Napoli v R.

Supplementing Article 2(1)(b), Article 2(2) of the 2001 Business Order provides that in determining whether deposits are accepted only on particular occasions:

“…regard is to be had to the frequency of those occasions and to any characteristics distinguishing them from each other”.

It is to be noted that Article 2(2) does not offer a comprehensive definition, but merely two factors to be taken into account. In SCF v. Masri (No.2) (see paragraph 9 above) the Court of Appeal held that the brokers were accepting deposits only on particular occasions, namely those on which they thought it necessary or advisable for their own protection to demand a deposit. However, in FSA v. Anderson (see paragraph 7 above) Lewison J. pointed out that the Court of Appeal in the Masri case was considering legislation which was different from the 2000 Act, and which did not contain the guidance on the meaning of “particular occasions” now to be found in Article 2(2) of the 2001 Business Order.

It was accepted on behalf of the Respondent to this appeal that it was for the prosecution at the appellant’s trial to prove Article 2(1) of the 2001 Business Order did not apply in his case. This required the prosecution to prove to the criminal standard either (a) that the appellant did hold himself out as accepting deposits on a day to day basis or (b) that any deposits he accepted were not accepted only on particular occasions. We express this in the alternative because Article 2(1) requires both conditions (a) and (b) to be satisfied before accepting deposits is not to be regarded as being done by way of a business. It must follow that if the prosecution were able to prove that one of the conditions did not apply in this case, then Article 2(1) would not avail the appellant. It would, however, still be necessary for the prosecution to prove, in order to prove the offence charged, that the appellant accepted or purported to accept deposits by way of business.

Finally, section 418(1) and (5) of the 2000 Act, read together, provide that a person who is carrying on a regulated activity but would not otherwise be regarded as doing so in the United Kingdom is to be so regarded where his head office is not in the United Kingdom but the activity is carried on from an establishment maintained by him in the United Kingdom.

Before we turn to consider the evidence in the case, it is necessary to explain that during the relevant period the appellant was the chairman of a corporation based in Alameda, California named JFN Project Consultants Inc (“JFN Inc”). The appellant was also the director and 100% shareholder of a company based in the United Kingdom named JFN Project Consultants Limited (“JFN Limited”) of which the co-defendant John James was the secretary from 25^th April 2003 to 15^th November 2003.

We now turn to the two deposits of money which the appellant agreed he had accepted during the relevant period. The first was a deposit of $1million received by JFN Inc from VHF Trading Limited (“VHF”). VHF was a company registered in the United Kingdom. Fonseka and James were both directors of VHF. The prosecution’s case was that this deposit consisted of or represented some of the proceeds of the offences of deception committed by Fonseka and James to which we have already referred. Indeed the appellant was charged in the Indictment with an offence of money laundering in this regard. However, the jury were unable to agree on a verdict on that count, and the prosecution subsequently offered no further evidence. This deposit of $1million was made pursuant to an agreement dated 10^th June 2002 entitled “Inter-Party Private Agreement”. The agreement was signed on behalf of JFN Inc by the appellant and by one Johannes Kriel who was a director of JFN Inc; and on behalf of VHF by John James. The deposit made by VHF was paid into a bank account in the name of JFN Project Consultants at a branch in Adelaide of the National Australia Bank. The address for the receipt of communications by JFN Inc was given as “JFN Project Consultants, The Willows, 57 Old Hadlow Road, Tonbridge, Kent…”. This address was given by the appellant as his own in a curriculum vitae found on his computer, to which we will come later, and when he was later interviewed by the police. We will refer to it as “the Tonbridge address”. Clause 13 of the agreement provided that it should be governed by the laws of Torrance, California. The agreement like all of the actual, draft and specimen agreements to which we will be referring later, made provision for the later repayment of the monies deposited, together with interest, the details of which it is and will be unnecessary to set out. We will refer to this agreement as “the VHF agreement”, and to the deposit as “the VHF deposit”.

The second was a deposit of £625,000 received by JFN Inc from Mrs Swamapali Timmann of St. Albans. It was made pursuant to an agreement dated 15^th January 2004. Though there were some differences, the general form of this agreement was very similar to that of the VHF agreement. For example, both agreements were headed “Inter-Party Private Agreement”; both began with various recitals, of which the first in both agreements was that the depositor had provided or would provide “…funding for a private transaction for and on behalf of JFN in an amount satisfactory to JFN”; following the recitals both agreements made provision for repayments of the sum deposited together with interest; both went on to provide for various indemnities in favour of JFN; and clauses 2 to 16 of each agreement were headed in and substantially worded in the same way.

The agreement with Mrs Timmann specified four different bank accounts, all in England, to be used for repayments to Mrs Timmann. In relation to JFN Inc the banking details provided referred to an account in the name of JFN Limited at HSBC’s branch in Oxford Street, London. Interviewed by the police on 17^th September, 2007 the appellant accepted that Mrs Timmann’s money “went into the UK bank account”. The address given for the receipt of communications by JFN was again the Tonbridge address. Clause 13 provided, as in the VHF agreement, that the agreement should be governed by the laws of Torrance, California. We will refer to this agreement as “the Timmann agreement”, and to the deposit as “the Timmann deposit”. An unsigned version of the Timmann agreement was later recovered from the appellant’s computer.

Although these deposits were accepted by the American Corporation JFN Inc, it was conceded at the trial that because both the VHF and Timmann agreements specified the Tonbridge address as that to which communications to JFN Inc should be sent, the acceptance of these deposits fell within the ambit of the 2000 Act by virtue of section 418(1) and (5) to which we referred earlier.

The prosecution’s evidence was by no means confined to that relating to the VHF and Timmann deposits. Amongst other things, the prosecution relied on the evidence of a number of further documents found on the appellant’s computer.

To begin with, there were drafts of four other JFN Inc agreements, apparently prepared in contemplation of the receipt of deposits of money by JFN Inc. We will refer to these documents collectively as “the draft agreements”.

The first of these was a draft “Inter-Party Private Agreement” to be signed in July 2000, the precise date being left blank. This draft agreement was between JFN Inc and Dr. James L McCall of LaFayette, Indiana. It was to be signed by the appellant on behalf of JFN Inc and by Dr. McCall personally. This document referred to Dr. McCall’s having arranged for or provided funding for a private transaction for and on behalf of JFN Inc, and a promise by JFN Inc to repay Dr. McCall $3 million. The agreement was to be governed by and construed in accordance with the laws of Torrance, California. We will refer to this document individually as “the McCall draft agreement”.

The second draft was of a “Private Placement Agreement” between JFN Inc and Anthony Arap Bologna of Lugano, Switzerland. It was to be signed on 16^th April 2003 by the appellant on behalf of JFN Inc and by Mr Bologna personally. The document referred to Mr Bologna having arranged for or provided funding for a private transaction for and on behalf of JFN Inc in the sum of $19 million. The form of this document was broadly similar to that of the VHF and Timmann agreements. The address given for the receipt of communications by JFN Inc was the Tonbridge address. Clause 13 provided that the agreement should be governed by the laws of Torrance, California. We will refer to this document separately as “the Bologna draft agreement”.

The third of the draft agreements was of an “Inter-Party Private Agreement” between JFN Inc and John David Dryburgh of Beaconsfield, Buckinghamshire. It was to be signed on 17^th February 2004 by the appellant on behalf of JFN Inc and by Mr Dryburgh personally. Again the general form of this document was broadly similar to that of the VHF and Timmann agreements. The document referred to Mr Dryburgh as providing funding of £2 million for a private transaction for and on behalf of JFN Inc. Mr Dryburgh’s bank to receive repayments including interest from JFN Inc was stated as being the Bank of Scotland in Aberdeen. A sort code, account number and account name were cited in the agreement. The deposit was to be paid into an account in the name of “JFN Project Consultants Limited” (the English Company) at HSBC’s branch in Oxford Street, London. The address for the service of notices and other communications on JFN Inc was again the Tonbridge address. Clause 13 provided that the agreement should be governed by the laws of Torrance, California. We will refer to this document separately as “the Dryburgh draft agreement”. In our view it could properly be inferred from the detail provided in this agreement that there must have been some communication between the appellant and Mr Dryburgh before the draft agreement was prepared, even if the matter did not proceed to a concluded agreement.

The fourth draft was of another “Inter-Party Private Agreement” to be signed on an unspecified date in 2005. It was stated as being between “JFN Project Consultants, a California Corporation …OR IT CAN BE JFN Project Consultants Ltd., a UK Company” and one Pip Burley whose address was not stated. The form of this document was broadly similar to the VHF and Timmann agreements, and very closely similar to that of the Dryburgh draft agreement. The document referred to Pip Burley as providing funding of £250,000 for a private transaction for and on behalf of JFN Inc. Communications were to be served on JFN at its address in California. Paragraph 13 of the document provided: “the laws of the state of California, USA shall govern this agreement OR UK LAW IF WE USE THE UK CORPORATION”. We will refer to this document separately as “the Burley draft agreement”.

The prosecution further relied on the finding on the appellant’s computer of three further drafts, all entitled “Inter-Party Private Agreement”, and in all of which JFN Inc was identified as one of the contracting parties, the other being referred to simply as “Company” whose address is not stated. We will refer to these documents collectively as “the specimen agreements”. The first of them was to be signed on an unspecified day in January 2004, the second on an unspecified date in 2004 and the third on an unspecified date in 2005. Each contemplated the deposit of the sum of money by the “Company” with JFN Inc. In the first two, no sum of money was specified. In the third the sum to be deposited was stated as $100 million. Each of the specimen agreements was closely similar in general form to the other, and to the Dryburgh and Burley draft agreements. The first of the specimen agreements gave the Tonbridge address as that to which communications should be sent. The second and third gave JFN Inc’s California address. All three were to be governed by the law of California.

The prosecution also relied on four other miscellaneous documents recovered from the appellant’s computer. The first was his own curriculum vitae stating that since 1998 he had been “Chairman of JFN Project Consultants providing credit services, namely arranging and providing credit enhancement(s) in the form of securities from various lenders to institutional clients…”. The second was a curriculum vitae for John James, one of the appellant’s co-defendants, in which James was described as follows: “2003: JFN Project Consultants, London, UK. Consultant Legal Advisor…Negotiating and preparing various Inter-party Agreements…”. The third and fourth were letters dated 18^th July 2003 and 5^th August 2003 from one Vince Rigano to “Mr John James…Director JFN Project Consultants Limited” referring to meetings with and disbursements to “various investors”. It will be recalled that on the dates of these letters John James was indeed associated with JFN, though as its company secretary rather than as a director.

Further, the prosecution exhibited a summary of JFN Inc’s USA tax returns from 1998 to 2006. In relation to the relevant period, JFN Inc’s liabilities were stated as $4,085,280 in 2002 and as $5,189,990 in both 2003 and 2004. An explanatory note in relation to 2002 stated: “Liabilities are project funds raised from investors. The corporation is in the project management and project consulting business. Funds are raised and invested in projects.”

Next, the prosecution relied in particular on the oral evidence of two of their witnesses at the trial. The first was Philip (“Pip”) Burley. We have previously referred to the draft Burley agreement. Pip Burley gave evidence that he had met the appellant in 2004, and that the appellant had offered him an investment opportunity which Mr Burley did not take up. Mr Burley had never himself seen the draft Burley agreement. The prosecution said that it was reasonable to infer that the appellant had held himself out to Mr Burley as accepting deposits. The second witness was Surinder Singh Chadha. Between 27^th November 2003 and 17^th April 2004 Mr Chadha had handed over a total of £175,000 to Fonseka supposedly to be invested. This was the subject of a separate count in the Indictment against Fonseka alone. When Mr Chadha received none of his money back, he was told that its return depended upon a repayment by a Mr Napoli to VHF. He decided to trace the Mr Napoli referred to. He did so by pretending that he had access to investors with £10 million to deposit. This prompted the appellant to meet Mr Chadha at a hotel in London in or about October 2004. There, the appellant told Mr Chadha that the deposits of £10 million should be transferred to the appellant’s own bank account. Plainly, said the prosecution, the appellant was holding himself out as accepting deposits on this occasion.

Finally, the prosecution relied on what the appellant himself said when he was interviewed by the police. Interviewed on 21^st July, 2005 he said amongst other things that JFN Inc was his company. He said that they had a way of investing funds for a larger return, in projects which would otherwise not get done. Asked “how do you manage to convince someone to invest with you?” he replied “We do not go to them they come to me…we don’t solicit investors, investors come to us to make higher returns than they can make elsewhere, and we use their funds to do the various projects we do…”. He said that the £625,000 invested by Mrs Timmann had in turn been invested “…in some of our banks for various projects”. Later he added: “We have accounts in the USA, Australia and Europe”. Interviewed on 28^th November 2005 he said: “We take loans from time to time from people around the world, to be able to trade at a higher level for projects I can’t tell you about.”

We now turn to consider whether or not His Honour Judge Pitts was right to reject the submission of no case to answer made on behalf of the appellant. The first question that arises is whether or not, disregarding for the moment Article 2(1) of the 2001 Business Order there was evidence from which a jury properly directed could conclude that the appellant had, during the relevant period, accepted the deposits or purported to do so by way of business. In our judgment there clearly was such evidence. The VHF and Timmann deposits were of very large sums of money made to the American Corporation JNF Inc of which the appellant was the chairman. They were made pursuant to detailed commercial contracts. The monies received from the depositors were paid into corporate bank accounts. The deposits were made in anticipation of substantial returns both to JFN Inc and to the depositors. Further, when dealing with Mr Burley and Mr Chadha and, by inference, Mr Dryburgh, the appellant was plainly purporting to accept deposits by way of business, offering Mr Burley an investment opportunity and representing to Mr Chadha that he was able and willing to accept deposits in the total sum of no less than £10 million. Moreover, in his curriculum vitae and when interviewed by the police he described his financial activities in terms of a business. Many albeit not all of the features identified in this connection by Lewison J. in FSA v. Anderson were present also in the appellant’s case. These features of the evidence alone entitled the jury to conclude that the appellant had accepted deposits or purported to do so by way of business. Further support for the conclusion that any deposits received by the appellant during the relevant period would have been received by way of business is also in our view to be found in the documents recovered from the appellant’s computer even though, as Mr Ashley-Norman pointed out in argument, some of the individual documents related to dates outside the relevant period and/or to deposits or anticipated deposits wholly outside the jurisdiction of the Courts of England and Wales.

Our answer to the first question requires us to consider a second question, namely whether there was evidence from which a jury properly directed could conclude that Article 2(1) of the 2001 Business Order did not avail the appellant. This in turn gives rise to two further subsidiary questions.

The first subsidiary question is whether there was evidence that the appellant held himself out as accepting deposits on a day to day basis. In our judgment there clearly was. The evidence was to be found principally in the two deposits the appellant accepted; in his dealings with Mr Burley, Mr Chadha and by inference Mr Dryburgh; and in what he said to the police when interviewed. Further support for this conclusion is in our view to be found in what the appellant said in his curriculum vitae; in the documents relating to John James to which we have referred, given that they were found on the appellant’s computer and that James was for a time an officer of JFN Limited; in the tax returns of JFN Inc; and in the recovery from the appellant’s computer of the draft and specimen agreements. We recognise that many of these documents considered individually referred only to business activities in the USA, and that there was no direct evidence of any concluded agreement corresponding with the draft and specimen agreements. However, we accept the submissions of Mr Gibbs Q.C. on behalf of the respondent that the evidence should not be looked at in isolated sections but as a whole, and that viewed as a whole the evidence to which we have just referred would entitle a jury properly directed to conclude that the appellant held himself out during the relevant period as accepting deposits on a day to day basis.

The second subsidiary question is whether there was evidence that during the relevant period the appellant did not accept deposits only on particular occasions. Again, we consider that there was. In our view it was open to the jury to have concluded from what the appellant said in his police interviews and from the documents found on his computer that during the relevant period he must have accepted more deposits than the VHF and Timmann deposits alone. Even if we are wrong about this, in our view the VHF and Timmann deposits alone provided sufficient evidence for the jury properly to conclude, if they saw fit, that the appellant did not accept deposits only on particular occasions. The jury would be entitled to take into account that the appellant was in the market to accept very large sums of money, and that such sums might be obtained less frequently than more modest sums. The jury would also (applying Article 2(2) of the 2001 Business Order) be entitled to take into account the close similarity between the VHF and Timmann agreements.

For these reasons, it is our view that His Honour Judge Pitts was right to reject the submission of no case to answer made on the appellant’s behalf, and this appeal must accordingly be dismissed.