Lauchlan v Police No. Scgrg-98-1261 Judgment No. S101
[1999] SASC 101
•16 March 1999
LAUCHLAN v POLICE
[1999] SASC 101
Magistrates Appeal
WICKS J On 31 July 1998 the appellant was convicted of fourteen counts of fraudulent conversion contrary to s184 of the Criminal Law Consolidation Act 1935 by the Magistrates Court sitting at Port Adelaide. The appellant now appeals against those convictions.
The first issue arises from paragraphs 1 and 2 of the Grounds of Appeal. It is that the learned magistrate was in error in finding that there had been an “entrustment” of each of the cheques forming the subject matter of the counts referred to above, an “entrustment” being an essential element of the offence. It was contended that the learned magistrate was therefore in error in finding that there was a case to answer.
The appellant was an accountant employed by Mining Supplies (Minsup) Pty Ltd. He held the cheque books belonging to the company and its associated company Treloar & Son Pty Ltd. It was his practice to obtain periodically a computer print-out in respect of wages due to various employees. Having obtained the original, the appellant then made a photocopy. Two cheques were drawn, each for the same amount and endorsed “Please pay cash”. One cheque accompanied the computer print-out in respect of wages and the other accompanied the photocopy print-out. Each cheque was signed by the appellant. However, two signatures were required in each case. A number of persons in each company were authorised to sign or countersign cheques. When wages were due for payment the appellant arranged for each of the two cheques concerned to be countersigned by a different person. One of the cheques to which I have referred was then taken to Armaguard accompanied by the computer print-out; the other cheque was cashed by the appellant at the bank and the proceeds misappropriated by him.
Section 184 of the Criminal Law Consolidation Act 1935, so far as is material, provides as follows:
"184.(1) Any person who-
(a).... being entrusted, whether the instructions are written, verbal or implied, either solely or jointly with any other person, with any property in order that he may retain in safe custody, or apply, pay or deliver for any purpose or to any person, the property or any part thereof or any proceeds thereof; or
(b).... having, either solely or jointly with any other person, received any property for, or on account of, any other person,
fraudulently converts to his own use or benefit, or the use or benefit of any other person, the property or any part thereof or any proceeds thereof, or fraudulently destroys the property or any part thereof or any proceeds of the property or part thereof, shall be guilty of an offence and liable to be imprisoned for a term not exceeding seven years.
(2) ..."
In Stephens v The Queen (1978) 139 CLR 315, in dealing with a predecessor of this section still in force in the Northern Territory, Gibbs J said at p332:
"On a charge of fraudulent conversion it is essential that three things be proved to the satisfaction of the jury: ‘first, that the money was entrusted to the accused person for a particular purpose; secondly, that he used it for some other purpose; and thirdly, that such misuse of the money was fraudulent and dishonest.’ Reg v Bryce (1955) 40 Cr App R 62, at p63."
At p333 of Stephen v The Queen (supra) Gibbs J observed:
" It is accepted that there can only be an offence under this sub-section if there was a fiduciary element in the relationship of the accused person to the property alleged to have been fraudulently converted by him ... To bring the case within the section the property must have been entrusted to the accused either for safekeeping or to be applied, paid or delivered for a particular purpose or to a particular person. In other words it must have been earmarked for certain purposes which are not purposes of the accused himself ..."
Jacobs J said at p337:
"The real question for the jury was whether the applicant had fraudulently converted the money. For him to be guilty of fraud knowledge that he was not entitled to treat the money as his own was a necessary element. The jury clearly found that he had the knowledge and belief. He would not have been guilty of fraudulent conversion if he had not had that knowledge and belief but once it is held that in law he was entrusted with the moneys and it having been found that in fact he knew and believed that this was so the offence was duly proved to have been committed."
Murphy J agreed with Gibbs J.
Barwick CJ wrote a dissenting judgment in which he added the element of “mutual intention” or “common intention”. He said at p323:
"To constitute entrustment to satisfy the section, the mutual intention of the parties, payer and recipient, express or implied, in my opinion, must be that the money shall remain the property of the payer or the person for whom it is received until it is due to be repaid or until it is applied to the specified purpose for which it was paid and received. It is not necessary that the recipient be required to place the money in any particular place. Indeed, payment into a separate account may not itself necessarily be decisive of the ownership of the money ...
In my opinion, the test of entrustment is whether or not the common intention of the parties was that the money handed over should remain the property of the payer. The existence of this common intention is the discrimen or test of the applicability of the section."
Stephen J agreed with Barwick CJ. The decision of Gibbs, Jacobs and Murphy JJ was therefore the decision of the court.
During the course of argument before me, counsel for the appellant submitted that there must be a mutual intention as to what was to happen to the property. Presumably this means that at the time of the “entrustment” and for there to be a “entrustment”, mutual intention or common intention must be an element. Counsel submitted that at the time money or property was handed to the appellant as the person to whom it was to be entrusted, both the person handing over the property or money and the appellant must have had a common intention to pay or apply the money or property for the purposes intended at the time of handing over.
No element of that kind appears in the decision of Gibbs J, a decision concurred with by two other members of the Court. In view of that decision, I consider that I am bound to hold that “mutual intention” or “common intention” is not an element of the offence in question.
The other contention was that there must be a fiduciary relationship between the parties concerned. In his judgment in Stephens v The Queen (supra), Gibbs J said at p333:
" It is accepted that there can only be an offence under this sub-section if there was a fiduciary element in the relationship of the accused person to the property alleged to have been fraudulently converted by him ..."
In the same case at p323, Barwick CJ said:
"It has been said that a fiduciary relationship in relation to property or money is required if the payment or passing over of money or property is to satisfy the terms of the section, fiduciary because the money has never become the property of the recipient."
I agree with counsel for the appellant that a fiduciary relationship between the payer and the appellant as recipient does not exist in the circumstances of this case. However, that is not what is being said by the High Court in Stephens v The Queen (supra). The fiduciary relationship referred to by both Barwick CJ and Gibbs J was a relationship between the appellant as recipient and the money or property concerned. The appellant as recipient became a fiduciary in relation to that money or property. His fiduciary obligation in respect of the wages cheque which he cashed at the bank was to hand it to Armaguard and not deal with it otherwise. The money or property came into the appellant’s hands in circumstances where he knew that the money or property was not his to do with as he pleased but was to be dealt with by being paid or applied for a particular purpose. In those circumstances there was an entrustment to the appellant and the first element referred to by Gibbs J as an element of the offence in question was made out.
For these reasons, I find that the appellant has not made out a case in relation to the first and second grounds of appeal. The learned magistrate was correct in holding that there was an “entrustment” in the circumstances of this case.
Before the learned magistrate, the appellant gave evidence in relation to a claim of right.
The appellant has a degree of Bachelor of Commerce from Auckland University, New Zealand taking in such subjects as economics, accounting, law, taxation, trustee law and auditing. After working overseas for some years, he came to work for Simplicity Funerals in this State as an accountant. The company suffered in the 1987 share market collapse and Westpac Banking Corporation forced a sale of the business. At that time the company changed its name to Seabird Corporation Limited.
The auditor of Seabird Corporation Limited in South Australia had a loose affiliation with the firm Nelson Parkhill in Sydney. Arrangements were made for the Adelaide Office of Nelson Parkhill to assist with the audit of Seabird Corporation. Mr Jeffrey Johnston was a partner of the firm in its Adelaide Office.
Westpac Banking Corporation became a mortgagee in possession of the assets of Seabird Corporation and Mr Johnston became an adviser to the Bank. At that time, Seabird Corporation was in financial difficulties and was anxious to sell its business. Mr Johnston’s role was principally to assist in negotiating the sale. He had day to day control of the company as agent of the Bank.
The appellant discussed his position in Seabird Corporation Limited with Mr Johnston and was assured that he would receive his entitlements for long service leave, annual leave and payment in lieu of notice if and when his employment with the company should cease. About twelve months later, the employment of the appellant with Seabird Corporation was terminated without notice and without payment of his entitlements which he said totalled about $42,000 at that stage.
The appellant engaged solicitors in Adelaide to make a claim in respect of his entitlements on termination of his employment with Seabird Corporation Limited but did not proceed with the claim in view of the cost involved.
Some time after the appellant’s dismissal from Seabird Corporation, Mr Jeffrey Johnston telephoned the appellant to offer him a job with Mining Supplies (Minsup) Pty Ltd. Mining Supplies (Minsup) Pty Ltd was the principal company in the Treloar group of companies. Other companies in that group were Treloar & Son Pty Ltd and Treloar Industries Pty Ltd. When the appellant took up employment with Mining Supplies (Minsup) Pty Ltd, Mr Howard Treloar was the founder. Mr Howard Treloar, a Mrs Sharland and Mr John Treloar, a son of Mr Howard Treloar were directors.
When the appellant joined the staff of the company, Mr Jeffrey Johnston was either a director or outside consultant. He did not have much sway in the company as Mr Howard Treloar remained very much in control.
Mr Howard Treloar died in 1990 and following his death, Mr Jeffrey Johnston took a more active involvement in the business of the Treloar companies as a consultant. He gave instructions to the appellant in the performance of his duties. Apart from being a director of the companies, Mr Johnston was the executor of the will of Mr Howard Treloar.
Mrs Mina Treloar, Mr Howard Treloar’s widow, died in early 1993. On her death, Mr Johnston became the executor of her estate. Following her death, Mr Johnston made it known to the appellant that he was executor of both her will and that of her husband and that through the shares held by him as executor, he had control of Mining Supplies (Minsup) Pty Ltd and the other Treloar companies, inferring that the appellant should give his loyalty to him rather than to Mr John Treloar as chairman.
In evidence, the appellant said that for some time he had brooded about the money owing to him by Seabird Corporation Limited in respect of his entitlements on termination of his employment with that company. Mr Johnston had taken control of Mining Supplies (Minsup) Pty Ltd. The defendant decided that as Mr Johnston had control, the appellant would recover his entitlements in respect of Seabird Corporation Limited from Mr Johnston. The appellant said that had Mr Johnston not had control of Mining Supplies (Minsup) Pty Ltd, he would not have taken the money from that company or any of its subsidiary companies.
The common law in respect of a claim of right was stated by Stephen, History of the Criminal Law in England Vol 3 p124 as follows:
"Fraud is inconsistent with a claim of right made in good faith to do the act complained of. A man who takes possession of property which he really believes to be his own does not take it fraudulently, however unfounded his claim may be ."
This passage was quoted with approval by the English Court of appeal in R v Bernhard (1938) 26 Cr App R 137 at p145.
In The Queen v Lopatta (1983) 35 SASR 101, White J said at p107:
"... an accused person charged with a crime of dishonesty may be heard to say that he honestly believed in a claim of right even if there is no foundation in fact or law for that wrong-headed belief...insistence upon reasonableness in the grounds as well as honesty in the belief is not and never has been the law."
In The Queen v Langham (1984) 36 SASR 48, King CJ observed at p49:
"It is beyond question that the law does not require that an appellant’s belief in his claim of right be reasonable, but only that it be bona fide."
The appellant had received a tertiary education leading to the degree of Bachelor of Commerce. Included in his course of study were the subjects to which I have already referred. He would clearly have known the difference between a company as a legal person and the individuals who are its shareholders, directors and employees. As the learned magistrate found, the appellant was experienced in working within corporate frameworks. The learned magistrate rightly found that the appellant was aware of the distinction between a corporate personality and the natural person Jeffrey Johnston. The appellant knew that Mining Supplies (Minsup) Pty Ltd and its associated companies had nothing whatever to do with Seabird Corporation Limited. When the appellant took up employment with Mining Supplies or shortly thereafter, he knew that that company was owned and managed by members of the Treloar family.
The claim by the appellant for wages, long service leave and other entitlements was a claim by the appellant against Seabird Corporation Limited. It had nothing whatever to do with Mining Supplies (Minsup) Pty Ltd and its associated companies - and that, the appellant well knew. The charges of fraudulent conversion related to cheques or the proceeds thereof belonging to either Mining Supplies (Minsup) Pty Ltd or Treloar & Son Pty Ltd and not Mr Johnston. That much was clear from the cheques themselves where the name of the company in question was in each case clearly printed on the face of the instrument. Mr Johnston was a director of, and adviser to the boards of, Mining Supplies (Minsup) Pty Ltd and its related companies. The cheques which were converted to the use of the appellant were never property in Mr Johnston’s possession.
From the authority quoted above, an honest belief in a claim of right is all that is required even though it may be misconceived . The reasonableness of the belief has nothing to do with the matter. Honesty is all that is required. The learned magistrate did not regard the belief of the appellant as to the claim of right as an honest belief.
In the appellant’s outline of argument, it was submitted as follows:
"It was common ground that the appellant was aware that Jeffrey Johnston was a separate legal entity to Simplicity Funerals, Treloar and Sons Pty Ltd and Mining Supplies (Minsup) Pty Ltd. The prosecution, however, did not appropriately challenge the appellant’s claim that, in his eyes, at the time of his taking the various cheques, he regarded these last two mentioned companies as being controlled by Jeffrey Johnston and as being one and the same thing. It was entirely inappropriate for the Magistrate to make a finding against the appellant on a crucial issue in the trial that was never put to him."
In my opinion, a claim of right is not concerned with “control”: it is concerned with ownership or possession of property. “control” is a different concept altogether. For this reason I reject the appellant’s submission to which I have just referred.
An attempt was made to assert a claim of right on the ground that the property over which the claim was asserted was in the control of Mr Johnston. The evidence indicates that Mr Johnston was one of several directors of the Treloar companies. On that fact alone it could not be said that he had control of the Treloar companies. At some stage he became the holder of a substantial parcel of shares in the Treloar companies. The holding of shares may have given Mr Johnston control of the Treloar companies. On the present state of the evidence, I am unable to say whether that is so or not: but even if that is so, “control” cannot be equated with possession and it is the latter which is important in determining whether a claim of right exists. “Control” has nothing to do with the matter.
On the facts of this matter I have difficulty in seeing how a claim of right can properly be asserted. I repeat Stephen’s test, namely: “A man who takes possession of property which he really believes to be his own does not take it fraudulently.” If the appellant’s entitlements were owing by Mining Supplies (Minsup) Pty Ltd and not Seabird Corporation Limited, one could see that a case could be made in respect of a claim of right. The same line of reasoning could be adopted in relation to Treloar & Son Pty Ltd. It seems to me, however, to be fanciful that a claim of right can be asserted in respect of the conversion of cheques or the proceeds of cheques belonging to the Treloar companies in respect of a debt alleged to be owing to the appellant by a company which has no relationship whatever to the Treloar companies.
So far as Seabird Corporation Limited was concerned, Mr Johnston was merely an adviser. The appellant occupied the position of accountant with Seabird Corporation. Hew would undoubtedly have known that the entitlements were due to him by Seabird Corporation and not by Mr Johnston who was a mere functionary.
In this case it is not a question of whether the appellant’s belief in his claim of right is reasonable: rather it is whether the claim is so fanciful that the appellant’s bona fides is brought into question. In those circumstances his belief in the claim could not be accepted as an honest belief.
In my opinion, the claim of right fails. The learned magistrate was right in coming to that conclusion.
Paragraphs 3 and 4 of the grounds of appeal relate to the claim of right. As I am of opinion that that claim fails for reasons which do not rely upon either par3 or par4 of the grounds of appeal, I need not consider these paragraphs further.
I now turn to the question of penalty.
The learned magistrate imposed one sentence for all offences. He convicted the appellant and imposed a sentence of imprisonment of four years with a non-parole period of two years. He declined to suspend the sentence. He directed that the sentence and non-parole period were to commence forthwith.
The appellant contends that the sentence imposed by the learned magistrate is manifestly excessive.
The defendant has been found guilty of fourteen separate breaches of s184 of the Criminal Law Consolidation Act 1935. He is 44 years of age, a single man and in good health. He has had no previous criminal history. The scheme on which he embarked was developed over time and involved a significant degree of planning and deception. In the offending the appellant misappropriated a substantial sum of money, $83,386 over a period of fifteen months or thereabouts.
The appellant held a position of considerable trust by virtue of his position and the nature and extent of his responsibilities. The offences are such that a sentence with a strong element of deterrence is called for.
In my opinion, while the sentence might be higher than sentences imposed in other cases put before me in the course of argument, I cannot say that it was manifestly excessive. In my view the learned magistrate was within his sentencing discretion. As I have said, the offences were planned and the appellant was at all material times in a position of trust.
For these reasons, I would dismiss the appeal.