R v Xu
[2018] NZHC 779
•23 April 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2016-004-9302
[2018] NZHC 779
THE QUEEN v
KANG XU GANG CHEN
ZONGLIANG JIANG
Hearing: 11,12,17 and 18 April 2018 Counsel:
T A Simmonds, K J Cooper and S E Cann for Serious Fraud Office
A M Simperingham and W Zhang for Kang Xu S N B Wimsett and S T Patia for Gang Chen
J-A Kincade and A Shendi for Zongliang Jiang
Judgment:
23 April 2018
JUDGMENT OF KATZ J
[Section 147 applications]
This judgment was delivered by me on 23 April 2018 at 3:00pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Serious Fraud Office, Auckland
A Simperingham, Woodward Chrisp, Gisborne W Zhang, Woodward Chrisp, Gisborne
Counsel: T Simmonds, Barrister, Auckland
S Cann, Barrister, Auckland
S N B Wimsett, Barrister, Auckland
S T Patia, Samuel Wimsett Barrister, Auckland J-A Kincade, Blackstone Chambers, Auckland A Shendi, Barrister, Auckland
R v XU [2018] NZHC 779 [23 April 2018]
Table of Contents
Introduction.......................................................................................................... [1]
Dismissing a charge — the law........................................................................... [5]
The Crown case.................................................................................................. [10]
Factual allegations [10]
The nature of circumstantial evidence [20]
Does the offence of obtaining by deception require proof that the
defendant personally incurred a debt or liability?.......................................... [24]
Section 240 — Obtaining by deception [26]
The competing interpretations of s 240(1)(b) [30]
The legislative history of s 240(1)(b) [35]
What is the correct interpretation of s 240(1)(b)? [47]
Does the required causative link between the deception and the
obtaining of credit have to be proved by direct evidence?............................. [59]
Were some lending decisions made by a computer?....................................... [66]
Does the Crown have to prove that there was no intention to
repay the loans?................................................................................................. [78]
Is there sufficient evidence to support the Crown contention that
Mr Huang or LV Park were the “true borrowers”?....................................... [85]
Ms Xu’s dismissal application........................................................................... [90]
Mr Chen’s dismissal application....................................................................... [96]
Mr Jiang’s dismissal application...................................................................... [98]
Result................................................................................................................ [104]
Introduction
[1] Kang Xu, Gang Chen and Zongliang Jiang are currently on trial in respect of various charges arising out of what the Crown alleges was large-scale mortgage fraud involving 57 loan applications that were (with one exception) made to either the Bank of New Zealand (“BNZ”) or ANZ Bank New Zealand Limited (“ANZ”). Many of the loan applications related to multiple property transactions. The total value of the loans in issue is over $54 million.
[2] All three defendants face a number of “obtaining credit by deception” charges pursuant to s 240(1)(b) of the Crimes Act 1961. In addition, Mr Chen and Mr Jiang each face one charge under the Secret Commissions Act 1910. A fourth person, Kang Huang, pleaded guilty to various related charges prior to trial.
[3] At the conclusion of the Crown case (during the seventh week of trial) the defendants each applied for dismissal, pursuant to s 147 of the Criminal Procedure Act 2011, of most of the obtaining by deception charges they face, on the basis that there is no case to answer in respect of those charges. The dismissal applications raise a number of issues that are common to two or more defendants. In particular:
(a)Does the offence of obtaining credit by deception under s 240(1)(b) require proof that the defendant personally incurred a debt or liability?
(b)Does the required causative link between the deception and the obtaining of credit have to be proved by direct evidence from the bank employee who approved the loan? Or can the required causative link be inferred from other evidence?
(c)Were some of the lending decisions made by a computer? If so, should the relevant charges be dismissed on the basis of established case law that deception requires that a person (not a machine) be deceived?
(d)Does the Crown have to prove that there was no intention to repay the loans?
(e)Is there sufficient evidence to support the Crown contention that Mr Huang or LV Park were the true borrowers?
[4] I will first outline the law relating to dismissal applications and then summarise the Crown case. I will then address each of the common issues I have identified, before turning to consider each defendant’s dismissal application in light of the conclusions I have reached on the common issues. At that stage I will also address any issues that are unique to each defendant’s application.
Dismissing a charge — the law
[5] As this is a Judge-alone trial, pursuant to s 147(4)(b) of the Criminal Procedure Act I may dismiss a charge if I am satisfied that there is no case to answer in respect of that charge. The corresponding provision in respect of jury trials, s 147(4)(c), provides that the Judge in a jury trial may dismiss a charge if he or she is satisfied that, as a matter of law, a properly directed jury could not reasonably convict the defendant.
[6] In the context of a jury trial, the Court of Appeal observed in R v Flyger that a judge “must respect the jury’s responsibility to decide the facts” and “should not normally” order a discharge “where there is before the Court evidence which, if accepted, would as a matter of law be sufficient to prove the case”.1 Flyger was further considered and explained by the Court of Appeal in Parris v Attorney-General, where the Court held that:2
There should be a section [147] discharge when, on the state of the evidence at the stage in question, it is clear either that a properly directed jury could not reasonably convict, or that any such conviction would not be supported by the evidence. In most cases, these two propositions are likely to amount to much the same thing.
[7] The test to be applied by a Judge on a submission of “no case to answer” in a Judge-alone trial is essentially the same as in a jury trial, as noted by the House of Lords in Haw Tua Tau v Public Prosecutor:3
1 R v Flyger [2001] 2 NZLR 721 (CA) at [13].
2 Parris v Attorney-General [2004] 1 NZLR 519 (CA) at [13].
3 Haw Tua Tau v Public Prosecutor [1982] AC 136, [1981] 3 All ER 14 (PC) at 151–152; at 20.
In their Lordships’ view the same principle applies to criminal trials where the combined roles of decider of law and decider of fact are vested in a single judge… At the conclusion of the prosecution’s case what has to be decided remains a question of law only. As decider of law, the Judge must consider whether there is some evidence (not inherently incredible) which, if he were to accept it as accurate, would establish each essential element in the alleged offence. If such evidence as respects any of those essential elements is lacking, then, and then only, is he justified in finding ‘that no case against the accused has been made out’…Where he has not so found, he must call upon the accused to enter upon his defence, and as decider of fact must keep an open mind as to the accuracy of any of the prosecution’s witnesses until the defence has tendered such evidence, if any, by the accused or other witnesses as it may want to call and counsel on both sides have addressed to the judge such arguments and comments on the evidence as they may wish to advance.
[8] The Crown case here is largely a circumstantial one. It depends to a significant extent on the drawing of inferences. Where the Crown case depends on inferences, credible evidence must “establish facts capable of supporting the inference” but “[t]he court should not decide on such an application or submission whether the relevant inference should be drawn”.4
[9] I keep in mind that, in a Judge-alone trial, it will normally not be appropriate for the Judge to form even a tentative view that a defendant’s guilt has been established without the benefit of considered argument on the whole of the case, and before evidence adduced by a defendant has been heard.5 This accords with the Judge’s function, at the stage of a section 147 application, being “not to attempt to predict the outcome but to examine the evidence in terms of adequacy of proof, if accepted”.6
The Crown case
Factual allegations
[10] In this section I set out the Crown case against the defendants. I re-iterate that, at this stage, I am not making any factual findings, but simply setting out the Crown case. Questions about the weight of evidence or credibility must await the conclusion of trial.
4 R v Adams HC Auckland T240/91, 8 October 1992 at 4, endorsed by the Court of Appeal in R v Flyger, above n 1, at [18].
5 R v Flyger, above n 1, at [23].
6 R v Flyger, above n 1, at [13] and Parris v Attorney-General, above n 2, at [7]–[13].
[11] The Crown case is that Mr Huang was the instigator of the overall offending. Mr Huang, Ms Xu (Mr Huang’s wife), Mr Chen (Mr Huang’s lawyer), and Mr Jiang, (an employee of the BNZ at the relevant time) were each involved in a large-scale mortgage fraud involving 57 loan applications. Many of the loan applications related to multiple property transactions. The total value of the loans obtained was over $54 million.
[12] For many years Mr Huang operated a property development business, trading as LV Park. LV Park specialised in building residential homes. To fund the development of properties, LV Park obtained finance from financial institutions. Mr Huang, however, was keen to reduce LV Park’s financing costs. The financial institution that provided most of the funding for his property development projects charged relatively high interest rates. Mr Huang realised that the trading banks, however, provided lower interest financing to individuals who wished to purchase residential property.
[13] Mr Huang is alleged to have instigated a scheme, with the assistance of Ms Xu, Mr Chen and Mr Jiang, through which properties owned by LV Park would be transferred into the names of various individuals (none of whom had any effective control over the loan funds) so that lower-interest residential home loans could be obtained from trading banks to fund LV Park’s development activities. The scheme involved making loan applications to the banks in the names of relatives, friends or employees of Mr Huang and Ms Xu, including their elderly parents. In one case, the loan applicant is said to have been an entirely fictitious person.
[14] The Crown alleges that, in order to substantiate the loan applications, a number of false supporting documents were created and provided to the banks. These included false employment letters and false Chinese bank statements. In addition, it is alleged that false “income” payments were made into the New Zealand bank accounts of some applicants, to further deceive the banks into believing that the false employment information provided was true, and that the relevant applicant had sufficient income to service the loan being applied for.
[15] Once the loans were obtained, the Crown says that they were serviced by LV Park, which retained control of the properties following their “sale” to one of Mr Huang and Ms Xu’s associates.
[16] Each of the defendants is said to have been aware of the ongoing deception and been a willing participant in it. Each of them is said to have played their own crucial part in enabling the ongoing course of deception to succeed, and to continue for as long as it did.
[17] Ms Xu is alleged to have supplied many of the false documents to the banks (mostly via Mr Chen) as part of the ongoing deception. She is also said to have been the person responsible for many of the false “income” payments into the bank accounts of the named borrowers.
[18] Mr Chen is said to have been the lawyer who acted for both the purported vendor and buyer in most of the property transactions, as well as for the lending bank. The Crown says that he had a close business relationship with Mr Huang, to the extent that Mr Huang and his LV Park Group became a key client of Mr Chen’s. Mr Chen is alleged to have been a central figure in the fraudulent scheme to deceive the banks, enabling LV Park to obtain loan funding that it could not otherwise have obtained. It is alleged that Mr Chen failed to disclose to the banks that LV Park or Mr Huang was the true borrower of the loans. It is further alleged that he provided the banks with supporting documents that he knew to be false. Mr Chen is also said to have paid “kickbacks” to Mr Jiang and another bank insider, Peter Cheng, who processed and approved loans at the ANZ Bank.
[19] Mr Jiang was a BNZ employee at the relevant time. He is alleged to have processed and/or approved all of the BNZ loan applications, knowing that they were based on false and misleading information. The Crown also alleges that he received “kickback” payments for his involvement in the mortgage fraud scheme.
The nature of circumstantial evidence
[20] As the Crown case against each defendant is largely a circumstantial one, it is appropriate to make some observations about the nature of circumstantial evidence at the outset.
[21] In a circumstantial case, the Court must look to the combined effect of a number of independent items of evidence when considering each charge. While each separate piece of evidence must be assessed as part of the inquiry, the ultimate verdict on each charge will turn on an assessment of all items of evidence viewed in combination. The underlying principle is that the probative value of a number of items of evidence relating to the same factual issue is greater in combination than the sum of the parts. The analogy that is often drawn is that of a rope. Any one strand of the rope may not support a particular weight, but the combined strands are sufficient to do so.7 The logic that underpins a circumstantial case is that the defendant is either guilty or is the victim of an implausible, unlikely series of coincidences.
[22] When assessing the evidence in a circumstantial case it is not sufficient to evaluate each separate strand of evidence in isolation and then stop. Having considered each strand of evidence separately, it is necessary for the decision-maker to then stand back and assess the cumulative effect of all of the different strands of evidence. Consideration of the onus and standard of proof only occurs at the second stage of the process. The individual strands of evidence do not have to be proved beyond reasonable doubt.8 The onus and standard of proof only comes into play once the combined weight of all of the strands of evidence is being considered.9
[23] I will now consider, in turn, each of the common issues I have identified at [3] above.
7 R v Guo [2009] NZCA 612 at [49]–[52]; R v Hoto (1991) 8 CRNZ 17 (HC) at 21.
8 See Thomas v R [1972] NZLR 34 (CA); R v Puttick (1985) 1 CRNZ 644 (CA) at 647.
9 R v Puttick, above n 8, at 647; applied in Ngarino v R [2011] NZCA 236 at [26].
Does the offence of obtaining by deception require proof that the defendant
personally incurred a debt or liability?
[24] The defendants each submitted that there is no case to answer in respect of almost all of the obtaining credit by deception charges, on the basis that s 240(1)(b) of the Crimes Act, correctly interpreted, requires a defendant to have personally incurred a debt or liability.
[25] There are three charges where loan applications were made in the names of either Mr Chen or Ms Xu. In relation to those charges, Mr Wimsett and Mr Simperingham accepted that the argument that Mr Chen or Ms Xu personally incurred a debt or liability is open. In respect of all other obtaining by deception charges, however, the defendants submitted that the Crown has failed to prove that the relevant debt or liability was incurred personally by the defendant specified in the charge. Rather, they say, the debt was incurred by the person named on the loan application. An element of the charge cannot therefore be established, and the relevant charges should be dismissed.
Section 240 — Obtaining by deception
[26]Section 240 of the Crimes Act states:
240 Obtaining by deception or causing loss by deception
(1)Every one is guilty of obtaining by deception or causing loss by deception who, by any deception and without claim of right,—
(a)obtains ownership or possession of, or control over, any property, or any privilege, service, pecuniary advantage, benefit, or valuable consideration, directly or indirectly; or
(b)in incurring any debt or liability, obtains credit; or
(c)induces or causes any other person to deliver over, execute, make, accept, endorse, destroy, or alter any document or thing capable of being used to derive a pecuniary advantage; or
(d)causes loss to any other person.
…
(2)In this section, deception means—
(a)a false representation, whether oral, documentary, or by conduct, where the person making the representation intends to deceive any other person and—
(i)knows that it is false in a material particular; or
(ii)is reckless as to whether it is false in a material particular; or
(b)an omission to disclose a material particular, with intent to deceive any person, in circumstances where there is a duty to disclose it; or
(c)a fraudulent device, trick, or stratagem used with intent to deceive any person.
[27] Given that the charges in this case have been brought under s 240(1)(b), the question before me is the correct interpretation of the following provision:
Everyone is guilty of obtaining by deception…who, by any deception and without claim of right…in incurring any debt or liability, obtains credit.
[28] Three elements of the offence of obtaining credit by deception apparent on the face of the section are:
(a)the incurring of a debt or liability;
(b)the obtaining of credit; and
(c)deceptive conduct (as defined) by which the credit was obtained.
[29] There is also the requirement that the conduct occurred without “claim of right”. The extent to which there is a mens rea element that extends beyond this is not entirely clear, and is addressed further at [78] to [83] below.
The competing interpretations of s 240(1)(b)
[30] Mr Wimsett (for Mr Chen) took the lead on this argument for the defendants, supported by Mr Simperingham (for Ms Xu) and Ms Kincade (for Mr Jiang). He noted that longstanding authority has held that the relevant credit must be obtained by
and given to the defendant personally.10 He argued that, given the statutory wording “in incurring any debt or liability, obtains credit”, it necessarily follows that the associated debt must be incurred personally. He noted that the Shorter Oxford English Dictionary defines incur (amongst other things) as being to “Find, or make, oneself subject to (danger, displeasure, etc); bring on oneself (expense, obligation, etc)”.
[31] Mr Wimsett acknowledged, however, that the proposition that the relevant credit must be obtained and given to the defendant personally is no longer a correct statement of the law in New Zealand. That is because the Crimes Amendment Act 2003, which substantially amended and restructured Part 10 of the Crimes Act (which relates to offences against property), enacted the following extended definition of “obtain” for the purposes of Part 10:11
obtain, in relation to any person, means obtain or retain for himself or herself
or for any other person.
[32] Nevertheless, Mr Wimsett submitted, there is nothing to suggest that Parliament also intended in 2003 to broaden the scope of the phrase “incurring any debt or liability” so as to include a debt or liability owed by a third party, as opposed to one that has been incurred by the defendant personally. Hence, Mr Wimsett submitted, following the 2003 amendments, a defendant can only be held culpable if they incur a debt or liability personally, in circumstances where the associated credit was obtained by the defendant either for themselves or another person. An example of such a situation would be where the defendant has provided a guarantee in respect of credit advanced to a third party.12
[33] Mr Simmonds (for the Crown) submitted, on the other hand, that if s 240(1)(b) was intended to be interpreted in the narrow way suggested by the defendants, there would be an express legislative requirement to that effect, for example by stating “in personally incurring any debt or liability…”. Mr Simmonds submitted that the provision is clear on its face and in light of its purpose. It is sufficient if the debt or
10 Ian Murray and others (eds) Garrow and Turkington’s Criminal Law in New Zealand (loose-leaf ed, LexisNexis) at [CRI240.14(iii)], citing Bryant (1899) 63 JP 376 and R v Steel (1910) 5 Cr App R 289 (both cases were brought under s 13(1) of the Debtors Act 1869 (UK)).
11 Crimes Act 1961, s 217. Substituted into the Crimes Act 1961 by s 15 of the Crimes Act Amendment Act 2003.
12 This is the situation that arose in Abrahams v R (1941) 64 CLR 577, [1941] ALR 245 (HCA).
liability is incurred either personally, or for, or by, or on behalf of, another person. Further, such an interpretation would be consistent with the purpose of the 2003 amendments to Part 10, which were intended to broaden the scope of the obtaining by deception provisions.13
[34] The Crown position is that it is simply required to prove in relation to each charge that, by a deception and without claim of right, credit has been obtained by way of a debt or liability being incurred. The interpretation advanced by the defendants, Mr Simmonds submitted, would exclude from the ambit of the section a wide range of cases where an offender fraudulently obtains credit by submitting false documentation in the name of an innocent third party (such as cheque fraud).
The legislative history of s 240(1)(b)
[35] The meaning of s 240(1)(b) must be ascertained from its text and in the light of its purpose.14 To attempt to understand the relevant purpose, and the “mischief’ that the section is intended to address, it is helpful to look at the historical antecedents of what is now s 240(1)(b).
[36] The current provision can be traced back to s 13(1) of the Debtors Act 1869 (UK). That section provided that:
Any person shall in each of the cases following be deemed guilty of a misdemeanour, and on conviction thereof shall be liable to be imprisoned for any time not exceeding one year, with or without hard labour; that is to say,
(1) If in incurring any debt or liability he has obtained credit under false pretences, or by means of any other fraud.
[37] Section 13(1) of the Debtors Act was subsequently mirrored in legislation throughout the Commonwealth and beyond, including in the United States, South Africa, Canada, Australia and New Zealand. In England, the provision was eventually repealed by the enactment of the Theft Act 1968. This unfortunately resulted in a lacuna in the law that was identified by the House of Lords in the mortgage fraud case
13 Li v R [2016] NZCA 237 at [19]–[22].
14 Interpretation Act 1999, s 5.
of R v Preddy.15 The lacuna identified in that case was promptly remedied by Parliament and, subsequently, the English law of fraud has been further modernised with the enactment of the Fraud Act 2006.
[38] In New Zealand, however, the elements of the offence still largely mirror those set out in s 13(1) of the Debtors Act, save for some modernisation in the wording in 2003, such as the replacement of “false pretences” with “deception” (as statutorily defined).
[39] The enactment of s 13(1) of the Debtors Act was a fairly radical departure from the position that had prevailed at common law. Fraud was not historically seen as the proper domain of the criminal law, but rather the civil law, which developed the tort of fraud. Under the old common law, it was not an offence for a person to obtain property or credit from another by deception, except by way of “cheating”, for example, through the use of false weights or measures in a sale. Further, the misdemeanour offence known as “cheat” required that the general public be affected. If the thing obtained as a result of a “cheat” was something intangible such as a credit, or if it was land, or a dog, there was no criminal liability.16
[40] As fraud or deceit was seen as being essentially private in nature, the criminal law was reluctant to intervene. This is illustrated by the 1761 case of R v Wheatley, where the defendant was prosecuted for delivering to one Richard Webb 16 gallons of amber beer when he had been paid for 18 gallons. Dennison J asked rhetorically: “What is it to the public whether Richard Webb has or has not his 18 gallons of amber beer?”17
[41] In the eighteenth and nineteenth centuries, however, two statutory offences were enacted, criminalising the obtaining of goods or credit by false pretences or fraud. First, in 1757, the Statute of 30 Geo II enacted the offence of obtaining goods or
15 R v Preddy [1996] AC 815, [1996] 3 All ER 481 (HL). Lord Goff observed that: “The combined result of this extraordinary legislative history was that: (i) the offence of obtaining credit by fraud, originally intended to be section 15(2) of the 1968 Act, has disappeared …”.
16 Lester B Orfield “Criminal Misrepresentation: Obtaining by False Pretenses” (1935) 14 Neb L Bull 129 at 130–131.
17 R v Wheatley (1761) 1 WM BI 273 (cited in Law Reform Commission of Canada Criminal Law
— theft and fraud (Working Paper 19, Ottawa, 1977) at 46.
property by false pretences.18 Many fraudsters, however, were still able to slip through the net. As a result, the law was further developed by the enactment of the offence of obtaining credit by false pretences in the Debtors Act 1869.
[42] Given that, for centuries, regulating fraudulent behaviour (or “false pretences”) was not seen as the proper domain of the criminal law, it is interesting to consider what prompted the development of the statutory “obtaining by deception” offences. Writing in Nebraska (which had enacted legislation mirroring the English provisions) in 1935, one commentator summarised the drivers of this significant development of the criminal law as follows:19
The crime of obtaining goods by false pretences as we know it today is thus a development of the eighteenth century. As one might expect the reasons for this particular time are economic. New parts of the world were being colonized. A great sea trade had developed. The wool industry became important. Credit and banking, the use of paper currency and instruments of credit came into being largely during the latter half of the eighteenth century. Joint stock companies were organized. In 1721 came the depression following the South Sea venture. But the repression of stock speculation did not immediately affect other commercial frauds nor non-commercial frauds. The modern crime of false pretenses is the result of several economic factors: (1) stock speculation, (2) the disappearance of local trade economy, and (3) the development of tremendous new types of business organization. The changes in the civil law of misrepresentation naturally affected the criminal law. Cities were developing and the population becoming more mobile. The Industrial Revolution was at its height.
[Citations omitted]
[43] New Zealand followed England in criminalising both the obtaining of property and the obtaining of credit by false pretences. Section 13(1) of the Debtors Act 1869 was mirrored in s 231 of the Criminal Code Act 1893. It was then carried through to the Crimes Act 1908 (s 253), and then the Crimes Act 1961 (s 247) before, in 2003, being moved to s 240(1) of the Crimes Act 1961 as part of the 2003 overhaul and modernisation of Part 10. The elements of the offence remained broadly the same throughout, however.
18 The recent enactment of this statute, four years previously, appears to have been overlooked in
R v Wheatley, above n 17.
19 Orfield, above n 16, at 132–133.
[44] Hence, as the Court of Appeal observed in R v Morley, although s 240 was only enacted in 2003, the offences now contained in sections 240(1)(a)–(c) are not new, but rather represent a recasting of previous provisions.20 Those subsections create three similar offences, namely those involving the obtaining of property, credit or the execution of a document. Section 240(1)(d) creates a different, and new, offence — that of causing loss by deception. Significantly, as I noted earlier, the 2003 amendments to Part 10 of the Crimes Act also included an extended definition of “obtain”, which applies to each of the s 240(1)(a)–(c) offences:21
In this Part, unless the context otherwise requires, —
obtain, in relation to any person, means obtain or retain for himself or herself or any other person.
[45] Hence, for the first time, the obtaining by deception offences were expanded to encompass the situation where a defendant obtained credit for a third party, and not simply for themselves.
[46] This new, broader, definition of obtain has recently been considered by the Court of Appeal in Li v R. 22 Mr Li was charged under s 240(1)(a) of the Crimes Act with, by deception, obtaining a benefit (an NZQA Diploma) for a third party, Mr Chen. Counsel for Mr Li argued that the Crown needed to prove that the appellant had personally obtained the relevant benefit. In rejecting that submission, the Court stated:
[19] The old pt 10 of the Act, which incorporated s 246, was repealed and replaced with the current pt 10 as from 1 October 2003 by the Crimes Amendment Act 2003. The changes were largely driven by this Court's decision in R v Wilkinson, which exposed the inadequacy of the old provisions in dealing with electronic money transfers. The main aim of the Crimes Amendment Bill (No 6) 1999 was set out in a Supplementary Order Paper:
The main aim of the bill is to update the Act so that it can address current uncertainties in the application of existing offences to computer crime. It does this by:
· repealing most of Part X of the Act … and replacing it with a modernised Part 10.
20 R v Morley [2009] NZCA 618, [2010] 2 NZLR 608 at [14].
21 Crimes Act 1961, s 217.
22 Li v R, above n 13, (footnotes omitted).
· redefining the key terms underlying property offences, namely the terms ‘dishonestly’, ‘property’, ‘document’ and ‘colour of right’
… and broadening some existing offences.”
[20] The genesis of the new s 240 (s 305U in the Bill) was explained as follows:
New section 305U draws on sections 246, 247 and 270 of the principal Act. It combines obtaining by false pretence, obtaining credit fraudulently, and procuring execution of documents by fraud in the crime of obtaining by deception.”
[21] At its second reading in the House the then Minister of Justice, the Hon Phil Goff, who had chaired the select committee that considered the Bill, described the intended effect of the new section, s 240, in these terms:
The offence of obtaining by deception, or causing loss by deception, replaces the current offence of false pretences. That will cover a broader range of financial benefits than the current offence, and the element of causing loss is also new.”
[22] It is apparent from this legislative history that Parliament did not intend to restrict the scope of the existing offences, rather, to broaden them. We consider that the definition of ‘obtain’ in the new interpretation section, s 217, when read with s 240, was intended to cover all offending caught under the predecessor section, s 246, including situations where the property or benefit is delivered to someone other than the offender.
(Emphasis added).
What is the correct interpretation of s 240(1)(b)?
[47] Against this legislative history, I now turn to consider the correct interpretation of s 240(1)(b). The challenge is to interpret a statutory provision that remains closely modelled on a provision that was first enacted 150 years ago, in a different age and, indeed, in a different country. Even the New Zealand predecessor to the current provision dates back to at least 1893. This is therefore a case where the principle of “updating construction” must be applied. The learned authors of Bennion on Statutory Interpretation describe that principle as follows:23
Each generation lives under the law it inherits. Constant formal updating is not practicable, so an Act takes on a life of its own. Although the language originally used endures as law, its current subjects may find that law more and more ill-fitting. Viewed like this, an Act resembles a vessel launched on some one-way voyage from the old world to the new. The vessel is not going to return; nor are its passengers. Having only what they set out with, they cope
23 Diggory Bailey and Luke Norbury (eds) Bennion on Statutory Interpretation (7th ed, Lexis Nexis, Wellington, 2017) at 409.
as best they can. On arrival in the present, they deploy their native endowments under conditions originally unguessed at.
Parliament, in the wording of an enactment, is expected to anticipate developments over time and drafters will try to foresee the future, and allow for it in the wording. However, the court may apply an updating construction even if the drafter’s efforts in this regard have not been successful.
In construing an Act…the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention, making allowances for any relevant changes that have occurred since the Act’s passing.
[48] It is apparent from the legislative history I have outlined that the original intent of the provision was to bring within the ambit of the criminal law the obtaining of property or credit by deceptive conduct (then described as “false pretences”). Criminalising such conduct recognised that the harm it causes is not exclusively private in nature, but also damages society as a whole. As noted at [42] above, the new provisions were enacted against the backdrop of significant economic developments including the industrial revolution, the expansion of sea trade, developments in banking and credit, rampant stock speculation, and the development of new forms of business organisation. In this context, the protection of property rights, and the promotion of appropriate standards of behaviour in business and commerce, assumed increasing importance for the welfare and economic development of society as a whole.
[49] In my view, the 2003 amendments to Part 10 of the Crimes Act, including what is now s 240(1)(b), continue this broad theme. They reflect a further development of the law to attempt to meet modern economic realities, including the increased use of technology and computers (including computerised banking systems). As the Court of Appeal observed in Li, the 2003 amendments were largely driven by the Court of Appeal decision in R v Wilkinson.24 That case exposed the inadequacy of the “obtaining property by deception” offence in dealing with electronic money transfers. Wilkinson prompted Parliament to modernise Part 10 to address uncertainties in the application of the existing offences to crimes involving the use of computerised
24 R v Wilkinson [1999] 1 NZLR 403 (CA). I note, however, the observation of Kevin Dawkins “Criminal Law” (1999) NZLR at 437 that if Mr Wilkinson had been charged with obtaining credit by deception, rather than obtaining property by deception, the difficulties that arose in that case might have been avoided.
systems. As noted above, Parliament intended that the offences of obtaining by deception (replacing the previous offences of obtaining by false pretences) would “cover a broader range of financial benefits than the current offence.” As the Court of Appeal observed in Li, it is apparent that Parliament did not intend to restrict the scope of the existing offences, but rather to broaden them.
[50] In my view this legislative background, both from the time of the original enactment of the “obtaining by false pretences” provisions and also the more recent 2003 amendments, favours the wider interpretation of s 240(1)(b) advocated by the Crown.
[51] The harm or mischief to which the section is addressed is not that a fraudster has incurred debt or liability (which in many cases he or she will not intend to repay), but that an innocent third party has provided credit, as a result of the fraudster’s deception. As the authors of Adams on Criminal Law observe, the important element common to every form of s 240(1) offence is that the defendant must have practised a deception, as defined in s 240(2).25 The harm addressed by the section is the obtaining of credit by deception. Whether it is the defendant or the third party who carries the obligation to repay the associated debt is largely irrelevant when the section is viewed purposively. The harm does not depend on who incurs the debt, but arises out of the deception perpetrated on the creditor by the defendant.
[52] Honesty in commercial dealings is critical for the efficient functioning of a modern economy, as well as being of critical importance to individuals who might be defrauded. The words “in incurring a debt or liability” add little (if anything) to the section, viewed purposively. This is reflected, in my view, in the paucity of case law considering this aspect of the section. Many cases, including a recent New Zealand mortgage fraud case that culminated in verdicts of 150 pages in length, make no reference at all to the phrase “incurring a debt or liability”.26 That is presumably because, where credit is obtained, it is usually a given that a corresponding debt or liability has been incurred. Credit involves an obligation to pay money. An obligation
25 Simon France (ed) Adams on Criminal Law — offences and defences (vol 1) (loose-leaf ed, Thomson Reuters) at [CA 240.01].
26 Serious Fraud Office v Devoy [2016] NZDC 10933. In that case neither the verdicts nor the indictment refer to “incurring a debt or liability”.
to do something else, like perform services, is not enough.27 Credit and debt are two sides of the same coin. Where credit is obtained, there will be a reciprocal debt.
[53] English cases such as Bryant (1899)28 and R v Steel (1910),29 which were followed by the High Court of Australia in Abrahams v R30 are no longer good law in New Zealand. Those longstanding authorities held that the credit obtained by a defendant must be obtained by him personally. In New Zealand, however, it is now sufficient if the defendant, by his or her deceptive conduct, obtains credit for another person. It is no longer a requirement that their deception results in them personally obtaining credit.
[54] On the defendants’ argument, however, the corresponding debt must still be personal to the defendant. The primary scenario in which such a circumstance might arise would be where the defendant has provided a personal guarantee for credit provided to another person. Even in that situation, however, the primary debtor/creditor relationship will be between the creditor and the third party, with the defendant only having secondary liability for the debt.
[55] On the wider interpretation advanced by the Crown, however, a defendant will be liable where he or she obtains credit, by deception, for another person and that person has a normal creditor/debtor relationship with the credit provider. That situation is likely to arise much more commonly than the guarantor situation.
[56] It has to be acknowledged that the wording of s 240(1)(b) is unfortunate and lacks clarity, particularly when read together with the 2003 statutory definition of “obtain”. The lack of drafting precision is perhaps not surprising given that the key elements of the offence (and much of its wording) date back 150 years. The 2003 definition of “obtain” has essentially been “bolted on” to the existing section, rather than a comprehensive redrafting exercise being undertaken. This gives rise to difficulties of interpretation. I accept that the interpretation advanced by the defendants is open, on a literal reading of the section. Nevertheless, it is my view that
27 Fisher v Raven [1964] AC 210, [1963] 2 All ER 389 (HL).
28 Bryant, above n 10.
29 R v Steel, above n 10.
30 Abrahams v R, above n 12.
a purposive construction of the section favours a wider interpretation. I also note that a wider interpretation appears to have found favour with the learned authors of Principles of Criminal Law, who state that:31
The debt or liability must be legally enforceable against [the defendant] (or whomever the credit is obtained)…
[57] It is hard to see why Parliament, when intending to widen and modernise the law to cope with twenty-first century commercial realities, including the increased use of computer systems and technologies, would elect to extend the “obtaining credit by deception” offence to only a very narrow class of case, generally involving the provision of guarantees. In my view, Parliament’s intention was broader than that.
[58] In conclusion, the offence of obtaining by deception does not require the Crown to prove that the defendant personally incurred a debt or liability, and the application to dismiss the obtaining by deception charges on that basis fails accordingly.
Does the required causative link between the deception and the obtaining of credit have to be proved by direct evidence?
[59] Section 240(1)(b) requires that the obtaining of credit be “by” the deception. Hence the Crown is required to prove, for each charge, that the deception alleged in the relevant charge was causative of credit being obtained.32 The deception must play a material part in inducing the creditor to provide credit, but need not be the sole operative factor.33 The requirement for a causative link is reinforced by the requirement in s 240(2)(a) that any false representation be false in a material particular.
[60] The defendants submitted that there is insufficient evidence of inducement in relation to any of the obtaining by deception charges, because the Crown did not call evidence from the credit managers who made the relevant lending decisions. There is therefore no direct evidence that those persons were induced to approve the relevant
31 A P Simester, Warren Brookbanks and Neil Boister Principles of Criminal Law (4th ed, Thomson Reuters, Wellington, 2012) at [20.5.2(1)].
32 See Wynyard v R [2015] NZCA 610 at [26] in relation to s 240(1)(d) of the Crimes Act 1961.
33 R v Morley, above n 20, at [34]. The offence in that case was s 240(1)(d) of the Crimes Act 1961.
loan applications by any misrepresentations made by the defendants. Further, no evidence has been adduced to establish that those credit managers were unavailable to give evidence, or could no longer recall the individual loan applications.
[61] Defence counsel referred to a number of cases in support of this proposition, including R v Laverty,34 Hunter v Police,35 McLeod v R,36 R v Park37 and R v Sullivan (the South Canterbury Finance case).38 In essence, counsel submitted that where the relevant decision-maker is available, that person must be called by the Crown in order to establish that the false representation was relied upon.
[62] In Laverty, the seller had made multiple representations, one of which was false. However, when the purchaser gave evidence, he did not state that the false representation was something that had induced him to purchase the property. The English Court of Appeal found that there was accordingly no nexus between the false representation and the decision to purchase. The Court observed that:39
… It is axiomatic that it is for the prosecution to prove that the false representation acted on the mind of the purchaser; and in the ordinary way, and the court emphasises this, the matter should be proved by direct evidence. However, it was said in R v Sullivan that the inducement need not be proved by direct evidence, and I quote from the headnote:
If the facts are such that the alleged false pretence is the only reason that could be suggested as having been the operative inducement.
And in the special facts of that case it was held that the prosecution had given sufficient proof, although it was made very clear that the proper way and the ordinary way of proving the matter was by direct evidence.
[63] Similar comments as to the desirability of direct evidence of inducement have been made in a number of the other cases referred to by defence counsel, albeit none of them goes so far as to suggest that, as a matter of law, direct evidence from the representee is always required. For example, in Hunter v Police, Faire J observed (in relation to a charge brought under s 240(1)(a)) that:
34 R v Laverty [1970] 3 All ER 432.
35 Hunter v Police [2014] NZHC 2975.
36 McLeod v R [2016] NZHC 221.
37 R v Park 2010 ABCA 248, (2010) 259 CCC (3d) 50.
38 R v Sullivan [2014] NZHC 2501 [the South Canterbury Finance case].
39 R v Laverty, above n 34, at 433 (footnotes omitted).
[38] There will be cases where direct evidence of the witness on this causation issue is not, and cannot, reasonably be expected to be available. The obvious case is where an incident has occurred at some time in the past and in respect of a victim who is involved in similar transactions in large numbers. In such cases, proof that the service was obtained by deception may be established by proof of facts from which an inference of such reliance can be drawn.
[64] The learned authors of Adams on Criminal Law summarise the position as follows:40
Frequently the prosecution will produce direct evidence from the victim that it was the deception practised by the defendant which induced the victim to hand over the property in question or to do any other act resulting in the results contemplated by the various parts of subs (1): compare R v Laverty [1970] 3 All ER 432 (CA). However, as a matter of law such evidence is not essential. The jury may be invited to draw an inference of reliance where this is appropriate: R v Sullivan (1945) 30 Cr App R 132 (CCA). In many cases the person to whom a deception was directed is unlikely to have any clear memory of the particular transaction, and in such cases clearly the prosecution will have to rely on the inference of reliance. In R v Lambie [1981] 2 All ER 776 (HL), the House of Lords held that if the only reasonable explanation of the facts is that the victim relied on the false representation, then an inference of reliance can be drawn and direct evidence is not needed. However a failure to seek direct evidence of reliance from witnesses who were available and may have given such evidence does not provide a basis for inviting the court to draw an inference of reliance: Hunter v Police [2014] NZHC 2975, at [40]. Reliance may also be established by inference from documents produced as evidence: R v Park 2010 ABCA 248, (2010) 259 CCC (3d) 50 (reliance on false representations made by mortgage applicants established by documents establishing the policies and practices of the lender).
(Emphasis added)
[65] Having reviewed the relevant case law, I reject any suggestion that, as a matter of law, direct evidence of inducement must always be provided (unless an explanation has been given as to why such evidence is not available). Clearly, as the Crown accepted, there must be evidence (either direct or indirect) from which the Court could conclude that that there was a causal link between the alleged deception and any obtaining of credit. At this stage, however, I must take the Crown case at its highest. Viewed in that way, I accept that while there is no direct evidence of inducement, there is indirect circumstantial evidence, including from bank witnesses, that could (if accepted) support an inference of reliance/inducement. The subsequent question of whether the required inference should be drawn is, of course, an issue for determination at a later stage. At that stage the defendants will, of course, be entitled
40 France, above n 25, at [CA240.05].
to rely on the lack of direct evidence as a factor that weighs against the drawing of the necessary inferences.
Were some lending decisions made by a computer?
[66] Defence counsel submitted that a number of lending decisions were, in fact, made by computer. As it is not legally possible to “deceive” a computer, the defendants submitted that those charges should be struck out.
[67] Deceit can only be practised on a human mind. The authors of Principles of Criminal Law explain the rationale as follows:41
In principle, the need for deception and reliance excludes from section 240 the unauthorised obtaining of money from an automatic teller machine or of soft drinks from a vending machine, since a machine cannot be induced to believe propositions. A useful illustration is the Australian case of Kennison v Daire. After D’s bank account had been closed, D withdrew money from an automatic teller machine with his bank card. The Court denied that this was an obtaining by false pretences and instead convicted D of larceny, ruling that a machine cannot be deceived and does not “rely” on representations but simply delivers money or goods in response to a certain input. According to King CJ:
The crime of obtaining money by false pretences requires, in my opinion, the intervention of a human being who is induced by the false pretence to part with money. A machine cannot be deceived by a false pretence or other fraud.
In New Zealand, the proper offence in this case would be under section 228 (dishonestly using a document) or, if a computer is involved, under section 249 (accessing computer system for dishonest purpose).
[68] Although defence counsel acknowledged that the present situation is somewhat more complex than simply putting a card into a machine, they submitted that the same general principle applies in this case as in Kennison v Daire. The allegedly false information was loaded into the bank’s computer systems, which then “approved” the relevant loans. In such circumstances, no person was deceived.
[69] The primary evidence relevant to this issue was given by Kelly Harold, a Credit Policy Manager at the BNZ who is responsible for writing policy for retail, small
41 Simester, Brookbanks and Bositer, above n 31, at [20.4.2] (footnotes omitted).
business and housing loans. Ms Harold also assisted in developing BNZ processes and had detailed knowledge of the BNZ housing loan process and policy.
[70] Ms Harold gave evidence that BNZ uses a computerised “Decision Tool” to process the majority of home loans. A Decision Tool called “My Lending” was implemented in February 2012. Prior to then, the Decision Tool used by BNZ was called “Transact”. All information from a customer’s loan application is entered by a BNZ banker into the Decision Tool, which has models and scorecards built into it to enable it to calculate such things as servicing ability and Loan-to-Value-Ratio (“LVR”). Ms Harold’s evidence was that when a banker processes a loan through a Decision Tool, the banker should only be putting an application through that they support and that they recommend.
[71] Once all the relevant information is put into the Decision Tool, an answer is produced as to whether the loan is approved, declined, or referred for further consideration. Reasons why an application might be referred for further consideration include that the applicant is a non-resident, minimum loan servicing criteria are not met, the valuation is non-compliant, the client has an adverse credit history or the LVR is not to standard. If a decision is referred for further consideration, the lending officer must provide reasons why the BNZ should approve the loan. That information is then sent to a team of credit managers for review, and one of those credit managers will then enter a manual decision into the Decision Tool to approve or decline a loan.
[72] Once the loan is approved by the Decision Tool, a banker with a delegated commitment authority (“DCA”) can accept the approval decision. Having a DCA means that the person is sufficiently trained and can accept decisions made by the Decision Tool. Only a person with a DCA is authorised to enter information into the Decision Tool. They are also authorised to accept the decision that the tool provides. In essence, a DCA means that the employee has been trained appropriately to use the Decision Tool.
[73] The banker must verify in the Decision Tool that several pre-loan conditions are met including:
(a)signed application form;
(b)evidence of income;
(c)recent three months consecutive bank statements (originals);
(d)certified sale and purchase agreement;
(e)evidence of valuation, if required; and
(f)evidence of deposit, if required.
[74] The banker does not have any authority to decide what conditions get met and what do not. Ms Harold’s evidence was that if a condition is generated, it must be met in order for the loan to be ultimately approved.
[75] It is apparent from this brief overview of relevant aspects of Ms Harold’s evidence that the computer-assisted decision-making that occurs in relation to home loan applications is very far removed from the vending machine or automatic teller machine scenarios referred to in the case law. As the name suggests, the Decision Tool is a tool, used to assist decision-making within the bank regarding home loan applications. The evidence tends to suggest, however, that the final decision is dependent upon a banker with a DCA either accepting or rejecting the answer produced by the Decision Tool. Further, a loan will not be proceeded with unless and until a banker confirms that all pre-loan conditions have been met.
[76] The present situation is therefore not one where inputs are simply entered into a computer and then, pursuant to some algorithm, money is automatically credited to an applicant’s account if certain criteria are met. Rather, the Decision Tool is used to ensure that a particular application complies with the banks various policies and processes. The Decision Tool does not operate in isolation, however. Real people are involved throughout the process, including in processing applications using the Decision Tool, accepting or rejecting the “decisions” provided, verifying information,
ensuring that any pre-loan conditions are met, liaising with applicants and their solicitors, and arranging payment of the loan.
[77] As previously noted, for present purposes I must give the evidence the construction most favourable to the Crown. Given that requirement, and the evidence I have referred to above, I accept the Crown submission that the use of the Decision Tool cannot be divorced from the various human actors involved. There is accordingly evidence before the Court which, if accepted, tends to support the Crown submission that any deception operated on a human mind, not simply on a computer.
Does the Crown have to prove that there was no intention to repay the loans?
[78] Mr Wimsett submitted that the Crown is required to prove that there was no intention to repay the loans, and that it has failed to do so. There is no evidence, he submitted, that the persons named on the various loan agreements (including Mr Chen) did not intend to repay the loans. On the contrary, the loans were repaid, and scheduled loan payments were made, as required.
[79] Mr Wimsett’s submission that the Crown is required to prove that there was no intention to repay the loans is based on Police v Griffiths.42 In that case, Mahon J held that the following four elements must be proved under s 240(1)(b):43
(a)the incurring of a debt or liability;
(b)the obtaining of credit;
(c)deceptive conduct (as defined) by which the credit was obtained; and
(d)(at the time when credit is obtained) the defendant intended not to pay the debt, or to otherwise defraud the creditor.
[80] Sub-paragraph (d) is essentially Mahon J’s articulation of the mens rea element of the offence. His Honour observed, however, although proof of intention to defraud at the time when credit is obtained is an essential ingredient of liability “obviously the
42 Police v Griffiths [1976] 1 NZLR 498 (SC) (a case decided under s 247 of the Crimes Act 1961).
43 At 499.
mere obtaining of credit by a false pretence will normally in the absence of any adequate explanation constitute prima facie proof of an offence”.44
[81] The first difficulty with Mr Wimsett’s argument is that Mahon J described the mens rea requirement in terms of being either an intention not to pay the debt, or to otherwise defraud the creditor. Essentially, on the particular facts of Griffiths, his Honour found that the defendant’s intention to pay for his taxi fare negated any intent to defraud. His Honour clearly recognised, however, that an intention to defraud a creditor might arise in other ways than simply an intention not to pay.
[82] In the present case, the Crown does not allege that an aspect of the fraudulent mortgage scheme was that the defendants (or Mr Huang) intended to abscond with the money, or that there was no intention that the loans be repaid. Rather, the Crown case is that the banks were deceived into parting with funds in circumstances where, had they known the true facts, they would have declined to do so. The essence of the alleged mortgage fraud is that the banks were deceived into making loans that fell significantly outside their usual lending criteria, and which were higher risk than they were led to believe. Those circumstances, if proved, are capable of giving rise to the necessary mens rea for the offence. The Crown does not have to prove that the named borrowers, Mr Huang or LV Park did not intend to repay the loans.
[83] I further note, for completeness, that the general weight of authority, apart from Griffiths, tends to suggest that the offence of obtaining by false pretences is committed even if the defendant has an intention to repay.45 For example, in R v McCall the defendant obtained a loan from an elderly and gullible woman by telling her that she must either pay a fine or go to prison.46 That was untrue, and he spent the money on a car and a trip to Spain. The defendant maintained that he had always intended to repay the loan. Despite errors at his trial, his conviction was upheld on appeal on the basis that he had, in effect, admitted dishonesty:47
44 Police v Griffiths, above n 42 at 500.
45 Simester, Brookbanks and Boister, above n 31, at [20.5.2(2)] citing R v Carpenter (1911) 76 JP 158, 22 Cox CC 618 at 160, 624, approved in R v Kritz [1950] 1 KB 82, [1949] 2 All ER 406; and citing R v Greenstein [1976] 1 All ER 1, [1975] 1 WLR 1353. See also R v Naylor (1865) 10 Cox 149.
46 R v McCall (1970) 55 Cr App R 175.
47 At 181.
[H]e said that he had told lies in order to get the loan and he had also said that, having got the money, he used it for purposes other than those for which he had suggested to Miss Benbow that he needed it.
The English Court of Appeal found that the fact that he intended to repay the loan was no answer to the charge of dishonesty and it was not open to a jury to hold that it was.
[84] For the reasons outlined, I reject the defendants’ submission that the Crown is required to prove that there was no intention to repay the loans in order to establish liability under s 240(1)(b).
Is there sufficient evidence to support the Crown contention that Mr Huang or LV Park were the “true borrowers”?
[85] Charges 3, 4, 5 and 48 allege a failure by Mr Chen to disclose a material particular, namely a failure to inform the relevant banks who the true borrower was. Similarly, many of charges against Mr Jiang allege that he processed or approved loan applications, knowing (or being reckless as to the fact) that they were based on false information, including the identity of the true borrower. The Crown alleges that Kang Huang and/or LV Park was the true borrower of the relevant loans.
[86] Mr Wimsett submitted that it is not open to the Crown to argue that Kang Huang and/or LV Park were the true borrowers. Pursuant to the loan agreements, he submitted, the named borrowers were legally responsible for repayments. The banks had the contractual right, in the first instance, to sue the named borrowers to collect any default. (Obviously, that course might pose some challenges if the named borrower was entirely fictitious). Overall, however, Mr Wimsett submitted that it was the named borrowers who incurred the debts and were therefore the “true borrowers”. In relation to Mr Chen, Mr Wimsett submitted that there is no evidence that he did not understand his legal obligations, or intend to honour them, when he signed the relevant loan agreements.
[87] The Crown case is that the named borrowers were used to obtain loan funding on behalf of LV Park that would not have otherwise been available. It is in this broader sense, Mr Simmonds said, that the term “true borrower” appears in the charges. Mr Simmonds referred to extensive evidence that the Crown intends to rely on to
establish that the named borrowers were not the true borrowers of the loans. He noted that in many instances the evidence suggests that the named borrowers have never entered New Zealand.48 In one case the borrower appears to be entirely fictitious.49 In respect of the borrowers who do exist, Mr Simmonds referred to evidence that suggests that some of them had no knowledge and/or no involvement in the obtaining of loans in their names. Further, any loan funds obtained were transferred to and used by LV Park and the loans were effectively serviced by LV Park. Mr Simmonds made a number of other points in relation to individual charges including, for example, that one of the properties purchased in the name of Mr Chen has since been used as the residential address for Mr Huang’s elderly parents.
[88] It is apparent from the way that the Crown has run its case from the outset that the phrase “true borrowers”, as used in the particulars to various charges, has not been used in a strict contractual sense. The fact that, in civil proceedings, the banks might be entitled to sue the named borrowers to collect any default (provided, of course, they are real people) is not determinative of who the “true borrowers” are, as that term is used in Crown Charge Notice. I accordingly reject the submission that there is insufficient evidence before the Court that (if accepted) would establish that Mr Huang and/or LV Park were the true borrowers.
[89] Having now addressed all of the issues that I identified at the outset as being common to two or more defendants, I turn to consider each defendant’s individual s 147 application.
Ms Xu’s dismissal application
[90] Mr Simperingham submitted that the Court should discharge Ms Xu in relation to all of the charges she faces, except charge 47, on the ground that the Crown has not provided any evidence that Ms Xu personally incurred debt or liability. I reject that submission for the reasons outlined at [47] to [58] above.
48 Bi Zhu, Bo Song, Feng Ye, Kai Wang, Lifeng Li, Ming Li, Zhuwen Wu.
49 Shou Zhang.
[91] In the alternative, Mr Simperingham submitted that there is a case to answer in relation to charges 8, 29, 30 and 36 only. In respect of all other charges Mr Simperingham submitted that there is no case to answer because:
(a)There is an absence of direct evidence of submission (ie emails) of false employment letters and/or bank statements by Ms Xu to the relevant bank (charges 10, 14, 33, 36, 37, 40, 41, 43, 45 and 47).
(b)Although there is evidence of emails attaching employment letters and/or bank statements, and those emails were sent from an email account that Ms Xu had access to (along with Mr Huang), there is no evidence that it was Ms Xu who was at the keyboard at the time those emails were sent (charges 6, 7, 8, 9, 11, 12, 16 and 32).
(b) There is no evidence that it was Ms Xu who made the false “income” payments into the bank accounts of the various loan applicants (charges 17, 18, 19, 20, 21, 22, 23, 24, 25, 26 and 31). Mr Simperingham accepted that there is a case to answer in respect of three of the charges of making false salary payments50 (which allege that Ms Xu made false salary payments into Ming Li’s BNZ account).
[92] Mr Simperingham’s submissions focussed on the specific evidence relating to each charge. However, consistent with the principles relating to circumstantial evidence that I have summarised at [21] and [22] above, the Crown also relies (in relation to all charges) on contextual evidence that it alleges places Ms Xu at the heart of the alleged offending. Mr Simmonds submitted that the following contextual evidence is particularly relevant:
(a)Ms Xu is the wife and business partner of Mr Huang. Mr Huang was the instigator of the overall offending, as acknowledged by him through his guilty pleas prior to trial on all charges laid against him.
50 Charges 29, 30 and 36.
(b)Ms Xu worked alongside her husband in a management position for LV Park throughout the period of alleged offending.
(c)Ms Xu had access to, and clearly operated from time to time, the email address of [email protected] — from which a number of the relevant documents appear to have been transmitted.
(d)Ms Xu had online access to a variety of LV Park bank accounts.
(e)Ms Xu’s parents and parents-in-law were all used as sham purchasers for loans that gave rise to a number of charges, with their financial and employment status deliberately falsified in the loan documents.
(f)Ms Xu’s China-based brother, Hao Zhang, was also used as a sham purchaser for seven of the alleged false loan transactions attributed to Ms Xu. Ms Xu held a power of attorney over Hao Zhang.
(g)Ms Xu signed sale and purchase agreements in the name of her brother Hao Zhang, but with no indication that she was signing the documents as power of attorney.
(h)Ms Xu’s cell phone number was recorded on a number of loan application documents, specifically loans in the name of her elderly parents — Jiquan Zhang and Huazhen Zhang.
(i)A “veritable treasure trove” of highly probative electronic and hard copy material was located by SFO staff in Ms Xu’s office in June 2015. This includes evidence of:
(i)The location of an Excel spreadsheet containing Chinese bank statements that matched the fraudulent bank statements submitted to the lending institutions. The Excel spreadsheet was located on four devices attributed to Ms Xu, including the laptop on her desk and three portable electronic storage devices.
(ii)Folders were located in a wall cabinet of Ms Xu’s office. The folders contained documents relating to various false property transactions, sorted by property owner. The transactions were in the name of Ms Xu’s parents and parents-in-law. The collated documents contained banks statements. Mr Coleman gave evidence of comparing and matching these bank statements to information on documents that were used to support the lending applications for various properties which are the subject of charges before the Court.
(iii)The location of a copy of the employment letter used to support the loan applications for 78 and 80 Barrington Drive in the name of Ms Xu’s brother Hao Zhang.
(j)Ms Xu’s attributed use of the office she identified as hers.
(k)Ms Xu’s involvement in the financial aspects of LV Park.
(l)Employment letters in the name of Huazhen Zhang, Wenlong Wang, Zhuwen Wu and Hao Zhang were sent to and forwarded by the email address [email protected]. That email address has been attributed to Ms Xu and Mr Huang. The Crown alleges that these employment letters are false. These employment letters, or versions of these letters, were used as part of loan application process.
[93] I do not propose to set out, in addition to this broader contextual evidence, the additional specific evidence relied on by the Crown in respect of each charge against Ms Xu. I note, however, that there is evidence in relation to at least some of the charges that may add further weight to the inferences that the Crown seeks to draw. Such evidence can be relied on by the Crown not only in relation to the specific charge concerned, but also other charges falling within the same general category. For example, direct evidence which, if accepted, establishes Ms Xu’s involvement in the transmission of false documents or the making of false salary payments, can properly
be taken into account as circumstantial evidence when considering other charges of the same nature.
[94] Ultimately, it is my view that the submission of “no case to answer” in respect of the charges against Ms Xu fails to have sufficient regard to:
(a)the requirement at this stage of the proceedings to take the Crown case at its highest; and
(b)the circumstantial nature of the Crown case and the principles relating to circumstantial evidence I have previously summarised.
[95] Mr Simperingham’s careful and comprehensive analysis of the evidence in relation to each charge raised a number of issues that will require careful consideration at the conclusion of the trial. The Crown may well face real challenges in establishing that it was Ms Xu who transmitted a number of the false documents and not Mr Huang (or someone else). That, however, is an issue for another day.
Mr Chen’s dismissal application
[96] Mr Wimsett submitted that there is no case to answer on all 11 of the obtaining by deception charges Mr Chen faces. I have already addressed the various arguments that were raised by Mr Wimsett in his submissions, as they are also common to other defendants. In particular, I have found that:
(a)Correctly interpreted, s 240(1)(b) does not require that Mr Chen must have personally incurred a debt or liability (refer [47] to [58] above).
(b)It is not fatal to the Crown case that it has not called direct evidence from the bank employees who approved the loans to say that they were misled by the alleged misrepresentations. Rather, that is a matter that is appropriately taken into account at the conclusion of the trial when considering whether the Crown has proved its case to the requisite standard. The element of inducement/reliance can (as a matter of law) be inferred from indirect evidence (refer [59] to [65] above).
(c)There is sufficient evidence to support the Crown contention that the bank employees were deceived, rather than the bank’s computerised decision tool (consistent with the requirement that any deception must operate on a human mind) (refer [66] to [77] above).
(d)The Crown is not required to prove that Mr Chen (or the “true borrowers” in respect of other loans) did not intend to repay the creditor (refer [78] to [84] above).
(e)Whether or not the borrowers named in the Crown Charge Notice can be said to be the “true borrowers” is not an issue for resolution at the dismissal stage, but will need to be determined, in the light of all relevant evidence, at the conclusion of the trial (refer [85] to [89] above).
[97] Taking these findings into account, and having carefully considered the evidence relating to the various charges referred to by Mr Wimsett, I am satisfied that there is a case to answer in respect of each of the charges Mr Chen faces.
Mr Jiang’s dismissal application
[98] Ms Kincade submitted that there is no case to answer on all 25 of the obtaining by deception charges against Mr Jiang, leaving only the single Secret Commissions Act charge. A number of issues raised by Ms Kincade were also common to other defendants and I have therefore already addressed them. The findings I have summarised at [96] above apply equally to Mr Jiang.
[99] Ms Kincade also raised a further issue. Many of the charges against Mr Jiang allege that he processed loan applications knowing that they were based on false information, including false employment and income information and the identity of the true borrower. Ms Kincade submitted that there is insufficient evidence before the Court to support an inference that Mr Jiang knew or was reckless as to the falsity of the relevant documents.
[100] Again, as this is a circumstantial case, the evidence in relation to each discrete charge against Mr Jiang is not to be viewed in isolation. For example, the evidence relating to the alleged ongoing “kickback” payments to Mr Jiang (if ultimately accepted) could be taken into account when determining what inferences may be drawn as to whether he knew that information provided to the banks in support of the loan applications was false.
[101] Mr Simmonds submitted that the following additional strands of evidence also support the inference that Mr Jiang knew that the information provided in support of the various loan applications was false:
(a)Mr Jiang was a close business associate of Mr Chen, as evidenced by the very regular email communication between the two, and further, the nature of that email communication.
(b)Although Mr Jiang appears to have had limited direct contact with Ms Xu and Mr Huang during the relevant period, he processed at least 26 loan applications (which the Crown says contained extensive false information) that were linked to LV Park related entities, with an approximate value of over $18 million.
(c)As part of his involvement in the processing of the various loan applications, Mr Jiang was responsible for making a large number of BNZ diary notes which recorded false financial and employment details.
(d)Mr Jiang released to Mr Chen confidential bank account numbers and password details in the immediate lead up to loans being approved.
(e)Mr Jiang also endorsed a number of false employment letters with the entry “Rang and Confirmed” before then signing those letters.
(f)In return for his processing and approving the false loan documentation, Mr Jiang received approximately 20 unlawful kickback payments from LV Park totalling over $250,000.
(g)Mr Jiang helped Richard Chen set up a bank account for Shufeng Qi (Mr Chen’s aunt) at Westpac in 2008. The account of Shufeng Qi was subsequently used as an account through which to channel many of the unlawful kickback payments to Mr Jiang.
(h)In July 2012, Mr Jiang sent an email to Mr Chen with bank account details for his mother, Bufang Mai. From August 2012, all of the unlawful kickback payments went through the Bufang Mai account (in some cases the payments were subsequently transferred to Mr Jiang’s personal bank account, and in other cases the amounts remained in the Bufang Mai account).
[102] Other evidence may also support the drawing of the relevant inferences, including for example apparent irregularities in the supporting documents provided.
[103] The submissions made by Ms Kincade raise valid issues for consideration at the conclusion of trial. At this stage, however, it is my view that Mr Jiang’s submission of no case to answer fails to have sufficient regard to the circumstantial nature of the Crown case and the requirement (at this stage) to give the evidence the construction most favourable to the Crown. Taking those matters into account, I am satisfied that there is sufficient evidence to support the inferences that the Crown seeks to draw regarding Mr Jiang’s knowledge.
Result
[104] The applications by each of the defendants to dismiss some or all of the charges against them, pursuant to s 147 of the Criminal Procedure Act 2011, are dismissed.
Katz J
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