The decision in Moore v The Queen illustrates the importance of getting your terms and conditions right.
What would you do if you had an extra million dollars or so? For one man, it meant boys' toys, some personal pampering - and a criminal prosecution.
Luke Moore's convictions were overturned on appeal, a decision which got a lot of press (Moore v R [2016] NSWCCA 260; no relation to the author). Missing from the media commentary were the lessons for the rest of us, especially when it comes to contractual terms and risk mitigation.
Mr Moore enjoys Complete Freedom
On 11 March 2010, Mr Moore, somewhat ironically, opened a "Complete Freedom" bank account with St George Bank.
Under the terms and conditions of the account, Mr Moore could ask for a loan of funds greater than the account balance, by cash withdrawal, periodic payments or direct debit. The bank charged a $9 payment dishonour fee whenever a withdrawal was made from the account when the balance was negative.
The sum of $441 was credited to the account the following day by Centrelink and similar payments were subsequently made on a fortnightly basis. A small number of other deposits were made from another source.
After a series of debits and withdrawals from the account, it reached a negative balance by early June 2010. It remained in a negative balance from this point onwards.
After realising that the account was subject to a system error, Mr Moore exploited this to make mortgage repayments and lavish purchases, including signed memorabilia, sports cars and boats. He also made deposits into a PayPal account.
By the time the account was closed on 10 August 2012, the negative balance was $2.1 million, of which the bank recovered over $1.2 million in property from Mr Moore.
Was this obtaining a financial advantage by deception?
Mr Moore was charged with obtaining a financial advantage by deception under section 192E(1) of the Crimes Act. Deception is defined in section 192B of the Crimes Act 1900 (NSW):
- a deception as to the intentions of the person using the deception or any other person, or
- conduct by a person that causes a computer, a machine or any electronic device to make a response that the person is not authorised to cause it to make."
He was also charged with dealing with the proceeds of crimes contrary to section 192(2) of the Act.
The Crown argued that Mr Moore must have known there was a problem with the bank's system. However, he did nothing to alert the bank to this; instead he continued to request transactions. Given there was no money in his account, he was not authorised to cause "a computer, a machine or any electronic device to make a response".
In particular, the Crown relied upon clause 13.8(c) of the relevant terms and conditions which stated:
The Crown maintained that this clause implied that Mr Moore was not authorised to make a further debit into his account if it was already overdrawn.
Counsel for Mr Moore disagreed and argued there was no clause expressly precluding a customer from making further debits from an already overdrawn account. He "was in fact authorised, albeit by an oversight, to act on the [account] as he did".
The NSW Court of Criminal Appeal overturns Mr Moore's conviction
The Court of Appeal rejected the Crown's arguments and ordered that both convictions be quashed.
In his judgment, Justice Leeming observed that Mr Moore "behaved not only extremely foolishly but dishonestly" and that he "continued to borrow and consume funds, knowing that he had no realistic prospect of repaying them".
Despite his undoubted civil liability to the bank, there was a real question as to whether his conducted constituted a crime:
- the terms and conditions did not forbid electronic transactions which caused the account to become overdrawn or increased an existing debit balance, nor was there anything express to indicate that the bank could not exercise its discretion and approve transactions while the account was overdrawn;
- "the terms of the contract gave the Bank power to approve a debit which left the account overdrawn" (according to Justice Leeming);
- "the only available conclusion was that the Bank's systems were so configured with respect to this account that all overdraft transactions would be allowed because there was no relationship officer assigned to take responsibility for allowing them" (according to Justice Fagan); and
- there was nothing covert about Mr Moore's conduct; he had communicated nothing untrue to the bank which induced it to continue and increase its lending.
In effect, as Justice Fagan put it, "each submitted transaction was, in fact, 'allowed' by the Bank. That is, each was, in fact, authorised."
So what can we learn from this decision?
While the present case obviously highlights the need for perpetually improving risk management systems for overdraft transactions, it also illustrates the importance of getting your terms and conditions right.
Those terms and conditions are the foundation of your relationship with your customer, supplier or other business party. They need to set out not only the key deliverables in your business relationship, but also the responsibilities. That means designing them backwards - what do you want the parties to do in any given situation? In this case, for example, Mr Moore did not have to alert the bank to the system error, or stop making debits. This did not mean he got to keep the money, but it did have repercussions down the track, not least when it came to the criminal prosecution.
A successful criminal prosecution actually can have benefits for a business in the same position as the bank in this case. Although the bank was able to use civil recovery methods, these can be expensive and exposed to delay. Where a company has sustained loss by reason of an offence, it can use the victim's compensation scheme to claw back funds from the convicted wrongdoer, at least in New South Wales.
The key lesson for financial institutions is that when preparing or amending account terms and conditions, not only can they assist their civil recovery position but also their victim's compensation recovery position which is dependent on the Crown successfully prosecuting individuals who dishonestly exploit system errors.
More broadly, it's a great reminder to ensure your terms and conditions do what they need to do.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.
