Court of Criminal Appeal Supreme Court New South Wales Medium Neutral Citation: Lu v R [2014] NSWCCA 307 Hearing dates: 18 November 2014 Decision date: 15 December 2014 Before: Price J at [1] McCallum J at [2] R A Hulme J at [26] Decision: Leave to appeal allowed; Appeal dismissed. Catchwords: CRIMINAL LAW - sentencing - offence of cheating or defrauding being a director of a company - where offender holding himself out as a financial advisor - whether open to have regard to abuse of a position of trust as an aggravating factor Legislation Cited: Crimes Act 1900, ss 172 and 176A Crimes (Sentencing Procedure) Act 1999, ss 21A(2)(k) and 53A Cases Cited: Barbaro v R; Zirilli v R [2014] HCA 2; 88 ALJR R v Martin [2005] NSWCCA 190 R v Suleman [2009] NSWCCA 70 Category: Principal judgment Parties: Eric (aka) Minh Lu (appellant) Regina (Crown) Representation: Counsel: NJ Adams (Crown) M Johnston (appellant) Solicitors: Solicitor for Public Prosecutions (Crown) Legal Aid of New South Wales (appellant) File Number(s): 2010/284076 Publication restriction: None Decision under appeal Date of Decision: 2013-09-13 00:00:00 Before: McClintock DCJ File Number(s): 2010/284076 Judgment 1PRICE J: I agree with McCallum J. 2McCALLUM J: Eric Lu seeks leave to appeal against the sentence imposed upon him in the District Court after he was found guilty by a jury of 21 counts of cheating or defrauding being a director of a company contrary to s 176A of the Crimes Act 1900. The applicant was arraigned on an indictment that contained 22 counts contrary to that section but one was the subject of a verdict of not guilty by direction. The indictment also contained one count of obtaining money by deception contrary to s 178BA of the Act of which the applicant was also found guilty. 3The offences contrary to s 176A carried a maximum penalty of imprisonment for 10 years. The offence contrary to s 178BA carried a maximum penalty of imprisonment for 5 years. No standard non-parole period was prescribed in respect of either offence. 4The offences were committed over a period of more than 3 years. There were 11 separate victims. As noted by the sentencing judge, the amounts defrauded ranged from $8,000 (count 20) to $300,000 (count 4). However, the victim of the charge relating to $8,000 was defrauded a total of $207,845 (counts 19 and 20) while the victim of the $300,000 fraud was defrauded a total of $385,000 (counts 3 and 4). The total amount defrauded in the s 176A offences was almost $2.163 million. One of the victims lost two houses he had purchased with a compensation payout received after a serious car accident. One was an elderly man who lost his life savings and had to go on an old age pension. One lost the property he bought with what remained of his assets after a divorce. As a result of the divorce he had become severely depressed and was on a disability pension. Another elderly couple, parents of eight children, lost all the property they owned and had to postpone their retirement. 5The circumstances of the offences were summarised comprehensively by the sentencing judge in his remarks on sentence. The following is taken verbatim from those remarks: "In 2004, the offender, with three others as directors, started a group which was called the Dollar Group Pty Limited. Initially, the main business activity was that of a mortgage loan broker. During the trial, this side of the business became known as the "mortgage side of the Dollar Group business". The offender was the principal and driving force of the Dollar Group at its commencement. In 2005 the Dollar Group was in financial difficulty. The evidence indicated that it was earning virtually no money. The original investors/directors had determined that it was not a viable concern. A number of them left. As a way of expanding the business, the offender introduced what became known as, "The investment side", of the Dollar Group business. The offender began promoting to potential clients, the idea that they could invest money through the Dollar Group with "Perpetual". Neither the offender nor Dollar Group had any investment relationship with Perpetual. The purported relationship between clients, the Dollar Group and "Perpetual" was a fiction created by the offender. The offender supervised the creation of "investment forms", "investment guides", "prior disclosure type documents", which all contained multiple references to Perpetual. He would hand these to would-be investors with the intention of convincing them that their investment through the Dollar Group would be into Perpetual. The purpose was clearly to suggest to the investors that the investment that they were making was a "blue chip" investment; that it was a guaranteed investment and that it was an investment with a long established and reputable financial institution. Therefore there was no possibility that the investment would fail or that they - that is the investors - would lose their money. The offender dealt with these investment clients predominantly himself although administrative matters were occasionally dealt with by other people in the group. He negotiated interest rates, terms and amounts. He had the relevant documentation for the investment signed by the client and he arranged the transfer of funds into specific accounts which he nominated. The offender relied on his personal relationship with the clients, on his sales expertise and on the trust that they reposed in him to persuade them to invest significant sums of money. Often these moneys were their life savings, their retirement funds and essentially their "nest eggs". When the investments were not handed over in cash (as was the case in count 16, 17, 18 and 20), they were handed over by cheque or a bank transfer. All of these ended up in five accounts controlled by the offender. While one of these accounts was a Dollar Group account (in count 3) the other four accounts were personal accounts (either in the offender's name, that is in counts 1,2, 4, 5, 6, 7,8, 9, 10, 13, 14, 15, 19, 21 and 22) or his then girlfriend or de facto wife's name, namely count 11. The moneys received were not forwarded to Perpetual or invested in any way in any associated entity with Perpetual. The moneys were dispersed at the direction of the offender for various private purposes and to continue the Dollar Group entity. Initially, out of these moneys received came periodic payments of "interest" to clients and the return of investment capital. In this way the offender operated a scheme dependent on its very existence on the creation of new investments to fund the interest payments on existing investments and to return capital where promised. Schemes of this nature are known as "Ponzi schemes". They rely on a continuing sham enterprise where what should be the return on capital, is in fact capital from other investors. This, "investment scheme", ran into difficulties in 2007 and collapsed altogether in 2008. Where there were difficulties with arrangements or payments or lack of payments, the offender constantly re-assured the investors that everything was ok and that there must be something wrong at the other end of the scheme. He knew full well that it was his scheme which was not operating. He knew that it had nothing to do with external entities and everything to do with his own arrangements. He continued, as has been indicated, in 2008 to promote the scheme long after it became obvious that it was failing." 6The offence of obtaining money by deception (count 23) was based on the applicant's sale of his Mercedes car for $30,000. The applicant deceived his uncle into believing that he owned the vehicle and that it was not subject to finance. It was repossessed from the uncle by a finance company. 7The applicant was born in Vietnam. His family fled from that country by boat when he was very young. He came to Australia when he was eight. He found it difficult to adjust because of his different cultural background and the fact that he did not speak English. 8The applicant had previously worked with the Commonwealth Bank. He had a prior conviction for dishonesty from his time as an employee of the bank. 9The sentencing judge took into account the fact that the applicant was assaulted in 2008 as a result of the present offences. There was evidence before the judge that the applicant suffers from post-traumatic stress disorder as a result of that assault. 10The judge imposed an aggregate sentence in respect of all of the offences, as allowed under s 53A of the Crimes (Sentencing Procedure) Act 1999. As required under s 53A(2) of the Act, his Honour indicated the sentences that would have been imposed for each offence had separate sentences been imposed, as follows: As to counts 15 and 20, a sentence of 18 months each; As to count 23 (the offence of obtaining money by deception), a sentence of 2 years; As to counts 1, 2, 3, 5, 7, 8, 9, 11, 14, 16, 17, 18 and 22, a sentence of 2 years and 6 months; As to counts 6, 10, 13, 19 and 21, a sentence of 3 years; For count 4, a sentence of 4 years. 11The differences between the indicative sentences appear primarily to reflect the amount defrauded. 12On the basis of the applicant's physical impairments and his post-traumatic stress disorder, the judge made a finding of special circumstances warranting a departure from the statutory ratio of the non-parole period and the balance of term. After considering the issue of totality and the need for accumulation, the judge imposed an aggregate sentence of 9 years with a non-parole period of 6 years. 13The first ground of appeal is: "The sentencing judge erred by finding that the applicant's abuse of a position of trust was an aggravating feature of the section 176A offences." 14This ground relates to 21 counts (excluding count 23). 15The applicant relied on the following remarks of the sentencing judge (at ROS 9.8 and 11.2): "He abused his position of trust in the Dollar Group, he held himself out as I have indicated as a person with expertise and then defrauded the people who came to him to rely upon his expertise. They reposed trust in him, he abused that trust. I find that to be an aggravating feature. There is significant public interest in firstly generally deterring persons who are in a position of trust, particularly when they are custodians of other peoples' money. It is important to demonstrate to them that they must behave honestly, and act as true trustees of that money." 16It is clear from those remarks that his Honour regarded an element of abuse of a position of trust in relation to the victims as an aggravating factor of the kind referred to in s 21A(2)(k) of the Crimes (Sentencing Procedure) Act. In my respectful opinion, his Honour's approach to that issue was entirely correct. 17As contended on behalf of the applicant, the establishment of an aggravating factor of abusing a position of trust requires more than the fact that the victim trusted the offender in the ordinary sense of that word: cf R v Suleman [2009] NSWCCA 70 at [18] to [28] per Howie J; McClellan CJ at CL and Hislop CJ agreeing. The abuse of "a position of trust" invites consideration of the character of the relationship between the offender and the victim rather than the subjective state of mind of the victim. 18The applicant relied upon the fact that it is an element of the section 176A offence that the offender was a director of the company. Section 176A (now repealed) provided: "Whosever, being a director, officer, or member of any body corporate or public company, cheats or defrauds, or does or omits to do any act with intent to cheat or defraud, the body corporate or company or any person in his or her dealings with the body corporate or company shall be liable to imprisonment for 10 years." 19The burden of the submission was that the element of trust relied upon by the sentencing judge as an aggravating factor was an element of the offence. The applicant sought to derive support for that submission from the decision of this Court in R v Martin [2005] NSWCCA 190. In that case, the offender was sentenced for the offence of being a trustee fraudulently disposing of property contrary to s 172 of the Crimes Act. The Court held that the sentencing judge had erred by having additional regard, as an aggravating feature under s 21A(2)(k), to the fact that the offender abused a position of trust or authority in relation to the victim. 20I do not think that decision governs the issue raised in the present case. In Martin, there was plainly a complete overlap between the element of the offence (being a trustee) and the aggravating factor relied upon by the sentencing judge. The present case is more complex. At the proceedings on sentence, the Crown Prosecutor noted that the applicant was using the "prestige and status" of the body corporate to persuade clients to invest. In particular, the prospectuses and product disclosure statements were provided not on behalf of Mr Lu as a person but by him as a principal of the company. In my view, that aspect of the relationship between the applicant and the victims is properly understood as being comprehended within the applicant's role as a director of the company, and therefore not properly regarded as an aggravating factor. 21However, not all company directors accept other peoples' money for the purpose of investment. That was the essence of the position of trust abused in the present case. As noted by the learned sentencing judge, the applicant was not "simply selling widgets". He held himself out as a financial advisor and received money on trust in the sense in which that term is used in the context of fiduciary relationships. I do not mean to suggest that that is the only sense in which the word "trust" is used in the phrase "a position of trust" in s 21A(2)(k) of the Crimes (Sentencing Procedure) Act, but in my view it is plainly one. The abuse of a position of trust in the present case, over and above the fact of the applicant's being a director of the company, was the fact that he held himself out as a financial advisor and was entrusted with other peoples' money on the strength of the representations he made in that capacity. In my view, his relationship with the victims falls squarely within the kind of relationship considered in R v Martin at [40] (referred to by Howie J in Suleman at [25]): "With respect to general fraud or dishonesty offences, where breach of trust is not an essential element of the offence, common law sentencing principles have recognised that abuse of a position of trust, where it exists on the facts of a particular case, is an aggravating factor on sentence. Examples of this include the following: (a) larceny as a servant contrary to s.156 Crimes Act 1900 by a senior accounts clerk: R v Pantano (1990) 49 A Crim R 328 at 330; (b) fraudulently omitting to account contrary to s.178A Crimes Act 1900 by a real estate agent: R v Woodman [2001] NSWCCA 310 at paragraphs 14-15; (c) making false accounting entries contrary to s.158 Crimes Act 1900 and using a false instrument to the prejudice of another contrary to s.300 Crimes Act 1900 by a bank employee: R v El-Rashid (CCA(NSW), 7 April 1995, BC9504681 at page 4); (d) defrauding the Commonwealth Bank contrary to s.29D Crimes Act 1914 (Cth) by a bank loans manager: R v Chaloner (1990) 49 A Crim R 370 at 375; and (e) offences by a solicitor comprising forging of documents contrary to s.67B Crimes Act 1914 (Cth), defrauding the Commonwealth contrary to s.29D Crimes Act 1914 (Cth), forging and uttering bills and notes contrary to s.273 Crimes Act 1900, fraudulent misappropriation contrary to s.178A Crimes Act 1900: R v Hawkins (1989) 45 A Crim R 430 at 436. In cases such as these, where breach of trust is not an element of the offence, there is scope for s.21A(2)(k) to permit a court to have "additional regard" to the abuse of a position of trust or authority in relation to the victim as an aggravating factor on sentence. This reflects the position at common law." 22In my view ground 1 must be rejected. 23Ground 2 is: The aggregate sentence and the aggregate non-parole period is manifestly excessive. 24That this was an extremely serious course of offending cannot be doubted. The thrust of the submission on this ground was that the penalty exceeds "available comparative sentences". The Crown correctly responded by observing that previous cases do not establish the "available range": Barbaro v R; Zirilli v R [2014] HCA 2 at [28]. No issue was taken (or could be taken) with his Honour's indicative sentences. Once the appropriateness of the individual sentences indicated by his Honour is acknowledged, in my view the suggestion that the aggregate sentence was manifestly excessive must fail. 25The orders I propose are: (1)That leave to appeal be allowed. (2)That the appeal be dismissed. 26R A HULME J: I agree with McCallum J. ********** 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: 31 December 2014