-stage approach. First, I have to determine what is called the starting point. That requires me to look at the nature and extent of your offending. Secondly, an adjustment to the starting point is made to reflect aggravating and mitigating factors personal to you. And finally, there is a discount for a guilty plea, which you are entitled to today.

Analysis

Setting the starting point

[32] I start by considering the starting point. I accept there are no comparable cases to assist, other than the sentencing notes relating to Mr Robinson, which I have

read.¹ In that case, Courtney J was dealing with four charges, two of which are the equivalent to the one charge you face today. Considering those two charges as the “lead offences”, Courtney J adopted a starting point of 12 months’ imprisonment.

[33] The Crown relies on the principle of parity. This is so despite Mr Robinson facing two charges whereas, in your case, these two charges have been consolidated into one. The Crown says your culpability either way is the same. In my view, the consolidation of two charges into one must be considered as being less serious than two separate charges being laid.

[34] I agree, however, with Courtney J’s assessment as to the seriousness of the offending. The charge falls under the Financial Reporting Act, which is designed to assist investors, creditors and the public to assess the financial position of a company. More to the point in this case, it is designed to ensure that investors and potential investors make informed investment decisions on an accurate and honest account of the company’s financial position.

[35] In this case, the financial statements of SPGI were the only financial materials available to its shareholders. This highlights how important it was that the financial reporting contained therein was accurate.

[36] Investors were entitled to rely on the Deed, which contained a specific clause prohibiting related party transactions, except as specifically provided for or with prior approval of shareholders. As a result of the false statements about related party lending, investors were seriously misled as to the nature of their investments and unable to make fully informed decisions.

[37] As I said in my earlier decision, I do not accept that you were open about the related party transactions. I accept Mr Maitland’s evidence that you did not provide him with documents that would have enabled him to understand the Heka transactions and that, after completing the 2009 financial statements, he was not satisfied with the explanations you had given him about the nature of the Heka

_{transactions.}

¹ R v Robinson [2015] NZHC 2641.

[38] Mr Turnock, I consider your culpability as being more or less the same as Mr Robinson’s, albeit in different ways. It is not in dispute that Mr Robinson was directly responsible for introducing investors and recommending the investment in SPGI. However, unlike Mr Robinson, it was you who stood to benefit from the offending. You were the sole director and 50 per cent shareholder of Heka, the entity which received the benefit of the undisclosed related party loans from SPGI. The other shareholder was your brother. In 2008 and 2009, Heka was in a negative equity position and operating at a loss, so the cash injection from SPGI was needed, particularly when the advances were made by SPGI without any interest being charged and without delay. I consider therefore that you had some motive to leave the statements at the default setting, as Mr Maitland had drafted them.

[39] Despite all of this, I clarify that my task in sentencing you today is to focus on the actual charge which you face, which is the making of a false or misleading statement in a document required by the Financial Reporting Act. The background to this offending, in terms of your having clearly breached cl 8.7 of the Deed, is not a matter for which you are being sentenced today.

[40] However, I agree more generally with the Crown’s assessment of the aggravating features of your offending. I have already touched upon the extent of loss and damage suffered by the victims of your offending. For two consecutive years, the SPGI financial statements falsely represented that the company had not entered into any related party transactions, when in fact, the related party transactions made up more than half the value of the company by 2009. None of the proceeds have been recovered and, with Heka in liquidation, there is no hope of recovery.

[41] I accept, also, that some of your victims were vulnerable, as they were apparently nearing or preparing for retirement.

[42] The level of abuse of trust is less than that of Mr Robinson, given that the company’s shareholders were primarily sourced by him either through his own clients or personal contacts. You, nevertheless, were one of the company’s two directors, sitting in a fiduciary position which you have obviously abused.

[43] Taking those considerations into account, I too adopt a starting point of

12 months’ imprisonment.

Adjusting the starting point

[44] Turning to the aggravating and mitigating features personal to you, Mr Turnock, I accept you have no previous convictions. The Crown submits you should be entitled to little or no discount in light of this point because, first, you have offended over a sustained period of time, and secondly, you have used your good character to sustain your offending.

[45] I accept the Crown’s first point: that the offending is over a sustained period. The rationale for a good character discount is to reflect a person’s “fall from grace” or an otherwise unblemished record. I do not consider a discount is appropriate in your case because your conduct was spread over a period of time.²

[46] The second point: that you have used your good character to sustain your offending, is more relevant to Mr Robinson than it is to you. I attach no weight to this point.

[47] You pleaded guilty, albeit at a very late stage. You communicated, via email correspondence to the Crown, your intention to plead guilty on the Wednesday, when the trial was set to start the following Monday. On Friday of that week, the guilty plea was entered. This is contrasted to Mr Robinson’s case, where he entered a guilty plea three weeks before his hearing date, which Courtney J described as being “very late”. A discount of 10 per cent was awarded in that case. There would have been a greater time saving than here.

[48] In your case, Mr Turnock, I award a discount of seven per cent.

_{[49] That brings me to a period of 11 months’ imprisonment.}

² Cole v Police [2001] 2 NZLR 139 (HC) at [20].

What is the least restrictive outcome?

[50] As you have heard me say, Mr Turnock, I am required to impose the least restrictive sentence on you. Section 10A of the Sentencing Act sets out the hierarchy of sentences and orders, from the least restrictive to the most restrictive, being imprisonment.

[51] A sentence of imprisonment is not necessary in these circumstances. You are not a risk to the community, and importantly I consider there is no likelihood of reoffending in your case. While a serious offence, I consider this to be truly one-off. Home detention is an available option. I consider that still serves the purposes of denunciation and deterrence to which the Crown refers. Any lesser sentence, however, could not achieve the purposes of the Sentencing Act, in my view.

[52] Having regard to all of the circumstances and the pre-sentence reports to which I have referred, I am satisfied the least restrictive outcome in this case is a sentence of four months’ home detention and 200 hours of community work, to be served concurrently.

Conclusion

[53] Mr Turnock, on the charge of making a false or misleading statement in a document required by the Financial Reporting Act 1993, I sentence you to four months’ home detention and 200 hours of community work, to be served concurrently. Home detention is to be on the basis of the conditions set out in the pre-sentence report, excluding any alcohol and drug-related conditions.

[54] Stand down please.

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Hinton J