John Michael HIGGINS v Regina [2006] NSWCCA 38 | Case summary

Wednesday 22 February 2006 John Michael HIGGINS v REGINA Judgment 1 SPIGELMAN CJ: Between February 1998 and August 2002 the Applicant operated as an investment adviser through Macquarie Towns Financial Services Pty Limited ("MTFS"), a company controlled by the Applicant. Whilst acting as an investment adviser the Applicant had the proper authorisation enabling him to act as a securities representative for AMP Financial Planning between April and November 1995; Financial Wisdom Limited, April 1995 to March 2000; Matrix Planning Solutions, March 2000 to May 2001; and Garrisons Limited, May 2001 to March 2002. 2 The Applicant was charged with three charges of dishonest conduct contrary to s1041G of the Corporations Act 2001 (Cth) and fifteen charges of fraudulent misappropriation contrary to s178A of the Crimes Act 1900 (NSW). 3 The three charges contrary to s1041G of the Corporations Act were all in the following form: "Between about (date) and about (date), at Sydney in the State of New South Wales being a person carrying on a financial services business, namely, Macquarie Town Services Pty Limited, engaged in dishonest conduct in the course of carrying on that business by holding himself out to a person as an authorised financial adviser when that authority had been revoked. 4 The fifteen charges contrary to s178A of the Crimes Act were all in the following form: "On or about (date) at Sydney in the State of New South Wales fraudulently misappropriated to his own use certain money, namely, the sum of $X, in violation of the terms on which he received the money, having received the money on terms requiring him to invest it on (particular person's) behalf." 5 The charges under the Corporations Act relate to three different investors toward whom, on each occasion, he engaged in dishonest conduct by holding himself out as an authorised financial adviser when that authority had been revoked. 6 The charges under the Crimes Act relate to nine different investors where the Applicant fraudulently misappropriated to his own use certain moneys in violation of the terms on which he received that money. In a nutshell, the Applicant held himself out to each of these investors as competent to advise them to put their money, often retirement funds, into various companies and ventures. Investors assumed that the moneys were being put into legitimate investments for their ultimate benefit and security. The Applicant put the money into his own business without permission. The total amount of moneys diverted by the Applicant was $1,702,527. 7 The Applicant was able to continue offending between February 1998 and July 2002 without detection because interest payments were being made to clients using funds received into the business of MTFS. The offences came to light following complaints about the Applicant which led to an investigation of his affairs by ASIC. 8 The maximum penalty prescribed for each of the Corporations Act offences is five years imprisonment. The maximum penalty prescribed for each of the Crimes Act offences is seven years imprisonment. 9 The Applicant pleaded guilty in the District Court on 31 January 2005. On 23 March 2005 Woods DCJ sentenced the Applicant on each of the separate charges to produce an overall term of imprisonment of eight years commencing from 23 March 2005 and an effective non-parole period of five years. The individual breakdown of the sentences is as follows: · Counts 1, 2, 3 (Corporations Act offences) - sentence of imprisonment for two years to date from 23 March 2005. His Honour declined to make a recognizance release order due to the structure of the overall sentence. · Counts 4, 8, 13, 15, 17 - sentence of imprisonment for three years to date from 23 March 2005 and to expire on 22 March 2008. His Honour declined to set a non-parole period due to the structure of the overall sentence. · Counts 7, 10, 11, 14, 18 - sentence of imprisonment for two years and six months to date from 23 March 2007 and to expire on 22 March 2009. His Honour declined to set a non-parole period due to the structure of the overall sentence. · Counts 5, 6, 9, 12, 16 - sentence of imprisonment for four years to date from 23 March 2009 and to expire on 22 March 2013, with a non-parole period of 1 year from the commencement of the sentence on 23 March 2009 and to expire on 22 March 2010. 10 His Honour found special circumstances. The bald recitation of the fact that the Applicant had fraudulently misappropriated funds does not convey the degree of personal anguish which his conduct caused to his victims. It is unnecessary to recite each of the examples. His Honour highlighted a particularly egregious example in the case of an eighty-two year old woman who had entrusted the Applicant to fill out a cheque book because she had difficulty writing. Instead of presenting the cheque for over $300,000 for the purpose of an authorised investment he in effect paid it into his own account. The investor was given small cheques from time to time by him which she believed represented interest payments, the receipt of which caused her to believe that a legitimate investment had been made and was continuing. 11 It is unnecessary to give further details of the personal anxiety that must have been caused to the range of small investors when they discovered they had been defrauded by the Applicant abusing his position of trust. His posture was to a substantial degree based on the deception that he continued to have the authority to act on behalf of a substantial financial corporation, that being the subject of the three charges under the Corporations Act. 12 The objective gravity of the offences was substantial. The amount of money misappropriated was over $1.7 million from a significant number of victims, all of whom were small investors and vulnerable to varying degrees, some to a very high degree of vulnerability. 13 The frauds took place over a period of some five years and involved premeditation and planning. Of particular significance is the gross breach of trust involved both directly to each investor for whom he was an adviser and by purporting to act with the authority of a financial corporation in whom the investors would also have trust. The element of general deterrence is entitled to considerable weight in white collar crimes involving a breach of trust (see eg R v Glenister [1980] 2 NSLWR 597; R v Pantano (1990) 49 A Crim R 328 at 330). 14 In the present case the element of personal deterrence is also entitled to some weight. The Applicant had a prior conviction, albeit in 1983, for fraudulent misappropriation. The fact that it was so old entitles that element to small weight. Nevertheless, notwithstanding a finding by his Honour of contrition on the part of the Applicant, for some considerable period the Applicant maintained the position that he was able to pay out the persons he had defrauded and, indeed, maintained the position that the rate of interest he was giving them was higher than they may otherwise have obtained. All of this does not suggest that the Applicant is as contrite as may otherwise have been expected and that the element of personal deterrence in this case is entitled to some weight in the sentencing exercise. 15 The grounds of appeal can be categorised under three headings. First, semantic quibbles about particular words used by the sentencing judge; second, an assertion of inadequate reasoning, limited in the course of oral submissions and, third, an assertion that the sentence was manifestly excessive. 16 The first semantic objection was to his Honour's use of the words "very substantial" in the sentence "… the objective culpability of the offences is very substantial." 17 The Applicant submits that this conclusion was "informed" by two adjectival findings: firstly, the fact that most of the investors have been compensated by the financial services companies which the Applicant purported without authority to represent; secondly, by his Honour's finding which deprecated the value of the business, which could have served as a source of funds for repaying investors and to which I will refer with respect to another ground of appeal. 18 The first thing to say about this is that none of the matters to which attention is drawn in the written submissions are of significance for the ultimate finding that the objective culpability was "very substantial". That finding was entirely justified on the whole of the evidence. I have referred to the general thrust of the evidence above. In any event, none of the propositions advanced with respect to the specific matters put forward are in my opinion correct. 19 Objection was taken to his Honour's characterisation of the Applicant's overall business as being valueless, it appears on the basis that the objective gravity of the offences could be limited if the Applicant throughout had, or believed he had, a capacity to repay the funds being fraudulently misappropriated from his own resources. 20 Similarly, it was also said his Honour's characterisation of the Applicant's own belief that there was value in the business as "a delusion" was incorrect. It was submitted that his Honour, accordingly, failed to take into account, as one of the subjective features of the offender, that he had a well-founded belief that he may be able to repay the misappropriated funds from his own resources. 21 The passages objected to are found in the following extracts from the Remarks on Sentence: "The offender gave evidence before me and said that he had believed that he had a substantial business as a financial adviser, the substance of which he says was valued by Garrisons Pty Limited at one stage as $3,000,000. This was no doubt a paper castle. The valuation of any business he ran was fundamentally dependent on him conducting himself in a correct fashion and it cannot have been other than known to him that his conduct in these matters was criminal. It may be that he had a vague idea that he would pay these people back because his own business was so substantial, it is difficult to say, but he was certainly culpably reckless in his conduct. It is against the law to tell people that you are putting their money into one investment when in fact you use it yourself." 22 The reference to "paper castle" was said to be associated with his Honour's subsequent characterisation of the Applicant's company as "a vehicle for fraud". There is no relevant link between the "paper castle" reference and the "vehicle for fraud" reference. The latter is quite unimpeachable. The company was a vehicle for fraud. The submission on behalf of the Applicant that it may have done things that were not fraudulent does not detract from the accuracy of his Honour's characterisation. 23 The reference to delusion occurred in the following passages of the Remarks on Sentence: "The Parole report … says this: 'In discussing the offences Mr Higgins indicated that he considered his actions in investing his clients' funds in his own business were wrong but noted that he paid them a higher rate of interest than they might have achieved in some other investments and the funds were secured by the then value of the business'." 24 His Honour then said: "That is, of course, substantially what he said to me in the witness box. It is a delusion. It was a delusion from which Mr Higgins continues to suffer. The provision of cheques from time to time by way of alleged interest is a classic badge of this kind of misappropriation and fraud. It is not a matter in mitigation of sentence but an index of criminality." 25 His Honour also went on to quote an extract from the psychologist's report which included the following: "His offending behaviour was at the time of the commission however sustained by the distorted belief that he was serving the best interests of his clients and himself and that he was doing no wrong." 26 His Honour observed: "That is once again, as I say, the delusion that he manifested in the witness box." 27 The Applicant submitted that these passages failed to take into account his Honour's acceptance of the proposition, as his Honour did in another passage of his reasons, that the Applicant had in fact performed services for other clients in a perfectly proper and satisfactory manner. Furthermore, it was submitted that his Honour failed to take into account the existence of sources of ongoing revenue from past proper advice in the form of trailing fees and commissions which had some value. That is to say, by reason of his past proper conduct the business was entitled to receive a flow of revenue from the advice given and the introductions made as an adviser. 28 On this basis it was submitted that, on normal principles of valuation of a business, the business must have had some value and, accordingly, it was wrong to describe it as a "paper castle" or that its value was dependent on the behaviour of the Applicant. Similarly, it was incorrect for his Honour to dismiss the Applicant's belief in the value of the business as "delusional". 29 In this latter respect I refer again to the passage in his Honour's reasons that I have already quoted in which his Honour acknowledged that the Applicant had what his Honour described as "a vague idea that he would pay these people back because his own business was so substantial". His Honour acknowledged that there was some such belief on the part of the Applicant, but nevertheless subsequently characterised it as "delusional". These were findings of fact on the subjective position of the Applicant which were entirely open to his Honour. He acknowledged that there was some level of belief. Persons who commit frauds and misappropriate moneys for various purposes often have the belief that they will rectify the situation before they are caught. That does not mean that this is a factor entitled to any substantial weight in the sentencing exercise. 30 On the objective question of whether or not the business had value there can be little doubt that his Honour was correct when he said that a business of this character involving financial advice depends on trust. That trust is two-fold. First is the trust of the financial services businesses which the adviser represents. Second is the trust of the individual investors. Fraudulent conduct of the character identified in the present case would destroy the trust from both sources. Once the Applicant was caught, the business was valueless subject, of course, to whatever contractual entitlements there remained to trailing commissions and fees. 31 One would have expected at least some evidence in the defence case, if these were of any value, that the Applicant had sold the business or some part of it or assigned for consideration these trailing commissions and fees. There was no such evidence. What this meant in terms of the residual value of the business if the Applicant were caught, as he was, strongly suggests that the business overall was in truth valueless. At the very least it was open on the evidence for his Honour to make that finding. In my opinion, no error in this respect is established. 32 The complaint of inadequacy of reasons was in some respects in the alternative to this ground. In the original submissions the complaint was based on the fact that his Honour referred in a general way to having taken into account the factors set out in s16A of the Crimes Act 1914 (Cth) with respect to the Commonwealth offences and s21A of the Crimes (Sentencing Procedure) Act 1999 (NSW) with respect to the State offences. 33 In oral submissions this complaint was limited to his Honour's failure, it was alleged, to give full reasons with respect to the factors in s16A(2)(a) of the Crimes Act (Cth), which refers to the obligation on the Court to take into account such of the following matters as are relevant and known to the Court, relevantly, "the nature and circumstances of the offence". In the way that the submission was put to this Court this was linked directly to his Honour's "paper castle" references and the "delusional" references. 34 For the reasons I have outlined, in my opinion it was open to his Honour to make these findings. I can see no relevant omission in the steps taken in the reasoning process or lack of transparency with respect to his Honour's formation of the opinion that, in the circumstances of this case, the business was valueless when the offender was caught. In any event, of course, this alternative ground, limited as it now is to s16A of the Commonwealth Crimes Act, would relate only to the three Commonwealth offences and has no implications at all for the fifteen fraudulent misappropriation convictions and the sentences imposed on those. Regardless, I can see no relevant error on the part of his Honour. In my opinion this ground of appeal should be rejected. 35 Little was said with respect to the ground of appeal asserting that the sentence was manifestly excessive. In my opinion the proposition cannot be sustained. Each specific sentence for the respective offences was appropriate in its terms. It was well within the range of the exercise of the sentencing discretion. The degree of cumulation involved was appropriate, indeed, it was not subject to criticism. The ultimate effective sentence of eight years with a non-parole period of five years is well within the range of the exercise of the sentencing discretion on the facts of this case. 36 In my opinion the Court should grant leave to appeal but dismiss the appeal. 37 BARR J: I agree. 38 HOWIE J: I agree. I simply wish to add one matter by way of comment. In addressing this Court in respect of the ground of appeal that the sentence was manifestly excessive counsel for the Applicant asked the Court to reduce the non-parole period on the basis of the decision of this Court in R v Corbett (1991) 52 A Crim R 112. In that case this Court recognised a past practice of sentencing persons for white collar crimes involving fraudulent abuse of trust by the imposition of a fairly heavy head sentence but a light non-parole period. The Court thought that this was as a result of a desire to on one hand reflect the importance of general deterrence in the head sentence but on the other hand to acknowledge the subjective circumstances of the offender. 39 That approach has not been followed by the Court of Criminal Appeal of South Australia: see R v Dubois (2004) 88 SASR 304. For my part, I doubt that that practice still continues in this State at this time having regard to the changes that have been made to the Crimes (Sentencing Procedure) Act and having regard, as this Court does, to the significance of general deterrence featuring in non-parole periods as well as head sentences. 40 SPIGELMAN CJ: The orders of the Court are as I have indicated. **********

John Michael HIGGINS v Regina

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