WHAT A PAYMENT IS (AND HOW IT CONTINUES TO CONFUSE LAWYERS) RHYS
WHAT A PAYMENT IS (AND HOW IT CONTINUES TO CONFUSE LAWYERS) RHYS ...
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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  AC 815. 4 R (Holmes) v Brixton Prison Governor  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  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  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  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  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  1 AC 102. 30  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  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  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  3 WLR 255. 42  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  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  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  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.
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