MONDAY 18 APRIL 2005
REGINA v LLOYD JOHN SCOTT
Judgment
1 HOWIE J: The respondent pleaded guilty before Judge Finnane QC (the Judge) to three offences each alleging that, being a director of a body corporate, he presented a false invoice with intent to defraud. Each offence was a breach of s 176A of the Crimes Act in respect of which the maximum penalty prescribed is imprisonment for 10 years. The Judge sentenced the respondent on each offence to imprisonment for 2 years 6 months with a non-parole period of 22 months and 15 days. The sentences were made concurrent with each other and were to be served by way of periodic detention. The Crown has appealed against the sentences asserting that there were errors in the exercise of the Judge's discretion and that the sentences are manifestly inadequate.
2 Each of the victims of the three offences was a finance corporation being, in respect of the first and third counts, the National Australia Bank and in the second count, Suncorp Metway Limited (Suncorp). The offences were committed in January 2001 when the respondent operated a business named Lloyd Scott Enterprises Pty Limited (LSE). In each case the respondent falsely pretended to the finance corporations that he had purchased equipment for the purposes of LSE and as a result received payments under agreements whereby the corporations purchased the equipment and leased it back to LSE. In each case the respondent used forged invoices and made false statutory declarations to cause the corporations to believe that the equipment had been purchased by LSE. By this fraudulent conduct the respondent obtained a total sum of $4,700,065.62.
3 The facts before the Judge can be summarised for present purposes as follows. In 1984 LSE commenced operation in the Hunter Region in the business of selling and leasing photocopying equipment. It was the agency in the region for Rank Xerox. At the height of its business the company traded from premises in Hamilton, Armidale and Tamworth and employed about 120 persons. The sole director and shareholder of the company was the respondent, a certified accountant.
4 In the course of its business LSE acquired equipment, such as photocopiers, facsimile machines, printers and other types of office apparatus, directly from a supplier. In order to pay for the equipment LSE entered into an agreement with a finance corporation (the financier) whereby the financier would purchase the equipment from LSE and then lease the equipment back to the company. In order to receive these funds LSE had to provide the financier with an invoice from the supplier as proof of purchase of the equipment. LSE would then rent the equipment to its customers, such as local councils and schools, under a contract for supply and service of the equipment and use the rental payments to repay the finance company. From 1994 one of the financiers used by LSE was Suncorp.
5 In December 2000 the respondent contacted Suncorp about a loan of $3,000,000 to fund the purchase of Xerox equipment. To this end a meeting was held in January 2001 between the respondent and representatives of Suncorp. The respondent pretended that he had recently purchased seven items from Fuji Xerox and that it had already been hired out to customers of the company. The respondent provided Suncorp with seven invoices for the purchases. In truth the company had purchased none of the equipment.
6 Suncorp, relying upon the invoices and other information as to the company's liquidity, entered into agreements with LSE for the purchase of the equipment. As part of these agreements the respondent provided a statutory declaration to the effect that the company owned the equipment. On 10 January 2001 Suncorp advanced $3,300,000 to LSE under seven Asset Purchase Agreements with the company. Payments were made between 11 February and 11 June 2001. These facts relate to the second count on the indictment. As a result of the commission of the offence, Suncorp suffered a loss of $3,381,437.62.
7 At the same time that the respondent was seeking finances from Suncorp, he was also in negotiations with the National Australia Bank (the Bank) for a sale and lease back agreement for two pieces of equipment allegedly purchased by LSE from Fuji Xerox. The respondent supplied the Bank with two forged invoices for the items each showing a purchase price of $422,284.50. As a result the Bank entered into an agreement with LSE to purchase and lease back the equipment. In order to secure the agreement the respondent made a statutory declaration to the effect that LSE was the owner of the equipment. As a result of the agreement, the Bank paid to LSE the sum of $844,569. The company made repayments to the bank totalling $84,275.85, the last payment being made on 15 June 2001. These facts give rise to the first count in the indictment. The loss suffered by the Bank as a result of the offence was $787,708.78.
8 On 24 January 2001 the respondent sent to the Bank three forged invoices to support a request for a purchase and lease back agreement for the purchase by LSE of three items from Fuji Xerox. Two of the invoices were dated 24 January 2001 for a purchase price of $322,000 and one was dated 7 August 2000 for $396,000. On the basis of these documents, the Bank entered into an agreement to purchase and lease back the three items of equipment. To secure that agreement the respondent made a statutory declaration to the effect that LSE owned the property. As a result of the agreement the Bank paid $315,392 to the company. These facts support the third count on the indictment.
9 On 25 June 2001 LSE went into voluntary liquidation with debts totalling over $18 million.
10 On 29 June 2001 the respondent attended Newcastle Police station with a solicitor. He entered into a recorded interview in which he made admissions as to fraudulent activity generally since 1999, and in particular the frauds perpetrated by him in January 2001. During the course of that interview the respondent explained that LSE was in financial difficulties and he became unwell. He learned in December 2000 that a Mareva injunction had been taken out over the company's bank accounts by a finance company to which LSE was in debt. He came under pressure to repay large sums of money to that company and entered into the agreements with the Bank and Suncorp in order to try to remedy the situation. He explained that there had been a "snowballing effect" with his financial difficulties and that he was "trying to keep a business afloat that supports 120, 130 people". He told police that he was prepared to help them with details of his financial affairs and to supply an "audit trail". The interview involved more than 250 questions and finished with the police indicating that they would want to speak to the respondent again. The respondent offered to assist police in the future. He was not charged with any offence on that day.
11 The police never sought to interview the respondent again despite attempts by him to ascertain what was happening with the investigations. He was not charged with the present offences until December 2003. He pleaded guilty in the Local Court on 21 January 2004 and was committed for sentence to the District Court. However, the matter was not dealt with, despite two earlier hearing dates, until it came before Judge Finnane in December 2004. The respondent was indicted for the three offences because of deficiencies in the committal document and pleaded guilty on arraignment. Sentence was imposed on 21 January 2005, four years after the commission of the offences.
12 The respondent gave evidence before the Judge to the following effect. LSE was originally set up to sell and service Xerox equipment with a staff of about six persons. It later branched into other ventures including running a cattle property, operating a printing business and managing a horse stud. In the late 1990's the cattle business began to drain funds from the company and adversely affected its cash flow. That part of the business was sold in 1999 but by then a venture in breeding ponies had begun absorbing capital from the company. In 1996 the respondent began an airline company in Canberra with four aircraft. This business also had a negative impact upon LSE's capital reserves. LSE had loaned money to other companies operated by the respondent resulting in the writing off of loans in excess of $3 million in 1999. The respondent had also undergone a divorce in 1990 and the accompanying property settlement had placed a strain on the finances of the business.
13 The respondent gave evidence that all but $700 of the money received by him from the offences was paid into his solicitor's trust account for payment out to the finance company that had obtained the Mareva injunction over the company's bank accounts or its solicitors. There was a letter in evidence dated 24 March 2004, from the liquidator of LSE indicating that the respondent had been assisting in relation to proceedings for the recovery of the money paid to that company.
14 The respondent had no dealings with LSE after June 2001 and was made bankrupt in August 2001. There had been no payments to his creditors.
15 These were the significant facts and circumstances surrounding the offences for which the respondent was to be sentenced by Judge Finnane. There is a fundamental and immutable principle of sentencing that the sentence imposed must ultimately reflect the objective seriousness of the offence committed and there must be a reasonable proportionality between the sentence passed and the circumstances of the crime committed. This principle arose under the common law: R v Geddes (1936) SR (NSW) 554 and R v Dodd (1991) 57 A Crim R 349. It now finds statutory expression in the acknowledgment in s 3A of the Crimes (Sentencing Procedure) Act that one of the purposes of punishment is "to ensure that an offender is adequately punished". The section also recognises that a further purpose of punishment is "to denounce the conduct of the offender".
16 On the face of it, it is difficult, if not impossible, to see how a sentence to be served by way of periodic detention could possibly reflect the objective seriousness of the offences committed by the respondent. The criminal conduct for which the respondent was to be punished involved three separate acts of fraud as part of a planned course of deception utilising forged documents and false statutory declarations for the purpose of obtaining almost $4,500,000. His Honour described what the respondent did as being "carefully planned and carried out". He also found that "the scheme was clever" and that "it was not something that could be done by a person other than a person very skilled in the financial world". In light of those findings it is even more remarkable that the Judge could have formed the view that any sentence other than one of full-time custody would adequately punish the respondent or denounce his criminal conduct.
17 True it was that the respondent did not personally receive the proceeds of the frauds and that it went to LSE in an endeavour to repay some of the outstanding debts. It can also be accepted that the respondent was concerned with the staff employed by LSE and that they should not suffer as a result of the company failing. But these are matters that do little to mitigate the seriousness of the respondent's criminal conduct. It might be the case that the offences would be more serious if they had been committed because of greed on the part of the respondent. But the simple fact is that the respondent set out on a planned and calculated course of criminal conduct to defraud the victims of a very substantial amount of money in a situation where he must have known that realistically there was little or no chance of it being repaid. He was simply buying time at the expense of financial corporations that had developed trust in him because of their previous dealings with the company.
18 The Judge seemed to be astute to these considerations. During the course of his remarks, the Judge acknowledged that the respondent had acted under the personal strain of having to repay money owed by the company in order to stave off its collapse with financial repercussions for the staff. He also found that the genesis of the company's difficulties was an over-extension of its business interests. His Honour then stated: