State v Donigi (No 1) [2024] PGNC 278; N10947 (6 August 2024)

N10947

PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]

CR (FC) 29 OF 2024

BETWEEN:
STATE

AND:
EMMANUEL DONIGI
(No 1)

Waigani: Wawun-Kuvi, J
2024: 9^th & 10^th July, 6^th August

CRIMINAL LAW- TRIAL-MISAPPROPRIATION, s 383A(1)(a)(2)(d) of the Criminal Code-TRUST- LAWYERS TRUST ACCOUNT-CONVEYANCING-PURCHASER’S DEPOSIT-Whether accused misappropriated money held in trust?

Cases Cited

Kaya v State [2020] PGSC 145; SC2026
Wartoto v The State (2019) SC1834
Havila Kavo v The State (2015) SC1450
Davinga v The State [1995] PNGLR 263

Legislation

Criminal Code Ch 262
Lawyers (Trust Account) Regulation 1990

Counsel

J Batil, for the State
D Kayok, for the accused

DECISION

6^th August 2024

1. WAWUN-KUVI, J: Emmanuel Donigi (accused), a 41-year-old lawyer, has been accused of dishonesty in a land sale transaction. It all started when Moses H. Yuti advertised a piece of land for sale for K400,000.00. Nickson Kunjil (complainant) responded to an advertisement and expressed his interest in purchasing the land. The complainant paid a 10% deposit of K40,000 into Ama Wali Lawyers' trust account with the Bank of South Pacific Limited.
   
2. The accused, representing both parties, drafted the contract of sale. However, the sale didn't go through, as Moses H. Yuti failed to produce a copy of the land title. The complainant became frustrated and rescinded the agreement, requesting the return of his K40,000 deposit. Despite repeated requests, the accused did not return the deposit, leading the complainant to report the matter to the police. Subsequently, the accused was arrested and charged. He is now charged with one count of misappropriation under s 383A(1)(a)(2)(d) of the Criminal Code.
   
3. During the trial, the complainant claimed the money would remain in the trust account until Moses H Yuti produced the land deed or title. Then, he would transfer the balance of the purchase price. He did not give consent for the use of the deposit.
   
4. The accused stated that he used the money to settle encumbrances, claiming it was a practice common in conveyancing law. Additionally, the complainant had consented to use the funds.
   
5. The question for determination is whose account of the events is believable?

Burden of Proof

6. The onus is on the prosecution to prove its case beyond reasonable doubt and to negate any defences properly raised on the evidence beyond reasonable doubt.

Evidence

7. The prosecution called the complainant and tendered several documents exhibited as S1 to S43 with consent from the defence. The defence called the accused and tendered several documents exhibited as D1 to D4 without objection.

Issues

8. The facts of the case are mostly undisputed. The accused admitted to withdrawing K40,000 but claims he used the money to settle encumbrances. The issue at hand is whether the accused misappropriated the K40,000. This determination hinges on addressing the following questions:
   1. Does the contract specifically provide for a 10% deposit, and if so, what are the details?
   2. What are the legal obligations regarding a lawyer’s trust account? What do they entail?
   3. Was verbal permission given by the complainant to the accused to withdraw the funds from the trust account?
      

Does the contract provide for a 10% deposit and if so, what does it say?

9. The defence consented to the tender of the contract of sale and the record of the police interview (ROI) into evidence. The consequence under s 589 of the Criminal Code is that no further proof of the matters contained in those documents is required: See Davinga v The State [1995] PNGLR 263.
   
10. Since there is no dispute, I accept that the contract is the agreement between Moses H. Yuti as the vendor and the complainant as the purchaser. In line with this position, the contract would reflect the parties' position on a deposit, the percentage and its application. Additionally, since the accused was the lawyer responsible for reducing their agreement into writing, the express provisions relating to the deposit will reveal whether he had the authority or permission to use the deposit from the purchaser.
    
11. It follows that it becomes necessary to examine the contract and its terms concerning the deposit.
    
12. Clause 3 of the contract of sale provides:
    

“(a) The Purchaser shall upon the signing of this Contract pay as a deposit to the Vendor or Vendor’s Lawyers or another nominated party to be held by them as stakeholder (“the Stakeholder”) the sum set out in Item 8 of the Schedule hereof (“the Deposit”) which shall vest in the Vendor upon and by virtue of completion.

(b) Pending completion, the Stakeholder may place the Deposit on interest bearing account with a Bank or other institution licensed to carry on banking business in Papua New Guinea. The interest which accrues on the Deposit shall be dealt with as follows:-

(i) If the Deposit is forfeited to the Vendor all interest shall be paid to the Vendor.

(ii) If the Contract is terminated all interest shall be paid to the innocent party.

(iii) If the Contract is rescinded the interest shall be paid to the Purchaser.

(iv) If the Contract is completed, all such interest shall be paid to the Vendor.

(c) The Deposit may be paid by cheque but if the cheque is not honored on presentation the Purchaser shall immediately and not without notice be in default under this Contract.

13. Item 8 provides:
    

“Item 8: The Deposit

K40, 000”

14. Clause 13 specifies that the deposit will be forfeited to the vendor if the purchaser fails to fulfil any obligations in the contract.
    
15. Clause 15 states that where the property is adversely affected the deposit and monies received by the vendor on account of the purchase price shall be returned to the purchaser.
    
16. Clause 17(a) states:
    

“If this Contract is rescinded (as distinct from terminated) pursuant to any express right to rescind (as distinct from the right to terminate) conferred by this Contract the recission shall be deemed to be a rescission ab-initio, and: -

(a) the Deposit and all interest which has been accrued on the deposit and any other money paid by the Purchaser hereunder shall be refunded to the Purchaser;”

17. Clauses 3, 13, 15 and 17 are the only express clauses that govern the deposit. None of them give authority or permission to the accused, his family members or any employee of Ama Wali Lawyers to withdraw the deposit and use it whether to settle encumbrances or otherwise. Relevantly, clause 15(g), addresses the issue of encumbrances. It states “Should it be established before the completion that at the date of this Contract: - (g) the Vendor does not have, or cannot on the completion date deliver, unencumbered registered title to the Property;..”......the Purchaser may by writing to the Vendor terminate this Contract in which even the Deposit and monies received by the Vendor on account of the Purchase Price shall be refunded to the Purchaser by the Vendor....”. The clause demonstrates that the agreement is that the vendor is obligated to deliver an unencumbered registered title to the complainant, failing which, the complainant as the purchaser, is entitled to have his deposit refunded.

What are the legal obligations regarding a lawyer’s trust account? What do they entail?

18. The accused is a lawyer and was employed by Ama Wali Lawyers. He acted for both parties. As per clause 3 of the contract for sale, the deposit was to be paid by the purchaser to the lawyer, which the purchaser did.
    
19. As such, the use and withdrawal of the deposit is governed by the Lawyers (Trust Account) Regulation 1990.
    
20. The relevant sections are ss 4 and 6.

Section 4 provides:

“4. WITHDRAWAL OF MONEYS FROM TRUST ACCOUNTS.

(1) There may be withdrawn from a trust account–

(a) money properly required for payment to or on behalf of a client; and

(b) money properly required for reimbursement of money expended by the lawyer on behalf of a client; and

(c) money drawn on a client’s written authority; and

(d) money properly required for or towards payment of the lawyer’s costs where there has been delivered to a client a bill of costs; and

(e) money which is transferred into another trust account; and

(f) money properly required for a payment in the execution of a particular trust; and (g) money to be transferred to a separate bank account kept solely for the money of a particular trust; and (h) such money, not being money to which Paragraphs (a), (b), (c), (d), (e), (f) or (g) apply and paid into the account under Section 3(3)(a); and

(i) money which for any reason may have been paid into the account in contravention of Section 3(5),

but in any case under this section the money so drawn shall not exceed the total of the money held for the time being in the account on account of the client or trust.

(2) No money drawn from a trust account under Subsection (1)(b),(d),(h) or (i) shall be drawn except by– (a) a cheque drawn in favour of the lawyer; or (b) a cheque to a bank account, not being a trust account in the name of the lawyer.

(3) No money other than money permitted by Subsection (1) to be drawn from a trust account shall be drawn from a trust account except in accordance with this Regulation.

[Emphasis in bold mine]

21. The claim by the accused is that the deposit was withdrawn to settle encumbrances. Since s 4(3) mandates that all withdrawal of money from a trust account must be done according to the Lawyers (Trust Account) Regulation 1990, it becomes necessary to determine whether the withdrawal of the deposit from Ama Wali Lawyers trust account was in accordance with the said Regulation.
    
22. Given the circumstances of the case, the withdrawal was only permitted under either ss 4(1)(a) or (1)(c). That is, either there was written consent, or the withdrawal was properly required for payment on behalf of a client.
    
23. Here it is incontrovertible that there was no written authorization from the complainant.
    
24. It follows that the only question here is whether section 4(1)(a) permits the accused to withdraw the money. The crucial phrase is "properly required for payment on behalf of a client." As per the contract of sale, the accused, acting as the parties' lawyer, held the deposit belonging to the complainant in trust until settlement. The contract governs the rights and liabilities of the parties. For the withdrawals to be considered as properly required and on behalf of the client, the contract must specify circumstances. As discussed in this decision earlier, the contract does not authorise the use of the deposit to settle encumbrances.
    
25. It follows that the withdrawal of the deposit by the accused and others for the purposes of settling encumbrances as claimed was not permitted by the Lawyers (Trust Account) Regulation 1990 on two fronts (1) there was no written consent and (2) it was not a payment on behalf of a client, i.e., the complainant as per the contract.
    
26. Section 6 of the Regulations requires a lawyer to maintain documentation in the management of a trust account. It states:
    

“6. DOCUMENTS REQUIRED TO BE KEPT BY LAWYER.

(1) Subject to Subsection (4), a lawyer shall keep or cause to be kept at the place he carries on business or practice–

(a) a receipt book; and

(b) a bank deposit book; and

(c) a receipts cash book and payments cash book; and

(d) a trust ledger; and (e) a trust cheque book; and

(f) trust ledger trial balance statements; and

(g) a trust journal; and

(h) bank statements of a trust account.

(2) The bank deposit book, trust ledger and trust journal shall be used only in relation to moneys received, held or disbursed by the lawyer for or on behalf of any person.

(3) All trust records shall be retained for a period of seven years after the last entry has been made therein.

(4) Notwithstanding the foregoing, the method of accounts recording and reporting may be varied to accord with changes in technology as long as there is substantial compliance with trust accounting principles and the accountant in giving his report under Section 13(3) is satisfied that the method of trust accounts recording is such as to enable the accountant properly to inspect and report on the trust account records maintained by the lawyer.

27. Since the money was coming out of the trust account any one of the documents specified under s 6 would have established that the funds were being applied to encumbrances. The law firm is a family firm. However, the accused who claims that the monies were applied to settle encumbrances, cannot provide a single receipt or record showing how the money was expended. This is inconsistent with the requirements of the Regulations.
    
28. Finally, section 4(1) is mandatory and states that the deposit by the client must not be depleted. There was no money in the account and the accused admits that all the money was withdrawn. This was in violation of the Regulation.

Did the complainant give verbal consent for the withdrawal of the deposit?

29. The complainant says that he did not give consent to monies to be taken out of the trust account. The accused says that the complainant gave his consent.
    
30. The complainant’s version is believable because it is consistent with the contract of sale and the law. If the complainant was aware of encumbrances and that he was required to settle them, that would have been stated in the contract of sale or indicated in writing. The complainant is a person employed with the Bank of Papua New Guinea responsible for Savings and Loans Societies and the accused is a lawyer, it is illogical that any consent involving use of trust account funds would have been given verbally.

Assessment of Credibility

31. Considering the foregoing matters, I proceed to assess the complainant and the accused’s creditability.
    
32. Regarding the complainant, I consider him to be a truthful witness. His evidence was straightforward and consistent with the contract exhibited as S34 and the general evidence. His evidence was not discredited in cross-examination.
    
33. I do not find the accused to be a witness of truth for the following reasons:
    1. He is a lawyer. He drafted the contract exhibited as S34 between Moses H Yuti and the complainant. His evidence is inconsistent with the contract and the law governing lawyers’ trust accounts.
    2. He voluntarily signed a Deed of Settlement acknowledging that he had to repay the deposit.
    3. The complainant says that he did not see a copy of the title deed and that was the reason he did not pay the balance. The accused vaguely says that a copy was shown. This is inconsistent with his continued statements in evidence that the title file was lost at the Department of Lands and Physical Planning and that was the cause of the delay.
    4. In his police interview contained in the Record of Interview and during the trial he attempted to distance himself from having any prior knowledge of the subject land. He specifically stated at question 24 of the Record of Interview “I had no prior knowledge of the property; I had no intention to collaborate with him to sell the property”. He is contradicted by his own evidence. The Contract of Sale between Moses H Yuti and the National Housing Corporation exhibited as “D3” over the subject land was witnessed by him. That Contract of Sale was signed on 3 June 2020. The complainant only showed interest in the subject land on or about January of 2022.

The Elements

34. The prosecution is required to prove:
    1. The Application
    2. To own use or the use of another
    3. Property
    4. Belonging to another
    5. Dishonesty
       

See Havila Kavo v The State (2015) SC1450 and Wartoto v The State (2019) SC1834

35. The only issue as identified is whether the accused was dishonest in the application of the deposit.

Was the application dishonest?

36. The test of dishonesty is subjective but the standard of dishonesty 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.
    
37. The accused is a lawyer, the question is whether objectively according to the standards of other lawyers and others in the legal profession whether his conduct was dishonest. The following conduct by the accused demonstrates that he was not honest because other people observing the conduct would not view it as being honest:
    1. He made and caused withdrawals from the trust account without written instructions from the client contrary to section 4(1)(c) of the Lawyers (Trust Account) Regulation 1990.
    2. He withdrew from the trust account inconsistent to the contract for sale drafted by himself.
    3. He did not keep any records of the monies disbursed from the account contrary to section 6 of the Lawyers (Trust Account) Regulation 1990.
    4. He continued to make cash withdrawals until the account was depleted contrary to section 4(1) Lawyers (Trust Account) Regulation 1990 which requires that withdrawals shall not exceed the amount held.
    5. He acknowledged responsibility prior to arrest and signed a Deed of Settlement agreeing to repay the deposit but did not until the date of trial.
       
38. I am satisfied that he was dishonest according to the objective standard of honest and reasonable members of his profession and his community. I am also satisfied that considering the accused level of education and background, he must have known that his conduct was dishonest according to those standards.

Bona Fide Claim of Right

39. Given the above statements by the accused, it is necessary to address the issue of bona fide claim of right. It is a defence under section 23(2) of the Criminal Code which applies to property, here money, where an accused claims that his actions were done without fraudulent or dishonest intent.
    
40. Section 23(2) 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 defraud.

41. The Supreme Court in Wartoto v The State (2019) SC1834 and later in Kaya v State [2020] PGSC 145; 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: see Potape v State [2015] PGSC 84; SC1613, John Jaminan v The State (No 2) [1983] PNGLR 318) and Magr v R [1969-70] PNGLR 165.
    3. The claim must be honest. It does not need to be reasonable: see Tiden v Tokavanamur-Topaparik [1967-1968] PNGLR 231 and Sebulon Wat v Peter Kari [1975] PNGLR 325)
    4. However, a claim that is unreasonable is less likely to be believed as being genuine or honest: see Kaya v State [ 2020] PGSC 145; SC2026 and State v Simon [2020] PGNC 18; N8183.
    5. The claim must be for a legal entitlement and not a moral entitlement: see Kaya v The State (2020) SC2026 and The State v Felix Luke Simon (2020) N8183.
    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^[1] or convincing and the State was unable to disprove: See example of which is in the cases State v Henry Gorea [1996] PNGLR 141 and R v Hobart Magalu [1974] PNGLR 188
    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.
       
42. Given the findings on the element of dishonesty in the preceding paragraphs, I can only add that it is difficult to accept that the accused’s claim to use the monies was honest. He is a lawyer by profession and a senior one at that and the monies were always trust monies. His answers were inconsistent with his professional duties under the Lawyers’ (Trust Account) Regulation 1990 and the Contract of Sale in which he was responsible for drafting. There was nothing that entitled him to deal with the monies.
    

Conclusion

43. I am satisfied that the prosecution has proven the elements of the charge of misappropriation beyond a reasonable doubt.
    
44. A verdict of guilty to the charge of misappropriation under section 383A(1)(a)(2)(d) of the Criminal Code is returned.
    

Orders

45. The Orders of the Court are as follows:
    1. The accused is found guilty and convicted of the charge of Misappropriation under section 383A(1)(a)(2)(d) of the Criminal Code.
    2. A Pre-Sentence Report contained within in a means assessment report is ordered and shall be made returnable on 22 August 2024.
    3. The State shall submit a Victim Impact Statement to assist in sentencing.
    4. Bail is granted under section 10 of the Bail Act on the same conditions on which bail was previously granted.
    5. The matter shall return on 22 August 2024 at 9.30 am for submissions on sentence.

________________________________________________________________
The Public Prosecutor: Lawyer for the State
The Public Solicitor: Lawyer for the Defence

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