Regina v Thomas Douglas Watkins

Regina v Thomas Douglas Watkins - [2005] NSWCCA 164 - NSWCCA 2005 case summary — Zoe

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1 JUNE 2005 REGINA v THOMAS DOUGLAS WATKINS Judgment 1 GROVE J: I have had the advantage of reading the judgment of Barr J in draft form. I agree with his conclusions regarding grounds 1 and 2 and his remarks concerning other grounds. 2 His Honour has observed that, absent the evidence which caused the trial to miscarry, the Crown case was strong to the point of being almost overwhelming. It was perceptibly strong beyond that description. When imposing sentence the trial judge described that part of the appellant's evidence which asserted that a large company, with audit procedures in place, permitted the chief accountant to put cheques into his private account in the fashion suggested as "manifest nonsense and treated by the jury as such". 3 It is difficult to appreciate why the Crown, given the strength of its case, chose to embark upon the tender of evidence not directly touching upon the crimes charged which it must have known was at least, arguably inadmissible and, for the reasons given by Barr J, was in fact inadmissible. 4 The strength of the Crown case, absent the purported tendency or coincidence evidence, is so powerful as to have given me significant pause before declining to apply the proviso to s 6(1) of the Criminal Appeal Act and dismissing the appeal. However, in the light of the concession by Crown counsel in the appeal (who did not prosecute in the District Court) and the centrality of the credibility of the appellant to the issues of trial I share the conclusion that it cannot appropriately be applied in this case. 5 I agree with the orders proposed by Barr J. 6 BARR J: This is an appeal by Thomas Douglas Watkins against his conviction following a trial by jury in the District Court on thirty counts, each of which charged that he, being an officer of a body corporate, deposited its cheque to the credit of his own bank account with intent to cheat and defraud the body corporate. The appellant also seeks leave to appeal against the resulting sentences. The Crown appeals against the sentences. 7 The appellant was born on 2 November 1938. He trained and qualified as an accountant. During the early 1990s he was engaged as a consultant to a wholesale timber merchant called Tasman KB Pty Limited (Tasman KB), which was setting up a computer system. In April 1998 he joined the company permanently as financial administrator and accountant. Among his responsibilities was the preparation of cheques for the payment of creditors' accounts. 8 When the appellant joined Tasman KB it was half-owned by members of the Frost family. Mr Robert Frost was Chairman of Directors. Mr Neil Frost, his son, was an Alternate Director with Robert Frost's son-in-law, David McAndrew. All three men took an active interest in the management of Tasman KB. Each had authority to sign the company's cheques. 9 The remainder of the shares in Tasman KB were owned by New Zealand interests. In June 2001 a company called Newkoy, which was jointly owned by Neil Frost and Mr McAndrew, bought out the New Zealand interests. At all material times Mr Gordon Wood, the appellant's uncle, was company secretary. 10 Tasman KB had a number of bank accounts with Westpac Banking Corporation in Queensland, Victoria and New South Wales. Its principal account, from which funds were drawn to pay creditors, was kept in Brisbane. Payments by Queensland debtors were deposited into that account. Payments by New South Wales and Victorian debtors were deposited into an account at St Marys, Sydney, and funds were routinely transferred from that account to the principal account in Brisbane. 11 The Crown case was that on each of thirty occasions, the first on 16 July 1999 and the last on 2 April 2002, the appellant hand-wrote on the Brisbane account a cheque payable to "Westpac - St Marys". He had no authority to sign cheques and asked Mr McAndrew to sign each one. Mr Mc Andrew did so, believing that the appellant was transferring funds from the Brisbane account to Tasman KB's St Marys account in order to pay creditors. On each occasion the appellant left a gap, varying between two and three centimetres wide, between the printed instruction "Pay" and the name of the payee. After Mr McAndrew had signed each cheque the appellant inserted into that gap his own name, thus: "T Watkins - ". He deposited the thirty cheques into a private account that he had opened at Westpac at St Marys. On two of the cheques he wrote his account number as well as his name. The amounts of the thirty cheques ranged from just under $39,000.00 to more than $240,000.00. The total amount involved was $1, 911, 000.00.

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12 There was abundant evidence, including the evidence of a forensic document examiner, to show that the appellant prepared the cheques in the manner I have summarised. The Court was informed on the hearing of the appeal that the name of the appellant and the remainder of the style of the payee appeared to be written in different inks. In one of the cheques which the Court was shown, Exhibit AS, there was scarcely enough room between the printed instruction "Pay" and the name "Westpac" for the insertion of the appellant's name. 13 Mr McAndrew gave evidence and said that he believed that the signatures on the cheques were his. He denied that when he had signed them they had borne the appellant's name as payee. 14 The defence case was not that the appellant had not written the cheques in the manner contended for but that he had done so with the approval of Tasman KB. He gave evidence to that effect. He told the jury that he had found himself unable to pay creditors within a reasonable time because he had been unable to procure signatures on cheques from any of the three signatories. He said that Mr Neil Frost had told him that he was too busy to sign cheques and that he should give him at least twenty-four hours' notice or have Mr McAndrew sign them. The duties of Mr Robert Frost frequently left him unavailable to sign. Most of the signing was done by Mr McAndrew. He said that during 1999 he spoke to Mr Robert Frost and Mr McAndrew. Mr McAndrew said that he needed more time to devote to other duties and could not afford to be constantly doing administrative work. A few days later, Mr Robert Frost and Mr McAndrew approached the appellant. Mr Frost said that he should make a list of payments required for non-trade creditors, pay a single cheque into his own bank account at St Marys and disburse amounts from that account for the payment of individual creditors. 15 The Crown called Robert Frost, Neil Frost and Mr McAndrew. Robert Frost and Mr McAndrew denied the existence of such an arrangement. Neil Frost said that he had never heard of it. 16 The Crown tendered a letter, exhibit AY, typed on Tasman KB letterhead and dated 29 June 2000. The text was as follows - To Whom It May Concern, Please be advised that I am a senior executive and cheque signatory for this company. As with all cheques bearing my signature the following were subject to proper review and substantiation: Cheque No. 400857 15th July, 1999 $48,541.72 400822 2nd August, 1999 28,468.87 400857 27th September,1999 39,405.47 401437 25th October, 1999 52,624.56 401485 23rd December, 1999 23,853.00 401409 15th February, 2000 38,947.50 It is our policy where practical to draw one large cheque into a designated St Marys Westpac account and then to draw amounts of cash to pay a batch of small creditors promptly. This represents significant savings with discounts and bank charges. All payments are subject to proper documentation and substantiation. Please also note that our financial accounts for the eleven months to 31 May 2000 have been audited and we received a very favourable audit report. The auditors understand and approve of our polices. Yours faithfully, (Signed) DAVID McANDREW 17 Above Mr McAndrew's name appeared a signature. In his evidence he disowned the letter and the signature. It appeared that the letter, or a copy of it, first appeared as an attachment to a statement, which was undated but which bore a filing date of 17 December 2003, made by the appellant as defendant and cross-defendant in a civil action brought by Westpac as plaintiff and Tasman KB as cross-claimant. In the statement the appellant said that Mr McAndrew had written the letter in response to an allegation made against him by his sister in proceedings under the Family Provision Act as a result of which a subpoena was issued requiring Westpac to produce cheques drawn on Tasman KB's account and deposited into the appellant's Westpac account. 18 The Crown case at trial was that the appellant had prepared the letter and forged Mr McAndrew's signature in order to give an appearance of validity to his use of Tasman KB's cheques. 19 The evidence showed that during the period of time covered by the several counts in the indictment the appellant was gambling heavily on racehorses. Statements of his TAB telephone betting account issued between January 1999 and August 2002 showed that he bet over $6 million at a loss of about $840,000.00. 20 The sole contested issue for the jury on each count was therefore whether, when he transferred the moneys into his own account, the appellant intended to cheat and defraud Tasman KB. The Crown case was a strong one. Whether the jury would have a reasonable doubt about the appellant's intent to cheat and defraud depended on whether they considered it reasonably possible that the arrangement described by the appellant was ever authorised by Tasman KB. Central to that issue was the credit of the appellant. 21 The first two grounds of appeal may be dealt with together. They are - GROUND 1 His Honour erred by admitting evidence relating to the appellant's convictions in 1984 for larceny as a clerk as tendency and coincidence evidence. GROUND 2 His Honour erred by admitting as evidence in this trial the Facts Sheet and an edited record of interview that were previously tendered in the 1985 proceedings. 22 In 1985 the appellant was convicted in the District Court of thirty-seven counts of larceny as a clerk. He was at the time an accountant at John Fairfax Limited ("Fairfax"). He pleaded guilty. According to the Facts Sheet tendered at the time of the plea, part of the appellant's duties was to authorise payments for expenses incurred by Fairfax. There was a system for vouching payments, as part of which the appellant would prepare a cheque authorisation form and attach it to the creditor's invoice. Others would examine each such authorisation and invoice before signing any cheque. The appellant was an authorised cheque signatory and signed each such cheque himself, but each had to have two signatures, so it was still necessary for this procedure to be followed. Occasionally cheques were needed urgently. Then the signatories would sign cheques, relying only on the information recorded by the appellant on the authorisation form. The intention in such cases was to attach the relevant invoices when they were received later on. On the thirty-seven occasions which gave rise to the charges the appellant prepared cheque authorisation forms without invoices and led other signatories to believe that cheques were required urgently. They signed them in good faith. The cheques were all made out to cash. The appellant used the proceeds for his own purposes, paying them into various bank, building society and credit union accounts or investing them in listed securities or bonds. 23 Before the trial the Crown served on the defence, in accordance with ss97 and 98 Evidence Act, notices of intention to adduce tendency and coincidence evidence according to the summary I have set out above. The matter was raised before the trial judge before the jury was empanelled and objection taken by defence counsel. The notices were tendered together with a document called "Points of Similarity" prepared by the Crown, in the following terms - POINTS OF SIMILARITY FAIRFAX AND SONS LTD TASMAN KB PTY LTD During 1983 and 1984 accused was a senior accountant for Fairfax and Sons Limited. During 1999 to 2002 accused was a senior accountant for Tasman KB Pty Ltd. At Fairfax part of his duties was the authorisation of payments to company creditors. At Tasman KB part of his duties was the authorisation of payments to company creditors. During 1983 and 1984 the accused was involved in the fraudulent drawing of 38 cheques totalling $708,922.26 from the company's bank account. During 1999 to 2002 the accused was responsible for the fraudulent* drawing of 43 cheques totalling $2,242,642.22 from the company's bank account. The accused caused the cheques drawn to be recorded in the company accounts as payments to company creditors or payments to creditors on behalf of related companies. The accused caused the cheques to be recorded in the company accounts as payments to creditors, payments to related companies and payments to Directors. The accused was involved in regular betting on horse races. The accused was involved in regular betting on horse races.

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Sic: whether the drawing was fraudulent was, of course, the issue. 24 Also tendered were statements of Detective Sergeant Bensley, the officer in charge of the Fairfax investigation, and of several persons, some employed by Fairfax, about the events giving rise to the charges. Detective Sergeant Bensley's statement incorporated the typed record of an interview held between him and the appellant, signed by the appellant on 23 November 1984. 25 During submissions, defence counsel made plain that the only issue was whether the appellant had drawn and used the cheques dishonestly or honestly in a manner authorised by the Directors of Tasman KB. Counsel submitted that the receipt of the evidence would produce prejudice, meaning unfair prejudice, to the appellant which could not be removed by directions to the jury. There was some discussion of the ways in which the events of 1983 and 1984 were dissimilar to those of 1999 to 2002. His Honour deferred deciding on the admissibility of the evidence until he had time to appreciate the full nature of the Crown case. 26 His Honour returned to the subject on 11 May 2004, by which time the Crown had tendered all its evidence except the disputed tendency and coincidence evidence. Also before the Court were the ss97 and 98 notices and attached statements, including the record of interview, the document entitled "Points of Similarity", a written summary of the defence case, a transcript of the proceedings of 8 August 1985 before the first sentencing judge and a statement of facts and of the antecedents of the appellant which were put before that judge. 27 Ss 97, 98 and 101 of the Evidence Act are as follows - 97 The tendency rule (1) Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person's character or otherwise) to act in a particular way, or to have a particular state of mind, if: (a) the party adducing the evidence has not given reasonable notice in writing to each other party of the party's intention to adduce the evidence, or (b) the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value. (2) Subsection (1) (a) does not apply if: (a) the evidence is adduced in accordance with any directions made by the court under section 100, or (b) the evidence is adduced to explain or contradict tendency evidence adduced by another party. Note. The tendency rule is subject to specific exceptions concerning character of and expert opinion about accused persons (sections 110 and 111). Other provisions of this Act, or of other laws, may operate as further exceptions.

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98 The coincidence rule (1) Evidence that 2 or more related events occurred is not admissible to prove that, because of the improbability of the events occurring coincidentally, a person did a particular act or had a particular state of mind if: (a) the party adducing the evidence has not given reasonable notice in writing to each other party of the party's intention to adduce the evidence, or (b) the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value. (2) For the purposes of subsection (1), 2 or more events are taken to be related events if and only if: (a) they are substantially and relevantly similar, and (b) the circumstances in which they occurred are substantially similar. (3) Subsection (1) (a) does not apply if: (a) the evidence is adduced in accordance with any directions made by the court under section 100, or (b) the evidence is adduced to explain or contradict coincidence evidence adduced by another party. Note. Other provisions of this Act, or of other laws, may operate as exceptions to the coincidence rule. 101 Further restrictions on tendency evidence and coincidence evidence adduced by prosecution (1) This section only applies in a criminal proceeding and so applies in addition to sections 97 and 98. (2) Tendency evidence about a defendant, or coincidence evidence about a defendant, that is adduced by the prosecution cannot be used against the defendant unless the probative value of the evidence substantially outweighs any prejudicial effect it may have on the defendant. (3) This section does not apply to tendency evidence that the prosecution adduces to explain or contradict tendency evidence adduced by the defendant. (4) This section does not apply to coincidence evidence that the prosecution adduces to explain or contradict coincidence evidence adduced by the defendant. 28 "Probative value" is defined in the Dictionary of the Act as meaning the extent to which the evidence could rationally affect the assessment of the probability of the existence of a fact in issue. 29 On 12 May 2004 his Honour gave judgment admitting the evidence.

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Tendency evidence 30 The substance of the Crown's contention on the evidence tendered under s97 was that the appellant's conduct in defrauding Fairfax in 1983 and 1984 showed that he had a tendency to act fraudulently, which made it more probable that the manner in which he procured the proceeds of cheques from Tasman KB between 1999 and 2002 was fraudulent. His Honour had to be satisfied that the evidence had significant probative value: subs (1) (b). 31 Having enumerated the five points of similarity set out in the document tendered by the Crown, his Honour expressed satisfaction that the proposed evidence satisfied the test under subs (1)(b). However, in coming to the view that the evidence had significant probative value, his Honour made no reference to any dissimilarity between the events of 1983 and 1984 and 1999 to 2002 or to the fifteen-year period that had elapsed between the last of the Fairfax frauds and the date of the first of the counts charged. The dissimilar circumstances were that in each of the alleged Tasman KB frauds the appellant was not an authorised cheque signatory, whereas in each of the Fairfax frauds he signed the cheques as an authorised signatory, that the Fairfax cheques were drawn by someone else, using a printer, whereas the appellant himself wrote the Tasman KB cheques each in his own hand in the singular way I have described, that each of the Fairfax cheques was made out to cash, whereas each Tasman KB cheque was made out, eventually, to pay the appellant and that all the money stolen from Fairfax went into identified accounts and was all recovered, whereas, on the Crown case, the appellant used the Tasman KB money to pay gambling debts. 32 The appellant was undoubtedly devoted to betting on racehorses, both on and off the track, as the portion of the recorded interview put before his Honour showed, but the relevance of proving that matter is not altogether clear, given that it was never the Crown case that the appellant had used any of the Fairfax money to bet on racehorses. The appellant's statements in the interview showed, if believed, that he was a successful punter. As I have said, the money was all recovered.

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33 As refined during the trial, the principal issue was whether the appellant made the deposits according to the arrangement he claimed to have made with Mr Robert Frost and Mr McAndrew. The Crown had to prove beyond reasonable doubt that he did not. The tendency of the appellant contended for was to cheat and defraud. No doubt if a person is proved to have stolen money from one employer thirty-seven times over a period of a year, misleading other employees by his lies, he may be understood to have a tendency to cheat and defraud his employer. No doubt, also, the person in whom such a tendency is established may be expected to retain that tendency for some time, especially if he continues to occupy a similar position, like senior accountant, and has similar duties, like authorising payments to creditors. But people do reform, and the fact that the Crown asserted no dishonest act between 1984 and 1999, coupled with the fact that in 1985 the appellant pleaded guilty and returned all the money he had stolen from Fairfax, might have thrown doubt on the continuation of his tendency for a period as long as fifteen years. 34 To have significant probative value the evidence had to be more than merely relevant, but have a substantial degree of relevance, and that was to be judged by reference to the issue raised at trial, namely whether the appellant deposited the cheques intending to cheat and defraud Tasman KB or whether he was innocently giving effect to an arrangement proposed by Mr Robert Frost and Mr McAndrew: R v Lockyer (1996) 89 A Crim R 457. 35 There was no logical connection between the events of 1983 and 1984 and 1999 to 2002, and the only way in which the jury could have used tendency evidence was to reason that the appellant was a cheat and a fraud and was therefore more likely to have cheated and defrauded Tasman KB, which is another way of saying that he was therefore more likely to be lying in his assertion about the arrangement he said was proposed by Mr Robert Frost. 36 The jury could so reason only if the appellant had retained such tendency as was demonstrated by evidence of the events of 1983 and 1984. Critical to that question was the passage of fifteen years without asserted blemish, a circumstance argued by defence counsel as affecting the probative value of the evidence. His Honour's failure to refer to counsel's argument and to the passage of time suggests that those matters were overlooked.

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Coincidence evidence 38 The evidence was not admissible under the terms of s98 unless it was of two or more events which were related, which is to say, substantially and relevantly similar and occurring in substantially similar circumstances. As under s97, the evidence also had to have significant probative value. 39 As to subs 2(b), the circumstances in which the events occurred were that the appellant was a senior accountant at Fairfax, having a duty to authorise payments by cheque, and was a senior accountant of Tasman KB, having a duty to authorise payments by cheque. There were differences, too, principally that none of the Fairfax money was spent on gambling (notwithstanding the Crown's inclusion in the points of similarity of an assertion that the appellant was at the time regularly betting on racehorses) whereas there was evidence that the Tasman KB money was spent on gambling. Even so, I think that His Honour was entitled to conclude that the two sets of circumstances were substantially similar. 40 The application of the test under subs 2(a) of substantial and relevant similarity, however, presented more difficulty. On each occasion the appellant was a senior accountant with authority to requisition cheques. On each occasion he did what he did by requisitioning cheques. On each occasion he set up a record of the payment as to a creditor and not to himself. These things happened a substantial number of times, thirty-eight at Fairfax and forty-three at Tasman KB. There the points of similarity end. 41 A consideration of whether events are substantially and relevantly similar requires an examination not only of the ways in which they are alike but of the ways in which they are unalike, at least where differences are pointed to by counsel, as they were here. 42 I do not think that the passage of fifteen years has the importance here that it had for the evidence as showing the appellant's tendency, though it should not be left entirely out of account. A gap of many years between events that appear to be related may weaken an argument that they could not have happened by coincidence. 43 There are more substantial points of dissimilarity, however. The first is the manner in which the appellant acted. At Fairfax he procured others to issue by machine cheques made out to cash. At Tasman KB he hand-wrote cheques in an entirely different and remarkable way, calculated to deceive. At Fairfax he deposited or invested the proceeds in the various ways I have summarised. At Tasman KB the assertion was that the money was spent on gambling. The fact that the appellant was betting on racehorses in 1983 and 1984, yet did not use Fairfax money for that purpose, seems to be a point not of similarity but of dissimilarity. 44 These were substantial matters for consideration, but none was referred to in the judgment. I think that they were overlooked.

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Probative value and prejudicial effect 45 His Honour was required finally to apply s101(2): the evidence was not to be admitted unless its probative value substantially outweighed any prejudicial effect it might have on the appellant. In assessing the probative value for the purposes of this test his Honour ought to have considered the reasons and circumstances which I have summarised as tending to reduce the probative value of the evidence, but did not. 46 His Honour considered the ways in which the evidence might possibly have a prejudicial effect on the appellant. The first was the possible "inflammatory effect" of the evidence. His Honour concluded that it was not such as to create a sense of outrage or horror such as to provoke an instinct to punish and so divert the jury from their task. 47 His Honour recognised the danger that the jury might look at the facts of the events of 1983 and 1984, note the pleas of guilty and substitute the earlier acknowledgement of guilt for proof of guilt in the present matter. His Honour also recognised the risk that proof of guilt of the Fairfax matters might lead the jury to give insufficient weight to the requirement for proof beyond reasonable doubt in the matter before them. His Honour considered, however, that those risks could be obviated by appropriate directions. In due course his Honour gave appropriate directions, and no complaint is made about them. 48 His Honour considered also the possible prejudicial effect of the age of the Fairfax matters, but considered that it placed the appellant under no particular disadvantage. That may be accepted. 49 It seems to me that the difficulty about the evidence was the risk to which it gave rise that the jury would be overwhelmed by the knowledge that the appellant had been convicted of a series of frauds on a previous employer and would refuse to contemplate the appellant's defence to the charges before them, which were of a similar nature. His Honour recognised such a risk during a debate with counsel on 12 May 2004 when he said this - It gives rise to prejudgment. What do you say to the proposition that in this case that as a possibility, a jury might hypothetically, as soon as they learn about the 1984 matter, fold their arms and say 'oh well we might as well rack the cue here, he's obviously guilty, we won't listen to any more evidence, it's all over, he's done it before, he must have done it this time', why wouldn't they possibly take that approach? 50 It seems to me that there was a real danger that the jury's recognition of the appellant's prior guilt was likely to divert them from a proper consideration of the evidence as bearing on the question of his intent in the charges before them. The difficulty of obviating that risk had to be taken into account in assessing the likely prejudicial effect of the evidence. 51 I have explained why the probative value of the evidence, both under section 97 and section 98, was bound to be heavily qualified. Against that heavily qualified evaluation had to be weighed the serious risk to which I have adverted and the difficulty of removing it by direction to the jury. In my opinion it was not open to his Honour to conclude that the probative value of the evidence substantially outweighed any prejudicial effect it might have on the appellant. The evidence ought not to have been admitted. The first and second grounds of appeal have been made good. I would allow the appeal.

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The proviso 52 Without evidence of the events of 1983 and 1984 the Crown case was strong to the point of being almost overwhelming. The appellant did not challenge most of the evidence tendered in the Crown case. His contention about the arrangement he had made with Mr Frost was implausible not only because those said to have proposed it denied having done so but because, as Mr McAndrew said in evidence, it made no commercial sense. It was also contrary to proper accounting principles. 53 The Crown submitted that the Court ought not to apply the proviso if these grounds of appeal succeeded. In my opinion the submission was appropriate, because the admission of the evidence was bound to colour the jury's assessment of the credibility of the appellant, which was, as I have said, critical to a determination of the principal issue raised at trial. I would therefore not apply the proviso. 54 Two further grounds of appeal were advanced, grounds four and five. They asserted that the trial miscarried because the Crown failed to interview the Company Secretary of Tasman KB, Mr Gordon Wood, so as to obtain information about his understanding of the arrangement put forward by the appellant by which he said he deposited the cheques into his own bank account, and because of the failure of the Crown to call Mr Wood to give evidence at the trial. Although it is ordinarily appropriate for this Court to deal with all grounds of appeal it does not seem to me to be necessary to deal with these grounds because, as the Court is aware from evidence placed before it, the Crown has now interviewed Mr Wood and will possibly call him to give evidence if there is an order for a new trial. 55 I propose the following orders - 1. Allow the appeal. 2. Quash the conviction and the resulting sentences; and 3. Order a new trial 56 HOWIE J: I agree with the orders proposed by Barr J for the reasons given by his Honour. I also adopt the additional remarks by Grove J as to the inapplicability of the proviso notwithstanding the overwhelming strength of the Crown case. It is most regrettable that the convictions of the appellant should be set aside because of the Crown's reliance upon evidence that was not only inadmissible but also unnecessary.

At a glance

Court

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Before

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Judgment (16 paragraphs)

Parties