Regina v Houlton [2000] NSWCCA 183 | Case summary

THURSDAY, 17 AUGUST, 2000 REGINA -V- Edward Joseph HOULTON JUDGMENT 1 SPIGELMAN CJ: I agree with Foster AJA. 2 WOOD CJ at CL: I have had the advantage of reading in draft the reasons for judgment of Foster AJA. I agree with his reasons and the orders he proposes. 3 FOSTER AJA: This is an appeal, pursuant to s. 5D of the Criminal Appeal Act 1912, by the Director of Public Prosecutions against sentences imposed on the respondent by Twigg DCJ at the Coffs Harbour District Court on 14 October 1999. 4 The respondent had pleaded guilty to five counts of fraudulent misappropriation (178A of the Crimes Act 1900) and had asked that the judge take into account a further 80 offences under the same section presented on a "Form 2". At the time of the commission of the offences, the respondent was a solicitor practising in Coffs Harbour. Each of the offences involved misappropriation of monies held on trust for clients. The maximum penalty prescribed by the section is 7 years penal servitude. 5 In respect of the first count in the indictment, his Honour, after taking into account the matters set out on the Form 2, imposed a sentence of 3 years imprisonment to be served by way of periodic detention commencing on 22 October 1999. As to the remaining four counts, the judge imposed a recognizance under s. 558 of the Crimes Act, self in the sum of $5,000 to be of good behaviour for a period of five years. There were several conditions to the recognizance, including supervision by the Coffs Harbour Adult Probation Service, not applying for a Solicitor's Practising Certificate or working as a para-legal or having sole administration of trust funds. In addition, the respondent was ordered to pay reparation in the sum of $120,000 at the rate of $1,000 per calendar month, the first payment to be made on 22 October 1999. These payments were intended to reimburse, in part, the Fidelity Fund of the Law Society of New South Wales for monies paid out of the fund to the respondent's defrauded clients. 6 It appears that the full amount of the respondent's admitted defalcations was approximately $347,000, being the total of the amounts misappropriated between August 1989 and October 1992. This amount, as the result of sale of some real estate, had been reduced to approximately $250,000 by time of trial. 7 It is the Crown's contention that, in the circumstances of the case, these sentences were manifestly inadequate, should be set aside, and appropriate sentences be substituted by order of this Court, such sentences to involve full-time custodial detention 8 The hearing before his Honour proceeded by way of documentary evidence and oral testimony, including evidence from the respondent. A document, Exhibit B, set out an agreed statement of facts for his Honour's consideration. This statement indicated that between July 1987 and March 1993 the respondent had been in sole practice as a solicitor in Coffs Harbour under the name of Houlton and Company, solicitors. He remained in practice until 23 March 1993 when his practising certificate was cancelled by the Law Society of New South Wales. He has not practised since. 9 Prior to conducting a sole practice, the respondent had been a partner in another firm in Coffs Harbour. In 1986, when a partner in that firm, he commenced to act for the Estate of Reginald Maher, deceased. On instructions, he invested the proceeds of sale of two blocks of land in the estate. He had access to this investment. On 2 August 1989, by which time he was a sole practitioner, he wrongfully withdrew $14,500 from the trust fund and made a false entry for the transaction which suggested that the withdrawal was properly authorised. He used the money as a deposit for the purchase of a property at 18 Canomie Street, Sapphire for his own use. This misappropriation was the subject of the first count in the indictment. 10 The other offences set out in the indictment may be summarised as follows:- "On June 17 1992 the respondent misappropriated $15,887.66 from the estate of Geoffrey David Maher. The money was used to pay arrears in his office rent. The transaction is referred to in count 2 of the indictment. On 1 July 1992 the respondent withdrew a further $4,875 from the estate of Geoffrey Maher. This was paid into his office account from which he withdrew funds for his own purposes. This conduct was charged in count 3 of the indictment. The 4th count refers to a fraudulent failure to account for $29,620.16 which was used by the respondent to pay for arrears in his office rental. In 1990 the repondent was instructed by Mrs Barbaresco to retain certain moneys in trust. He misappropriated part of those funds, including $5,000, which is dealt with in count 5." 11 The other 80 misappropriations set out in the Form 2 are similar in nature. 12 In relation to these offences, his Honour made the following comments in his remarks on sentence:- "Thus it can be seen, as was admitted by the prisoner in cross-examination on 23 September 1999, that:- 1. The sum misappropriated was approximately $347,000. 2. Over a period in excess of three years, from August 1989 to October 1992. 3. In a pattern of behaviour. 4. Designed to conceal the thefts and to cover the prisoner's tracks. 5. For the purposes of the prisoner, including keeping his practice running and for personal domestic needs. 6. It was discovered after a complaint by a client, Jeffrey, which led to full disclosure and co-operation with the Law Society by the prisoner. 7. That a receiver was appointed and the prisoner's practising certificate was cancelled. He was bankrupted and some moneys recovered from a sale of some real estate. There is about $250,000 outstanding to the Fidelity Fund of the Law Society of New South Wales." 13 His Honour was provided with extensive material relating to subjective factors in the case. Exhibit 1 was a 38 page document prepared by the respondent, which provided, in considerable detail, the respondent's personal history and an explanation for the commission of the crimes. This was supplemented by three medical reports to which reference will be made later. The material is summarised in his Honour's reasons. This material indicated that the respondent had been brought up in Rhodesia (as it then was) in a "strict and well ordered" family. He obtained a law degree from London University and was admitted as an attorney in Rhodesia in 1969 and became a partner in a law firm in 1974. He married in 1967 and had two daughters, one born in 1971 and the other in 1976. As a lawyer he became involved in the problems of Rhodesia's transition to independence. He had been under considerable stress which had a serious effect upon his health. He developed high blood pressure and a duodenal ulcer. He began to take Valium under prescription together with Codeine. In 1976 he suffered a break down requiring psychiatric treatment and the administration of anti-depressant drugs. 14 He was divorced in September 1978 and in July 1979 left Rhodesia for South Africa. The divorce did not lead to full separation, in so far as his ex-wife and his two daughters accompanied him to South Africa, where he practised law in a commercial firm in Johannesburg. It appears that his life, domestic and professional, continued to be stressful and that he continued to take prescribed medication, including Valium, on a regular basis. 15 He had a brother residing in Coffs Harbour. As a result of a visit in May 1983 he decided to immigrate. He arrived with his family in Coffs Harbour on 11 August 1984. In July 1986 he became a partner in a local law firm. There was insufficient work, however, to sustain the partnership. It was dissolved and the respondent commenced practice as a sole practitioner taking over the previous firm's debts of $60,000. This occurred in 1987. 16 In January 1988 there was a final separation of the family, his ex-wife and two daughters leaving to set up separate residence. This was a most distressing period for him. In February 1988 he began an association with another woman which was productive of much personal and financial difficulty for him. The association led to marriage that year. She had a very dominating personality. She was extravagant in her spending habits. She was very disruptive domestically and also tended to interfere in his legal practice. He was at times afraid of violence from her. He asserted, and his Honour accepted, that it was as a result of her insistence on living an extravagant lifestyle that he was induced to purchase the house at Canomie Street, Sapphire. He could not borrow money for this purpose and, consequently, took the criminal step of misappropriating the trust monies which were the subject of the first count in the indictment. After taking this first step he continued to manipulate trust funds in order to finance a lifestyle that his ordinary earnings did not permit and also to keep his practice going. During this period he suffered from significant depression and worsening physical health. He took excessive amounts of Valium, which had a deleterious effect on his mental and emotional well being. He made false entries in his books to cover up the defalcations. This falsification prevented detection on annual audit by trust account inspectors. However, in late 1988 a complaint by a client relating to overcharging led to a closer inspection of his affairs by the Law Society. An investigation commenced, in which he co-operated fully and which lead to his handing in his practising certificate and to the appointment of a receiver to his practice. 17 It appears that, as well as the falsifications which had occurred, his records had not been properly kept. He said, in a statement accepted by his Honour, that he was "able to attend to clients and client matters without apparent difficulty, but was just totally incapable of managing my own affairs." 18 In August 1994, as a result of police investigations into the offences, he was interviewed and arrested. He did not contest the facts relating to the misappropriations. He sought, however, to rely upon his mental condition, induced by stress in both the professional and domestic spheres of his life, resulting depression, and excessive intake of Valium and other drugs as providing a defence of absence of mens rea. In the circumstances, he waived his right to a committal hearing, with the result that the charges proceeded directly to the District Court. 19 His Honour made the following comments in relation to the respondent's medical history, which appear to be amply justified by the medical reports before him:- "It is clear from the three medical reports, Exhibits 3, 4 and 5, that the prisoner was affected both by alcohol intake and the quantities of prescribed drugs that he was taking. He was suffering from generalised anxiety disorder tending to major depression. I quote from Dr Rickaby, (Exhibit 2 p 12): 'Mr Houlton's personality, including his fear of confrontation, avoidance of emotional storms, his over-trusting nature, including his lack of judgment about his partners and use of drugs to deal with emotional symptoms, have all played a contributing part to his vulnerability.'" 20 Additionally Dr Rickaby expressed the opinion that the offences had "occurred during a time of escalating crisis in his life, the salient features were the destructive relationship with [his then wife], his grief over the loss of his daughters, his rapidly increasing and complicated addiction to opiates and benzodiazopines, his fear, despair and depression as he was locked in the new marriage, and his chronic brain syndrome during this time when his brain was constantly suffused with depressant drugs." 21 A report from a local general practitioner confirmed that the respondent in 1990, 1991, 1992 and 1993 was suffering from significant levels of stress for which Valium was constantly prescribed. There was significant evidence before his Honour that the respondent was in a mentally and emotionally impaired condition during the period when the offences were committed. There could be no doubt, however, that the defalcations and the covering up of them were deliberate acts undertaken with knowledge of their wrongfulness. 22 Despite the matter having been forwarded to the District Court in 1994, there was, as is apparent, considerable delay from that time until the hearing before Judge Twigg in October 1999. It appears that the respondent had, at an early stage, provided medical reports to the Crown in support of a contention that he did not have the relevant guilty mind to accompany the acts of misappropriation. It appears that there was considerable delay in considering this submission and in indicating the Crown's intentions in relation to putting the respondent on trial. There appears to be no contest that a period of three and a half years elapsed before the Crown obtained a psychiatric report of its own There were mentions before the District Court and vacation of trial dates in circumstances to which it is not necessary to make reference. They are set out in the judgment of Philip Bell DCJ, given on his Honour's refusal of an application for a permanent stay of the proceedings, the judgment being given on 17 August 1998. The delays were also referred to in the appeal to the Court of Criminal Appeal from his Honour's judgment. On 18 May 1999 the Court of Criminal Appeal upheld Judge Bell's refusal to grant a permanent stay, their Honours making it clear that the trial should be brought to a hearing by the end of 1999. It was stated in the judgment of Barr J (concurred in by the other members of the Court):- "I conclude that this is a case, the outstanding features of which are that there has been substantial delay, some has been the responsibility of the court system, and some has occurred because of the emergence of events close to the intended trial dates. The length of the delay is particularly regrettable, and this case, in my opinion, calls for the kind of special management it was given for the first time in 1998. It is indeed unfortunate that on that occasion the date had to be vacated a third time." 23 There can be no doubt that the long period of delay, whatever its cause or causes, was a matter to be taken into account by Twigg DCJ. The respondent had, apparently, entertained some hope that the Crown would, because of his medical evidence, not proceed in the matter. However, as was found by Bell DCJ, there was no factual basis for any such hope other than the long period which, apparently, elapsed from the respondent's furnishing of the medical evidence relied upon and the Crown's rejection of any defence based on it. 24 In the period after his loss of his practising certificate, the respondent undertook other work in the community which was of some importance and was the subject of character evidence presented to his Honour. Moreover, in that period, the respondent was able to bring about a separation between himself and his wife, which occasioned a significant diminution in his level of stress and also resulted in his conquering of his prior addiction to Valium. It would appear, consequently, that at the time he entered his plea of guilty before Twigg DCJ he was in a significantly rehabilitated state, a matter which his Honour properly took into account. 25 It is clear from his Honour's reasons for sentence that he was fully aware of the matters to be taken into consideration in sentencing for offences of this type. He referred in his reasons to the decision in R v Marvin, NSW CCA, unreported 1 November 1995, a case which had some factual similarities to the present, in that Marvin was a solicitor who had made regular misappropriations of trust monies. In his judgment in that case Sully J said:- "Any solicitor who misappropriates client's funds for what ever reason, great or small, arguable good or arguably bad, commits a serious offence, not only in terms of contravening the relevant particular provisions of the Crimes Act, but in terms of the betrayal of public trust and confidence which such behaviour represents. It is appropriate to say simply that that must be regarded by the Courts, of all institutions, as serious conduct meriting in any but the most exceptional cases, a custodial sentence." 26 Indeed Twigg DCJ, in his remarks on sentence in the present case made a statement which, in the Crown's submission to this Court, properly identifies the salient issues for sentencing in cases of this type. His Honour said:- "In cases of misappropriation of funds by professional people entrusted with funds, the dominant option is full time custodial sentence. The need for general deterrence is particularly important in these instances. Those who trust such professional people are entitled to have that trust recognised. The general community, and in particular the north coast community, must be listened to, because of their abhorrence at these gross breaches of trust. Not only must there be a particular warning to the prisoner, but there must be a public warning to ensure that those entrusted with funds in our community will be warned, by the harsh penalties imposed not to breach that trust. I have considered the circumstances of the commission of these offences. There is a large sum involved. It was a pattern of behaviour over a three-year period during which the prisoner, although affected by anxiety and depression, deliberately defrauded his clients for his own needs. It is not entirely for greed, but rather to overcome the financial difficulties he had created." 27 Before his Honour, the Crown Prosecutor submitted that, consistently with the established pattern of sentencing in these cases, that a full time custodial sentence should be imposed upon the respondent. His Honour did not accept this submission. In rejecting it, it can be assumed that his Honour found, in the present case, exceptional circumstances justifying the imposition of less than a full time custodial sentence. His Honour indicated the factors that he took into account in the following passage:- "I give strong weight to the subjective factors which, on my finding, are not only special circumstances, but are of such powerful importance in all the circumstances as to avoid a full-time custodial sentence. I have taken into account:- 1. The age, past and present health, background and training of the prisoner. 2. His plea of guilty at the appropriate time to give him the greatest discount. 3. The interests of the community, particularly the north coast community. 4. The interest of the victims. 5. The need for general and particular deterrence. 6. The contrition and rehabilitation of the prisoner. 7. The absence of criminal history. 8. The particular circumstances of the fraud of innocent victims involving in excess of $347,000. 9 The application for reparation, and the need to order the prisoner to repay as part of the penalty. 10. The delay in bringing the criminal proceedings to a conclusion. During this time both the prisoner and the community have been affected by that delay." 28 As the Crown contends it is apparent that the 4th, 5th and 8th matters could provide no justification for departure from the general principle requiring the imposition of a custodial sentence. So far as the first matter was concerned there would appear to be nothing relating to the age, (he was 56) training and present health of the respondent which would militate against the imposition of such a sentence. His health at the time of the commission of the offences was a matter which his Honour clearly took into consideration. The plea of guilty, of course, involved the abandonment of any claim by the respondent that he lacked the necessary mens rea in relation to the commission of the offences. Clearly, however, the evidence as to his stress and drug related mental condition was relied upon in mitigation. His Honour was entitled to take this into account and clearly did so. 29 As to the 7th matter, the absence of criminal history, this was a matter of little significance, having regard to the multiplicity of the offences committed by the respondent. 30 In relation to the 2nd and 6th matters, his Honour had said in an earlier part of his reasons:- I accept that there is a strong element of contrition. The community has eventually been saved the enormous cost of a trial that might have lasted several months if strict proof was required. Furthermore, the embarrassment of those victims defrauded, by reliving those events of 1989 to 1992 in a public trial, has been avoided. On my findings the prisoner is entitled to the fullest discount by his plea of guilty in 1999, and for his approach to proof of matters throughout the history of the proceedings." 31 It is the Crown's submission that his Honour was mistaken in finding that the plea entitled the respondent "to the fullest discount". I consider that the Crown is correct in this submission. Although it was clearly open to his Honour to find that the respondent had shown a level of contrition in his ready co-operation with the Law Society investigation, once it had been triggered by a client's complaint, he had, nevertheless, refused to accept full criminal responsibility for his actions in the police investigations. Although he waived his right to committal proceedings, he did not do so on the basis that he would plead guilty to the offences charged. He continued to assert a defence based upon his mental condition at the time of the misappropriations. The assertion of this defence, which was not finally abandoned until 1999, obviously involved the prosecution in the obtaining of evidence necessary to rebut it. This would include expert medical and pharmacological evidence. There was, apparently, unnecessary delay in obtaining this. Even so, the respondent's failure to plead guilty when charged in 1994 necessarily involved the prosecution in the obtaining of this evidence. In these circumstances, it would not, in my view, be correct to hold that the respondent was entitled to "the fullest discount". That would have been appropriate only if he had pleaded guilty at the outset. 32 However, I agree, with respect, that the respondent was entitled to discount "for his approach to proof of matters throughout the history of the proceedings." It is plain that the respondent, whilst maintaining a defence based loosely on absence of mens rea, sought to facilitate the proof against him of other aspects of the case. He did not wish his ex clients to be embarrassed by providing and giving evidence. He was clearly prepared to admit and facilitate the admission of all factual matters bearing upon the defalcations. Of course, even in this situation, it might well have been necessary for the Crown to call some evidence as to the dealings with individual clients on the issue of respondent's mental condition at the time. Nevertheless, the respondent's attitude had obvious utilitarian value in the rationalising and general reduction in complexity of the proceedings. When this is taken with his ultimate plea of guilty, after a period of delay for which the Crown had to accept significant responsibility, a discount of reasonable size, on utilitarian grounds, would be appropriate. 33 Leaving aside the question whether the respondent's original attitude coupled with his final plea could be taken as evidence, in themselves of contrition, there was ample additional evidence in the case before his Honour to indicate a high level of remorse and contrition. His Honour was clearly entitled to give considerable weight to this when considering the appropriate sentence. In the upshot, although I consider that error has been demonstrated in his Honour's approach to the plea of guilty, I am of the view that little weight should be attributed to it in this appeal. 34 The 3rd, 9th and 10th matters are related and can be considered together. It is the Crown's contention that his Honour over-emphasised them in favour of the respondent. They arise because of the delay in the finalisation of the proceedings. It is clear that in the period from committal to sentence, the respondent has taken significant steps towards his rehabilitation. As already indicated, he had solved his domestic problems and ceased the taking of drugs in harmful quantities. Although being unable to practise as a solicitor he had been able to make his legal skills available in other areas of service to the community. As his Honour found the respondent was employed by a New South Wales Government organisation known as Community Housing Mid-North Coast (the Organisation). He had assisted in the incorporation of this organisation on 24 July 1996. Since then it had grown in size and scope. Government funding had increased substantially, enabling the purchase of more properties with the result that, at the time of trial, the number of properties administered was 426, covering general housing, supported housing, youth housing and crisis accommodation, allowing 1,000 persons to be housed. The area of the organisation's administration covered Coffs Harbour, Nambucca and Bellingen and the annual turn-over subject to the association's administration was $2.66 million. 35 His Honour accepted as correct the following passage from the respondent's written statement (Exhibit 1):- "I have recently been upgraded to full-time Administrator of the Association in view of the greatly increased work pressures, and it remains my function to co-ordinate this growth and receive and distribute the funding involved, as well as generally to administer and resource the group and continue to negotiate for additional growth. There remains an acute shortage of affordable housing on the mid north coast, which we need to continually address. With the appointment as Administrator, I have, of necessity, become increasingly involved in sector-wide issues generally ranging from staff issues, such as fringe benefit tax exemption and working conditions, to submissions on the Government budget strategy and the future directions of Community Housing. I have for some time been one or three Community Housing representatives on the Regional Community Housing Forum in the northern region, and more recently have been appointed as that Forum's delegate on the Northern Region Housing Advisory Committee, which is charged with planning the development of public and community housing in the northern region, to be included in the State housing assistance plans." 36 The result of the respondent's appointment to the position of full-time administrator had been that he was now in receipt of income sufficient to finance the level of reparation which formed part of his Honour's order. 37 His Honour also received evidence from reputable persons associated with the Organisation indicating the substantial efforts made by the respondent in furthering its work and of his general value to the Organisation. It also appeared from the evidence that, prior to his appointment to paid employment, the respondent had devoted very many unpaid hours of work to the Organisation. 38 It is clear that his Honour placed considerable weight upon this aspect of the respondent's case and sought, in the sentence imposed to achieve a situation whereby the respondent could continue in this work and, at the same time, achieve a source of income from which worthwhile payments could be made to defray his defalcations. 39 It is the Crown's contention that his Honour in considering this aspect of the case was unduly favourable to the respondent. It is submitted that his Honour failed to have regard to the very serious criminality involved in the multiple misappropriations and the fraudulent steps taken by the respondent to cover them up. These matters were of such a serious nature that they could not be outweighed by the credit that could be given to the respondent for what he had achieved during the period of long delay between committal and sentence and the other mitigating factors in the case. 40 It is clear from his Honour's careful judgment that he gave full consideration to all matters relevant to sentencing in the case. He said: "The question for me is should I, in recognising the equation of punishment, deterrence and rehabilitation, allow the prisoner to continue his rehabilitation and contrition to the community, or impose upon him a full custodial sentence? This latter approach is backed by precedent, and justified by the principle of general deterrence…. Properly, prosecution Counsel emphasised on behalf of the community that a full-time custodial sentence should be imposed. The Court would not expect otherwise. But, just as there are good reasons for imposing on tax and Social Security cheats a full custodial sentence, because they are easy to commit but hard to detect, so there are always cases where, on balancing all the factors, it is more appropriate to impose a lesser punishment than full-time custody. This case is one of them." 41 After considerable hesitation, occasioned by the objective gravity of the respondent's offences, I have come to the conclusion that his Honour's sentence should not be disturbed. In so doing, I have been influenced, as was his Honour, by the extensive period of delay which occurred, during which the respondent has significantly rehabilitated himself and become a useful member of society. In R v Todd, (1982) 2 NSWLR 517 Street CJ (at 519-520) spoke of the fact "that sentencing for a stale crime, long after the committing of the offences, calls for a considerable measure of understanding and flexibility of approach - passage of time between events and sentence, when lengthy, will often lead to considerations of fairness to the prisoner in his present situation playing a dominant role in the determination of what should be done in the matter of sentence; at times this can require what might otherwise be a quite undue degree of leniency being extended to the prisoner." The statement was made in the context of a prisoner's having achieved significant rehabilitation during the period of delay. 42 In the recent case of Director of Public Prosecutions v Hamman, CCA unreported 1 December 1998, the above passage from Todd was cited with approval, the Court referring (at p. 50) "to a lengthy postponement before sentence and the need in fairness to give weight to the progress of rehabilitation during this time and to the circumstance that the person concerned had been left in a state of uncertain suspense as to what would happen." 43 It may be noted that the respondent has already served a not inconsiderable part of the sentence of periodic detention imposed by Twigg DCJ. I am not persuaded that his Honour's sentence should be disturbed in any way. Consequently, I would propose that the appeal be dismissed. 44 There is an application for leave to appeal on behalf of the respondent. It is based purely on the circumstances that his Honour did not divide the period of three years imprisonment into minimum and additional terms. The overall structure of sentence was to impose a span of periodic imprisonment with a continuation thereafter of recognizance conditions. It is plain that there is no practicality in parole and recognizance running concurrently and it can be readily inferred that that is why the service of periodic detention over three years as a fixed term was ordered and the absence of expression of this is of no consequence. Leave to appeal should be refused.

Regina v Houlton

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