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State v Ralewa (No 1) [2022] PGNC 420; N9801 (5 May 2022)

N9801

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CR (FC) 204 OF 2021

STATE

V

ROBERT RALEWA
(No 1)

Waigani: Wawun-Kuvi, AJ
2022: 17^th & 18^th February, 1^st, 2^nd, 3^rd &9^th March & 5^th May

CRIMINAL LAW-TRIAL-Misappropriation, Criminal Code, s 383A(1)(a)-whether accused dishonestly applied monies to his own use? Whether the accused had an honest claim to the monies without an intention to defraud?

The accused was charged for misappropriation under section 383A(1)(a) of the Criminal Code. He was the Chief Executive Officer, Director and Shareholder of Asian Pacific Insurance Brokers Limited (APIBL). He was also the owner of a company known as ARJAY Corporation Limited.

An internet or online facility was set up with the Bank of South Pacific to enable APIBL to conduct its financial operations. The accused used the internet or online facility to transfer monies from APIBL’s trust account into ARJAY Corporation Limited’s account. He then applied the monies to his own use. The State says that his actions were dishonest.

The accused says that he was not being paid his salary and entitlements and therefore he paid himself what was owed to him. He raised the defence of honest claim of right under section 23(2) of the Criminal Code.

Held

1. In a charge for misappropriation under section 383A(1)(a), the State must prove the following elements: (1) application (2) to own use or the use of another (3) property (4) belonging to another (5) dishonesty: see Kavo v The State [2015] SC1450 and Wartoto v The State [2019] SC1834.

2. The test of dishonesty is subjective but the standard of dishonestly to be applied is objective. The State must prove that the conduct of the accused was dishonest according to the standards of honest and reasonable members of the community and that subjectively he knew that his conduct was dishonest according to those standards: see Kavo v The State [2015] SC1450 and Wartoto v The State [2019] SC1834.

3. The defence of honest claim of right under section 23(2) of the Code applies to offences involving property where an accused claims that his actions were done without any fraudulent or dishonest intent.

4. The Supreme Court in Wartoto v The State [2019] SC 1834 and later in Kaya v State [2020] SC2026 set down the following principles for the determination of an honest claim of right:

1. The evidence must show that there is an honest claim of right.
2. The State must then disprove beyond a reasonable doubt the claim.

3. The claim must be honest. It does not need to be reasonable.

4. However, a claim that is unreasonable is less likely to be believed as being genuine or honest.
5. The claim must be for a legal entitlement and not a moral entitlement.
6. The Court must make findings of fact on the evidence and decide whether it accepts that the accused possessed an honest belief. Following the assessment, it may be determined that either the evidence was unconvincing or convincing and the State was unable to disprove.
7. Once the Court accepts that the accused acted under an honest claim to the property without an intent to defraud, he is entitled to an acquittal as the defence is a complete defence.
   

5. There is no dispute that the accused transferred the monies into ARJAY Corporation’s account. There is also no dispute that the accused applied the monies to his own use. The issue is whether he transferred the monies in the exercise of an honest claim of right and without an intention to defraud.

6. A broker is the middle person between the insured and the insurer. The underwriters are the insurance companies.

7. Under the Insurance Act 1995, premiums are to be paid to the insurance company.

8. The evidence of Watt Kiddie is consistent with the provisions of the Insurance Act. The monies held in APIBL’s trust account are to be remitted to the licensed insurer or underwriter. And only the commission is paid into APIBL’s operating account.

9.The accused knew that the monies in the trust account were to be paid to the underwriters or insurance companies and that only commissions were paid into the ABIBL’s operating account.

10.The accused knew that the monies in the operating account were for the operational costs of the business and salaries.

11. The bank statements revealed:

1. The cheque facility was still operating contrary to the accused statements and consistent with Watt Kiddie and Lina Joe’s evidence.

2. Salaries were being paid from the operating account on a fortnightly basis through the cheque process consistent with Watt Kiddie and Lina Joe’s evidence.

3. The accused was being paid his salary this is consistent with Lina Joe’s evidence. The accused was being paid his salary of K7500.00 into his personal account by cheque payment.

4. Commissions were also being paid from the trust account into the operating account.

5. The accused was at the same time transferring premiums from the trust account into the operating account, then into ARJAY’s account.

6. The accused was also transferring monies directly from the trust account into ARJAY Limited’s account.

12. The accused was dishonest when he transferred K58, 500.00 directly from APBIL’s trust account into ARJAY Corporation account. His actions were dishonest and fraudulent because he knew that the monies in the trust account were premiums to be paid to the underwriters or insurance companies. That commissions were paid to the operating account.

13. The accused was dishonest when he transferred the sum of K873, 300.00 from the trust account into the operating account and then into ARJAY Corporation’s account.

14. His actions were dishonest and fraudulent because he was being paid his fortnightly salary into his personal account, the shareholder’s agreement was a shares agreement subject to the profits of the company and the method of payment was not by way of the internet facility and the business was not privately owned where he was entitled to take monies and pay himself.

15. I am satisfied that the accused dishonestly applied monies to his own use. I am also satisfied that the monies belonged to Asian Pacific Insurance Brokers Limited by virtue of section 383A(3)(d) of the Criminal Code, that is, immediately before the application of the monies, APIBL had control of those monies: see Lawi v The State [1987] PNGLR 183.

16. Verdict of Guilty is returned for the charge of Misappropriation.

Cases Cited

Kaya v State [2020] PGSC 145; SC2026
State v Simon [2020] PGNC 18; N8183
Wartoto v State [2019] PGSC 55; SC1834
Kavo v State [2015] PGSC 48; SC1450
Potape v State [2015] PGSC 84; SC1613
The State v Emma Ombu Karakabo (2012) N4897
The State v Bruno Tanfa Chilong (2009) N3578
State v Henry Gorea [1996] PNGLR 141
Lawi v The State [1987] PNGLR 183
John Jaminan v The State (No 2) [1983] PNGLR 318
Sebulon Wat v Peter Kari [1975] PNGLR 325
R v Hobart Magalu [1974] PNGLR 188
Magr v R [1969-70] PNGLR 165
Tiden v Tokavanamur-Topaparik [1967-1968] PNGLR 231

Legislation

Criminal Code (Ch 262)
Insurance Act 1995

Counsel

Ms. Comfort Langtry, for the State
Mr. Edward Sasingian, for the Accused

DECISION ON VERDICT

5th May, 2022

1. WAWUN-KUVI, AJ: Robert Ralewa (accused) was indicted on one count of Misappropriation under section 383A(1)(a) of the Criminal Code (Ch 262).
   
2. The accused was the Chief Executive Officer (CEO), a Director and Shareholder of Asian Pacific Insurance Broker Limited (APIBL). The accused also owned a company known as ARJAY Corporations Limited (ACL).
   
3. The State alleged that the accused set up an internet banking service with Bank of South Pacific Limited (BSP) for APIBL accounts. He then appointed himself as the sole authorizing officer (master user).
   
4. The State alleges that between 27 January 2017 and 3 March 2018, the accused used the online facility to transfer the sum of K1, 267, 373.00 from the APIBIL’s trust account to the operating account. He then transferred K873, 300.00 from APIBIL’s operating account into ACL’s or ARJAY account.
   
5. The accused further transferred K58, 500.00 directly from APIBIL’s trust account into ACL’s account. A total sum of K931, 800.00 was transferred into ACL’s account by the accused from both APIBL’s operating and trust accounts.
   
6. The State says that the accused actions were dishonest.

Burden of Proof

7. The State bears the burden of proving its case beyond a reasonable doubt and to disprove any defences properly raised on the evidence beyond a reasonable doubt.

The Elements

8. In a charge for misappropriation under section 383A(1)(a), the State must prove the following elements (1) application (2) his own use or the use of another (3) property (4) belonging to another (5) dishonesty: see Kavo v The State [2015] SC1450 and Wartoto v The State [2019] SC1834.
   
9. The test of dishonesty is subjective but the standard of dishonestly to be applied is objective. The State must prove that the conduct of the accused was dishonest according to the standards of honest and reasonable members of the community and that subjectively he knew that his conduct was dishonest according to those standards: see Havila Kavo v The State [2015] SC1450 and Wartoto v The State [2019] SC1834.

The Evidence

10. The State called Watt Kil Kiddie and Lina Joe.
    
11. Mr. Kiddie was the Managing Director and a shareholder of APIBL. Ms. Joe was the accounts clerk of APIBL. Several documents were tendered into evidence by consent.
    
12. The Defence does not dispute that the accused transferred the sum of K931, 800.00 and applied it to his own use. It was contended that the accused was not paid his salaries and entitlements and was therefore entitled to take monies from APIBL’s accounts and pay himself. That this amounted to a bona fide claim of right.
    
13. The accused in his Record of Interview (ROI) with police, during his cross-examination and in his evidence on oath, stated that he was not being paid his salaries and his remuneration. That was the reason he was paying himself.

Bona Fide Claim of Right

14. Section 23(2) of the Code states:
    

“A person is not criminally responsible, as for an offence relating to property, for an act done or omitted to be done by him with respect to any property in the exercise of an honest claim of right and without intention to defaud.”

15. The defence of honest claim of right under section 23(2) of the Code applies to offences involving property where an accused claims that his actions were done without any fraudulent or dishonest intent.
    
16. The Supreme Court in Wartoto v The State (2019)^[1] and later in Kaya v State [2020]^[2] set down the following principles for the determination of an honest claim of right:
    
    1. The evidence must show that there is an honest claim of right.
    2. The State must then disprove beyond a reasonable doubt the claim.^[3]
    3. The claim must be honest. It does not need to be reasonable.^[4]
    4. However, a claim that is unreasonable is less likely to be believed as being genuine or honest.^[5]
    5. The claim must be for a legal entitlement and not a moral entitlement.^[6]
    6. The Court must make findings of fact on the evidence and decide whether it accepts that the accused possessed an honest belief. Following the assessment, it may be determined that either the evidence was unconvincing^[7] or convincing and the State was unable to disprove^[8].
    7. Once the Court accepts that the accused acted under an honest claim to the property without an intent to defraud, he is entitled to an acquittal as the defence is a complete defence.

Issue(s)

17. There is no dispute that monies were transferred by the accused using the online facility.
    
18. Whilst there is dispute as to whether Watt Kiddie approved certain sections of the application form exhibited as “S8”, the real issue is, was the accused dishonest when he transferred monies from the trust account?
    
19. That is, did the accused have an honest claim of right without an intention to defraud?
    
20. To determine whether the accused had an honest claim of right, it is important first to understand the business that the accused was involved in.

What is an insurance broker?

21. Section 2 of the Insurance Act 1995 defines broker as:

“a person who, for or in expectation of gain, acts as or carries on business as the agent of an insured person or a proponent for insurance in connection with the transaction of general insurance business.”

22. APIBL is an insurance brokerage company. From the evidence by Watt Kiddie and the accused, it was clear that a broker is the middle person between the insured and the insurer. The underwriters are the insurance companies or insurer.
    

Is the Insurance Act of 1995 applicable?

23. Whilst the defence argued that the Insurance Act 1995 is not applicable in the present case, quite to the contrary, it is the legislation that regulates the insurance industry.
24. The Accused stated that he was in the insurance industry for well over 20 years and he is also the Chief Executive Officer of APIBL and according to him the only person running the whole operations while Watt Kiddie sat in his own office at 3 Mile, doing his own thing.
25. He also says that he was responsible for the MOU with the Police Department. Recital C in the MOU, states that APIBL is a registered insurance broker. It can therefore be reasonably inferred that he was aware and knew the requirements of the Insurance Act 1995.
    

What then are the responsibilities of the broker as it relates to the premiums?

26. Sections 39 (5), (6), (7) & (8) of the Insurance Act provides for the responsibilities of the broker or agent of a licensed insurer in relation to premiums. There as follows:
    

“(5) Moneys by way of premiums for insurance cover which are paid by a person to a broker or agent of a licensed insurer shall be deemed to have been paid to the licensed insurer at the time and in the amount that the moneys were paid to that broker or agent.

(6) A licensed insurer shall not deny liability under any contract of insurance on the basis that moneys paid to a broker or agent have not been paid to the licensed insurer, and a licensed insurer shall not seek payment from an insured person where such payment has been made to a broker or agent.

(7) Notwithstanding this section, a licensed insurer and broker or agent may agree upon the credit terms which will apply as between the broker or agent and the insurer for remitting of premium moneys to the licensed insurer.

(8) Any agent or licensed insurer, licensed broker or licensed loss adjuster, who fails or neglects to comply with the provisions of this Part relating to responsibility for agents, is guilty of an offence.

Penalty: A fine not exceeding K25,000.00.”

27. In summary, the above provisions require that the premiums be paid to the insurance company.
    
28. The evidence of Watt Kiddie is consistent with the above provisions. The monies in APIBL’s trust account are to be remitted to the licensed insurer or underwriter. And only the commission is paid into APIBL’s operating account.

Did the accused know that the monies in the trust account were premiums?

29. The accused was adamant that he was responsible for the Police Department’s contract. The MOU was tendered. The claims process as stipulated in the MOU signed by the accused, is consistent with the evidence of Watt Kiddie and the Insurance Act. That is, the premiums are paid to the underwriter or the insurance company. The broker is the middle person who receives the claim and forwards it to the underwriter. The only monies that are paid, I restate again, are the commissions. This is established evidence that goes to prove that the accused always knew that the monies in the trust account belonged to the underwriter or the insurance company.
    
30. The evidence of Watt Kiddie as said in consideration with the requirements of the Insurance Act demonstrates that the monies belonged to the underwriters or insurance companies.
    
31. This is not a case of mistaking the ownership of the money. Or mistaking where the monies should be paid.
    
32. The internet facility may have been new but the method of operation of the brokerage was the same. It was clear from the evidence of Watt Kiddie and is consistent with the provisions of the Insurance Act 1995, the monies did not belong to APIBL. They were held in trust. The monies in the trust account belonged to the underwriters or insurance companies. APIBL was only paid an agreed commission. That commission was paid from the trust account into the operating account. Salaries and operational costs were paid out of the operating account.
    
33. I accept the accused knew all of this for two reasons.
    
34. Firstly, he was running the operation and the withdrawals were done with him and Watt Kiddie’s signatures prior to the internet facility.
    
35. Secondly, he himself stated that he was an insurance man and was in the business for over 20 years.
    

Was there an honest claim of right?

36. On close inspection of the Bank Statements, it is revealed:
    1. The cheque facility was still operating contrary to the accused statements and consistent with Watt Kiddie and Lina Joe’s evidence.
    2. Salaries were being paid from the operating account on a fortnightly basis through the cheque process consistent with Watt Kiddie and Lina Joe’s evidence.
    3. The accused was being paid his salary this is consistent with Lina Joe’s evidence. The accused was being paid his salary of K7500.00 into his personal account by cheque payment.
    4. Commissions were also being paid from the trust account into the operating account.
    5. The accused was at the same time transferring premiums from the trust account into the operating account, then into ARJAY’s account.
    6. The accused was also transferring monies directly from the trust account into ARJAY Limited’s account.
       
37. Whilst defence counsel relied on the case of Tiden v Tokavanamur [ 1967-68] PNGLR 231, the facts are quite different. In Tiden, the appellant stated that he did not steal the coconuts because he planted them, and he explained how he came about planting the coconuts within the plantation boundaries. In the present case, the monies did not belong to the accused. The monies belonged to persons or bodies who paid for insurance. And those monies were to be remitted to the licensed insurer.
    
38. I do not accept that his actions were honest and without an intent to defraud.
    
39. He was aware of the process in making payments under cheque system. This was the already established method. It was ongoing. He was aware that the monies were to be paid to the insurers or the underwriters to pay claims. He was aware as the Chief Executive Officer and an insurance man for 20 plus years that the monies in the trust account were insurance premiums and that APIBL was only entitled to commissions. And those commissions were to be paid into the operating account.
    
40. His actions of transferring K58, 500.00 directly from APBIL’s trust account into ARJAY Corporation account was dishonest and fraudulently.
    
41. In terms of the balance of K873, 300.00 I also find that the accused actions were dishonest and with an intent to defraud.
42. Firstly, he was being paid his salary. This is contrary to his outright denials to police and in Court where he said that he was not being paid his salary. The bank statements say otherwise.
    
43. Secondly, Watt Kiddie says that salaries are distinct from shareholder dividends. It is clear from the document titled “Shareholder Agreement” that the agreement was not for salaries. It was a share agreement subject to the profits of the company. Considering the amounts in the operating account, the company would have gone out of business if indeed the accused was paid those monies monthly. By agreement the monies, when paid, were to be paid by a certain method which did not include the internet facility.
    
44. Thirdly, this was not a privately owned business where the accused was to take money and pay himself.
    
45. The accused defence cannot surface because there was already a mechanism in place and an existing procedure for the payments of the company’s operations including salaries. When the accused was taking monies out of the operating account and paying them into ACL’s accounts, he knew that his actions were not consistent with the ongoing practice.
    
46. Furthermore, the accused was adamant that Watt Kiddie was being difficult and not paying him, however, the bank statements of the operating account during the charged period revealed that the cheque process was operating. This means that Watt Kiddie was signing cheques including cheques for the accused salary.
    
47. For the foregoing reasons, I am satisfied that the accused dishonestly applied monies to his own use. I am also satisfied that the monies belonged to Asian Pacific Insurance Brokers Limited by virtue of section 383A(3)(d) of the Criminal Code, that is, immediately before the application of the monies, APIBL had control of those monies: see Lawi v The State [1987] PNGLR 183.
    
48. Verdict of Guilty is returned for the charge of Misappropriation.
    

Orders

49. The Orders are as follows:
    1. Verdict of Guilty is returned fort the charge of Misappropriation under section 383A(1)(a) of the Criminal Code.
    2. The accused is convicted of the charge of Misappropriation under section 383A(1)(a) of the Criminal Code.
    3. A Pre-Sentence Report is ordered and shall be made returnable on 19 May 2022 at 9.30 am.
    4. Bail is granted under section 10 of the Bail Act on the same conditions on which bail was previously granted.
       

________________________________________________________________
The Public Prosecutor: Lawyer for the State
Sasingian Lawyers: Lawyer for the Accused

^[1] Refer to paragraph 9
^[2] PGSC 145; SC2026 (19 October 2020)
^[3] Potape v State [2015] PGSC 84; SC1613 (31 July 2015), John Jaminan v The State (No 2) [1983] PNGLR 318) and Magr v R [1969-70] PNGLR 165
^[4] Tiden v Tokavanamur-Topaparik [1967-1968] PNGLR 231 and Sebulon Wat v Peter Kari [1975] PNGLR 325)
^[5] Kaya v State [2020] PGSC 145; SC2026 (19 October 2020) and State v Simon [2020] PGNC 18; N8183 (7 February 2020)
^[6] Kaya v The State (2020) SC 2026 and The State v Felix Luke Simon (2020) N8183
^[7] See example of which is in the cases State v Henry Gorea [1996] PNGLR 141 and R v Hobart Magalu [1974] PNGLR 188
^[8] See examples of which in the cases of The State v Emma Ombu Karakabo (2012) N4897, The State v Bruno Tanfa Chilong (2009) N3578