Regina v Johnstone

LOWER COURT District Court JURISDICTION : LOWER COURT 03/11/0272 FILE NUMBER(S) : LOWER COURT Karpin DCJ JUDICIAL OFFICER :

IN THE COURT OF CRIMINAL APPEAL 2004/1828

MASON P SULLY J SPERLING J

10 September 2004 REGINA v ROBERT GARY JOHNSTONE Judgment 1 MASON P: I agree with Sully J. 2 SULLY J: In April 2003 Mr. Johnstone, the present applicant, pleaded guilty in the Local Court to a large number of charges each of which alleged, put simply, the commission by the applicant of an act of commercial fraud. The applicant was committed accordingly to the District Court for sentence. 3 The proceedings on sentence in the District Court came on for hearing in the first instance on 18 July 2003 before her Honour Judge Karpin. The Crown Prosecutor indicated an intention to present a formal indictment against the applicant notwithstanding his pleas in the Local Court. It is not entirely clear to me from a reading of the available transcript why it was thought necessary to present an indictment; but after some desultory discussion about the matter it seems to have been generally agreed that there would be no objection raised by the applicant to his formal arraignment before her Honour provided only that such arraignment did not in any way detract from the applicant's contention, with the substance of which the Crown agreed in any event, that the pleas of guilty upon which the applicant would stand in due course for sentence had been entered at the earliest practicable opportunity. The balance of the available Court time on 18 July was occupied by the formal tendering of the materials in the Crown case and by the calling of a deal of evidence in the applicant's case. The proceedings on sentence were then adjourned part-heard until 5 December 2003. 4 On that day the proceedings commenced with the formal arraignment of the applicant. An indictment containing 20 counts was then presented against him. 5 The first count charged the applicant with having recklessly made a statement that was false or misleading, thereby inducing a named person to deal in securities, namely to subscribe for an interest in a managed investment scheme, namely a fund operated by Financial Options Group Inc Pty Limited, which I shall hereinafter refer to as FOGI. Such an offence contravenes section 1000 of the Corporations Act 2001 (C'th) and it attracts upon conviction a statutory maximum penalty of, relevantly, imprisonment for 5 years. 6 The second count charged the applicant with having given information to an officer of the Australian Securities and Investments Commission being information which was false or misleading in a material particular. Such an offence contravenes section 64(1) of the Australian Securities Commission Act 1989 (C'th); and attracts upon conviction a statutory maximum penalty of, relevantly, imprisonment for 2 years. 7 Counts 3 to 20 both inclusive each charged that the applicant, being at the material times a director of FOGI, concurred in circulating a written statement which he knew to be false in a material particular with intent to deceive a creditor of FOGI. Such an offence contravenes section 176 of the Crimes Act 1900 (NSW); and attracts upon conviction a statutory maximum penalty of imprisonment for 10 years. 8 The applicant pleaded guilty to each of those 20 counts in the indictment. 9 The applicant asked Judge Karpin to take into account, when dealing with the offence charged under count 1, a further and related breach of the Corporations Act; and her Honour did so. 10 The applicant further asked her Honour to take into account, when dealing with the offence charged in count 2 of the indictment, a further and related breach of the Australian Securities Commission Act; and her Honour did so. 11 The applicant stood eventually for sentence on 12 March 2004. Her Honour imposed 20 separate sentences structured so as to produce overall an effective head sentence of imprisonment for 4 years and an effective non-parole period of 2-1/2 years. 12 The applicant seeks leave to appeal against the asserted severity of those sentences. In oral submissions before this Court, the applicant contended that both the effective head sentence and the effective non-parole period should be revised and reduced by this Court; but he contended in the alternative that at the very least the non-parole period should be so revised and reduced. 13 I adopt gratefully the following summary, taken from Judge Karpin's remarks on sentence, of the material facts: "The facts of these matters are that Financial Options Group Incorporated Pty Limited, (FOGI), was incorporated on 7 December 1987. Robert Walker was instrumental in setting up the company and was a director from the company's inception. The prisoner was appointed a director on 1 November 1999. The prisoner had known Walker for approximately ten years prior to that time. The prisoner is a chartered accountant. He was responsible for maintaining FOGI's books of account, including trade ledgers, transaction files and accounting entries on the MYOB accounting system. He also assisted with investment decisions. FOGI held itself out as providing financial services to its customers. Over the period during which these offences were committed Walker was the managing director and the prisoner was designated finance director. A corporate brochure for FOGI dated September 1999 used to market the company to prospective investors, claimed that the company's business was to provide, "Professional investment management in non regulated foreign exchange bullion and base metal markets." It was said that the company had, "Extensive experience and expertise to identify market trading opportunities for clients." It was also claimed that the company sought to provide a superior annual rate of return to clients compared with traditional investments in property, shares or fixed interest. Using a heading "Investment Strategy", the brochure referred to "disciplined risk management within a diversified portfolio". The company maintained that it employed a "stop loss criteria" in risk management. In reliance upon the claims made in the brochure augmented by assurances from Walker and on occasion from the prisoner, a number of investors paid money to FOGI and signed agreements with the company. A monthly report was forwarded to each investor together with an account statement showing the cumulative account balances after payment by FOGI of a return on the principal investment. Each month the report set out the monthly rate of return applicable to that month together with a statement of return to the client after deduction of fees and GST for the relevant month. Statements were made in these monthly reports which sought to explain the current financial position and returns offered by FOGI. For example only, "Both our short-term tactical financial markets trading and the longer term strategic financial markets positions contributed positively to our monthly performance." Monthly reports in this form were sent to investors between 8 February and 4 December 2001, there being no reports in September 2000, or in February, May, October and November 2001. The brochure set out the qualifications and banking investment history of both of the directors. The prisoner is described as being a member of the Institute of Chartered Accountants and holding degrees of Bachelor of Business and Master of Taxation Law and Master of Business Law. He is further described as having gained extensive financial marketing experience as Chief Financial Officer of a large international trading and broking group attending to accounting, credit and compliance matters in the financial and commodity traded markets. His experience and qualifications are said to have provided him with a "practical insight, not only in respect of the physical trading but also a legal insight as to how the financial markets operate in Australia and international jurisdictions." It was noted that he was approved by ASIC to act as reconciliations officer under the Managed Investment Act . Minimum deposits of $25,000 were invited from investors. Any additional deposits were to be made in multiples of $25,000. The brochure provided that funds would be at call and paid by cheque within 24 hours minimum of written instructions from the client requesting withdrawal. The monthly statements, the subject matter of counts 3 to 20 in the indictment were in each case signed by the prisoner and Walker. The modus operandi adopted by the prisoner and Walker was constituted by the issuing of the brochure seeking investments, the monthly investment reports together with verbal statements by both the prisoner and Walker." 14 Her Honour, following the foregoing analysis of the facts, considered in more detail the particular facts of several of the relevant dealings with investors, her Honour using those particular matters as examples representative of the scale of the relevant FOGI operations; and fairly representative, also, of the extent of the losses suffered by various of the particular defrauded investors. Her Honour concluded: "Through these means the prisoner obtained about 1.15 million in a very short period. The total amount involved in the matters before the court now is approximately 1.9 million." 15 Three particular grounds were argued in support of the present application. Before considering them in detail, it is, in my opinion, appropriate to say at once, and with all proper firmness, that criminal activities of the kind previously herein described are, in terms of their objective culpability, no trifling matter. Commercial fraud of that kind and scale is not victimless crime. The investors who were effectively defrauded by the applicant's activities were real people who suffered real losses having, in at least some of the particular cases, serious personal repercussions. There is, of course, the added consideration of the broader public interest in ensuring that persons in positions of commercial trust, as the applicant undoubtedly was, do not abuse that trust and thereby weaken the general confidence of the investing community in the commercial and financial institutions the activities of which have a fundamentally important role to play in maintaining the economic well-being of the community in general. 16 The applicant contended in part, in his submissions to this Court, that he had been in a real sense overawed by his fellow offender Robert Walker. This consideration tended, so it was submitted, to mitigate at least to some degree the applicant's objective criminality; and to bolster at least to some degree the subjective matters that were available to be prayed in aid by the applicant. 17 I am unpersuaded by that part of the applicant's submissions. The applicant was aged about 33 years at the material times. He was a chartered accountant: that is to say, he was a member of an honourable profession with all that is thereby entailed in terms of legitimate expectation as to his personal and professional ethics and honesty. He had other academic and professional qualifications which were summarised by Judge Karpin in the previously extracted passages from her Honour's remarks on sentence. As to his particular knowledge at particular material times, it is not necessary to travel beyond paragraph 12 of the Statement of Facts that the Crown tendered without objection to the learned sentencing Judge. It is a lengthy paragraph which is reproduced at page 120 of Volume 1 of the Appeal Book, and it is not necessary to set out now its precise detail. 18 It was submitted for the applicant that there were three bases upon which this Court would be justified in setting aside the sentences passed by Judge Karpin, and in thereupon re-sentencing the applicant to other and more lenient sentences.

Ground 1 19 The Ground is: "Her Honour erred in not affording the applicant the maximum discount available for his plea of guilty." 20 Her Honour gave the applicant the benefit of a 15 per cent discount for his pleas of guilty "……….. having regard to the point at which . …..(they were) ……made and the negotiations which preceded ….. (them)……" 21 The submissions of the applicant rest upon the principles established by the guideline decision of this Court in R v Thomson and Houlton (2000) 49 NSWLR 383. It was submitted for the appellant that, having entered his pleas of guilty at the earliest practicable opportunity, and any prospective trial in the absence of such pleas having been likely to be a lengthy and complex one, he had a legitimate expectation that the discount given to him would be either the guideline maximum of 25 per cent, or a discount quantified at a point very close to that maximum point. The applicant did not dispute that a sentencing Judge has a broad discretion in the matter of quantifying any discount of sentence, including a discount in recognition of pleas of guilty. It was submitted, however, that if a sentencing Judge proposes in a case of the present kind to give a discount as low as 15 per cent rather than one as high as 25 per cent or thereabouts, then the sentencing Judge ought, at the very least, to expose a process of reasoning supportive of the discretionary decision to choose the lower rather than the higher discount figure. 22 The basic principle established by the guideline judgment is clear enough. As expressed in the leading judgment of the Court, that of the Chief Justice, it is this: "The utilitarian value of a plea to the criminal justice system should generally be assessed in the range of 10-25 per cent discount on sentence." 23 That bald proposition, now conventionally relied upon by applicants who are dissatisfied with what they have received in recognition of their pleas of guilty, needs to be understood sensibly in the context of qualifying principles some of which are to be found in the guideline judgment itself, and others of which are principles derived from the general law of sentencing in criminal cases. 24 First, the guideline judgment is precisely that: that is to say, it gives an indicative guideline and not a prescriptive tariff. So much has been stressed repeatedly by variously constituted Benches of the Court of Criminal Appeal ever since the first guideline judgment was brought down. 25 Secondly, the quantification of a discount for a plea of guilty involves the exercise of a judicial discretion. The discretion must be exercised with a dutiful regard to the indicative guidance given by the particular guideline judgment; but the guideline judgment does not of itself relieve a sentencing Judge of the duty to assess the extent of a proper discount having regard to the whole of the relevant facts and circumstances. As the Chief Justice himself says at paragraph 159 of his judgment in Thomson and Houlton: "Appeals against severity or leniency of sentence focus on the range which is appropriate to the particular case, not on the range appropriate for pleas in the full variety of circumstances." 26 It is trite that the exercise, apparently dutiful and regular, of a judicial discretion will not be interfered with lightly by an appellate Court. 27 Thirdly, in a case such as the present case where a discount is sought in recognition of pleas of guilty, and a further and very substantial discount is claimed in recognition of assistance to law enforcement authorities, the sound quantification of each such claimed discount must not be allowed, either by the primary sentencing Judge or by this Court on appeal, to degenerate into a mere and arid exercise in forensic mathematics. As Simpson J remarked in her Honour's judgment in N.P (2003) NSWCCA 195 at paragraph 49: "Sentencing judges (as in this case) have to balance the need to impose proper punishment with the need to recognise the benefits to the criminal justice system gained by pleas of guilty and assistance to authorities. The correct balance is not always easy to achieve." 28 In my opinion, her Honour's approach to the quantification of the particular discount to be allowed in recognition of the applicant's pleas of guilty is attended by error; but for my own part I would not find the error, either explicitly or implicitly, in the bare figure of 15 per cent upon which her Honour settled. It seems to me, rather, that the error lies in the total absence of any explanation of the decision to set the figure at 15 per cent rather than at a figure of or approaching 25 per cent. That is not to say that there was, in my view, any need for a page or two of discursive argument and analysis. I do think, however, that the thrust of the guideline judgment in Thomson and Houlton does entail that in a case of the present kind a sentencing Judge might well come to the conclusion that there were factors, whether individual factors or a number of factors taken in combination, justifying a discount of less, and even significantly less, than the guideline maximum of 25 per cent; but it seems to me to be in accord with relevant principle that a sentencing Judge who has concluded that a just discount is at the lower rather than at the higher end of the guideline range, ought to give at least a brief, clear and simple explanation of the process of reasoning that has led the Judge to that conclusion. 29 To that extent, but to that extent only, I think that the applicant has made good Ground 1. Before considering the practical consequences of that conclusion, it is necessary to attend to the remaining two grounds of the application.

Ground 2 30 The Ground is: "Her Honour erred in not applying a greater discount for assistance given by the applicant." 31 Her Honour recognised, correctly in my respectful view, that the applicant was plainly entitled to some proper recognition on this score. Her Honour set the discounting figure at 35 per cent, apportioning the figure between a discount of 10 per cent for past assistance and 25 per cent for future assistance. I think that, as a practical matter, nothing turns for present purposes upon that apportionment. The real question for present consideration is whether the figure of 35 per cent is or is not sustainable. 32 There are, I believe, sound reasons of practical common sense why it is neither necessary nor desirable to dilate upon the nature and extent of the relevant assistance. It suffices to recognise that the assistance was real, substantial, and likely to be of real assistance in the relevant context. 33 In connection with this particular discount the learned sentencing Judge was, however, constrained by statute not to give a discount that was unreasonably disproportionate to the criminality of the particular offender. That entailed, in practical terms, that her Honour had to exercise judicially a very broad discretion upon a very difficult topic. It was important, of course, to recognise and to give proper practical effect to the public interest to ensure that those offenders who are in a position to assist the proper enforcement of the law do in fact come forward and give that assistance; but it was, in my opinion, equally incumbent upon her Honour to bring into a just balance with that public interest consideration the further, and not always easily reconciled, public interest to have preserved general public confidence in the administration of justice according to law. In that connection, it was in my opinion appropriate for her Honour to take into account the fact that there were to be, in the applicant's particular case, two separate and not insignificant discounts of an otherwise proper sentence. That very fact called, without more, for appropriate care and circumspection lest the aggregated discount yielded an end result that a reasonably, and reasonably informed, person might justifiably regard as quite insufficient to deal with serious, persistent, fraudulent conduct involving egregious breaches of commercial and professional trust. 34 I am wholly unpersuaded that the figure of 35 per cent was not within the range of a sound exercise of the relevant discretion. I would not uphold Ground 2.

Ground 3 35 The ground is: "Her Honour erred in not giving adequate consideration to the issue of reparation." 36 As her Honour pointed out in her remarks on sentence, the offences with which she was dealing entailed losses caused fraudulently to innocent investors of sums aggregating in the order of 1.9 million dollars. As her Honour further found, sums totalling in the order of 1.15 million dollars had flowed in one beneficial form or another to the applicant. 37 In my opinion, it suffices for present purposes to observe that the evidence does not disclose whether any, and if so how much, of the 1.15 million dollars has been repaid, or is likely to be repaid, to the investors who were the victims of the relevant fraudulent acts of the applicant. The evidence certainly does not establish, as it seems to me, that the applicant has made, at real personal cost to himself and out of his own resources, either any, or any significant, restitution to the victims of his fraud. 38 The submissions put to this Court on behalf of the appellant drew attention to the personal, professional and financial adversities which the applicant had suffered and which he is likely to continue to suffer. It is, in my view, proper to take such matters into consideration in a broad sense when assessing the relevant subjective aspects of the applicant's case; but considerations of that kind do not seem to me to go to the matter of reparation in the sense of restitution, as I have previously described it, to the victims of the fraud. 39 In my opinion Ground 3 has not been made good.

Conclusions and Orders 40 The conclusions to which I have come upon the three particular grounds which were argued in support of the application, entail a need now to consider whether the error which I have identified in connection with Ground 1 brings about a situation in which it would be proper for this Court to intervene upon the basis that, as provided by section 6(3) of the Criminal Appeal Act 1912 (NSW), another and more lenient sentence is "warranted in law". 41 I am wholly unpersuaded that this Court should intervene upon that basis. An overall discounting of otherwise proper sentences by 50 per cent seems to me to have given the applicant fair measure for all those considerations in the light of which he was entitled to particular discounts. I acknowledge the subjective matters that were urged both at first instance and on appeal; and I acknowledge that there is a proper weight, and a not merely insignificant weight, to be given to them in the proper scheme of things. I keep in mind also, however, what seems to me to be the significant objective criminality of the applicant's fraudulent conduct. Bringing all of those considerations to account as best I can, I simply cannot accept a proposition that an effective head sentence of imprisonment for 4 years and an effective non-parole period of 2-1/2 years are so excessive that other and more lenient sentences are warranted in law. 42 In my opinion leave to appeal against sentence should be granted. The appeal against sentence should be dismissed.

43 Sperling J: I agree with Sully J's opinion that the failure to give reasons for a discount of 15 per cent for the utilitarian value of the pleas of guilty, rather than 25 per cent or something in that order, was an error in the circumstances of this case. 44 The pleas were entered at the earliest possible time and the case was complex with the prospect of a lengthy trial. Those were the circumstances which, it was said in Thomson and Houlton (2000) 49 NSWLR 383, at [153], will generally affect the appropriate level of discount. The timing of the plea was said, at [160], to be the primary consideration in determining where in the range of 10 to 25 per cent a particular case should fall. 45 However, it was also said in Thomson and Houlton, at [160], that in some cases, in combination with other relevant factors, a plea of guilty will not lead to any discount at all. A fortiori, in some cases, a plea of guilty, in combination with other relevant factors, will not attract the discount which would be appropriate in isolation. If a discount which may be appropriate in isolation would reduce the sentence below that warranted for the offence, priority has to be given to setting an appropriate sentence.

46 I am in agreement with Sully J that, in the present case, a lesser sentence than that imposed would not be appropriate and with his reasons for that opinion. 47 I agree with the orders proposed by Sully J. **********

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