26 Sep 2013

Victim's compensation: An avenue worth exploring for corporate victims of fraud

by Tobin Meagher, Andrew Moore, Alice Zheng

A corporation that has suffered loss resulting from an offence committed in New South Wales should consider making a claim for victim's compensation against the perpetrator.

Traditionally, when a corporation is the victim of fraud or other criminal conduct causing significant losses, it usually turns to launching civil recovery proceedings against the perpetrator and/or pursuing a fidelity insurance claim.

However, an option offered by the criminal law system should also be considered. Not only is reporting a serious indictable offence a legal duty in NSW, but it also opens the way to pursuing another option for compensation from the perpetrator, as shown by a recent case, R v Wills: Application by Woolworths Ltd [2013] NSWDC 1 (Clayton Utz acted for Woolworths).

The right to seek compensation

One could easily assume that the Victims Rights and Support Act 2013 (NSW)[1] only provides individuals with a means of obtaining restitution for, by way of example, stolen household goods or compensation for physical injuries. In fact, it has much broader reach.

Under section 97 of the Act, an "aggrieved person", being someone who has sustained loss through or by reason of the relevant offence, can apply for a direction that compensation be paid out of the property of a person convicted of that offence. "Person" includes body corporates and corporations.

Loss is not defined in the Act, but has been interpreted under equivalent predecessor legislation to include economic loss.

The power is discretionary and the court can make the order on its own initiative or on application made by or on behalf of the aggrieved person. The court cannot give an order for an amount which exceeds the maximum amount that, in its civil jurisdiction, the court is empowered to award in proceedings for the recovery of a debt.

Once a direction is made, the offender must pay immediately or within any specified time period. The direction can be easily converted into a judgment of the Court and then enforced in the usual way.

An aggrieved person can still commence or maintain civil proceedings against the offender and obtain damages even if a direction for compensation is obtained, but the Act prevents double recovery.

What you need to prove

A victim must prove a causal connection between the loss and the offence.

This needs to be done to the civil standard of balance of probabilities. Causation is a question of fact: did the loss occur by or as result of the criminal act? The offence need not have been the sole cause of the injury, so long as nothing breaks the chain of causation.

Factors that a court may consider

There are two factors a court must take into account when deciding whether to make a direction, or how much compensation it should order:

  • any behaviour (including past criminal activity), condition, attitude or disposition of the aggrieved person that directly or indirectly contributed to the loss sustained by the aggrieved person; and
  • any amount that has already been paid to the aggrieved person or which the aggrieved person is entitled to be paid as damages awarded in civil proceedings in respect of substantially the same facts as those on which the offender was convicted.

The court may also have regard to any such matters that it considers relevant, including:

  • the amount of compensation sought or the identity of the aggrieved person; and
  • the defendant's impecuniosity, although this will not ordinarily be enough to prevent it making a direction for compensation.

Compensation orders can also be sought under similar statutory regimes in other states.[2]

Woolworths Ltd successfully applies for a compensation direction

In R v Wills: Application by Woolworths Ltd, the iconic retailer obtained a compensation direction for loss caused by a former senior executive, Mr Wills, who was convicted of receiving corrupt benefits. In short, he took kickbacks from a supplier.

Judge Haesler SC accepted that Woolworths suffered loss totalling $1,395,950 (this is how much Mr Wills was convicted of receiving as corrupt benefits).

Woolworths was not, however, awarded the full $1,395,950, as the court cannot give a direction for compensation under the Act that exceeds its civil jurisdictional limit (being $750,000 in the District Court of NSW). Judge Haesler held that this was not a cap on each offence, but on the total compensation awarded for "all offences that are part of a general course of conduct".

On that basis, Woolworths was awarded $746,806 for losses caused by five of Mr Wills' offences.

When is the victim's compensation route worth taking?

The main advantage of a victim's compensation direction is that it is usually much cheaper to obtain than a judgment in civil litigation.

The main disadvantage is that it is only available if criminal charges are laid and a conviction is obtained. The victim is also exposed to the delays associated with the criminal justice system, and by the time a conviction is obtained, any available assets may have long since been dissipated.

Two scenarios in which the victim's compensation route will often be worth taking are:

  • The size of the fraud does not justify the institution of civil recovery proceedings, but the offender is criminally charged and convicted. Prior to sentencing, the prospect of a compensation direction, often coupled with a desire by the offender to demonstrate contrition and remorse, can be used to extract a settlement which achieves at least a partial recovery.
  • Civil recovery proceedings have been commenced and a freezing order obtained, but the proceedings are stayed pending the conclusion of related criminal proceedings.

[1] This Act replaced the Victims Support and Rehabilitation Act 1996 (NSW). It has significantly altered the compensation scheme for victims of violent crime, but has not affected the recovery avenue which is the subject of this article. Back to article

[2] See, for example, Sentencing Act 1991 (Vic), s 86; Sentencing Act 1995 (WA), s 117; Criminal Law (Sentencing) Act 1988 (SA), s 53; Penalties and Sentences Act 1992 (Qld), s 35. Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.