District Court New South Wales Medium Neutral Citation: Regina v Geoffrey Francis Smith [2014] NSWDC 140 Hearing dates: 19 June, 21 August 2014 Decision date: 25 August 2014 Before: Judge MJ Finnane QC Decision: See paragraph [68] Catchwords: CRIME - plea of guilty - sentence - fraud - offence - corporation - fraud whilst officer of body corporate - revenue - misuse of credit card FRAUD - elements of offence - intent to commit fraud - repayment of monies used for private expenses - further commission of fraud OTHER - imprisonment - effect of imprisonment on third parties - mitigating factors - health of family member - public opinion and humiliation - humiliation within community - agreed facts - plea bargain Cases Cited: Regina v Cynthia Edwards NSWCCA (1996) 90 A Crim 510 R v Uzabeaga [2000] NSWCCA 381 Marcus Richard Einfeld v Regina [2010] NSWCCA 87 Kenny v R [2010] NSWCCA 6 Regina v Raymond Reginald Williams [2005] NSWSC 315 Regina v Rodney Stephen Adler [2005] NSWSC 274 Thomson v R [2014] NSWCCA 88 Category: Principal judgment Parties: Regina (Crown) Geoffrey Francis Smith (Offender) Representation: Ms S Bowers (Crown) Mr P Strickland SC (Offender) S Kavanagh, Solicitor for Public Prosecutions (Crown) DLA Piper (Offender) File Number(s): 2011/370149 Judgment 1Geoffrey Francis Smith is charged with one offence of cheating and defrauding Sydney Ferries Corporation, to wit whilst being an officer of a body corporate. He pleaded guilty to this offence. The indictment charges an offence commencing in 2006 and concluding in 2009. I have been asked to take into account an offence contained in a Form 1 Schedule of knowingly making a false statement to a shareholder. The statement was a false statement in writing made to the Minister of Transport that a credit card issued to him by Sydney Ferries Corporation, was being used in conformity with promulgated policy.1 2The evidence put before me shows that from the time he became Chief Executive Officer of Sydney Ferries, he used a Government issued credit card to pay large sums to himself for private purposes. 3He commenced to make use of this credit card from 12 September 20062 although he had signed a document in August of that year agreeing that he would not use the credit card for payment of private expenses. He continued to use this card until he was stopped from doing so. 4However, as part of a negotiated plea bargain, the Crown agreed with his lawyers that the charge should relate only to use of the credit card from May 2008, because in June 2008, he repaid all but $23.223 of the amount he had taken by that time, that is the amounts owing up to April 2008. In total a sum of $ 128, 753.084. 5The Crown Prosecutor told me in submissions that the Crown accepted that it could not prove beyond reasonable doubt that the amounts he took before May 2008 were taken fraudulently, because he had indicated to his staff from the beginning that he would repay any moneys obtained by his using the credit card for private purposes. 6The Crown said that he faced sentence only for the fraudulent use of the credit card from May 2008. When I asked why it was that I was given extensive information showing misuse of the credit card between September 2006 and May 2008, the Crown Prosecutor told me that this was background information designed to show that as at May 2008, the offender's financial position was dire and what he did thereafter was clearly dishonest and fraudulent. 7My impression before this was explained on 21 August, was that the Crown was alleging that the offender had been involved in frauds since September 2006, since the indictment charged an offence commited between 11 September 2006 and 27 May 2009. Both the Crown Prosecutor and Mr Strickland SC (counsel for the offender) told me, when I pointed out that despite their claimed plea bargain, the indictment remained unchanged from the time it was first presented against him, that these were just formal dates. It is common when the Crown decides to accept a plea to an offence other than that which is charged, to prepare a fresh indictment and ask the accused to plead to it. That should have been done in this case, and in my opinion, the agreed facts should not have been presented in such a way to suggest criminality for a greater period than was charged. 8I do not accept what counsel for both the Crown and the Offender have put to me. Clearly the September date, as contained on the indictment presented before me in these proceedings, was chosen originally to enable fraud to be alleged from September. It was not chosen as a formal date at all. 9Of course, it is clear that a Judge does not have to accept what the parties agree are the facts5 and I raised with both counsel the question whether I was bound by their plea agreement, since the indictment was not amended and facts were presented consistent with the frauds starting in September 2006. 10However, in the system of justice that applies in New South Wales and indeed, in the whole of Australia, it is entirely a matter for the Crown to decide what offences are prosecuted. If it decides that it will not prosecute what look to be criminal offences, then a Court must accept that decision. As a judge, I can deal only with offences brought before me for sentence. The single count with which he was charged is a 'rolled up' count. It embraces many specific frauds, that could have been charged separately. What the Crown has done is to agree that it will not proceed against him for any matter before May 2008. As they refuse to proceed on the matters before 2008, it follows that I must sentence only for what the offender did from May 2008. I must accept that he committed no crimes before 2008 and must pass sentence on him for crimes committed after May 2008 during a period of approximately ten months. In my opinion, that must affect the sentence I impose. Facts of the offences 11During the period of his committing the frauds, the offender was the Chief Executive Officer of Sydney Ferries Corporation. The offences he committed were a major breach of trust. They were dishonest. He had become the Chief Executive Officer because the Government of the day was obviously impressed with his previous roles. He had been the Deputy Chief of the Naval Staff from 1999 to 2000 and then had been appointed Maritime Commander of the Australian Fleet from 2000 to 2002. He held the rank of Rear Admiral. 12He then retired and worked at ADI Ltd, a company supplying defence equipment to the Armed Forces, as a consultant from 2003 until 2005. In this role he was responsible for developing and implementing for ADI, a Naval Strategy. He then worked as Strategy and Business Development Director for Thales Naval Australia. Again this was a job calling on his naval expertise. 13According to his own evidence about Sydney Ferries Corporation, "It was a troubled organisation"6. The organisation also had governance problems. He described them this way: A. There were issues of governance. Sydney Ferries at the time was a State-owned corporation. That was explained to me when I was recruited. I was asked to run it as a commercial business. That in itself created some issues because the fundamental policies and procedures that every organisation should have to underpin it either did not exist as a State-owned corporation or were not appropriate to the model that was now being asked of Sydney Ferries.7 14When he became the Chief Executive Officer on 21 August 2006, he realised that he was entitled to use a credit card paid for monthly by the Ferries. This entitled him to spend up to $10,000 a month, and on 31 August 2006, he signed a document that said, inter alia, " I ...acknowledge that the Card will only be used by me for business purposes, and not for private or personal purposes under circumstances"8. 15The card was issued on 12 September 2006 and on 27 October 2006, he signed another document that " outlined the responsibilities of the cardholder including the direction that " cards are used only for official business purposes" 9. 16On 26 March 2008, the offender authorised and signed the credit card procedures for the Sydney Ferries Corporation in his capacity as the Chief Executive Officer. These procedures state: "Credit cards are issued for official business purposes only. Holders of credit cards are personally accountable for ensuring that cards are used only for payment of the types of expenses for which they are intended and which are incurred on official business."10 17This policy remained in place during the whole of his term of office. 18He had commenced to use the issued credit card for payment of personal expenses on 21 September 2006 and was continuing to use it on 26 March 2008, the time he signed and authorised the procedures for credit cards that bound all other employees11. He continued to use it fraudulently after he assured the Minister for Transport that the card was being used in accordance with the policy.12 19The credit card policy that bound him was clear. There can be no doubt despite his claims to the contrary, that he understood fully at all times that he was bound by this policy. His fraudulent use of this card on numerous occasions after May 2008 was dishonest and he knew it was dishonest. He was appointed to the position of Chief Executive Officer "...with the intention of making the company as commercially sound as was possible and to improve the delivery of services, at the same time reducing the expense to the Government"13. 20At the time he took over control of the organisation, there was some turmoil because of two ferry collisions on Sydney Harbour. There were deaths and Mr Bret Walker SC was appointed to conduct an inquiry into the collisions .The inquiry lasted 5 months and took up a lot of the offender's time and that of his management team. 21However, it was Mr. Smith's choice to use the card from the time he took up office until the card was removed from him and he was dismissed. Mr. Walker's inquiry had nothing to do with his exercise of this choice. 22In many ways it is hard to think of a worse breach of trust because he was not just someone engaging in fraud but he was the most important official in the organisation and it was his duty to take steps to eliminate fraud in that organisation. 23What the offender did, to give a semblance of honesty, was to mark the monthly bank statements with a letter "R"14. This indicated that the item was a repayable item as a personal expense of his own. Other markings were used from time to time and by May 2008 he had repaid $128,729.86. From that time onwards he used the the credit card fraudulently but made no repayments at all. It is clear to me from the evidence, that he has no capacity ever to repay the amount taken after May 2008. Ultimately he was dismissed from his office on 26 May 2009 and proceedings were taken against him by the Crown Solicitor for the amount owing of $111,649.65 plus costs of $818. Before the Crown Solicitor could issue a bankruptcy notice against him he became a self declared bankrupt on 13 April 2010 with debts of over $400,000. He was discharged from bankruptcy on 14 April 2013,15 having failed to discharge any debt at all. 24The full detail of the amounts taken and the dates they were taken is contained in the Agreed Statement of Facts16. It is not necessary that I do any more than say that each month from May 2008 until he was stopped, he fraudulently used the credit card. 25The details of the fraud were referred to ICAC. ICAC published its full report in November 2009. It found the offender to be corrupt and recommended that the Director of Public Prosecutions be asked to advise whether he should be prosecuted. 26In December 2011, he was served with court attendance notices in relation to these current charges. 27Notwithstanding an overwhelming case against him, the offender chose to plead not guilty and to contest the proceedings before the Local Court. Ultimately, after a three-day committal hearing, he was committed for trial on 16 August 2013. The matter came for fixing of a trial date in the District Court on 30 August 2013 and he was committed for trial on 26 May 2014, with an estimate of a three-week trial. On 12 May 2014 he was arraigned and pleaded guilty to the count of fraud proffered against him and eventually came before me on 19 June 2014 for sentence. He is entitled to some discount on sentence because he pleaded guilty before the trial date but in my opinion, because he chose to plead guilty so late and the preparations for trial were clearly underway, the discount which is appropriate is 15%. Background material of the offender and facts presented on his behalf. 28The offender was born on 16 May 1950 and joined the Navy on 22 January 1968 as a cadet midshipman. He remained in the Navy for 34 years and retired with the rank of Rear Admiral. At the time he retired he was Maritime Commander of the Australian Fleet. For two years before this, he was Deputy Chief of the Navy. During his career he won a number of military decorations and was made a Member of the Order of Australia on 10 June 1996 and an Officer of the Order of the Australia on 26 January 2002. His career could be described justly as long and distinguished. In the course of his career he served on many ships and rose to a rank that was a very high one in the Navy. He said in evidence that he and his wife had moved their homes 32 times in the 34 years that he was in the Navy. 29He has academic qualifications in corporate management, a Master of Science and a Bachelor of Arts and, of course, he undertook and completed with distinction, many internal Navy courses. 30On his retirement, a dinner was held in his honour. The guests at the dinner signed a visitors book and a copy of what they signed was included with other material in the visitor's book and became evidence in the proceedings against him. There were many commendations of him and all persons spoke very highly of him. Those attending the dinner included a number of distinguished lawyers whom I know well. 31When the offender retired, the Chief of Navy in 2002, Vice Admiral Ritchie wrote him a letter of commendation. This letter spoke very highly of him as an officer and as a man. 32A number of references were tendered on his behalf and they included one from Vice Admiral Shackleton17 who had been Chief of Navy while the offender was the Maritime Commander of the Australian fleet. This reference spoke very well of him but also expressed regret at hearing of his involvement in the offence. He was also commended by Mr Hawkins18, the manager of a Bunnings warehouse and his supervisor in his current employment. Mr. Hawkins also gave evidence on his behalf to the effect that he was a very valued and trusted employee. Other references from a surgeon19, a friend of the family20, from his two sons21 and from his wife22 were also supplied. 33There can be no doubt, in my opinion, that apart from the frauds he committed during his term of office as Chief Executive Officer of Sydney Ferries, he was a man of exemplary good character and a very distinguished naval officer who had rendered great service on behalf of Australia. In every sense it is a tragedy that such a distinguished man should find himself facing sentence for fraud offences. 34What he has said himself in evidence is that over his long career in the Navy he moved house many times, causing disruption to his family and particularly to his wife. He had promised her that when he retired they would move to a house and live a stable life. It is entirely understandable that he would make this promise, just as it is understandable that he would want to make her comfortable in his retirement years. 35He purchased a house at St Ives in the names of himself and his wife in 2002, with a mortgage of $1,500,000. Each month from the time he joined Sydney Ferries, he was receiving his service pension and his income from Sydney Ferries. In February 2007, that combined monthly income was $18,979 and he owed $108,706.57 in addition to his mortgage debt. By this time, he clearly could not afford to continue to live in the house at St Ives. A glance at the columns of Table 1 to the Agreed Facts show his dire financial position at the time he became Chief Executive Officer of Sydney Ferries. He had a number of overdrafts and had borrowed a large amount from a close friend. His mortgage payments alone amounted to $11,500.00 per month. As well as this, he incurred considerable medical expenses because of his wife's bad health. Notwithstanding this, he borrowed more money in 2007 to put in a swimming pool and do some landscaping. He also leased two BMW motor cars, one for him and one for his wife. The car he used as his was one that he had at the time he left the Navy. At the time he got the second BMW, his wife was bedridden and could not drive. 36His explanation for spending money on landscaping and pool building was that "it was an error of judgment on my part"23. 37I put to him: Q. You think that because you were a former admiral you were entitled to live in a very big house with very plush surroundings? A. I don't think that at all your Honour in fact quite the opposite. My requirements are fairly small. We had the house I promised my wife. It was not completed when we bought it. We completed it and did these things. On reflection, I probably should not have done that."24 38To me, this answer evaded my question. 39The Crown Prosecutor put it to him that he could have sold his wife's car rather than defraud Sydney Ferries. He agreed that he could have done so and offered no explanation as to why he did not do so25. 40As well as using the money on his house and on cars,he used the money he took from Sydney Ferries to buy jewellery, pay for holidays, including to New Zealand, where he paid for all of his family. In his view, it was cheaper to go to Queenstown in New Zealand than to go to Thredbo for a skiing holiday26. 41His explanation for engaging in all of the fraudulent conduct was that he had no choice, because of the promises he had made to his wife. I return to this explanation later. 42He also gave evidence that in 2007, he had a valuation of $2.13 million for the house, but could not broach with his wife, the subject of selling it, because of her state of health and when he finally did sell it he received $1.86 million which was not enough to pay back Sydney Ferries. I accept there is evidence that he had a valuation of $2.13 million at this time and that a number of real estate agents considered that was a realistic selling price. 43He gave evidence that most unfortunately, his wife became very ill with depression in 2004.27 It was apparently very severe, causing her to be hospitalised and medicated for eight months from late 2004 until 2005. Part of her treatment involved electroconvulsive therapy. She continued to suffer from depression after she went home and in 2007, after she had complained of back pain, she was diagnosed with non Hodgkins lymphoma, a form of cancer. This led to operative treatment on her back and the insertion of rods in the back. She also had chemotherapy in 2007 and 2008 and according to the offender, while her cancer is in remission she is still in a fragile state. I have seen some medical reports28 confirming her treatment for cancer. Those reports show that she has been in remission for six years. I have seen no reports about her treatment for depression other than a mention in the report by Dr. David Chen29, but I would accept that his wife's health has been frail for a number of years now and that at times she has been bedridden. 44The sons of the offender and his wife have confirmed, in letters tendered in the offender's case, his evidence that he spent considerable time looking after her and that she very much depends on him and will be very upset if he is sentenced to imprisonment. 45This material was put forward, partly to explain his fraudulent conduct after May 2008 and partly to provide an evidentiary basis for arguing that his wife's health is so severely compromised that imprisoning him would create hardship to her. However, it was not urged that the hardship she would suffer from his imprisonment, if I order it would be exceptional. 46There is certainly authority that if imprisonment were to cause exceptional hardship to a family member, a sentence other than that of imprisonment could be chosen30. 47I feel very sorry for the offender's wife. She clearly did not know of his fraudulent conduct until shortly before he sold their home in September 2009. She has been a very ill person for some years and instead of having the retirement home of which she dreamed, she has no home at all and an uncertain state of future health. However, in my opinion, this is not a case of exceptional hardship, particularly since she has two sons who can help her and she will have the benefit of his pension of about $90,000 per annum to enable her to live. 48Moreover, the evidence shows that what he did was to buy a house that he could not afford, to buy two expensive motorcars that he could not afford, to spend money on improvements at the house and spend money on expensive family holidays. Although he retired on a reasonable pension, that would not have allowed him to do any of those things. The salary that he got as Chief Executive Officer of Sydney ferries was of the order of $344,000 per annum and that amount together with his pension clearly enabled him to live a comfortable life in a comfortable home with his wife and family but it did not allow him to live in the very expensive home that he purchased and to drive the very expensive cars that he purchased or leased. Clearly his lifestyle far exceeded his income and he chose from May 2008 onwards to engage in active fraud of Sydney Ferries. 49When he gave evidence he first explained how he started to use the cards and how he instructed his staff that he would repay any amounts that were his personal expenses. He eventually paid back the amounts incurred by him up to March 2008 but after May 2008 he made no repayments. He acknowledges in his evidence that he was living beyond his means from May 2008 onwards and explains his use of the credit card after that time in these words: "I really had no choice. I knew it had to be done. I had to sell the house. I had to get rid of the mortgages but I simply at that time in 2008 could not do so. So I was essentially juggling various cards and accounts that I had been using the corporate credit card."31. 50I asked him about this and he gave me an answer. "His Honour: Q. Sorry why could you not do that? A. Your Honour if I may, during my time in the Navy, I had 34 years in the Navy, my wife was with me for 26 years of those. We had 32 moves in that 26 years. She never asked for anything except that when the time came for me to retire we would buy a home and settle down and have a semi-normal life. It was the only thing she ever asked of me. When I retired in 2002 we bought the house and I fulfilled my promise to her in doing that. She then unfortunately became sick in the way that I've explained and in 2008 was in a very fragile mental and physical state and I was intensely worried that if I spoke to her about selling the house that it would have a profound effect on her, particularly in the mental sense and I feared a repeat of 2004. So I just could not approach her with that at that time. I knew I had to and I intended to as soon as I could and I did so eventually."32 51The offender had earlier given evidence of his wife's severe illness and I accept that she had severe illness in 2004. However, it is impossible to accept that he had no choice but to engage in active fraud because of promises made to his wife. It was his choice to adopt the lifestyle he adopted. 52The offender is a man of great talent, who in my opinion, regarded himself as being entitled to do what he did. 53An honest man faced with the fact that he could not really afford where he was living, would sell his house and take up accommodation that he could afford. In my opinion he cannot justifiably put forward an argument that his wife's illness entitled him to act fraudulently. 54His duty was to act honestly and give an example to all those in Sydney Ferries of honesty and accountability. 55He also sought to suggest that other organisations for whom he had worked had policies that enabled employees to use credit cards for personal expenses. Even if this were so, the clear policy of the New South Wales Government was that the credit card should not be used for anything but business expenses. In my opinion he knew full well at all times that he had no entitlement to use this credit card. 56He has claimed in evidence that he always intended to repay everything and indeed there is evidence that he did repay monies taken before March 2008. His explanation for not paying anything taken after that date was not credible. He has since offered to repay the money at the rate of $250 per month. In my opinion that is an offer of no substance whatsoever. Consideration of the submissions and principles on sentence 57Many people who engage in fraud claim that they always intended to repay the money and many of them put forward explanations as to why that was not possible. What he has done in evidence before me is similar to what many others have done. Even if he did repay the money, that would not excuse the frauds, though it might mitigate them somewhat. 58His dismissal from Sydney ferries was humiliating. He was called to meet the Director-General of the Premier's Department and he went there expecting that they would be talking about some matter of policy. Instead he was told that he was dismissed instantly and he was not to return to his office. There was then an inquiry conducted by the Independent Commission Against Corruption. That inquiry found him to be corrupt. Subsequently he was prosecuted. 59He was thus dismissed in humiliating circumstances and publicly exposed as being corrupt. He then found it very difficult to get employment and told me that he made 72 applications for employment. One application was successful but resulted in no employment because the would-be employer did not want to employ a corrupt individual. Eventually, Bunnings employed him and he was a very valuable employee according to Mr Hawkins his manager at Bunnings. Whilst he was there, the Sydney Daily Telegraph sent a photographer to the place where he worked for the purpose of photographing him. There was then an article about him in that newspaper, with the photo, describing where he worked and again reporting his corrupt activities33. 60His Senior Counsel urged upon me that all of this exposed him to extra curial punishment and this should go in mitigation of sentence. 61I do not regard any of this as being an extra -curial punishment. In my opinion, any prominent citizen who commits crime can expect as a normal consequence that what he does will attract a great deal of attention34. That does not entitle him to any lessening of sentence. There is an old saying: "To whom much is given, from him much is expected". The offender was someone to whom that saying applied. He achieved a high rank in the Navy; he was twice honoured in the Order of Australia awards. He received military decorations, degrees and diplomas from institutions of higher learning and he travelled the world. 62Unfortunately, there are many people who engage in fraud of whom it could be said that they were persons of high achievement and great prominence. I think particularly of members of the legal profession and persons associated with major public companies35. All of them can expect to receive appropriate punishment for the offences they committed. 63When the matter first came before me, I thought it was one that might warrant a sentence of two years imprisonment that could be served by way of an Intensive Correction Order. I should explain for the benefit of anyone who may be reading this judgment that an intensive correction order imposes severe restrictions on someone who is subject to it. That person has to wear a bracelet around his ankle and is subject to monitoring 24 hours a day. He is permitted to work, to attend shopping centres for the purposes of necessary shopping to attend medical appointments and in certain circumstances to engage in education activities but he is not allowed to engage in normal social activity in the community. He is confined to his home except when permitted to do approved activities and is subject to random checks on where he is. It is my practice when I impose such orders to ban the person concerned from consuming alcohol during the period of the order because that would be done if he were in gaol. 64I sought a report on whether this might be appropriate and I have received a report saying that he would be appropriate as a person to receive such an order. In my opinion, I was entitled to seek this report because I was considering imposing a sentence of two years imprisonment36. 65However, I can give this sentence only if I am convinced that the appropriate sentence is one of two years imprisonment. Having regard to the fact that he was the Chief Executive Officer of the organisation that he defrauded and that it was a fraud on the revenue, I am now of the opinion that a two-year sentence of imprisonment would be an inadequate punishment for this offence and I do not intend to impose an Intensive Correction Order. In my opinion the only sentence that can be imposed is one of imprisonment. 66Where a Chief Executive of a corporation, particularly a Government corporation, engages in major fraud the principle of general deterrence requires the imposition of a sentence that will serve to deter others in similar positions from engaging in such conduct. The offence in this case is a very serious example of a major fraud and the sentence imposed must reflect that fact. 67The objective facts require the imposition of a relatively severe sentence. However, I can take into account, and I do so, his previous good character, his outstanding service to the Nation, and the hardship imprisonment will impose on his wife to temper the sentence by imposing a non parole period that is much shorter than it would be if I were to follow the statutory relationship between the head sentence and the non parole period. I take into account the charge listed on the Form 1 Schedule which is signed by me. Sentence 68The appropriate sentence for this offence, but for a discount of 15% would be 4 years imprisonment. Because of the discount the overall head sentence will be 3 years, 4 months and 24 days. I find special circumstances and impose a non-parole period very much less than the normal one which would be 2 years, 6 months and 15 days and I impose a non-parole period of 18 months. 69The non-parole period will commence on 25 August 2014 and will conclude on 24 February 2016. The balance of the term will go from 25 February 2016 and will conclude on 17 January 2018. He is to be released on parole on 24 February 2016 and from all consequences of the sentence on 17 January 2018. 70I direct that a copy of this sentence be sent to the Manager of Classifications, Department of Corrective Services. I recommend that he be classified as soon as possible and that he be given consideration for classification as a minimum security prisoner. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 September 2014