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MqJBL (2005) Vol 2 189
WHAT A PAYMENT IS (AND HOW IT CONTINUES TO CONFUSE
LAWYERS)
RHYS BOLLEN*
I INTRODUCTION1
We instinctively know a payment when we get one. Our wallet bulges, or our bank
balance looks a little healthier. But what is a payment really? How do they work?
Unfortunately, as this article shows, payment facilities continue to confound us and
the law.
If the concept of money is difficult, it has at least been the subject of exhaustive
analysis. The same cannot be said of the concept of payment, itself a subject of
considerable complexity, upon which the literature in common law jurisdictions
remains remarkably sparse.2
Recent cases, such as R v Preddy3 and Holmes,4 demonstrate the difficulty our legal
system has with payment facilities. This article begins with an analysis of what a
payment is. It looks at the history of payments, their main modern forms and
economic substance. This is followed by a discussion of the above cases and the
legislative response in England. The final section discusses some shortcomings in
the current legislation and possible approaches to reform.
II ANALYSIS OF WHAT A PAYMENT IS
Payment has broad and narrow meanings, both in law and general usage. Its
broadest meaning in general usage is to direct something towards or do something
*
LLB (Hons) (UTS), B Business (UTS), Grad Dip Comm Law (Sydney), LLM candidate
(Cambridge). This paper is based on the law as at 12 February 2005. NB: an abridged version
of this paper was published in the Cambridge Student Law Review (March 2005).
1
This paper is based on material presented by Professor Hooley in his classes on International
banking and financial law, particularly discussion classes on payment systems (University of
Cambridge, LLM program, 2004/05). The views in this article however, including any errors
or omissions, are the author’s only.
2
R Goode, Commercial Law (2004) 460.
3
R v Preddy [1996] AC 815.
4
R (Holmes) v Brixton Prison Governor [2004] EWHC 2020.
190 MqJBL (2005) Vol 2
for someone else, such as ‘to pay someone a visit’ or ‘repay a favour’. In financial
contexts, it means to give consideration for a purchase or discharge a debt. It is
inherently circular – what the parties agree is payment is payment. Goode states
‘any transfer of value in a form according with the express or implied agreement of
the parties constitutes payment, whether or not it is money in the legal sense’.5
For the purposes of this article, we will define payment as a transfer of buying
power or economic value, usually to discharge a debt obligation. It can be
conducted using currency, commodities (eg, wheat or precious metals) or through a
payment mechanism. Geva defines a payment mechanism as ‘any machinery
facilitating the transmission of money in the payment of a debt, which enables the
debtor to avoid the transportation of money and its physical delivery to the creditor
in the discharge of the debt’.6
A History
Ancient payment facilities actually involved transfers of underlying property or
debt rights. For example, payments involving gold and other precious metal receipts
involved a transfer of some of the rights of the person making the payment
(‘payer’) to the recipient of the payment (‘payee’). Before the payment the payer
owed the payee some money, and the payer also had the right to collect a certain
amount of gold from the goldsmith. By the payer transferring receipts evidencing
the right to collect gold, the payer ‘paid’ the payee by delivering to them the right to
collect a quantity of gold equivalent in value to the value of the debt. Provided that
the payee was happy with this arrangement, it resulted in a discharge of the debt
and an assignment from the payer to the payee of rights to the underlying gold.7
In most countries the law provides that in the absence of agreement, the tender of
cash8 is the default means of payment.9 Physical delivery of notes and coins can
make a payment, simultaneously transferring property in the physical currency to
the recipient and discharging the indebtedness of the giver.
No payee can be forced to accept a non-cash payment as good payment, so the
payer would either have to obtain their express agreement or be able to rely on an
implied10 consent.11 Modern payment facilities involve payer and the payee agreeing
5
Goode, above n 2, 452.
6
B Geva, ‘The Concept of Payment Mechanism’ (1986) 24 Osgoode Hall LJ 1, 4.
7
For more information, see Tyree, Banking Law in Australia (2002) para 5.2; D Kreltszheim
‘The Legal Nature of “Electronic Money”: Part 1’ (2003) 14 JBFLP 161, 176; Geva, Bank
Collections and Payment Transactions – Comparative Study of Legal Aspects (2001) 10-14;
Bollen, ‘The Development and Legal Nature of Payment Facilities’ (2004) 11(2) Murdoch
University Electronic Journal of Law paras 1 and 9, http://www.murdoch.edu.au/elaw/issues/
v11n2/bollen112.html>.
8
Ie, legal currency.
9
Eg, Reserve Bank Act 1959 s 36 (Australia). See also Tyree & Beatty, The Law of Payment
Systems (2000) 3; Bollen, above n 7, para 49.
10
Eg, customs and usage, prior dealings or holding out.
What a Payment Is (and How it Continues to Confuse Lawyers) 191
that something other than cash will be good consideration.12 The reasons for
accepting payment by means other than cash are many and varied. Regardless, non-
cash payments are effective because the payer and payee are willing to proceed on
the basis that the payment method they have adopted is effective to transfer money
between them.13
B Modern Payments
Most modern payment schemes build upon a simple ‘debt circulation’ model.14
Prior to a payment, the payer owes the payee money. Through the payment
transaction, this monetary obligation is discharged. The payer also has a
relationship with a financial intermediary15 (the ‘payer FI’) who agrees to make
payments from time to time as instructed by the payer. Generally these payments
are made either out of funds already deposited with the payer FI, or funds to be paid
by to the payer FI later. Where money has been deposited with the payer FI in
advance, this money is held in the form of a debt due from the payer FI to the
payer.16 Where no funds have been deposited in advance, the relationship is
reversed – each payment results in the payer FI effectively lending funds to the
payer.17
The essence of making a non-cash payment is that the payer causes the payee to
receive valuable rights, usually in the form of an increased debt due from the
payee’s financial intermediary (the ‘payee FI’). The payee FI may or may not be the
same financial intermediary as the payer FI. At the completion of the payment
transaction, the payee is owed money (or more money)18 by the payee FI and the
payer is owed less money by the payer FI.19
This process has been described elsewhere as the circulation of debt obligations.20 A
debt obligation between payer and payee is satisfied by the payer causing the debt
due to them from the payer FI to be reduced and the debt due to the payee from
11
Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728.
12
Galvin ‘The Legal Nature of Stored Value Transactions’ (1999) 10 JBFLP 54; Geva, above n
7, 13.
13
Bollen, above n 7, para 27.
14
Ibid.
15
Financial intermediary here has a broad meaning: essentially any person who is in the business
of taking deposits or otherwise taking money and owing debts to clients and/or lending money
to clients.
16
United Dominions Trust Ltd v Kirkwood [1966] 2 QB 431 per Lord Denning 446, see also
judgement of Diplock LJ; Foley v Hill (1848) 2 HL Cas 28, 9 ER 1002; approved in Croton v
R (1976) 117 CLR 326.
17
Paying those funds immediately to the payee nominated by the payer. See Bollen, above n 7,
para 94.
18
Or in some cases owes less money to the payee FI (ie, when the payee is in overdraft and the
receipt of the payment reduces their overdraft but does not eliminate it).
19
Or indeed owes money to the payer FI.
20
Blay and Clark, Australian Law of Financial Institutions (1996) para 9.01; Tyree, Banking
Business in Australia (2005) para 36.2; Bollen, above n 7, para 94.
192 MqJBL (2005) Vol 2
payee FI to be increased. The debt from the payer to payee has been substituted for
a debt due from the payee FI to the payee.21 Debt obligations have been substituted
rather than strictly circulated,22 so as to effect a payment between the parties.
C Funds ‘Transfers’
Modern payment systems do not generally involve an assignment of underlying
rights.23 Instead, they result in the increase and decrease in institutional liabilities
owed to the payer and payee.24 Under a Giro payment system, for example, a payer
instructs the payer FI to effect a payment to the payee. Assuming the payer has
sufficient funds in their account (or that there is an agreed overdraft or credit
facility in place), the payer FI debits the payer’s account and instructs the payee FI
that a payment is to be made to the payee. Naturally, the payee FI will usually only
give effect to this instruction if the payment is covered either by funds the payer FI
already has on deposit with the payee FI or by a second payment. In the latter case,
the payer FI makes a payment to the payee FI so that the payee FI is ‘in funds’ and
is in a position to credit the payee’s account to the value of the intended payment.
This is generally achieved by debiting the payer FI’s account with a third party and
crediting the payee FI’s account with that third party.25
This type of transaction has unfortunately come to be known as a funds transfer.
Unfortunate in that it is a slightly misleading label, even a misnomer.26 No property
is transferred through this process. The payer and payee both hold intangible
property27 both before and after the transaction. Neither acquires or disposes of
these bundles of rights28 during the transfer (at least not to each other). These choses
are not transferred. Instead, new rights are created or existing rights are altered. It is
probably more accurate and helpful to talk of a transfer of value rather than a
transfer of funds.
In some cases, property may be created or terminated. Where a payer’s balance with
the payer FI is exhausted by the transfer, this may terminate the chose in action.
This chose is not transferred; it simply comes to an end. Also, where a transfer
results in the payee having a balance with the payee FI for the first time, a chose in
action will be created through the transaction.
21
Geva, above n 7, 273; Geva, ‘Payment into a bank account’ (1990) 5 JIBL 108.
22
Ie, their amounts rather than the debts themselves have moved.
23
Geva, above n 6, 22; Foskett v McKeown [2001] 1 AC 102; but see Delbruek & Co v
Manufacturers Hanover Trust Co (1979) 609 F 2d 1047, 1051.
24
Tyree, above n 20, para 36.2.
25
The third party is usually either a correspondent bank or a central bank (eg the Bank of
England).
26
Libyan Arab Foreign Bank v Bankers Trust Co [1989] QB 728.
27
Ie, debts or choses in action vis-à-vis their respective FIs.
28
Choses in action.
What a Payment Is (and How it Continues to Confuse Lawyers) 193
Courts have recognised this principle. For example, Millet LJ stated in Foskett v
McKeown that no money or property passes through the payment system.29 Instead,
the system is ‘simply a series of debits and credits that are causally and
transactionally linked’.30
D Economic Substance
As a result of this sequence of payments, the payer’s balance vis-à-vis the payer FI
and the payee’s balance vis-à-vis the payee FI have moved in opposite directions
but by the same31 quantum. They have achieved a transfer of money without any
direct dealings and without any physical currency or other inherently valuable
physical chattels changing hands. In fact, with electronic payment mechanisms all
that may have ‘moved’ may have been sounds and data travelling through the
relevant communications systems.32 At the end of the process, the payee has
received (a present entitlement to)33 the sum of money promised, the payer’s money
held with the payer FI has been reduced by that sum and the FI’s own net positions
have each been maintained (see diagram 1).34
Diagram 1
What is the economic substance of a payment transaction? Two parties effect a
change in their relative wealth, by agreeing to change their positions vis-à-vis third
parties. Both have debt relationships with third parties, and the payment mechanism
29
[2001] 1 AC 102.
30
[2001] 1 AC 128.
31
Or almost the same, minus any applicable fees etc. The payer’s balance has been reduced by
the same or a similar amount as the payee’s balance has increased.
32
Ie, movement of electrons, electronic signals and radio waves etc only.
33
Geva, above n 7, 270-280; Royal Products Ltd v Midland Bank Ltd [1981] 2 Lloyd’s Reports
194.
34
Blay and Clark, above n 20, para 9.06; Bollen, above n 7, para 26.
194 MqJBL (2005) Vol 2
is used to increase the debt a third party owes the payee and reduce the debt a third
party owes the payer. The values of these choses in action are altered to achieve the
movement in buying power or wealth. The payer, in making a non-cash payment,
sets in train a course of events at the end of which its monetary rights are worth less
and the payee’s monetary rights are worth more. Provided that the payee is willing
to treat this as a valid payment, it is good consideration for the purchase or effective
discharge of the existing debt.35
Payment, then, is a method by which the payer intentionally causes the value of the
assets of the payee to increase with the purpose of discharging an existing debt due
to the payee or otherwise providing consideration to the payee. Just as physical
currency is a valuable means of exchange because of what it can do for the holder,36
so through a non-cash payment the payer causes the buying power or wealth of the
payee to increase. This is usually achieved by causing the payee’s account balance
with a financial intermediary to be increased. However, there is no reason why it
could not be achieved in other ways (such as by causing a third party to be in debt
to the payee or hold other valuable rights for or on behalf of the payee).37 The
essence of the payment is that the payer does an act that causes the payee’s net asset
position to be increased by a known amount, and that the payee recognises this as a
deliberate act of the payer to deliver value to the payee.
This may be more easily illustrated by way of an example. Before the transaction,
the payer owes the payee 500. Instead of tendering cash to repay this, the payer
wishes to cause rights worth 500 to be vested in the payee, and for the payee to
understand this to be the positive act of the payer and to accept this as good
payment. Provided they both recognise this as a payment, it is a payment. Payment
is as payment does (so to speak).
III RECENT CASES AND LEGISLATION
While the above analysis may appear to reflect a sensible economic understanding,
it is not always reflected in our legal regime. Recent cases and legislative changes
demonstrate this complexity. Over the last decade, a couple of key cases have
challenged our legal understanding of and approach to payment facilities.
A R v Preddy38
Preddy and others were accused of obtaining funds from a Building Society by
deception. They applied for loans, and in doing so gave the lender material false
information. The Building Society approved them and told its bank to transfer
35
It is the acceptance by the payee of the payment tendered that makes the payment an effective
discharge of the existing debt.
36
Eg, effect a purchase or store value.
37
For example, to effect a payment, the payer could cause a third party to hold on trust valuable
property, such as a painting or precious metals, for the benefit of the payee.
38
R v Preddy [1996] AC 815.
What a Payment Is (and How it Continues to Confuse Lawyers) 195
money to Preddy’s account with another bank. The evidence was that the borrowers
falsely stated their position and were unlikely to have received the loans otherwise.
When the scheme was detected, Preddy and his associates were prosecuted. Preddy
was accused of breaching s 15 of the Theft Act 1968, obtaining property by
deception. It states:
(1) A person who by any deception dishonestly obtains property belonging to
another, with the intention of permanently depriving the other of it, shall on
conviction on indictment be liable to imprisonment for a term not exceeding ten
years.
…
(4) For purposes of this section ‘deception’ means any deception (whether deliberate
or reckless) by words or conduct as to fact or as to law, including a deception as to
the present intentions of the person using the deception or any other person.
For this offence to have been committed, Preddy had to have obtained property
previously belonging to another. Did Preddy actually obtain property belonging to
the victim?
What Preddy obtained was an increase to his bank balance caused by instructions
given by the Building Society, and causally linked to a reduction in the balance of
the Building Society’s own bank account. Preddy was certainly enriched by the
scheme, and the net wealth of the Building Society was reduced. But was it a theft
of property?
The Court applied a conventional banking law analysis, and held that no property
belonging to the Building Society was obtained from it. Instead, Preddy obtained
new property rights as against his own bank to the value of the loan monies
advanced. New rights were created, existing rights were not stolen. The court held
that the Building Society’s account balance with its bank was intangible property (a
chose in action). However, in making a payment this item of intangible property
was not transferred to the payee (Preddy). The Court held,
… when the bank account of the defendant … is credited, he does not obtain the
lending institution’s chose in action. On the contrary that chose in action is
extinguished or reduced pro tanto, and a chose in action is brought into existence
representing a debt in an equivalent sum owed by a different bank to the defendant
….39
The court found that Preddy had not breached s 15. He had not stolen another
person’s property, at least not literally. His actions were clearly wrongful, but a
39
Per Goff LJ, 534.
196 MqJBL (2005) Vol 2
criminal statute aimed at conventional property offences did not prohibit them.40 As
to be expected, this decision aroused considerable concern in the banking and wider
community.
Following the Court of Appeal’s decision in Preddy, a number of questions of law
were put to the House of Lords.41 They confirmed that in circumstances such as
those in Preddy, obtaining of a funds transfer does not involve obtaining property
belonging to another person (but rather property newly created or varied).42
Australian courts have come to similar conclusions on the fundamental issue of
whether causing the reduction in a person’s bank balance is theft in the
conventional sense: Croton v R.43
B Reforms Leading to Section 15A
Following the Preddy case, reference was made to the Law Commission for
England and Wales regarding possible amendments to the Theft Act. This resulted
in Law Commission Report 243.44 The Commission stated, ‘[a]s a result of the
decision in Preddy, it is now difficult to prosecute an individual who obtains by
deception any form of payment by any form of banking transfer’.45
The Commission considered various possible approaches to filling the ‘lacuna in
the law of deception exposed by Preddy’.46 These included extending the offences
of ‘conspiracy to defraud’ and ‘obtaining a pecuniary advantage by deception’.47
Through the consultation process, some suggested that what was needed was an
amendment to the definition of ‘property’ for the purposes of the offence
provisions. However, the Commission concluded that the core issue was that a
wrongful funds transfer, as discussed earlier, does not actually involving the
recipient obtaining property previously owned by the victim.
… as we understand Preddy, it did not involve any narrowing of the concept of
property: it merely decided that the transfer of funds from one account to another
cannot be described as an obtaining, by the holder of the account credited, of the
same property as that lost by the holder of the account debited. This appears to us to
be a problem arising from the requirements of section 15(1), not from the concept of
property.48
40
A civil action, under the tort of deceit, was presumably still an option. However, if the
defendant had disposed of the monies and did not have significant assets, the civil action may
not be a particularly attractive option.
41
[1996] 3 WLR 255.
42
[1996] 3 WLR 255, 265B.
43
(1976) 117 CLR 326.
44
Law Commission Report ‘Offences of Dishonesty: Money Transfers’ (1996)
http://www.bailii.org/ew/other/EWLC/1996/243.html, accessed 18 December 2004.
45
Ibid para 1.7.
46
Ibid Part II.
47
Ibid paras 3.38 and 3.41.
48
Ibid para 4.4.
What a Payment Is (and How it Continues to Confuse Lawyers) 197
The Commission also took the view that, ‘[a]ll the existing deception offences
require that the defendant should dishonestly procure a specified result by
deception, and the new offence should clearly take the same form. ...’49 As will be
seen later, this requirement of the deception of a second person, in the context of
computerised crime, has proven problematic. However, the logic of the new
provision was sound, based as it was on the correct understanding that, ‘[t]he
essence of a money transfer is the debiting of one account and the making of an
associated credit to another’, rather than the taking of another person’s property.
Amongst other things, the Commission recommended ‘the insertion into the Theft
Act 1968 of a new s 15A, creating an offence of dishonestly obtaining a money
transfer by deception25’.50 This was adopted and the new s 15A (in substantially
similar form to that set out in Appendix A to the Commission’s report) is below.
(1) A person is guilty of an offence if by any deception he dishonestly obtains a
money transfer for himself or another.
(2) A money transfer occurs when –
(a) a debit is made to one account,
(b) a credit is made to another, and
(c) the credit results from the debit or the debit results from the credit.
…
(4) It is immaterial (in particular) –
(a) whether the amount credited is the same as the amount debited;
(b) whether the money transfer is effected on presentment of a cheque or by
another method;
(c) whether any delay occurs in the process by which the money transfer is
effected;
(d) whether any intermediate credits or debits are made in the course of the
money transfer;
(e) whether either of the accounts is overdrawn before or after the money transfer
is effected …
Deception has the same meaning as in s 15 (quoted earlier).51 Section 15A
recognises that a fraudulently obtained funds transfer is not theft in the normal
sense. Instead, it is fraudulently inducing the victim to dispose of some of their
property and causing them to indirectly vest in the offender new property rights.
Section 15A is a substantial improvement on the prior position, and will proscribe
many forms of payment facility fraud. However, as the Holmes case below shows,
there are still some material shortcomings with the current provision.
49
Ibid para 5.2.
50
Ibid para 4.11.
51
Ibid s 15B(2).
198 MqJBL (2005) Vol 2
C Holmes52
The Holmes case concerned important principles of banking law, and the
interpretation of the new s 15A. Holmes, while working for a German bank
(Commerzbank Aktiengesellschaft AG (CAAG)), obtained passwords giving access
to the SWIFT53 payment communications network. He used those passwords to
initiate funds transfers to his account with a Dutch bank, ABN Amro Bank. The
funds transfers were for the sum of 15 million.
ABN Amro credited Holmes’ account conditionally, requesting confirmation from
CAAG before finalising the payment.54 Using the passwords he had already
obtained, Holmes accessed CAAG’s system and confirmed the transfer on CAAG’s
behalf. ABN Amro then proceeded to finalise the payment and it became
unconditional. Holmes withdrew the funds but was later arrested. He was being
held in Brixton Prison while extradition proceedings were taking place, and the
habeas corpus claim dealt with whether the alleged conduct would have been
prohibited under English law.
The Court considered the new ‘obtaining a funds transfer by deception’ offence.55 It
had to examine whether the conduct of Holmes involved the deception of another
person, amongst other things. Holmes argued that his conduct did not involve the
deception of any person. He had entered the appropriate passwords; the system had
been given instructions and had followed them as it was programmed to do. His
counsel argued that there was no sense in which Holmes could be said to have
deceived his bank’s computer system, and no other relevant actor at CAAG was
involved.
It was suggested that officers of ABN Amro were deceived by the confirmation.
The Court held that the request for and the provision of the confirmation (caused by
Holmes) involved a deception. Holmes used the computer system of CAAG to
deceive the officer of ABN Amro that read the confirmation Holmes caused to be
sent. The officer, after receiving the confirmation, finalised the payment (ie,
removed its conditional status). Holmes’ counsel argued that the request for and the
confirmation given was after the payment had taken place. However, consistent
with existing case-law, the court held that payment was not complete until the
condition was removed and therefore the deception took place in the course of the
payment transaction.56
52
R (Holmes) v Brixton Prison Governor [2004] EWHC 2020.
53
The Society for Worldwide Interbank Financial Telecommunications (SWIFT). See
www.swift.com.
54
Presumably ABN Amro requested the confirmation due to the unusual circumstances (eg, the
large international funds transfer to a private citizen).
55
Ibid s 15A.
56
Momm v Barclays Bank [1977] QB 790.
What a Payment Is (and How it Continues to Confuse Lawyers) 199
D A Slight Variation
The Holmes case is an example of the new offence effectively proscribing what was
clearly a fraudulent course of conduct. However, but for the request for and
provision of a confirmation, it appears that the legislation would not have prohibited
the conduct. This may be more easily demonstrated by a hypothetical example
based on the Holmes’ scenario with one important variation.
Suppose in the Holmes case, after ABN Amro received the payment instruction and
underlying funds it simply credited Holmes’ account (as it was probably quite
entitled to do).57 The payment would have been complete and Holmes would have
had a present entitlement to the funds from the time they were credited to his
account.58 In the author’s view, in this alternative scenario following the reasoning
in the Holmes case, there would not have been a breach of s 15A. However, the
conduct would still have been clearly fraudulent.
This, of course, assumes that the court would again find that the ‘deception’ of
CAAG’s computer system was not a relevant deception for the purposes of s 15A.
In one sense, it could be argued that the computer system was deceived in that it
was ‘tricked’ into following the instructions of a person who was not authorised to
give them. It is probably more accurate to say that the instructions, while given
without authority, were properly given for the purposes of the computer system and
did not actually deceive in any meaningful way that computer system.59
IV THE CURRENT PROVISIONS STILL DO NOT WORK (AND SOME POSSIBLE
SOLUTIONS)
A What is Not Working?
The core logic flowing through the English provision still appears to be one of
fraudulently obtaining property or something similar by deceiving another. While
this is understandable for historical reasons, it does not capture all forms of
fraudulent funds transfers.
The legislation needs to focus on the end result, not the means. The crime is not so
much the causing of a funds transfer by deceiving another, but the causing of
changes in people’s monetary and economic rights without the right or entitlement
57
Ie, without requesting a confirmation.
58
Geva, above n 7, 270; Momm v Barclays Bank [1977] QB 790.
59
Arguably the owner or operator of the computer system may have been deceived, but the
courts do not seem to have followed this approach. The computer system was designed to
operate on the basis of certain passwords and it did so. The system itself was not designed or
expected to test whether the person entering the correct passwords and initiating transactions
had the bank’s authority to do so.
200 MqJBL (2005) Vol 2
to do so. It is a fraudulent acquisition of an increased monetary balance vis-à-vis a
financial intermediary which is the illegal end achieved by this behaviour.
The post-Preddy formulation (s 15A) is clearly an improvement. It focuses on the
transfer of funds rather than of property. However, it still focuses the court’s
attention on deceiving a person.
In practice, the funds transfer system is largely automated and computerised.
Arguably these types of crime are something better characterised as computer-crime
than conventional deceit. Computer crimes, due to their unique characteristics, may
need to be dealt with in separate legislation to conventional deceit and fraud crimes.
Furthermore, as Holmes showed, the act complained of may be more one of
dishonesty rather than deceit. It is the dishonest gaining an increased balance (the
end) rather than the deceit of the players involved that is crucial.
B Possible Solutions
Consideration should be given to reformulating the offence to be one of dishonestly
obtaining monetary rights. Three possible approaches are outlined below. The first
two are revisions of the existing offence. The third and most ambitious one is a
reformulation of the offence.
The most straightforward approach would be to amend the provision as follows:
(1) A person is guilty of an offence if by any deception he dishonestly obtains a
money transfer for himself or another.
Removing the concept of ‘deception’ would avoid the problem highlighted in the
Holmes case of the need to identify a person who has been deceived to demonstrate
the offence has occurred. However, it may raise concerns in that it by removing the
‘deceit’ pre-condition, it leaves the scope of offence provision too open-ended.60
A variation on this approach would be to add a further subsection to the existing s
15A to the effect that (for the avoidance of doubt) the deception of any person,
including a body corporate, satisfies subsection (1). It would need to go on to state
that a person may be deceived if a system or procedure that they have established
and control is deceived. This could be contained in the general crimes legislation or
in stand-alone computer crimes legislation.
For example, at the risk of some artificiality, the provision could state that
deception includes inducing a system, procedure or routine (including a computer
system) to do any act or omit to do any act in circumstances where the actor does
not have the authority to do so. This is analogous to the NSW approach. In NSW,
the relevant provision is as follows:
60
Ie, that the offence may have an undesirably wide scope, catching more conduct than intended.
What a Payment Is (and How it Continues to Confuse Lawyers) 201
(1) Whosoever by any deception dishonestly obtains for himself or herself or
another person any money or valuable thing or any financial advantage of any
kind whatsoever shall be liable to imprisonment for 5 years.
(2) In subsection (1):
deception means deception (whether deliberate or reckless) by words or conduct as
to fact or as to law, including:
(a) a deception as to the present intentions of the person using the deception or of
any other person, and
(b) an act or thing done or omitted to be done with the intention of causing:
(i) a computer system, or
(ii) a machine that is designed to operate by means of payment or
identification,
to make a response that the person doing or omitting to do the act or thing is not
authorised to cause the computer system or machine to make …61
A third approach would be to reformulate the existing provision to focus instead on
causing a money transfer (using the present definition in s 15A(2)) without
authority. Instead of deception, in the author’s view appropriate ‘mental element’
would be acting without the authority of the person whose balance is directly or
indirectly reduced62 (or of any other person who has the authority to cause such a
reduction) by the funds transfer.
By way of illustration only, some tentative drafting of a possible offence is set out
below. The existing subsection 15A(2) is repeated below for convenience.
(1) It is an offence if a person causes a money transfer in circumstances where
they do not have the authority of the holder of the account debited (as
described in subsection (2)) to do so or of another person who does have the
authority to authorise the transfer.
(2) A money transfer occurs when—
(a) a debit is made to one account,
(b) a credit is made to another, and
(c) the credit results from the debit or the debit results from the credit.
Clearly, the above drafting would need further work and analysis. For example,
definitions of holder and account may be required.63 However, the suggested
wording shows that a ‘wrongful funds transfer’ offence can be designed by
61
Crimes Act 1900 (NSW) s 178BA.
62
Or whose negative balance (overdraft) is increased.
63
This is to ensure it covered securities clearing systems, stored value cards and other non-
conventional payment facilities.
202 MqJBL (2005) Vol 2
reference to acting without proper authority, rather than circumstances involving
deception.64
V SUMMARY AND CONCLUSION
As the discussion above has shown, the conceptual basis of modern payment
facilities is the movement of wealth or buying power by the variation in people’s
balances with financial intermediaries. Causing the movement in a person’s balance
with their bank is the traditional way in which a payment by funds transfer takes
place.
Cases such as Preddy and Holmes show the difficultly in constructing a workable
criminal offence provision to address situations of fraudulent electronic funds
transfers. Section 15A, implemented following the Preddy decision, is a
considerable improvement on the original position. However, as this article has
shown, in the author’s view further refinement is needed. Three possible approaches
to addressing the weakness in the current provision have been discussed above,
including some tentative drafting. Hopefully, this article may be a useful
contribution to the debate and assist the process of further refining this area of the
law.
64
This also has the advantage of being a technology-neutral approach, as it does not need to refer
to paper or computer-based systems, and should be able to cater for new systems developed in
the future.
