A County Court judge has found former federal MP Craig Thomson not guilty of 49 charges of misappropriating Health Services Union (HSU) funds, but guilty of 13 theft charges.

Thomson is appealing against 65 convictions of obtaining financial advantage by deception by misappropriating union funds during his term as national secretary between 2002 and 2007.

The former member for Dobell was convicted and sentenced to 12 months in prison, with nine months suspended, after a trial in the Melbourne Magistrates Court in March.

He was ordered to serve three months in prison but his lawyers lodged an appeal straight away, meaning he spent only two hours in custody before being freed on bail.

During the appeal hearing, prosecutors told the court Thomson had no authority to spend the union's funds on personal expenses.

It was alleged the expenses included brothel visits.

But Thomson's lawyer, Greg James QC, argued there should not be a case against his client.

He said when Thomson withdrew cash from his credit cards the cash was the property of the bank, not the union, so there was no basis to the theft allegations against him.

Today, Judge Carolyn Douglas said Thomson had "clearly deceived his employer".

But Judge Douglas said the prosecution case was put in error.

"This is a court of law, not a court of morals," the judge said.

"It is my role to determine the legal issues, according to law. Our system relies on legal principles."

Judge Douglas said it was "regrettable" the prosecution had not argued its case properly, but "in the interests of justice" she could not allow it to make alterations.

She said prosecutors had already had "ample time" to get their case right.

Thomson was found not guilty on two theft charges but was convicted on 13 other charges of theft. One charge was withdrawn.

Judge Douglas said the court's judgment should not "in any way" be seem as an endorsement of Thomson's actions.

The hearing is continuing.