R v SMITH

DUNFORD J FOSTER AJA SMART AJ OMONDAY 1 MAY 2000 R v Henry William SMITH JUDGMENT 1 DUNFORD J: This is a Crown appeal against the alleged inadequacy of the sentence imposed on the respondent by his Honour Judge Woods QC in the District Court at Sydney following his pleas of guilty at committal, pursuant to s 51A of the Justices Act 1902, on five counts of fraudulently omit to account contrary to s 178A of the Crimes Act 1900; which offence carries a maximum penalty of penal servitude, now imprisonment, for seven years. In addition, a further 14 similar offences were taken into account on a Form 1. 2 On 3 November 1999, his Honour sentenced the respondent on counts 1, 2, 4 and 5 to a fixed term of penal servitude for three years to commence on that day and expire on 2 November 2002. In respect of count 3, and taking into account the matters on the Form 1, his Honour sentenced the respondent to penal servitude for five years comprising a minimum term of three years to commence on 3 November 1999 and expire on 2 November 2002, with an additional term of two years to commence on 3 November 2002 and expire on 2 November 2004. 3 The respondent was a solicitor at Coolangatta in Queensland and also held a practising certificate in New South Wales. By September 1996, he was being investigated by the Queensland Law Society in relation to investments he had managed for clients amounting to more than $6m and at that time, he voluntarily surrendered his Queensland practising certificate. But on 1 October 1996, he moved to 24 Bay Street, Tweed Heads in this state, and recommenced practice as a solicitor using his then current New South Wales practising certificate and without notifying the New South Wales Law Society that he was under investigation in Queensland and had surrendered his practising certificate in that state. 4 The Queensland matters involved receiving money from clients for investment on registered first mortgages, but not using it for such purpose and then using later receipts to pay interest to the investors in Queensland in respect of the non-existent mortgages. When he moved to New South Wales the respondent continued to receive moneys for investment on registered first mortgages and continued to use those moneys to finance his practice, make payments - purportedly the interest payments - on the earlier bogus mortgages, and for living expenses. 5 Meanwhile, the Queensland Law Society commenced proceedings against the respondent and notified the New South Wales Law Society of such proceedings, whereupon the latter, on 6 March 1998, suspended the respondent's practising certificate. This did not deter the respondent, who continued practising as Smiths Solicitors and Conveyancers utilising the practising certificate of one Mark Harrison Donnelly whom the respondent caused to be registered as principal of the firm, although Mr Donnelly believed he was only employed as a consultant to the firm. 6 Count 2 on the committal document and counts 2, 3, 5, 7 and 12, on the Form 1, related to moneys received after that date. On 27 April 1998, the Queensland Supreme Court ordered that the respondent's name be struck from the role of solicitors in Queensland, and on 29 May the New South Wales Law Society was contacted by Metway Bank in relation to a deposit of $200,000 and thus became aware that the respondent was still practising even though suspended in this state, and thereupon placed his practice into receivership. 7 The total amount for which he failed to account in New South Wales over a period of 20 months was $2,832,740, of which $250,000 was subsequently recovered. To carry out the deception involved, the respondent prepared bogus mortgages, certificates of title and epitomes of mortgage, so that the depositors were led to believe that they had registered first mortgages. The respondent, therefore, created an ongoing and continuing need for money and to prevent or postpone detection, failed to account for additional moneys and created more bogus instruments, thus adding to the deception over a number of years. 8 Moreover, when suspended in Queensland, instead of facing up to the situation he had created, he continued receiving and failing to account for additional moneys in New South Wales and when suspended in New South Wales he did not stop then, but used the subterfuge of using another solicitor's practising certificate to continue and further compound the wrongdoing. Needless to say he did not disclose to the clients investing money with him in New South Wales that he had been suspended or struck off in Queensland, and later suspended in New South Wales. He must have realised that he could only postpone detection by continuing his criminal activity. 9 He is not to be punished in these proceedings for the offences committed in Queensland or for forging and passing false instruments or practising as a solicitor after his licence had been suspended, but these factors show the degree of planning and deliberation involved, as do the length of time over which the wrongdoing continued; and the amount involved, $2,832,740. These factors, including the steps taken to avoid detection, render these among the more serious offences of this nature. The receiver appointed by the Law Society formed the opinion that the respondent was actually running his solicitor's practice at a loss and that his lifestyle, although comfortable, was not extravagant; he was not gambling. 10 I should add at this stage that there is evidence before us that the respondent has been charged in Queensland with dishonestly applying to his own use the sum of $6,221,400.65. Those proceedings have been stood over until the respondent can be made available in Queensland, pursuant to the relevant legislation. He will no doubt, if convicted, be dealt with eventually for that offence, and the Queensland courts will have regard to principles of totality, including what sentence he ultimately is required to serve in this state. Our responsibility is to deal with the New South Wales matters which are presently before us as though they were the only matters. 11 In sentencing the respondent, the trial judge noted the plea of guilty at the earliest opportunity, and said that he regarded the respondent as a person of prior good character, noted that he had co-operated with the receiver, that he was a loving and devoted family man, and had qualified as a solicitor after much earnest work, but that in time he found he was only able to sustain his wife and children in the lifestyle and respected public and community position which he maintained by expenditure which was greater than that which was forthcoming from his practice. He worked for local charities and was a religious person involved with his church and his children's school organisations. 12 His Honour referred to evidence placed before him on sentence relating to a depressive illness suffered by the respondent and he accepted the opinion of Dr Curtis that he was suffering from a major depression. But he also noted Dr Curtis' further opinion that it was not a credible proposition to consider that a crime of complicated fraud perpetuated over a significant period of time could be put down to a single cause such as a non-psychotic major depressive disorder. 13 It is unlikely that the respondent will re-offend. In particular, he will not again be in a position to do so, because he will presumably not again be practising as a solicitor. His Honour noted the need for punishment and for general deterrence, as well as rehabilitation. 14 The principles on which this court deals with Crown appeals on the ground of alleged inadequacy of sentence have been summarised in R v Allpass (1993) 72 A Crim R 561 at 562-3 and it is not necessary to repeat them here. 15 In my view, two particular errors can be identified in his Honour's reasoning. In his Honour's Remarks on Sentence, he noted that the offences were planned and deliberate and were such as to inflict serious pain of a financial kind and probably also of the psychological kind on those who were affected, and represented a serious breach of trust. His Honour went on to say: "Persons who are permitted to act as solicitors and barristers have privileges before the courts and an advantaged position in relation to so much of the administrative government activity of a kind with which solicitors, particularly, are involved. It is necessary for the court to impose significant penalties as a lesson to other legal professionals and other persons in positions of trust that this kind of misconduct will not be tolerated."

I would endorse his Honour's remarks. However, shortly afterwards, his Honour compared a professional person committing white-collar crime with a person from a working-class background committing other offences such as armed robberies which netted funds similar to those involved in the present case and said: "I do not impose any particularly increased penalty upon Mr Smith because he is a solicitor, but equally he does not get a free ride because he happens to be a member of a profession. ... I will treat him as if the offences he has pleaded guilty to were offences committed by a person of neutral background."

In this approach, I consider that his Honour erred. Persons whose offences involve breaches of trust, and solicitors in particular, are not persons of neutral background when they come to be sentenced. In R v Hawkins (1989) 45 A Crim R 430 at 436, Lee J in a case of a solicitor misappropriating clients' funds said: "These were not cases of mere fraud where there was some false promise or wrongful access to a trust account or something of that nature. They were cases where the prisoner was prepared on 13 occasions to forge documents in order to implement his plans and in my view, that fact, along with the magnitude of the moneys involved, takes the case wholly out of the ordinary kind of case where for instance a solicitor has been guilty of a breach of trust towards his clients in using trust funds which frequently comes before the courts."

And later he went on to say that it was of fundamental importance for the courts to recognise that solicitors are persons placed in a special position of trust by the law and the community, and that their position is one which in the eyes of the community requires persons of the greatest integrity; that members of the community put their trust in the honesty of solicitors, and it is because that is so that the profession of solicitor is a large one and one which provides high financial rewards. When that trust is abused by the commission of fraud in any form, not only does the client or person of fraud suffer, but the integrity of the profession is necessarily called into question and the courts must impose sentences which are calculated to ensure that no solicitor will be left in doubt as to the serious consequences that will follow from such conduct. 16 His Honour then quoted with approval a passage from the judgment of McClemens J in R v Cole (unreported - Court of Criminal Appeal - 10 May 1974) as follows:- "Defalcations by persons in a position of trust have to be regarded by the courts as much more serious than other types of defalcations. In this regard the solicitor stands in a particular position. He is an officer of this Court, he is held out by it as a fit and proper person to practice his profession, to receive his clients' money and to be the recipient of their justified financial trust and confidence. It is not possible for the courts to regard lightly the defaulting solicitor whose actions tend to undermine the security of ordinary people and the fabric of a profession on which and on whose integrity the public are to such an extent dependent. This is particularly the type of case in which the court is entitled to express, on behalf of the community, its disapproval of the particular type of breach of trust involved."

17 Reference was made to a passage in the judgment of Grove J in R v Poppert (Court of Criminal Appeal - 25 July 1994) where his Honour appears on one view to have suggested that a solicitor charged with malpractice is entitled to expect, by reason of his membership of the legal profession, to be treated no more harshly than any other offender, nor by the same token is he entitled to expect any more leniency than any other offender. 18 If his Honour was intending by that passage to depart from the principles laid down in Hawkins, I would respectfully disagree. In R v Holmwood (Court of Criminal Appeal - 25 October 1995) - another case involving a solicitor - reference was made to Poppert, but in delivering the judgment of the court in that case, Gleeson CJ said that the applicant could derive no comfort from the decision in Poppert, and referred in particular to R v Corbett (1991) 52 A Crim R 112 and R v Sellen (1991) 57 A Crim R 313. The latter was a case involving an accountant, but it similarly involved a breach of trust. See also R v Hunt (Court of Criminal Appeal - 30 September 1997). 19 The second error which I detect in his Honour's reasoning is the extent to which his Honour stressed good character and the lack of previous convictions. 20 In my view, this is not a case where the respondent is entitled to rely on good character. These offences were committed in order to prevent detection of deficiencies which he had already created by criminal activities in Queensland, and were committed to cover up those earlier offences. 21 Even having regard only to the New South Wales offences he was not a first offender from the time he committed the second offence, only he had not been caught out. See also R v Phelan (1993) 66 A Crim R 446 at 448. 22 In many respects the position may be compared with a sexual offender who commits a number of offences on young persons over a number of years where those offences go undetected for a long time. He cannot rely on the fact that he has no previous convictions when he comes to be sentenced for those offences. These offences are of a very different nature but, so far as relying on prior good character, it seems to me that similar considerations apply. 23 Moreover, references in his Honour's Remarks on Sentence to charitable and community work were all based on a false premise, namely, that the respondent was funding those activities as a result of his own work. His integrity, respectability and community work was itself all a deception of those who were falsely impressed and who furnished the references. 24 As Ireland J said in R v George (Court of Criminal Appeal - 23 September 1994), "whilst the [respondent] may not have sought to line his own pockets nor sought to live a lavish, materialistic lifestyle he did seek to maintain the pretence of integrity and responsibility honourable solicitors maintain without pretence". 25 We were referred to a number of cases including Poppert and George, and the summary of other matters contained in the judgment in George, but the amount involved here is considerably greater than the amounts in those cases, and these offences involve the other aggravating features to which I have referred, namely, the continuation of offences to cover up what had occurred, the previous criminal activity in Queensland, the use of bogus documents to satisfy the investors, and the use of a New South Wales practising certificate and later someone else's New South Wales practising certificate after he had surrendered his own and been suspended in Queensland. 26 In my opinion, the sentence imposed was significantly below the range of a proper exercise of the sentencing discretion, and I consider that having regard to the principles in Allpass to which I have already referred, this Court should intervene and impose a sentence which more truly reflects the criminality involved although, as it is a Crown appeal, the sentence I would propose would not be what I would have considered appropriate if dealing with the matter at first instance. 27 In my opinion the Crown appeal should be allowed in respect of the sentence imposed on count 3, and in lieu thereof, I would propose that the respondent be sentenced to a total sentence of six-and-a-half years, consisting of a minimum term of four-and-a-half years to commence on 3 November 1999 and expire on 2 May 2004 and with an additional term of two years to commence on 3 May 2004 and expire on 2 May 2006. 28 FOSTER AJA: I agree with the orders proposed and the reasons that have been given for them by the learned Presiding Judge. 29 SMART AJ: I also agree. 30 DUNFORD J: The orders will therefore be as I have indicated. oOo

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