Papotto v The State of Western Australia
[2005] WASCA 234
•6 DECEMBER 2005
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: PAPOTTO -v- THE STATE OF WESTERN AUSTRALIA [2005] WASCA 234
CORAM: STEYTLER P
ROBERTS-SMITH JA
MURRAY AJA
HEARD: 1 NOVEMBER 2005
DELIVERED : 1 NOVEMBER 2005
PUBLISHED : 6 DECEMBER 2005
FILE NO/S: CCA 196 of 2004
CACR 118 of 2005
BETWEEN: SALVATORE PAPOTTO
Appellant
AND
THE STATE OF WESTERN AUSTRALIA
Respondent
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram :H H JACKSON DCJ
Citation :PAPOTTO -v- THE STATE OF WESTERN AUSTRALIA
File No :IND 1415 of 2002
Catchwords:
Criminal law and procedure - Fraud committed by innocent agent - Lack of proof that offender knew of the conduct of the agent said to constitute the act of commission of fraud - Convictions quashed - Turns on own facts
Legislation:
Criminal Code (WA), s 23, s 409(1)(c)
Result:
Appeal allowed
Convictions quashed
Appeal against sentence dismissed
Category: B
Representation:
Counsel:
Appellant: Mr R W Richardson
Respondent: Mr K P Bates & Ms S Markham
Solicitors:
Appellant: Stephen Browne Lawyers
Respondent: State Director of Public Prosecutions
Case(s) referred to in judgment(s):
Graham‑Helwig v Western Australia (2005) 30 WAR 221
Mathews v The Queen (2001) 24 WAR 438
O'Brien v The Queen [2004] WASCA 107
Peters v The Queen (1998) 192 CLR 493
Pinkstone v The Queen (2004) 219 CLR 444
Re London & Globe Finance Corporation Ltd [1903] 1 Ch 728
Tan v The Queen [1979] WAR 149
Case(s) also cited:
Alford v Magee (1952) 85 CLR 437
Atwood v The Queen (1960) 102 CLR 353
B v The Queen (1992) 175 CLR 599
Brennan v The King (1936) 55 CLR 253
Bromley v The Queen (1986) 161 CLR 315
BRS v The Queen (1997) 191 CLR 275
Carden v The Queen (1992) 8 WAR 296
Clarke & Johnstone v The Queen [1986] VR 643
Conlan v Registrar of Titles (2001) 24 WAR 299
De Gruchy v The Queen (2002) 211 CLR 85
Donnini v The Queen (1972) 128 CLR 114
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Fingleton v The Queen (2005) 79 ALJR 1250
Grapsas v Unger (1986) 161 CLR 327
Hoy & Ors v The Queen [2002] WASCA 275
Indich v Bracknell [2005] WASC 225
Iveson v The State of Western Australia [2005] WASCA 25
Leary v The Queen [1975] WAR 133
Parker v The Queen (1997) 186 CLR 494
Pearce v The Queen (1998) 194 CLR 610
Pemble v The Queen (1971) 124 CLR 107
Phillips v The Queen (1985) 159 CLR 45
R v GEC (2001) 3 VR 334
R v Margaria [2003] WASCA 253
Schokker v The Queen [2001] WASCA 84
Scott v Davis (2000) 204 CLR 333
Sulejmani v The State of Western Australia [2005] WASCA 95
Ugle v The Queen (2002) 211 CLR 171
Ugle v The Queen [2000] WASCA 381
Van den Hoek v The Queen (1986) 161 CLR 158
Wedd v The Queen [2000] WASCA 273
White v Ridley (1978) 140 CLR 342
Wilde v The Queen (1988) 164 CLR 365
Worthington v The State of Western Australia [2005] WASCA 72
Yanko v The Queen [2004] WASCA 37
STEYTLER P: I have had the advantage of reading, in draft, the judgment of Murray AJA. It is consequently unnecessary for me to repeat the facts and circumstances giving rise to the appeal.
Each of the 22 counts of fraud with which the appellant was charged, and upon which he was convicted, relied upon the provisions of s 409(1)(c) of the Criminal Code (WA). That section provides that any person who, with intent to defraud, by deceit or other fraudulent means, gains a benefit, pecuniary or otherwise, for any person, is guilty of a crime. As appears from the judgment of Murray AJA, the prosecution case against the appellant was ultimately that a number of persons ("investors") were fraudulently induced by him to lend money to a company, Gold Coast Holdings Pty Ltd, and that the deceitful or fraudulent means by which each such person was so induced was a statement of assets and liabilities which, to the appellant's knowledge, falsely represented that the appellant, who was to guarantee the repayment of each loan, had a net worth of over $3.9M.
As appears from the judgment of Murray AJA, the statement of assets and liabilities was sent to each of the investors by a finance broker, Mr Kenneth O'Brien of Blackburne and Dixon Pty Ltd, who did not know of its falsity and who was not suggested to have been complicit in any fraudulent conduct. As also appears from what has been said by Murray AJA, there was no evidence at the trial sufficient to establish that the appellant knew that the statement of assets and liabilities would be sent to the investors or any of them or to any potential investors.
The prosecutor relied, in this last respect, upon the simple fact that there had been an agency relationship between the appellant and O'Brien (the appellant had approached Blackburne & Dixon Pty Ltd and asked it to arrange for the provision of the loan funds), even though there was no evidence that the appellant had authorised O'Brien to send the statement of assets and liabilities to any potential investor or that he had even known that O'Brien would or might do so. Moreover, the trial Judge, in the course of his directions to the jury, merely repeated the respondent's contentions as regards the agency relationship, without adding any comments of his own.
There is no doubt that a knowingly false statement of assets and liabilities can be used as a means of deceit ("deceit" has been held to mean the inducement of a person "to believe that a thing is true which is false, and which the person practising the deceit knows or believes to be false": Re London & Globe Finance Corporation Ltd [1903] 1 Ch 728 at 732
per Buckley J; Tan v The Queen [1979] WAR 149 at 153 per Burt CJ and 156 per Wallace J; and Graham‑Helwig v Western Australia (2005) 30 WAR 221 at 225, per Wheeler JA). However, in order to make out each of the offences charged, the respondent was obliged to establish, as the case was left by it with the jury, that the appellant had knowingly used that means with the alleged intention to defraud: Mathews v The Queen (2001) 24 WAR 438 at 443. As Murray AJA has pointed out, the mere fact of an agency relationship with O'Brien was, of itself, insufficient to establish that element in circumstances in which, firstly, the statement of assets and liabilities had been provided by the appellant to O'Brien in order to establish his financial credentials at a time when a different financial transaction was envisaged than that which ultimately eventuated and, secondly, in which there was no evidence which was capable of establishing that the appellant had, at any time, knowingly made use of O'Brien in order to misrepresent his net worth to others so as to obtain a benefit for Gold Coast Holdings Pty Ltd.
It was for these reasons (the force of which was, quite properly, conceded by counsel for the respondent as being sufficient to justify the quashing of the convictions) that I joined in the decision of the Court to give leave to appeal, allow the appeal, quash the convictions and discharge the appellant.
ROBERTS-SMITH JA: I have read the reasons for judgment of Steytler P and Murray AJA. I agree with both of their reasons and have nothing to add.
MURRAY AJA: This is an application for leave to appeal against convictions entered against the applicant for 22 counts of fraud contrary to the Criminal Code (WA), s 409(1)(c), which defines the crime committed by any person who, with intent to defraud, by deceit or any fraudulent means, gains a benefit, pecuniary or otherwise, for any person. The maximum punishment for that offence in the circumstances charged in this case is imprisonment for 7 years. Each offence was pleaded in the indictment in substantially identical terms. They were all alleged to have occurred between 11 June 1997 and 7 October 1997. The applicant was charged that he and a person named Magee, with intent to defraud, by deceit or fraudulent means, gained a benefit, namely a specified sum of money, for a company called Gold Coast Holdings Pty Ltd, from a named individual or corporate entity. In other words, each count in the indictment related to obtaining money from a particular complainant.
In Magee's case there was a directed verdict of acquittal on 23 November 2004, and he was discharged. The trial in the District Court, which commenced on 8 November 2004, was a long one. The applicant was found to have a case to answer. He gave no evidence, and on 25 November he was convicted by the jury. On 26 November he was sentenced to 5 years imprisonment on each of the 22 counts. Those sentences were ordered to be served concurrently and he was made eligible for parole. He has been serving that term since then.
He made applications for leave to appeal against both his convictions and the sentences. It is unnecessary to refer to the grounds of the application for leave to appeal against sentence. The applications for leave were heard on 1 November 2005. At the conclusion of the hearing the Court granted leave to appeal against the convictions, allowed the appeal, and quashed the convictions. No retrial was ordered, and the applicant was discharged. It was therefore unnecessary for the Court to address the merits of the application for leave to appeal against sentence. That application was formally dismissed, and I need say no more about it.
The application for leave to appeal against conviction proceeded upon a number of grounds. For present purposes, I need not set them out, or indeed refer to many of them. It is sufficient to note that the principal contention in support of the application, expressed in grounds 1, 2 and 6, is that the false representation to the complainants which was relied upon by the prosecution was unsupported by evidence that the person who made the representation to the complainants, himself innocent of wrongdoing, did so with the applicant's knowledge or consent, particularly having regard to the fact that the nature of the transaction changed by the time the false representation was made. Further, it is complained that the trial Judge did not adequately direct the jury as to what was required to be established by the prosecution beyond reasonable doubt if the innocent agent's representation was to be found to be the act of the applicant.
So far as I need to go into the facts to explain the applicant's case on the appeal, the evidence seems to me to be uncontroversial.
In June 1997, Mr Papotto approached Blackburne & Dixon Pty Ltd, licensed finance brokers, at their office in South Perth. He spoke to a Mr O'Brien. He wished to purchase half of the Dunsborough Resort Motel which was made up of 48 units. It was owned in equal shares, by Gold Coast Holdings Pty Ltd and Shannon Equity Pty Ltd. Mr Papotto wanted to purchase the interest of Gold Coast Holdings, ie, 24 strata titled units. Mr Papotto had actually made an offer to purchase those units for $2.76M. On 12 June 1997 the offer was accepted. The contract was subject to Mr Papotto arranging finance, which he now sought through Blackburne & Dixon.
Mr O'Brien told Papotto that his application for finance would need to be supported by a current valuation of the property to be purchased and a statement of his assets and liabilities, to demonstrate that he had the capacity to repay the money. As the matter developed, the nature of the proposed transaction changed.
By about the end of August, Mr Papotto had entered into a joint venture agreement with the shareholders of Gold Coast Holdings. Under that agreement Mr Papotto was to arrange a loan, secured by first mortgage over the units and his personal guarantee, of not less than $1.92M. That money was to be made available to Gold Coast Holdings who would use the money to pay existing debts, secured over the property and by guarantees entered into personally by two of the shareholders who were, in fact, the two directors of Gold Coast Holdings. In return, Papotto was to be allotted 1,000 fully paid A class ordinary shares in the capital of the company. One of the existing directors was to resign and Mr Papotto or his nominee was to take up that directorship. The 1,000 shares would give Papotto a 99 per cent shareholding in the company.
And so it can be seen that rather than buy the company's property, the units, Papotto was effectively to buy the company by refinancing and extending its present debt commitments. So the company was to be the borrower now, on first mortgage security and with Papotto offering the additional security of his personal guarantee. The evidence was that the valuation of the units revealed that the proposed loan raising was 68 per cent of their value, which fell within the finance broker's loan limit of 70 per cent of valuation.
There appears to have been no discussion between Papotto and O'Brien about the statement of assets and liabilities, which was originally to be provided to support Papotto's capacity to repay borrowings directly to finance the purchase of the units, and would only be relevant to the borrowing by the company if Papotto's guarantee was to be called upon. Papotto engaged an accountant to prepare the document which he then presented to O'Brien. O'Brien got him and the accountant to sign it. It is a single page document showing assets totalling $3.978M, and that he had no liabilities.
Overwhelmingly, his assets were said to lie in what was described as a joint venture business migration project and a joint venture casino project, both in Fiji. Papotto's interest was said to be valued at $3M. There was some documentary evidence that Papotto had been involved in such projects in Fiji, but the State's case was that neither project came to anything and both were abandoned in 1996.
The next most significant asset was shown as $598,000 in a bank account in Fiji. It was the State's case that there was no such account. Then there was the sum of $225,000 attributed to a 50 per cent interest in a fishing vessel named the "Lady Anne" but the State's evidence was that police inquiries throughout Australia had confirmed no such interest. The other major asset identified in the statement was a 25 per cent interest in two properties in Bayswater which were identified. That interest was valued at $100,000. But the State's evidence was that Mr Papotto owned no such interest in either identified property. Most of the documentation provided by Mr Papotto was apparently concerned to substantiate his income, but it was the State's case that the statement of his assets was very substantially false and that Papotto well knew that to be the case.
After taking legal advice as to the effectiveness of the transaction in its changed form, O'Brien decided that he should go to investors for finance. He did so by writing to known potential investors between 11 August and 23 September 1997. There are 22 letters which were related to the 22 counts of which Papotto was convicted. The letters were drawn by O'Brien.
It may be presumed that Papotto would know there would be some documentation by which mortgage investment would be sought to make up the $1.92M which he was committed to obtain. But he did not give evidence at trial and O'Brien gave no evidence that he discussed the content of the letters with Papotto. O'Brien acted pursuant to his appointment as Papotto's agent, as a finance broker, to arrange mortgage loans for Papotto which, under the terms of the appointment of Blackburne & Dixon Pty Ltd, he agreed to take up, if obtained. O'Brien required no instructions from Papotto as to how he was to go about his task of arranging mortgage finance.
The letter he drafted offered a first mortgage investment of a stated amount, with the mortgage being taken over nominated strata title lots or units of the Dunsborough Resort Motel. There were 24 units, and six separate mortgages, each over four units. It was stated that the borrower would be Gold Coast Holdings Pty Ltd, which was introduced as the holding company for Mr Papotto who, it was said, "is a Business Consultant and Property Developer and has a net worth of $3.9M and will join in the mortgage as guarantor." The amount to be borrowed for each of the six mortgages was $340,000, and each of the units was said to be valued at $125,000 each, a total of $500,000 per mortgage. The loan was therefore said to represent 68 per cent of the valuation. It was wrongly said that Papotto had purchased half of the 48 units which made up the motel and that Blackburne & Dixon Pty Ltd were providing finance totalling $1.88M of the purchase price of $2.76M, a statement which ignores the change in the nature of the transaction.
As the prosecution case went to the jury, reliance was placed squarely upon the false statement, as it was alleged to be, that Papotto had a net worth of $3.9M. It was said that that statement was made with an intent to defraud in that it was made to induce or cause the investors to whom the invitation was put, to invest their money. But of course the intent to defraud had to be that of Papotto.
Then it was said that to make that false statement was deceitful in that the investors were misled as to the true position, or it was to be categorised as the employment of fraudulent means, dishonest means, to obtain the investors' money, which would clearly constitute a benefit for Gold Coast Holdings Pty Ltd. That was the way the matter was left to the jury and no difficulty arises in that regard.
An intention to defraud is an intention to cause another to act against that person's interest or to that person's detriment: Tan v The Queen [1979] WAR 149 per Burt CJ, at 153. In this case, therefore, it required proof of the intention to cause the investors to provide their money so as to gain the benefit which was in fact gained for Gold Coast Holdings Pty Ltd. The means by which that had to be done to constitute the offence was by deceit or fraudulent means. If the investors were induced to part with their money by making a deliberately false statement, that would be deceitful and it would also constitute fraudulent means. As I put it in O'Brien v The Queen [2004] WASCA 107, at [25]:
"The phrase 'deceit or any fraudulent means' is a composite one, not expressly defined in the Criminal Code. It describes conduct which is dishonest, and in that concept there are the notions that the victim is deceived by the act or acts of the offender or that a proscribed outcome is achieved dishonestly, whether or not the victim is duped. The concept involves a mental element, apart from the requirement of an intention to defraud … "
What is involved is that the offender must consciously or intentionally behave in a way which is dishonest according to the standards of honesty of ordinary people. Clearly it would be open to find that to portray the guarantor who is standing behind the borrowing company as a person of real financial worth when that was known not to be the case would satisfy the concepts involved.
What I have written above is derived from the High Court's decision in Peters v The Queen (1998) 192 CLR 493, Lewis v The Queen (1998) 20 WAR 1, Mathews v The Queen (2001) 24 WAR 438, and most recently, Graham‑Helwig v Western Australia (2005) 30 WAR 221, particularly per Wheeler JA at [12] – [14].
But of course it is trite to observe that the mental element involved in an intention to defraud and in behaving deceitfully or employing fraudulent means as well as the conduct itself, must be that of the offender, and for the accused to be criminally responsible, the conduct said to constitute the offences could not occur "independently of the exercise of his will": Criminal Code (WA) s 23. In this case it was O'Brien who made the statement upon which the prosecution relied. At trial, the prosecution relied simply upon the relationship of agency between Papotto and the finance broker, O'Brien, and his Honour the trial Judge took the matter no further. He did not expressly direct the jury how they were to attribute, if they could, the conduct of O'Brien to Papotto, and in my opinion that was an error which constituted a clear miscarriage of justice.
The law as to the circumstances in which criminal liability may be imposed when the conduct which constitutes the commission of the offence is committed by another is clear. If the other is implicated as an accomplice, then the matter will fall to be dealt with according to the rules which may implicate one person in the commission of an offence by another person. But apart from that, a person may act so as to commit an offence by using another as the person's "innocent instrument". That will occur when the person knowingly makes use of another to perform the acts constituting the commission of the offence, provided the person himself has the necessary intention to constitute any mental element with which the act of commission of the offence must be accompanied: Wright v Ridley (1978) 140 CLR 342, 353‑354; Pinkstone v The Queen (2004) 219 CLR 444, at [60].
In this case, it was never suggested that O'Brien was a party to the commission of any offence of fraud. He did not know of the falsity of the representation upon which proof of the charges contained in the indictment turned. He might therefore be regarded as Papotto's innocent instrument if Papotto not only possessed an intent to defraud the investors in the relevant sense, which he undoubtedly did; but that he consciously or knowingly acted through O'Brien in a deceitful or fraudulent way by dishonestly offering the investors the inducement of his supposed substantial financial worth. Such an inference might readily be drawn against him if there was evidence that he knew that inducement would be put to the investors in seeking their money. But there was no evidence that he did so.
Indeed, the evidence was to the contrary. There was evidence that he did not know how the finance broker would invite investors to contribute their funds. It might be supposed that Papotto knew that some document would be put to them, which would describe the nature of the joint venture project its monetary worth. But Papotto did not know that the particular letter of invitation would be sent or that its contents would include the statement that he was worth $3.9M. He had provided that information, let it be assumed knowing that it was false, to O'Brien for the purpose of establishing his financial credentials to the finance broker, who told him that it was necessary for him to establish his worth and his capacity to repay the loan, before the finance broker would accept the commission to raise the money required. Further, the change in the nature of the transaction made his worth less relevant and made it less likely that his personal worth would be put to potential investors.
Not only was the jury not instructed that they must find, beyond reasonable doubt, that O'Brien was used by Papotto, knowingly, as his innocent instrument, to make the representation that Papotto had a net worth of $3.9M, but in my opinion there was no evidence upon which that finding could be made. In those circumstances, not only was it necessary to quash the convictions but a retrial could not be ordered. For those reasons I joined in the final orders to which I have referred at the commencement of these reasons. It is unnecessary in the circumstances that I should discuss the matters raised by other grounds of appeal.
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