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Hill v R [2017] NZCA 286 (6 July 2017)

Last Updated: 25 July 2017

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 397/2016
[2017] NZCA 286

BETWEEN

RICHARD HENRY HILL

Appellant

AND	THE QUEEN Respondent

Hearing:	14 February 2017
Court:	Miller, Mallon and Peters JJ
Counsel:	R B Squire QC for Appellant I R Murray for Respondent
Judgment:	6 July 2017 at 10.30 am

JUDGMENT OF THE COURT

The appeal against conviction is dismissed.
____________________________________________________________________

REASONS OF THE COURT

(Given by Peters J)

[1] The appellant, Mr Hill, appeals against his conviction on a representative charge of criminal breach of trust.^[1] Mr Hill was convicted on 26 July 2016, following a judge-alone trial before Judge Crosbie in the District Court at Napier.^[2] Mr Hill was sentenced to eight months’ home detention and 100 hours community work.

Grounds of appeal

[2] The appeal is brought pursuant to s 385(1) Crimes Act 1961, the prosecution having been commenced prior to 1 July 2013.^[3] The grounds of appeal are, first, that the verdict was unreasonable and, secondly, that there has been a miscarriage of justice in that the Judge failed to properly apply the required burden and standard of proof.
[3] Section 385(1) provides:

(1) On any appeal to which subsection (1AA) applies, the Court of Appeal or the Supreme Court must allow the appeal if it is of opinion—

(a) that the verdict of the jury should be set aside on the ground that it is unreasonable or cannot be supported having regard to the evidence; or

(b) that the judgment of the court before which the appellant was convicted should be set aside on the ground of a wrong decision on any question of law; or

(d) that the trial was a nullity—

and in any other case shall dismiss the appeal:

provided that the Court of Appeal or the Supreme Court may, notwithstanding that it is of opinion that the point raised in the appeal might be decided in favour of the appellant, dismiss the appeal if it considers that no substantial miscarriage of justice has actually occurred.

[4] On the face of the provision, only a jury verdict may be appealed as being unreasonable. However, the Courts treat that ground as equally available for an appeal against a judge-alone verdict.^[4]

Charge

[5] The charge against Mr Hill was:^[5]

... that Richard Henry Hill between 1 October 2003 and 14 June 2005 at Napier being a trustee, dishonestly and contrary to the terms of the trust, converted client funds from the McKay Hill Lawyers Trust Account, of which he was a trustee, to a use not authorised by the said trust.

[6] Accordingly, the Crown was required to prove that:

(a) between 1 October 2003 and 14 June 2005, Mr Hill was a trustee of client funds in McKay Hill’s (firm) trust account (trust account);

(b) he “converted” those funds to a use not authorised by the clients concerned; and

(c) he did so dishonestly.^[6]

[7] The act of conversion relied upon, being an act in derogation of the rights of the owner (or client in this case), was the repeated transfer of client funds in the trust account to the firm’s office account (“office account”). These transfers were effected by Ms Anne McAllister, the firm’s trust account manager from January 2002 onwards and the principal Crown witness. The issue at trial was whether Mr Hill had authorised Ms McAllister to make the transfers and, if so, whether he had done so “dishonestly”, that is knowing that the transfers were of funds held for clients and not for the firm.
[8] The Judge’s verdict largely turned on his assessment of the credibility of Ms McAllister and of Mr Hill.^[7] The Judge rejected Mr Hill’s evidence and accepted Ms McAllister’s.
[9] Mr Squire QC submitted to us, on behalf of Mr Hill, that the Judge erred in both respects, and that the verdict was the product of an unfair trial, resulting in a miscarriage of justice. He submitted that Mr Hill’s conviction should be quashed, with “no room for the application of the proviso” to s 385(1).
[10] Mr Squire’s submissions as to the Judge’s treatment of the evidence were very detailed and there is force in the Crown’s submission that they amounted to no more than arguments as to why the Judge might have preferred Mr Hill’s evidence. The Crown submitted that it was not “enough to show that the Judge could have reached a different conclusion, the appellant must satisfy the court that the conclusion reached was simply not an available one”. Crown counsel also referred us to the Supreme Court’s decision in R v Owen and the summary in the headnote of the task at hand:^[8]

A verdict would be unreasonable when it was a verdict which, having regard to all the evidence, no jury could reasonably have reached to the standard of beyond reasonable doubt. The appellate court had always to keep in mind, however, that its role was to perform a review function and not to substitute its own view of the evidence; it had to give appropriate weight to such advantages as the jury may have had over the appellate court, assessment of the honesty and reliability of witnesses being a classic example; the weight to be given to individual pieces of evidence was a jury function; reasonable minds could disagree on matters of fact; and appellate courts should not lightly interfere with the jury’s findings of fact. An appellant invoking s 385(1)(a) had to articulate clearly and precisely in what respect the verdict was said to be unreasonable and why, after making proper allowance for the points made above, the verdict should nevertheless be set aside (see paras [13], [14]).

Background

[11] At all material times Mr Hill was an experienced commercial solicitor practising in Napier.
[12] Mr Hill graduated in 1970 and he became a partner in a firm in Hawkes Bay shortly thereafter.
[13] Mr Hill and Mr Gerald McKay formed the firm in 1985. Mr Hill was the firm’s trust account partner from 1998 until 14 June 2005. Mr Hill retired from the firm on 30 November 2006.
[14] The New Zealand Law Society (“NZLS”) intervened in the firm in 2010, at which time the trust account was more than $1 million “overdrawn” in the sense referred to below. Mr Hill and Mr McKay were both prosecuted, Mr McKay’s trial taking place shortly before Mr Hill’s.

Operation of trust account

[15] As a general rule, a firm’s trust account holds client and firm funds. Any client funds are held on trust for the client concerned.
[16] The firm’s own funds, referred to as “the firm’s interest”, are available as a “float”, capable of being advanced to cover any deficiency in the trust account, for instance to pay disbursements for a client for whom the firm does not hold money on account. The critical matter for any firm is to ensure that the balance of the trust account is sufficient to pay every client the sum due to them if all were to seek payment at the same time.
[17] The LAWBASE trust account software, which the firm installed in April 2001, records movements in the firm’s interest in the FIRMS.1 ledger. A debit balance on the face of the ledger means that the firm’s interest is overdrawn, which in turn means that the firm has applied client funds in breach of trust. As Mr Hill said in evidence, and as every lawyer knows, “thou shalt not overdraw the trust account”.
[18] In this case, the firm’s interest was first overdrawn in April 2001, when Ms Dorothy Traves, a long standing employee, was the trust account manager. The firm’s interest was then overdrawn intermittently until February 2002, which is about the time Ms McAllister became the trust account manager.
[19] The firm’s interest was never again in credit, at least for the period covered by the charge. On 1 October 2003, being the opening date of the period covered by the charge, the firm’s interest was overdrawn by $15,471.60. It was overdrawn by $116,073.53 on the last date, 14 June 2005. The debit fluctuated between these dates, being about $33,000 at its lowest on 12 October 2004 and more than $285,000 at its highest on 15 May 2005.
[20] The firm’s interest and the bank statements record transfers, often weekly, of what were inevitably client funds in the trust account to the firm’s office account. From the office account the funds were applied to expenses such as rent, office expenses, wages and salaries (fortnightly), and also to pay partners’ drawings (also fortnightly).
[21] By way of example, on 22 January 2004, $27,000 was transferred from the trust account to the office account and from there applied to pay expenses, including wages of $26,884.74. At the time of the transfer, the firm’s interest was overdrawn by $54,347.84. The transfer increased the debit balance to $81,347.84.
[22] Similarly, on 9 September 2004, $12,500 was transferred from the trust account to the office account and from there applied to pay expenses, as well as partner drawings. At the time of the transfer, the firm’s interest was overdrawn by $96,587.67. The transfer increased the deficit to $109,087.67.
[23] There was no dispute as to the fact of these transfers or that Ms McAllister made them, that is she went online and transferred the money from the trust account to the office account. The Crown case, and her evidence, was that Mr Hill authorised her to make the transfers, knowing that the firm’s interest was insufficient and therefore the transfers had to be of funds belonging to clients.
[24] The defence, as Mr Squire put it in his submissions, was that:

[Mr Hill’s] defence to the charge, as indicated by the evidence he gave, was that at no point while he was the trust account partner up until his resignation from that position on 14 June 2005, was he aware the Firms1 Account was overdrawn and any authority he might have given, implicitly or otherwise, for funds to be transferred from that account to the office or general account accordingly did not amount to conversion of the funds.

(footnotes omitted)

[25] The Judge rejected Mr Hill’s evidence on the basis that it was “implausible, unreliable and not credible”.^[9] Having done so, the Judge put that evidence to one side and considered whether the evidence adduced by the Crown was sufficient to prove the elements of the offence.^[10] He held it was.

Evidence

[26] We now summarise Ms McAllister’s evidence and that of and for Mr Hill, to put Mr Squire’s submissions in context.

Ms McAllister

[27] Ms McAllister confirmed that she and her assistant alone were able to enter transactions in the firm’s LAWBASE system and to transfer funds from one bank account to another.
[28] Ms McAllister confirmed that she had effected the transfers in issue, even though she knew the firm’s interest in the trust account was overdrawn. In this Ms McAllister said she was doing as Ms Traves had done before her.
[29] We should mention here that there was also evidence before the Judge of transfers on several days when Ms McAllister was away from the office, suggesting that someone — Mr McKay or Mr Hill — had asked the assistant to make them.
[30] For instance, on 1 October 2003, when Ms McAllister was on leave, $10,000 was transferred from the trust account to the office account, increasing the debit balance in the firm’s interest to $18,098.44.
[31] Ms McAllister was also away on 15 July 2004, when $25,500 was transferred increasing the debit balance to more than $87,000. Similar transfers occurred when she was away on 5 August and 20 and 23 September 2004.
[32] Ms McAllister said that Mr Hill knew the firm’s interest was overdrawn for two reasons.
[33] First, Ms McAllister continued a practice that Ms Traves had initiated of meeting Mr Hill and Mr McKay every Monday to discuss the firm’s financial position. Ms McAllister’s evidence was that she would have the balances of the trust and office accounts, interest bearing deposits, and the payments that the firm was required to make that week, and that she would also have the balance of the firm’s interest.
[34] Ms McAllister’s evidence was that Mr Hill would authorise her to make payments and tell her what bills to pay, and that he would authorise a transfer from the firm’s interest to the office account and, before the office account was on direct credit (essentially online banking), Mr Hill would sign a cheque drawn on the trust account. Ms McAllister said that she provided the balance of the firm’s interest in the trust account each week.
[35] Mr Squire cross-examined Ms McAllister about this evidence and her evidence at Mr McKay’s trial several weeks earlier. In particular, he questioned Ms McAllister about corrections she was required to make to her evidence in chief at that trial regarding the Monday meetings and whether she had presented the firm’s interest in writing. However, whatever Ms McAllister may have said or had to correct at that trial, she was adamant in her evidence at trial that Mr Hill had authorised transfers from the trust account to the office account knowing the firm’s interest was overdrawn.
[36] Mr Hill denied this evidence from Ms McAllister. His recollection was the Monday meetings were brief and were to establish the expenses to be paid that week and the amount to be earned to meet those expenses. A significant proportion of the firm’s work was conveyancing, with the firm’s fees deducted on settlement. This meant that the number of settlements to take place that week and the fees payable were discussed. Mr Hill said that Ms Traves had never informed the partners of the balance of the firm’s interest at those meetings and nor did Ms McAllister. Mr Hill also said that Mr McKay usually attended those meetings but he, Mr Hill, was frequently absent because he was late back from lunch or had another commitment.
[37] The second matter that Ms McAllister referred to was the “Solicitors Monthly Trust Account Certificate” that was required to be filed with the NZLS. By way of background, at the relevant time a law firm’s operation of a trust account was governed by the Law Practitioners Act 1982, the Solicitors Trust Account Regulations 1998 and the Solicitors Trust Account Rules 1996. By r 16, each firm was required to appoint a trust account partner who was responsible for administering the trust account and who was required to “take appropriate measures to verify the correctness of, and sign, all reports required by these Rules”.
[38] Rule 17(1) made provision for the monthly certificate as follows:

17 Periodic reporting

(1) Every trust account partner must certify to the Executive Director in writing, by the 10th working day of each month (or in January, the 20th working day), whether as at the end of the preceding month:

(a) The trust ledger was correctly reconciled with the corresponding trust bank accounts for both the general trust account and interest bearing deposit accounts;

(b) The trust account records were a complete and accurate record of transactions during the month and of each client’s position;

and whether he or she is satisfied that during the month concerned -

(c) Trust account transactions during the month have been in accordance with client instructions and where completed, properly accounted for to clients;

(d) The solicitor or firm, as the case may be, complied with the Regulations, these Rules, and the Solicitors Nominee Company Rules 1996 –

and, if not, the reasons why.

[39] The prescribed certificate listed several statements, including as to the matter referred to in r 17(1)(c), with boxes to be ticked or crossed as the case might be. Ms McAllister’s evidence was that, on Mr Hill’s instructions, she would present the certificate for signing with all the boxes ticked “Yes”. Mr Hill denied giving any such instructions.
[40] Ms McAllister’s evidence was that, at the time she presented the certificate for signing, she would also provide Mr Hill with supporting information that comprised a “Bank Reconciliation” sheet, a list of unpresented cheques, a “Ledger Control Summary Report” — all of which were single page documents — and then a 15 or so page “Ledger Account Balance Report” which listed the balances of each ledger in the trust account. The one page Ledger Control Summary Report showed the overdrawn nature of the firm’s interest clearly, in three places, and the word “Imbalance” appeared twice in two places in the right hand column of the page. “Imbalance” was the only entry in that column. No one looking at the page could miss it.
[41] Ms McAllister’s evidence was that Mr Hill would sign the certificate and initial the supporting documents. She would then submit the signed certificate to the NZLS and retain a copy with the supporting information.
[42] In all, nine sets of the supporting information were produced at trial, all except one preceding the date range in the charge. Mr Hill had initialled all pages on some, none on others, and one or more pages on others. That said, Mr Hill also said in evidence that he had more sets in his possession, 10 of which had been initialled and five which had not, but he did not produce these and nor did the prosecutor ask him to do so.
[43] Mr Hill’s evidence in response was that Ms McAllister always gave him the certificate and information just before it was due to be filed with the NZLS, that he was always under pressure to sign as a result and that he did not look at the supporting documents other than the Bank Reconciliation sheet, to satisfy himself that the trust account was in credit. His evidence was that he lifted up the corner of each page after that, initialled the bottom right hand corner and then handed the documents back to Ms McAllister.
[44] Mr Squire questioned Ms McAllister about aspects of her own conduct. First, Ms McAllister admitted that she knew that it was wrong to effect transfers of client funds as she did over so many years, and likewise to tick Yes on the monthly NZLS certificates as she did, when the correct answer was No. Despite various inspections by NZLS personnel, Ms McAllister had never once raised the issue of the overdrawn account. Her explanation for this was that she wished to keep her job. Although Ms McAllister denied being given any assurance that she would not be prosecuted, she said that she did not expect to be charged if she gave evidence for the Crown.
[45] Secondly, serious issues were raised as to payments Ms McAllister had received herself. In the latter part of 2009 two “bonuses” of $5,000 each had been paid to Ms McAllister, or she had paid them to herself. Ms McAllister’s evidence was that Mr McKay and/or the firm’s business manager, Mr Wood (a chartered accountant who had assisted the firm since 1999), had authorised these payments. Although Mr Wood denied giving such authority, the Judge considered other evidence suggested that Mr McKay had done so.
[46] Regardless, at the time of the first bonus payment the firm’s interest was overdrawn by more than $900,000 and by the second it was overdrawn by more than $1 million. That was the extent of the shortfall in client funds in the trust account. Ms McAllister knew that the money she was receiving belonged to clients, not to the firm. That point could be made as to her salary generally, but the bonuses were entirely gratuitous.
[47] Also, in 2004/2005 Ms McAlister herself had overdrawn her trust account ledger and from August 2009 onwards she had received fortnightly payments of $192.31. These were separate from her salary and were also said to have been authorised by Mr McKay. The payments were funded by transfers of client funds from the trust account. Moreover, although Ms McAllister said these were salary, she had coded them to appear as “sundry payments” in her own bank statements. Mr Squire sought to cross-examine Ms McAllister as to why she had described the payments in this way and also whether she had returned either the bonuses or the additional fortnightly payments in PAYE returns, as she was required to do. Ms McAllister declined to answer Mr Squire’s questions on the grounds that her answers might incriminate her.

Mr Hill

[48] Other than the matters we have mentioned above, Mr Hill’s evidence was that he was never informed, whether by Ms McAllister or otherwise, that the firm’s interest in the trust account was overdrawn. Mr Hill said that he relied on his staff and Ms McAllister to tell him if there were any problems. Had he known of the overdrawing, Mr Hill said he would have addressed the matter immediately. Mr Hill characterised his behaviour as negligent but not dishonest. Mr Hill also relied on evidence given by Mr Wood, who said that he too was unaware that the firm’s interest was ever overdrawn and that client funds were being used to support the firm.

Character witnesses

[49] Mr Hill’s character witnesses had all dealt with him professionally. In fact, one such witness, a Mr Lunn, had been appointed by the NZLS to assist with the winding up of the firm’s affairs in 2010. Mr Lunn had since engaged Mr Hill to work in Mr Lunn’s firm — clearly a vote of considerable confidence in Mr Hill.
[50] As the Judge said generally regarding the character evidence:

[198] The individuals who provided good character evidence for Mr Hill all appeared to be upstanding members of the community. Their evidence was to the effect that Mr Hill was honest, trustworthy, had a high level of integrity and good commercial judgement. All considered that their positive view of him was unaltered by their knowledge of the charge.

Submissions

[51] The Judge considered Mr Hill’s evidence in the first instance, as he was required to decide whether it negatived or raised a reasonable doubt as to his guilt. The Judge gave lengthy reasons as to why it did neither, and why he did not consider Mr Hill’s evidence credible or reliable on the issue of his knowledge and operation of the trust account. The following is a summary of the Judge’s reasons and Mr Squire’s submissions.
[52] First, the Judge found Mr Hill’s evidence of complete ignorance of the overdrawn balance of the firm’s interest inconsistent with his receipt and initialling of the Ledger Control Summary Report which clearly showed the deficit in the firm’s interest.^[11] Mr Squire submitted that to draw such an inference from the act of initialling was to determine Mr Hill’s knowledge objectively rather than subjectively. We do not accept that submission. It was open to the Judge to infer that Mr Hill would have looked at the documents before he initialled them, whatever he said at trial.
[53] Secondly, the Judge considered that Mr Hill had given his evidence in a manner designed to cast himself in the most favourable light and that he made few if any concessions. The Judge gave as an example the fact that Mr Hill would not admit to knowing the firm’s interest was overdrawn at any time covered by the charge. The Judge thought that point-blank denial implausible, given the volume and quantum of transactions in the trust account. The Judge considered it inconceivable that Mr Hill would not have enquired — whether of Ms McAllister or of any other staff member — as to the balance of the firm’s interest in that 21 month period.^[12]
[54] Mr Squire submitted that this was unfair because it amounted to criticisms of Mr Hill because he did not concede guilty knowledge.
[55] We do not accept that submission. The point the Judge was making was that he considered the evidence of complete ignorance to be implausible. Moreover, we agree with the Judge. The effect of Mr Hill’s evidence was that he never once found out for himself, in a 21 month period, what the balance of the firm’s interest was and whether the firm had a sufficient float on hand to, say, pay client disbursements or to cover the non arrival of an anticipated payment from or for a client or to check that the firm could pay the partners’ drawings that month.
[56] Thirdly, the Judge did not accept that Mr Hill would have abdicated his responsibilities to Ms McAllister as his evidence portrayed, or that he would have allowed her to rush him with the monthly certificates, or that he would have just signed “where indicated”.^[13] The correctness of the supporting information that Ms McAllister provided to Mr Hill was not challenged. Also, there was evidence that the trust account balances, including the firm’s interest, were always accessible on the office computers. The Judge did not accept Mr Hill’s evidence that he did not use or know how to use the LAWBASE system, which other evidence suggested was easy software to master.^[14] But even if Mr Hill did not make a point of accessing the system, anyone else could have done so for him. The Judge also considered Mr Hill’s portrayal of himself as someone able to be rushed by an employee was inconsistent with his character evidence, which was to the effect that he conducted himself in a careful and professional manner.^[15]
[57] It follows that we do not consider there is any substance in Mr Squire’s submissions as to errors by the Judge in his assessment of Mr Hill’s evidence, with the exception of the following point. The Judge referred to Mr Hill having a “direct interest” in the outcome of the case and that, as a result, it was “unsurprising that his evidence sought to be entirely exculpatory”.^[16] Mr Squire referred us to R v Leef in which this Court ordered a retrial because the Judge had said to the jury that the accused had a motive to lie simply because he was on trial.^[17] A similar issue arose in R v Stewart with the same result.^[18] We accept Mr Squire’s submission that this should have formed no part in the Judge’s reasoning. However, it does not detract from the other reasons the Judge gave.
[58] The Judge then turned to the character evidence, saying it was something he had “considered and attributed some weight to”.^[19] However, the Judge also said:

[204] ... However, in the circumstances of this case such evidence is rebutted by cogent, reliable and credible evidence from the Crown, together with the matters Mr Hill admitted to as outlined earlier. The evidence of Messrs Lunn and Pedlar that Mr Hill is unlikely to have acted in the manner is rebutted by Mr Hill’s own evidence about his actions and inaction. As a result, the character evidence does not satisfy me that Mr Hill is unlikely to have committed the offence for which he is charged.

[59] Mr Squire was critical of the reasons the Judge gave for discounting the character evidence in this way. Again, the criticisms are misplaced. The fact was that the witnesses’ portrayal of Mr Hill could not be reconciled with Mr Hill’s own evidence. That was the fundamental difficulty with the character evidence.
[60] The Judge then turned to the Crown case. He accepted Ms McAllister’s evidence that Mr Hill knew that the firm’s interest in the trust account was overdrawn as a result of the Monday meetings and by the information supplied with the monthly NZLS certificate.^[20]
[61] The Judge’s assessment of Ms McAllister’s credibility and reliability was unaffected by the matters on which Mr Squire had crossexamined her. The Judge addressed each of those matters in some detail. He considered Ms McAllister to have been “open and forthright” about her culpability in perpetrating the overdrawing and he did not attribute any dishonesty to her receipt of the bonus payments or the additional payments referred to at [45] and [47] above.^[21] The Judge also said that these matters were outside the relevant period.^[22] This latter point is not compelling. It was for the Judge to assess Ms McAllister’s credibility and reliability at the time she gave evidence. The matters Mr Squire raised in cross-examination were relevant to that assessment.
[62] In his submissions, Mr Squire traversed in detail errors that he contended the Judge made in his analysis of Ms McAllister’s evidence. We do not consider these submissions detract from Ms McAllister’s evidence that Mr Hill knew that the trust account was overdrawn. Whether Ms McAllister noted the information for the Monday meetings on a pad or on some different form, or simply informed the partners, does not much matter. Ms McAllister was adamant that they were informed and she never resiled from that evidence. It was for the Judge to accept or reject that evidence as he saw fit.
[63] It follows that in our view the Judge’s findings were open to him and indeed unremarkable. We agree with the Judge that Mr Hill’s evidence was inherently implausible.

Result