English v Police No. Scgrg-99-16 Judgment No. S126

ENGLISH v POLICE
[1999] SASC 126

Magistrates Appeal: Criminal

PRIOR J. Appeal against convictions on three counts of fraudulent conversion.
A magistrate heard evidence with respect to four counts of fraudulent conversion. He dismissed one of those counts but found the other three proved beyond reasonable doubt. Each of the four counts alleged that the appellant, entrusted with a cheque to apply the proceeds to one Kathleen Brooks, applied most of the proceeds of the four cheques to his own use and benefit. Mrs Brooks was a party to a deed of compromise by which a Mr Farkas had agreed to make payments with respect to a judgment debt in favour of her deceased husband, Mr Sam Brooks. The appellant became the solicitor for Mr Brooks in May 1989. He died in August of that year. His widow then became the appellant’s client with respect to that debt until her own death in June 1996.
In June 1992, the appellant settled Mr Brooks’ original action for the recovery of the judgment debt after proceedings to set aside the judgment entered in 1987 were finally dismissed by the Full Court in March of 1992. By the settlement Farkas was to pay Mrs Brooks a total sum of $118,601.92 inclusive of interest. $30,000 was received before a deed of compromise was signed by Farkas on 16 September 1992. A further 23 payments were made between July 1992 and June 1994 in satisfaction of that debt. All payments were made in the form of cheques totalling $126,219.63. The cheques were all forwarded to the appellant’s office. The first two were made payable to his trust account. They were so credited. The next nine payments were made payable to the appellant’s firm. These were credited to the office account. The last 12 cheques were forwarded on to Mrs Brooks.
The first count before the Court dealt with the first payment in July 1992 of $15,000. The second count related to part of the fourth payment in October of that year. The third and fourth counts related to the eighth and eleventh payments respectively. These occurred in February and May 1993.
The prosecution’s case was dependent upon documentary material and some evidence from the deceased’s daughter-in-law, Elizabeth Brooks, who took up her mother-in-law’s cause in 1992.
With respect to the first count the evidence established that a cheque for $15,000 was paid into the appellant’s trust account on 9 July 1992. The prosecution relied upon the fact that an account rendered to Mrs Brooks by the appellant on 19 August 1992 bore no reference to this sum. As to the third count a sum of $5,000 received by the appellant and banked by him in February 1993 was not accounted for in any bill of costs, as was the case with the first payment of $15,000.
The appellant gave evidence at the hearing. He said that when he first met Mr Brooks he told him that he would act for him upon the clear understanding that the 35 per cent contingency fee which had been agreed to by Mr Brooks with Adelaide Collection Services Pty Ltd (ACS) would still be payable together with the appellant’s costs and disbursements. ACS had referred Mr Brooks’ recovery process to the appellant in 1989. The appellant often did work for that company. Mr Brooks signed an acknowledgment with ACS that all monies expended were “to be taken as first recovery from monies received” from Farkas “in execution proceedings and thereafter”, the commission rate applied “to the balance of the judgment debt”.
The appellant said that when he spoke to Mr Brooks’ widow he told her that if he was to continue to recover the judgment sum Mrs Brooks would not get any money in her hands until all the costs and commission were paid. He also said that when the first payment of $15,000 was received he checked with Mr Lloyd, the Managing Director of ACS to enquire whether the company required its commission. He said he was told that ACS did not claim it and that the appellant could have it. The appellant said he accepted this given that the company for whom he had acted over a number of years owed him a lot of money. The appellant also said that he had never told Mrs Brooks that she would not have to pay a commission on the monies recovered. He believed he was entitled to the commission. It was his evidence that before speaking to ACS he had told Mrs Brooks about commission and that it had to come out of her account before she saw her money. He said that when transferring disbursements of $1,455 and profit costs of $13,546 out of his trust account with respect to the first payment of $15,000 he thought he was holding the money on trust for the collection service company with any remainder after costs going to Mrs Brooks. He insisted he had no intention to defraud Mrs Brooks then or at any time. He asserted a belief that he was entitled to the first payment of $15,000. He insisted that he had never misled Mrs Brooks in any way as to her liability to pay a contingency fee. He said that his instructions from Mrs Brooks were that provided she got $50,000 in her pocket she would be happy. A letter to that effect was sent to the appellant in 1991. Elizabeth Brooks was aware of that and was unable to dispute the appellant’s claim that those instructions were not changed. As things turned out, the appellant succeeded in getting more than that for Mrs Brooks, a circumstance said to be inconsistent with any intent to defraud.
Before the Court was a letter from the appellant to Mrs Brooks dated 8 March 1993. That enclosed a bill of costs dated 2 November 1992 for $31,782.45. Payments of $29,000 were acknowledged but no reference was made to the sum of $15,000 received in July 1992 and the subject of the first count. As to the cheque received in October 1992, there was reference to $5,000 when the sum received was $5,601. The absence of any explanation for the $601 gave rise to the second count. The appellant’s letter informed Mrs Brooks that the bill of costs was:
“less than the 35 per cent (exclusive of costs) which is the Contingency Agreement upon which I accepted instructions in 1987 from the late Mr Brooks.
All future monthly instalments will be forwarded to you direct effective 1 April 1993 together with interest at 10 per cent under the terms of the Mortgage which you now hold.
This sum includes certain recordable costs under the Deed of Compromise.
The balance under the mortgage is therefore, as I calculate the figures, is $73,601.92. This sum, plus interest will go to you direct.
Will you get your daughter-in-law to look at the figures and I will call on you if some future explanation is deemed necessary.”
The appellant claimed that the $20,000 included in Counts 1 and 3 were not part of his bill of costs because they were taken as part of the contingency fee. The magistrate noticed this in his reasons and then referred to the fact that there was “also no mention of the fact that ACS had relinquished (its) claim to 35 per cent of the net amount recovered after legal costs.” That was not an accurate statement of the ACS claim, the substance of which has already been quoted.
The magistrate then referred to an explanation given by the appellant for a particular cheque being dishonoured. The magistrate said he did not accept the appellant’s explanation given that the appellant said the amount should have been paid into the trust account. By that time some six cheques from Farkas had been paid into the appellant’s office account. However, that particular payment is not the subject of any of the counts in the information. The fourth count related to a cheque for $5,000 received soon after this. The prosecution alleged that this sum was paid into the appellant’s office account to bring his account back within his overdraft, not because he was entitled to the money under the commission and costs arrangement or otherwise. The appellant’s answer to that allegation was as with the other occasions referred to in the other counts.
His Honour then said:
“Besides the fact the $15,000 received on 9 July 1992 and the $5,000 received on 26 February 1993 were not accounted for in the statement in my opinion the letter (of 8 March 1993) accompanying the account contains a clear inference to the reader namely Mrs Brooks, that the 35 per cent commission would not be charged, principally because the defendant had pointed out his costs and disbursements would be less than 35 per cent of the amount recovered, less legal costs and disbursements. The $20,601 involved in Counts 1, 2 and 3 the defendant says was taken on account of commission which was meant to be 35 per cent of the amounts recovered, less legal fees. As at 9 July 1992 $15,000 represented 100 per cent of the amount recovered and on 26 February 1993 the Brooks family had not received any money except the $1,000 on 19 August 1992. A further cheque from Farkas was received on 26 May 1993 for $5,000 which again was not sent on to the Brooks family and therefore besides costs, the defendant had received $25,000 and the Brooks family $11,000, hardly 35 per cent of the amount collected. All payments thereafter were made direct to the Brooks family monthly until 17 March 1994, after which two payments of interest were received in May and June 1994. Counsel for the defendant pointed out the amount received by the defendant pursuant to the contingency agreement was equal to the 35 per cent of the net amount paid to the Brooks family, besides costs. Assuming this was so the monies were appropriated on the assumption the debtor would make complete payment to the Brooks family, a fact which the defendant would not have known at the time the defendant appropriated the amounts in question. I accept the defendant’s evidence that Mr Lloyd said ACS did not want the monies, namely the 35 per cent payable under the contingency agreement and although I accept the defendant told Mr Brooks the commission, namely the 35 per cent would have to come out of any monies received, the plain fact is that any monies representing the 35 per cent could not be the defendant’s property but, in fact, should have been paid to the Brooks family who no longer had to pay the 35 per cent to ACS. My impression was the defendant seemed not to realise this at the time Mr Lloyd said it, when watching him give evidence but his failing to account for the monies appropriated to the contingency agreement lead me to the inference that he, in fact, realised later the money belonged to the Brooks family and hid it from them by failing to disclose he had received money.”
On the hearing of the appeal counsel for the appellant attacked this particular passage of the magistrate’s reasons. Properly so. Within it I think there is enough said to call for the quashing of the convictions on Counts 1 and 3 at least.
The prosecution had to establish that the appellant was aware that he was not entitled to the monies said to be converted. It had to exclude as a reasonable possibility that the appellant was authorised to do what he then did with a particular sum of money. Within this passage the magistrate makes errors and draws an inference not open to him. Indeed by his finding he has been unable to exclude as a reasonable possibility that the appellant believed he was entitled to treat the monies received as his own given the terms of ACS’s original contingency agreement and what he was told by Mr Lloyd. As counsel pointed out the amount received by the appellant pursuant to the contingency agreement was in fact less than his entitlement. However, given that, the magistrate accepted the appellant’s evidence that he was told that the 35 per cent under the contingency agreement was not to be payable to ACS and that his impression was that the appellant “seemed not to realise this at the time Mr Lloyd said it”. That is he seemed not to realise that in fact the Brookses were now entitled to the 35 per cent because they did not have to pay it to ACS.
There was no factual foundation for the finding that the forgiving of the 35 per cent commission was in any way contrary to the appellant’s assertion that it had been assigned to him unless the appellant was expressly disbelieved about what he said Lloyd told him. It was also the appellant’s evidence that he explained what had occurred with ACS to Mrs Brooks and that she none the less retained his services on that basis. The magistrate did not disbelieve the appellant about this. The magistrate failed to make findings sufficient to inculpate the appellant, certainly as to the first three counts.
As for the fourth count, that related to the receipt of a cheque in May 1993 for $5,000, the last payment used by the appellant before direct payments became the rule consistent with the appellant’s letter of 8 March 1993. The fact that this sum should have gone to Mrs Brooks by the terms of that letter was tested in the course of the appellant’s evidence. Reconstruction in the course of evidence long after the occurrence of these events had to be acknowledged. There was also the appellant’s evidence that the drafting of the letter occurred some months before it was sent. The explanations could not be, nor were they identified as far fetched or fanciful. The appellant’s assertions and explanations all had to be rejected as reasonable possibilities before a conviction could be made out on this count. The prosecution’s particular allegation with respect to the appellant’s overdraft was not dealt with specifically by the magistrate in his reasons. Besides the matters already mentioned it must be acknowledged that with respect to both the third and the fourth counts the appellant maintained he was acting consistent with his client’s instructions and retaining monies as the contingency agreement permitted. Before convicting, the magistrate had to make more adverse findings against the appellant than he did.
The magistrate has made no finding as to when the inference he drew that the appellant realised later that the money belonged to the Brookses arose. That inference was not related to any particular charge. A further inference drawn by the magistrate was that the appellant “took advantage of the situation by misappropriating the first and subsequent payments”, by relying upon the appellant being alert to the age and infirmity of Mrs Brooks “who had limited understanding of the processes involved in the recovery of the judgment debt.” The magistrate could do this but only if he rejected the appellant’s version of events as a reasonable possibility. This he did not do. In my view, against the findings properly made, a dishonest intent was not proved with respect to any of the four counts.
At the end of his reasons the magistrate said he was satisfied beyond reasonable doubt that the appellant had a dishonest intent to apply the monies set out in Counts 1, 3 and 4. However as to the second count His Honour said that he believed that there was a reasonable possibility that the $601 “was overlooked or was for another purpose.” On that basis he acquitted the appellant on that charge. His Honour did not say what the other purpose was. There was no evidence to distinguish any such purpose from the particular purposes that the appellant deposed to.
As to the matters which he found proved the magistrate said that his finding as to a dishonest intent negatived a finding of claim of right. There were some good arguments advanced in the course of the hearing of the appeal with respect to claim of right. It is not necessary to deal with them given what the magistrate did say immediately before being satisfied beyond reasonable doubt that the defendant had a dishonest intent to apply the monies referred to in Counts 1, 3 and 4. His Honour said:
“This case really comes to this question, is there a reasonable possibility a solicitor of many years standing, of previously impeccable character and of many years experience;
a)      would breach an agreement as to the terms upon which he would disburse monies received from a debtor on behalf of his client.
b)     would not inform his client that he so breached it until the client raises the situation
c)     did not inform the client or account to his client for the monies he received (Mrs Brooks only knew through the actions of her daughter in law of the amount paid by Frakas by an enquiry by her daughter-in-law from the debtor of the amount he paid)
d)     was in overdraft at the bank
e)     was in danger of losing a major client namely ACS who were winding down
f)      would not have realised the amount assigned to him by way of commission was not his money but, in fact, his client
g)     failed to inform his client that the money had been assigned
h)     retained nearly $22,000 over and above his legal entitlement of costs and disbursements and
i) .... where I cannot accept certain explanations given in evidence by the defendant of his conduct
He did not have a dishonest intent.”
The submission that in this passage the magistrate reversed the onus of proof is correct. The effect of the question the magistrate asked himself was whether it was a reasonable possibility that the defendant did not have a dishonest intent. That is a complete reversal of the onus of proof because it calls upon the appellant to show that he lacked the fraudulent intent which was an essential ingredient of the charge of fraudulent conversion. A proper question with respect to each count separately considered and with respect to the evidence properly relevant to a particular charge would have been whether the prosecution had proved beyond reasonable doubt that the appellant did have a dishonest intent. The question was not whether there was a reasonable possibility that the appellant did not have a dishonest intent but whether the prosecution had rejected as a reasonable possibility that on the occasion the subject of a particular count the appellant did not have a dishonest intent. The magistrate’s own findings called for acquittal. He had not rejected a reasonable possibility that the appellant believed he was entitled to withhold the sums referred to in the charges against the arrangements he deposed to. Absent a sufficient and clear rejection of the appellant’s version of events the prosecution failed.
The appeal is therefore allowed, the convictions on Counts 1, 3 and 4 set aside and those charges dismissed.

[1999] SASC 126

31 March 1999