The Queen v Smith[1997] QCA 75

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

C.A. No. 567 of 1996

Brisbane

THE QUEEN

v.

PETER RAYMOND SMITH

(Appellant)

McPherson JA

Ambrose J

White J

Judgment delivered 18 April 1997

Judgment of the Court

APPLICATION FOR LEAVE TO AMEND THE NOTICE OF APPEAL REFUSED.  APPEALS AGAINST CONVICTION DISMISSED.

CATCHWORDS: CRIMINAL LAW - Misappropriation - Bank employee - Escrow and wire account - Whether complainant owned the money lost.

Counsel:  Mr A. Kimmins for the appellant

Mr M. Byrne Q.C. for the respondent

Solicitors:  Howlett & Co. for the appellant

Director of Public Prosecutions (Qld.) for the respondent

Hearing Date:  3 April 1997

JUDGMENT OF THE COURT

Judgment delivered 18 April 1997

The appellant was tried in the District Court in Brisbane on an indictment charging three counts of misappropriation of property contrary to s. 408C of the Criminal Code.  He was found not guilty of count 2, but guilty of the other two counts.  He now appeals against his conviction on those two charges.

In 1993 the appellant was manager of the Lending Services Division of the Commonwealth Bank at its principal Queensland office at 240 Queen Street, Brisbane.  In the course of his career with the Bank he had come to know a Mrs Theresa Avenell, who operated a general account with the Bank in the name of a company Noble Promotions Pty. Ltd.  In 1993 she used that company to engage in fraudulent transactions involving large sums of money which were obtained from persons wishing to purchase what were described as bank credit instruments.  As an aspect of those transactions, money was required and obtained from prospective purchasers as a performance guarantee for payment of the price of the instruments being purchased.  In June 1996 Mrs Avenell pleaded guilty to three counts of misappropriation of sums amounting in all to A$1 million arising out of those transactions.  It was for his part in them that the appellant was charged in these proceedings.

The misappropriation charged in count 1 was that on or about 21 September 1993, the appellant dishonestly applied to the use of Noble Promotions Pty. Ltd. a sum of US$250,000 being property belonging to another.  Formal particulars of that “other” were not sought; but it is not disputed that the Crown alleged it was Fairfax International Limited, and the direction given to the jury at the trial was to that effect.  Fairfax International Limited is a company incorporated in Anguilla in the West Indies; but in 1993 its affairs were being conducted by its President Mr Charles (or “Chuck”) McNeill in Oregon in the United States.  In or before September 1993 he had communicated with Mrs Avenell (who styled herself Lady Avenell) and a man named Thomas L. Reese, of Kingsbury Investments, Miami, Florida, who identified himself as a business partner of Mrs Avenell.

The result of these communications was an agreement that Fairfax International would provide US$250,00 to Noble Promotions in Brisbane as performance guarantee for the purchase of bank credit instruments.  The arrangement was that Fairfax would transmit that sum from the United States by SWIFT wire to the Bank in Brisbane for crediting to an account with the bank styled “Special US Dollar Escrow Account Noble Promotions Pty. Ltd. account number 4000 1012 9978".  SWIFT is an acronym for Society for Worldwide Interbank Financial Telecommunication.  A SWIFT wire is a form of electronic communication, which is encoded to maintain confidentiality, used by members of that Society for the conduct of international monetary transactions.

In the present case the relevant SWIFT wire (ex.13), despatched by or through First Interstate Bank of Oregon, was received in the Foreign Currency section of the Bank in Brisbane on 23 September 1993.  Ms. Jackson of that section, who collected the wire when it arrived, referred it to the appellant, for whose attention it was directed.  He instructed her that, of the sum of US$250,000 received, an amount of US$200,000 should be credited to Noble Promotions Pty. Ltd. US dollar account no. 4000 1012 9978 and the balance of $50,000, converted into Australian currency, to the general account of that company.  Those accounts were credited accordingly.

Under s. 408C(1) the Crown was bound to prove beyond reasonable doubt that property of Fairfax had been misapplied by the appellant, and that he had done so dishonestly.  In the weeks or months following receipt of the money, the amount standing to the credit of the two accounts was withdrawn or disposed of by Noble Promotions for its own purposes.  There was never any dispute about that; but the misapplication relied on by the prosecution in order to satisfy s.408C(1) in the case against the appellant was not (as ground 1 of the notice of appeal seems to assume) alleged to be constituted by withdrawals from or payments out of those two accounts; but by the initial appropriation to those two accounts, which took place on the appellant’s instructions to Ms. Jackson, of the money transferred from the United States and received in Brisbane on 23 September 1993.

To appreciate the point in issue, it is necessary to refer in more detail to some additional facts and events.  McNeill in his evidence said that he had two brief international telephone conversations with the appellant, in one of which he informed him that US$250,000 was being transferred to the US Dollar Special Escrow Account for Noble Promotions.  The date of the conversation does not appear, but, on 20 September 1993, McNeill sent a facsimile letter (ex. 5) on Fairfax International letterhead addressed to the appellant at the Bank.  The letter was entitled “Special US Dollar Escrow account, Noble Promotions Pty. Ltd.” and gave the account number as 4000 1012 9978.  Under the heading “Escrow Performance Guarantee Deposit”, McNeill, who signed the letter as President of Fairfax, advised that he was transferring US$250,00 to the account as a performance guarantee “to be held by you in the above referenced escrow account as a Performance Guarantee Bond until Fairfax has performed the terms ... on its part to be performed”.

In addition, in oral evidence at the trial McNeill explained that the sum in question had originally been lodged in an escrow account in the United States for transfer to Brisbane, which had taken place through First Interstate Bank of Oregon.  The escrow company used for this purpose was Ticor Title Insurance, which on 20 September 1993 sent a facsimile letter (ex. 4) to the Bank in Brisbane, for the attention of the appellant, advising that a wire transfer had been initiated on the instructions of McNeill of Fairfax to US Dollar Escrow Account, Noble Promotions Pty. Ltd., and that the wire had been sent “via First Interstate Bank”.  Particulars of these matters appear in the SWIFT wire (ex. 13) received by the Bank in Brisbane on 23 September 1993.

At the trial the terms of these communications were relevant to the question whether the appellant knew that the sum transferred from the United States was to be held in an “escrow” account, and so was acting dishonestly in directing it to be credited to two accounts which were admittedly not accounts of that description.  Evidence given by a Mr Watkins from the Bank was that an escrow account was one in which a third party held funds on behalf of one or more other  parties as an assurance of payment once goods or services were supplied; and that money held in an escrow account would not be released by the Bank until both parties agreed to it.

The appellant himself gave evidence that he knew “very little” about escrow accounts; but, in returning a verdict of guilty on count 1, the jury rejected his evidence, and their decision to that effect has not been challenged on appeal.  Whether the appellant knew much or little about escrow accounts, he had been expressly instructed by McNeill in the letter transferring the sum of US$250,000 that it was “to be held by you ... as a Performance Guarantee Bond ...”.  Instead, the sum was credited to two accounts, neither of which was designated an escrow account or otherwise so distinguished or described as to show it differed from a current account on which the customer Noble Promotions could operate at will.

This plainly enough involved a misapplication of the sum of US$250,000, leaving as the only remaining matter to be established by the prosecution that the sum misapplied in that way was the property of Fairfax International Pty. Ltd.  It may be that this was the point originally intended to be relied upon in Ground 1 of the notice of appeal.  If so, it was raised at most only indirectly.   Recognising this, counsel for the appellant on this appeal, who did not appear at the trial, sought leave to amend the notice by adding a further ground to the following effect:

“The trial judge did not properly leave for the jury’s consideration the issue of whether Fairfax had a proprietary interest in the chose in action being the credit balance with the Commonwealth Bank.”

The Court reserved its ruling on the application to amend the notice of appeal.  It should be said at once that no question of this kind was ever raised at the trial.  That would by itself justify rejecting the application to amend at this late stage; but it is appropriate to consider the point on its merits.

On appeal, the submission was advanced that the sum of US$250,000 transferred from the United States could be regarded as belonging to any one or more of the following: (1) Ticor Title Insurance; (2) Fairfax International; (3) the Commonwealth Bank; (4) the appellant himself; and (5) Nobel Promotions.  It is possible at once to eliminate the Bank, the appellant and Noble Promotions from consideration.  The question for determination was whose property the money was when it was received in Brisbane and before it was misapplied by the appellant.  No doubt it is true that once it was credited to the two accounts, it became in law a chose in action in the nature of a debt owing by the bank to its customer Noble Promotions: see R. v. Capewell [1995] 2 Qd.R. 64, at 67, 71, although that would not have prevented Fairfax from following the money in equity into the accounts.  The question is, however, not as the appellant submitted, whether Fairfax was the beneficial owner with Noble Promotions of the whole or part of any amount in those accounts after they were credited.  By that time the sum transferred from the United States had already been misappropriated by the appellant by directing that it be credited to those accounts.  Instead, we are concerned here with the identity of the owners immediately before, and not after, it was misapplied in that way.

There is no doubt about the answer to that question.  The sum of US$250,000 belonged to Fairfax International Limited.  In his facsimile letter (ex. 5) dated 20 September 1993 to the Bank McNeill advised that, in his capacity as President of Fairfax and with full authority from the board of directors of that company, “I am hereby transferring $250,000 USD to the above referenced escrow account as a performance guarantee deposit ...”.  In his oral evidence at the trial, McNeill explained that the money had been put into an escrow account in the United States for transfer by the escrow company, which for the purpose of effecting the transfer used the services of First Interstate Bank of Oregon.  By “the escrow company”, he said, he meant Ticor Title, which was an American company nationally involved in real estate and commercial escrow business.  Needless to say, in that capacity Ticor Title claimed no interest at all in the sum transferred to the Bank in Brisbane.  Exhibit 4, which was the letter it faxed to the Bank on 20 September 1993, makes it clear that it was acting on the instructions of McNeill of Fairfax.  Ticor’s interest was limited to receiving a small fee for its service of attending to the transfer and insuring the safe transmission of the sum to the Bank in Brisbane.

None of this evidence was challenged in any respect at the trial, at which it was accepted by defence counsel that the only issue was whether the appellant had acted dishonestly in misapplying the money.  On the uncontradicted evidence the sum transferred to and received by the Bank in Brisbane was the property of Fairfax International Limited.  That matter, which never became an issue at the trial, was therefore one on which the trial judge would, on the undisputed facts, have been justified in directing the jury as a matter of law to find that the property in the money was in Fairfax, which is in effect what he did by stating or assuming it in the directions he gave.  The case is quite different from R. v. Gauci [1995] 1 Qd.R. 296, on which the appellant sought to rely in this appeal.  The question in that case was whether part of a sum of $4.50 per cubic metre paid by Angsea for fill supplied by Wade was received by the accused Gauci, who was the manager of Angsea, as a secret profit or commission from Wade, or was intercepted by Gauci and misapplied by him before it ceased to be the property of Angsea.  If it was in substance a payment by Wade out of money contractually due to him for supplying the fill, it was not possible to treat it as the “property” of Angsea which Gauci had misapplied.  It was the failure of the trial judge to leave that question to the jury with a proper direction on facts and law that led to the verdict in that case being set aside on appeal.  No problem of that kind arises here, where the question of who had “property” in the sum of US$250,000 admits of only one answer.

The appeal against conviction on count 1 therefore fails.  As regards count 3, the facts leading to conviction are somewhat similar except that the amount involved on this occasion was $380,000 and the victims of the fraud were Mr and Mrs Steinke, who were residents of Gatton in Queensland.  Late in 1993, Mr Windsor, a financial consultant acting on their behalf, had a conversation with the appellant at the Bank, in which it was explained to Windsor that the Bank was prepared to commit itself to ensuring that, if it received irrevocable instructions to that effect from the Steinkes, no one but they would be able to operate on the bank account of Noble Promotions in which the money was to be deposited.

The arrangement to invest was followed by a personal attendance at the Bank on 17 December 1993 by a Mr Hallas, who was acting as local agent or intermediary between Windsor and the Steinkes.  He brought with him to the Bank two cheques totalling $380,000 drawn on the Steinke’s trust fund, together with a letter (ex. 12) typed on Noble Promotions letterhead dated 17 December 1993 and signed by Mrs Avenell on behalf of that company.  It requested the Bank to accept that letter as an irrevocable direction to refund to the Steinke trust fund the sum of $380,000 “subject to the terms of operation of the SLC, and upon its expiry on 24 December 1993".  On 17 December 1993, Hallas delivered the letter ex. 12 and the cheques to the appellant in exchange for a letter ex. 11 dated 17 December from the Bank confirming receipt of the funds for the purpose of establishing a Standby Letter of Credit (SLC) and also receipt of the letter ex. 12.  The letter ex. 11 was signed by the appellant on Bank letterhead addressed to Noble Promotions.  It acknowledged that “subject to the conditions of the Standby Letter of Credit, we will act upon your instructions to refund” the deposit of $380,000 to the Steinke trustees.

The cheques drawn by the Steinkes for $380,00 were deposited to the credit of the Noble Promotions account with the Bank, but the Standby Letter of Credit (which is simply a bank guarantee)  never issued.  When a refund of the sum was demanded, cheques for $380,000 drawn by Noble Promotions to repay that sum were delivered to Hallas.  On presentation they were dishonoured.  The credit in the Noble Promotions account had been exhausted in meeting debits and withdrawals for purposes of Noble Promotions, and the amount lost was ultimately made good by the Bank out of its own money.

Ground 2 of the notice of appeal challenged the conviction on count 3 essentially for the reason that the Steinke cheques were, it was said, always intended by everyone to be deposited, and in fact were deposited, to the credit of the account of the Noble Promotions account with the Bank.  The point being made presumably is that crediting the Steinke cheques to that account involved no misapplication by the applicant of any property.  That, however, is to disregard the substance of the Crown case at the trial, which was that the effect of the arrangement was that the money was to be paid into the Noble Promotions account with the Bank on terms that it could not be drawn at all except for the purpose of repaying it to the Steinkes or supporting the issue of a letter of credit or bank guarantee. That was the effect of what was said by counsel for the prosecution in opening the case for the Crown.  The money was to remain in the account because Noble Promotions would not have authority to operate the account except for the purpose of repaying the money, and by ex. 11 the Bank agreed to that arrangement. There was incidental evidence that the Bank did not ordinarily enter into arrangements like that, and that the appellant had no authority to agree to it, as by signing ex. 11, he did.

Nothing was in fact done to prevent Noble Promotions from drawing on the moneys credited to it.  At the time of the deposit of $380,000 on 17 December 1993 the account was, as the appellant knew, already overdrawn to the extent of $4,000 or more.  He was, he admitted, “closely monitoring” the account.  On 20 December 1993, a cheque for $211,786.09 was debited to the account.  By 18 January 1994, the account was overdrawn to the extent of $489,152.57.   Some of the money was withdrawn to pay for a car which Mrs Avenell presented to the appellant as a Christmas gift. The appellant misappropriated the sum of $380,000 either by crediting it to an account on which he was aware Noble Promotions was able to continue drawing, or by permitting such withdrawals to take place when the arrangement was that the amount in it was available only to repay the money deposited by the Steinkes.

There is no doubt that the actions of the appellant amounted to a misapplication within s. 408C(1) of the money deposited with the Bank.  On the appeal, counsel for the appellant submitted that the directions given by the trial judge in summing up on count 3 were inadequate.  Leave was sought to amend the notice of the appeal by adding as a further ground that “the case was not properly left by the trial judge to the jury”.

In summing up, His Honour read passages from the evidence of Windsor and Hallas and an extract from ex. 11 referring to the conditions on which the money was deposited.  He instructed the jury that the Crown was required to establish that the cheques were given to the Bank “to be placed in some form of guaranteed account”, and that the jury must be satisfied that “the money had been transferred to the Bank for a guaranteed account, and he [the appellant] had transferred it, or allowed it to be transferred, from that account ...”.  That, it must be acknowledged, was to express the effect of the transaction in very general terms.  But, on that matter, no more precise direction was sought by counsel for the appellant at the trial, which is perhaps not surprising considering that throughout the trial the defence was conducted on the footing that the only issue was whether the appellant had acted dishonestly within the meaning of s. 408C(1).  In order to determine that issue as they did in relation to count 3, the jury must have been satisfied beyond reasonable doubt of all the facts necessary to establish that the appellant had misapplied the sum of $380,000 which the Steinkes transferred to the Bank.  In those circumstances, it would be quite wrong to permit the appellant now for the first time to question the precision of a direction which, if the matter had been raised at the trial, could so readily have been the subject of more complete instruction to the jury.

The interpretation of the documentary exs. 11 and 12 was a matter of law, and a fuller or more complete direction to the jury on their legal effect would have served only to ensure that the appellant was convicted on the charge in count 3 of which he was found guilty.

The applications for leave to amend the notice of appeal should be refused.  The appeals against conviction should be dismissed.