The Queen v Prestney [2002] NZCA 236; [2003] 1 NZLR 21; (2002) 20 CRNZ 1 (1 October 2002)

Last Updated: 15 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA204/02

THE QUEEN

V

GARY RAYMOND PRESTNEY

Hearing:	23 September 2002
Coram:	Blanchard J Williams J Chambers J
Appearances:	K P McDonald for Appellant J R Billington QC and G A Andrée Wiltens for Crown
Judgment:	1 October 2002

JUDGMENT OF THE COURT DELIVERED BY BLANCHARD J

[1] Mr Prestney was convicted after a jury trial in the District Court at New Plymouth on six counts of theft by fraudulent conversion (s222 of the Crimes Act 1961) and one count of fraudulent use of a document (s229A). He appeals against four of the convictions under s222 and also appeals against the sentence of four years imprisonment imposed in respect of all convictions.
[2] Mr Prestney ran a foreign exchange and investment business in New Plymouth. The complainants in relation to the convictions now appealed were three brothers, Don, Bruce and Phillip Tomlinson. The charges related to misuse by Mr Prestney of moneys belonging to each of the brothers separately and of moneys belonging to a family entity, Tomlinson Farms. The total amounts said to have been stolen from each complainant were as follows:

Tomlinson Farms $210,000 (Count 4)
Bruce Tomlinson $40,000 (Count 5)
Phillip Tomlinson $60,298.81 (Count 6)
Don Tomlinson $50,000 (Count 7)

The Crown’s allegation was that the moneys were paid to Mr Prestney in tranches from September 1998 to July 1999 for the purpose of being invested by him in stocks and shares in Korean companies, he having represented that the Korean market was on the rise. Instead, Mr Prestney had used the money to pay some of his substantial debts and to buy a motor vehicle. None of it was invested in Korean companies.

[3] In relevant part s222 provides:

Theft by person required to account – Every one commits theft who, having received any money...on terms requiring him to...pay it or the proceeds of it...to any other person...fraudulently converts to his own use or fraudulently omits to pay the same...which he was required to...pay as aforesaid:...

(There is a proviso to the section, but it was not suggested that it had any application in this case).

[4] In essence, the defence was that the Tomlinsons had made a series of loans to the appellant; that he had not incurred any obligation to pay the moneys “to any other person”; and that, although he may have acted less than honestly in using the money for his own purposes, and may have misrepresented to the Tomlinsons what he was going to do, he had not committed an offence within the section. There had been no “term” requiring him to pay the money for investment in Korean companies.
[5] The trial Judge directed the jury, in reliance on R v Scale [1977] 1 NZLR 178, that the Crown must prove three essential issues. The first was that the accused received money, that is, that it came under his control. The second was that when he received it, it was on terms requiring him to pay it or its proceeds to another person or deal with it in a particular way at some time in the future. “That is, when he got the money, he knew it was to be held under an arrangement by which the money was ‘earmarked’ as being payable to someone else, and he was not free to use it as if it was his own”. The third was that he fraudulently converted the money to his own use, deliberately and dishonesty acting in breach of the obligation to hold it for later payment to someone else. Mr McDonald, for the appellant, rightly took no issue with these directions. The appeal point is, rather, whether, in terms of s385(1)(a), the verdict of the jury on each of the challenged counts was “unreasonable or cannot be supported having regard to the evidence”.
[6] We therefore turn to what the Tomlinson brothers said in evidence. As will become apparent, there were a number of seeming contradictions as the evidence of each progressed. Mr Don Tomlinson had recently returned to New Zealand after some years overseas. He was put in touch with Mr Prestney by a friend. They talked about investments in the Korean stock market. In relation to the major portion of the Tomlinson Farms’ moneys, namely $200,000, he said he was influenced to send Mr Prestney that amount when Mr Prestney informed him that he had stocks “specifically in mind for this investment”, namely “in a company that made semi-conductors as well as a company that had stocks with the steel industry in Japan, ship building”. The $200,000 was paid over on 1 September 1999 and was to be repaid by 20 December 1999. Mr Tomlinson was told by Mr Prestney that the Korean stocks would be easy to sell.
[7] We interpolate that in this instance, as was the case when other payments were made to him by the brothers, Mr Prestney issued a so-called Loan Agreement a few days later (on 8 September 1999). It purported on this occasion to be signed on behalf of Dua Security Co Ltd, a company of Mr Prestney’s which, according to what he told the Serious Fraud Office investigators, never traded during the period in question. On other occasions the Loan Agreements stated that they were with G R Prestney trading as CTI Securities or CTI Currency. Most of the documents recorded no more than the name of the “lender”, the amount and the “term/ repayment” and a statement that in the event of Mr Prestney’s death the “loan” would be repaid from the proceeds of a certain policy on his life.
[8] The Loan Agreement for the $200,000 was a little more extensive. It also contained an acknowledgement that “your funds are loaned to the company for the agreed period” and stated:

Interest is payable within 5 business days of the loan term ending.

Dua Security Co Ltd will pay a return of 5% within 5 business days of the loan period ending 20-12-99.

[9] Returning to the evidence of Mr Don Tomlinson, he was asked in cross-examination about the series of documents and confirmed that interest was to be paid. He agreed with counsel’s suggestion that Mr Prestney was “free to use the money how he wished, as long as you got your money back in due time” plus the interest. He said the document with Dua correctly recorded the deal.
[10] But, asked whether he had at any time directed Mr Prestney to use the funds for some particular purpose, Mr Tomlinson said that “he told me what he was going to use the funds for. I believed him, so that’s why I invested”. What business or investment opportunities Mr Prestney might get were for his gain or loss but “I was under the understanding it was going to a specific place, specific investments”, in Korea, in a company manufacturing semi-conductors and in the steel industry. He said he would not have invested otherwise.
[11] If Mr Prestney made lots of money, as long as he paid the interest, that was his good luck. If he “failed abysmally” he would still owe the money.
[12] In the case of his personal funds, Mr Tomlinson said that he understood that there would be a pooling of funds “like a bank or investment company”. The money would be pooled with that of other investors. Expenses and administration costs would be paid from the pool. But the family money was to go to a specific investment.
[13] In re-examination Mr Tomlinson said that the appellant had not given any guarantee on the rate of return. Five per cent (for approximately a quarter of a year) had been noted down “just as a gesture”.
[14] Mr Bruce Tomlinson testified that he believed that his personal money was “going to investments in Korea”. He said that he treated the payment of the money “similarly to a bank and expected interest”. When asked what Mr Prestney could use the money for, the witness said that “at the time it didn’t matter, so long as I saw a return and it came back”. Later he said that there was nothing specific Mr Prestney had to do with his money and his only concern was to make sure that he got his interest and got repaid the money when the term was up. Mr Prestney could “use the money basically how he chose to”. He had not specified how Mr Prestney was to use it. Asked whether he agreed that the Loan Agreement documents correctly recorded his arrangements with Mr Prestney on each occasion, he replied in the affirmative. He understood the annual rate of return was going to be around 22%.
[15] Mr Phillip Tomlinson had also come to know about Mr Prestney through the same friend. He had discussed with Mr Prestney what would happen to the first $10,000 of Tomlinson Farms’ money and it had been indicated that “it was going into stocks in offshore investments”. He added that after he gave Mr Prestney $10,000 of his own money “it was the start of the Korean investments” and “we were very definitely talking Korea”. Asked by the prosecutor whether the investment was a loan to Mr Prestney or investment in some investment fund, he said that to his mind it was always an investment in stocks and shares. “There had been discussions on certain industries in South Korea that were performing well”. He referred to a letter from Mr Prestney expressing pleasure that “somebody views Korea as I do” and saying that it was certainly proving to be an interesting country for investment. On this basis he had made a further payment to Mr Prestney of $36,000 to his “Kookmin Bank account”. He was also referred to a document on CTI Securities letterhead which, inter alia, referred to investments in Korea and the strong recovery in the Korean economy.
[16] On the other hand, Mr Tomlinson stated under cross-examination that the Loan Agreements correctly recorded the arrangements he had with Mr Prestney and that they were loans from him to Mr Prestney. There was no obligation from Mr Prestney as to what was to happen with the money, but there was an obligation to pay the money back and to pay interest. He thought a good comparison was with a term investment at a bank.
[17] Asked whether he had stipulated who the money was to be paid to, the witness said that it was not stipulated but they were talking about a particular market. He was to be paid interest “subject to the performance of the investment”. Immediately following that comment, however, he agreed that if Mr Prestney lost money, the witness would still have a loan contract to require payment back plus interest.
[18] This witness too referred to moneys going into a pool with other investors “like a bank”. In re-examination by Crown counsel, he said he understood that the pool would not be a cash pool but would be represented “by stocks, bonds, portfolios of some structure, investments”. In buying the investments Mr Prestney would be buying them for the pool. Mr Tomlinson said that “the investors had an interest in the pool”. The funds had been given to Mr Prestney for investment purposes but he had total freedom to invest as he saw fit.
[19] It was Mr McDonald’s submission that, although his client’s conduct may not have been honest in relation to the Tomlinsons, he had not received their money on terms requiring him to pay it to any other person. They had each conceded in their evidence that the appellant had been free to do with it as he liked. The Tomlinsons had acknowledged that the Loan Agreements correctly recorded the arrangements. They had contained no direction as to how the money was to be used. There had been nothing more than general discussions about investing in Korea. If Mr Prestney chose not to invest in Korean stocks and shares he took the risk of being unable to repay the moneys with the interest stipulated in the Loan Agreements. It was inconsistent, counsel said, for the Tomlinsons to be saying that the moneys were paid over in order to be invested, but at the same time to say that there was to be an agreed rate of return. Mr Prestney was under a personal liability to repay the amounts which had been advanced to him but he had not undertaken an obligation to invest the money in any particular way. It had not been “earmarked”.
[20] For the Crown, Mr Billington QC said that the verdicts had been reasonably open to the jury on the totality of the evidence, which included not only the oral evidence of the Tomlinsons about what was said and what they understood but also Mr Prestney’s statements in his interview with the Serious Fraud Office, the documents which Mr Prestney had generated which referred to investment and used terms such as “closing out”, which were inconsistent with the concept of loans, and, finally, the evidence of what Mr Prestney actually did with the money. Mr Billington submitted that in Mr Prestney’s interview it was clear that he well understood that he was supposed to be making investments in Korea for the Tomlinsons. He had admitted that the money was “originally going to be an investment” and had then claimed that the Tomlinsons had authorised him to “do something else with it” – a claim which was unsupported by any evidence from Mr Prestney and which the jury was entitled to reject.
[21] Mr Billington further submitted that the obligation to invest the money in Korea arose from, first, the misrepresentation made by Mr Prestney and, secondly, the fact that to his knowledge, the complainants had paid him moneys for the purpose which had been represented to them. It was implicit in the making of those payments in such circumstances that the Tomlinsons were requiring him to act as he represented he would. But for his representations, the moneys would not have been paid to him. On the totality of the evidence, the jury had plainly seen that Mr Prestney had not been simply asking for a series of loans. The arrangement was for investments with a guaranteed rate of return. The economic effect may have been similar to loans, but the agreed or understood structuring required the moneys to be placed in Korean investments.
[22] Looking to what the Crown had to prove in order to secure a conviction under s222 on the Tomlinson charges, it is plain that two out of the three elements were readily established, namely, a receipt of money by the appellant and a fraudulent conversion of that money to his own use. That was not in contest. The element in dispute was whether, on the evidence, there were terms, as between Mr Prestney and the payer in each instance, by which he was required to pay the money or its proceeds “to any other person” (a phrase which this Court in R v Reisterer [1962] NZLR 1040, 1043 said meant “merely any person other than the accused person”).
[23] It is not necessary that the “other person” be stipulated by, or even known to, the payer by name. It can be sufficient if the third person or persons can be sufficiently identified as within a class or having a particular characteristic. Nor does it necessarily take the transaction outside s222 if the payment of money to the accused took the form of a loan, provided the accused received it on terms requiring it to be applied (if at all) by way of payment to a third person. Guilt under the section depends in relation to this element of the offence not so much upon any question of whether the accused acquires title to the money but upon the nature of the obligation which the accused has expressly or implicitly accepted in relation to its use or application (see the distinction drawn by Sir Francis Adams to which reference is made in the current edition of Adams on Criminal Law at CA222.13). The “terms” can arise from the payer’s making of the payment following a representation by the accused that the money will be applied in a particular way. In such circumstances, as Mr Billington submitted, the requirement for such an application can be implicit.
[24] It follows, therefore, that if there was a requirement on Mr Prestney to pay the moneys received from the Tomlinsons to a person or persons, in exchange for investments in Korean companies, that would satisfy the final element. The case therefore turned on its particular facts. As Mr McDonald rightly accepted, the issue in this Court is whether it was reasonably open to the jury to find it proved beyond reasonable doubt that, in respect of each Tomlinson count, the existence of the alleged “terms” had been established.
[25] We consider that, upon the whole of the evidence to which Mr Billington took the Court, it was so open. The apparent inconsistencies and concessions in the evidence of the Tomlinson brothers are to be understood and can be resolved in the context of the evidence as a whole. It is very apparent from a reading of their evidence that the Tomlinsons were themselves struggling with the legal concepts involved in the arrangements proposed by the appellant. That is not surprising since he spoke, as it were, with two voices, promising both equity investment in Korea and a fixed rate of return in the form of interest. The import of the evidence of Don and Phillip Tomlinson, who gave evidence at greater length than their brother, was that they had paid their moneys, and in the case of the former, the moneys of Tomlinson Farms, to Mr Prestney for the purpose of investing them in Korean companies, pursuant to his representation. Don Tomlinson said “I believed him, so that’s why I invested”. His understanding was that the money was to go to “a specific place, specific investments”. Phillip Tomlinson said that there was always to be an investment in stocks and shares. They were “definitely talking Korea”. His evidence is confirmed by an exchange of fax messages with Mr Prestney. Both brothers also said that they were told that there would be an investment pool into which their moneys would be placed along with other investors.
[26] Mr Bruce Tomlinson’s evidence was much briefer and somewhat less specific, but it has not been suggested for the appellant that he paid over his moneys on a different basis from his brothers. He in fact said that he believed that his money was going to investments in Korea.
[27] It is true that the Tomlinsons also described the arrangements as loans but even if they are correctly so described, there was nonetheless an obligation on Mr Prestney to utilise the moneys as he had represented. The appellant received and held the moneys subject to an implicit obligation, arising from his representations, to return them or hold them on behalf of the Tomlinsons if and to the extent that they were not applied for the purchase of Korean company shares. That obligation was of a fiduciary character. Accordingly, even if the payments are properly to be regarded as made by way of loan, there was more than a mere debtor-creditor relationship. They were earmarked for the agreed use. The anticipated rise in the Korean market was to provide the source for the repayment along with interest. A comparison can be made with Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 in which unused loan moneys advanced on condition that the borrower apply them only for an agreed purpose were found to be held by the borrower on resultant trust for the lender and thus not to be funds available to the borrower’s general creditors. The arrangements were said to give rise to a relationship of a fiduciary character or trust notwithstanding that the transaction was one of loan giving rise to a legal action of debt. When the money was advanced the lender also acquired an equitable right to see that it was applied for the designated purpose. Very recently, in Twinsectra Ltd v Yardley [2002] 2 All ER 377, Lord Millett has commented (at p397-8):

The duty is not contractual but fiduciary. It may exist despite the absence of any contract at all between the parties....The duty is fiduciary in character because a person who makes money available on terms that it is to be used for a particular purpose only and not for any other purpose thereby places his trust and confidence in the recipient to ensure that it is properly applied. This is a classic situation in which a fiduciary relationship arises, and since it arises in respect of a specific fund it gives rise to a trust.

[28] We have not overlooked the concession by the Tomlinsons that Mr Prestney was free to use the moneys how he wished and that he had no obligation as to what was to happen to the money. But those statements are to be understood in the context of the obligation to arrange investments in Korean companies as represented. The particular investments were up to Mr Prestney to select. He could in this respect “do as he liked”, because he was also agreeing to pay an interest rate.
[29] What Mr Prestney proposed may have been uncommercial in the sense that it exposed him to the risk of losses on shares, as well as to payment of a high rate of interest. It may have been a proposal that would not have been made by a prudent person, although it did give him the opportunity of gain if the profits exceeded the agreed rate. But the acceptance of a considerable degree of risk by Mr Prestney did not absolve him from the obligation to apply the moneys as he had represented. He was nevertheless receiving the moneys on terms as to their application. When he dishonestly applied them for his own purposes – meeting his own debts - he was guilty of an offence under s222.
[30] For these reasons, the appeal against the convictions fails.

Sentence appeal

[31] Mr Prestney was found guilty of seven charges of fraudulent conduct involving just over $800,000. In addition to thefts from the Tomlinsons he had also defrauded a company called Baroid Australia Pty Ltd in the course of carrying out a foreign exchange transaction for it. Instead of remitting moneys to a bank in London he had paid about $400,000 into the account of one of his own companies. He subsequently, under pressure from Baroid, repaid more than half the amount but used Tomlinson moneys to do so.
[32] Another complainant was Independent Commission Agencies Ltd. The appellant misapplied about $45,000 which that company had given him for a foreign exchange purchase. He used the funds for his own purposes. It was a feature of this offending that it occurred even after the Serious Fraud Office was already, to Mr Prestney’s knowledge, investigating his affairs.
[33] Finally, there was the s229A conviction which involved supplying false financial and employment information to a motor vehicle dealer in order to get credit to buy a Saab motor car. We were told that no loss has arisen from this deception.
[34] In all, the net losses to the complainants are in the order of $400,000. There is no possibility of further repayment.
[35] Mr McDonald accepted that the Judge’s starting point of four and a half years imprisonment was not out of line with previous sentencing decisions of this Court in similar cases. His argument was that the Judge had given the appellant insufficient credit for mitigating factors. He was not, of course, able to claim any credit for a plea of guilty. The mitigating factors were therefore confined to those mentioned by the Judge. During the period in which the frauds occurred Mr Prestney was having to cope with the illness of his wife who had in fact died before the trial took place. He had in these circumstances to take responsibility for their school age children. The Judge had also mentioned that there was no suggestion of high living but that is more an absence of an aggravating factor than something which mitigates the offending.
[36] In our view, although the Judge could not have been criticised if he had made a slightly greater allowance for the personal circumstances of the appellant, it cannot properly be said that the allowance which he did make was clearly insufficient or that the resulting sentence of four years imprisonment was manifestly excessive. These were very serious frauds, persisted in even after Mr Prestney knew he was being investigated, and large losses have been incurred by victims who had placed their trust in him.

Result

[37] Both the appeal against conviction and the appeal against sentence are dismissed.

Solicitors:
Kevin McDonald, Takapuna, for Appellant
Crown Law Office, Wellington