Macleod v The Queen - [2002] HCATrans 386

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S86 of 2002

B e t w e e n -
ROBERT JAMES MACLEOD
Appellant
and
THE QUEEN
Respondent

GLEESON CJ

McHUGH J
GUMMOW J
HAYNE J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 10 OCTOBER 2002, AT 10.06 AM

MR P.L.G. BRERETON, SC: May it please the Court, I appear with my learned friend, MR J.C. PAPAYANNI, for the appellant. (instructed by Jeffreys & Associates)

MR T.A. GAME, SC: If the Court pleases, I appear with my learned friend, MR D. JORDAN, for the respondent. (instructed by Commonwealth Director of Public Prosecutions)

GLEESON CJ: Yes, Mr Brereton.

MR BRERETON: May it please the Court, in the Court of Criminal Appeal the Crown case was summarised in a manner to which I think no one takes objection. In the judgment of her Honour Justice Simpson at volume 5, page 1022, paragraph 71. Her Honour said:

Put shortly, the Crown case was that the entire enterprise was a sham.

Then her Honour proceeded to illustrate it by reference to one project. The matters from which it was said to be amply open to infer dishonesty or fraud was summarised at paragraph 95 on page 1027. There her Honour said that:

There was in this case ample evidence on which the jury could conclude that the appellant, at the relevant times, acted dishonestly. This evidence included evidence of the disposal of the investors’ funds –

and that is one illustration of where the looseness of thinking about whose property the moneys charged appears:

A very small proportion of the funds was used ($718,000) was used and produced in films. The income statement sent to investors falsely represented that income had been derived.

That, as we will come to see, says nothing about how the funds were applied:

The so‑called subsidy of 70 percent offered to investors was similarly a misrepresentation of the true position.

That may have been a deception of the investors to obtain the money from the investors, but it had very little, if anything, to do with the application of the company’s funds:

The instruction given by the appellant to David Staume to conceal records from the ASC was evidence the jury were entitled to use as evidence of dishonesty.

It may be but only if that could be related to and to nothing else than dishonesty in the application of the company’s funds as distinct from the obtaining of those funds in the first place from investors.

GLEESON CJ: Mr Brereton, it would be of assistance to me if you could state in a summary form the facts on which the Crown relied to make out these charges against your client and the nature of the defence that your client propounded at the trial.

MR BRERETON: I shall try to do that in this way. The appellant, who was the sole shareholder in the company, Trainex, promoted what was said to be a scheme under Division 10B of the Income Tax Assessment Act in connection with film production. He raised millions of dollars from the public for investment in the production of films.

GLEESON CJ: He raised or Trainex raised?

MR BRERETON: Trainex raised through the appellant being the instrument.

GUMMOW J: Well, “through” becomes metaphorical, does it not?

MR BRERETON: Yes. Trainex raised the funds. Those funds were raised in circumstances which the Crown contended, and the documentation supported, resulted in those investors being of the view and understanding and making the investment on the basis that their funds would be invested in the production of films. Those funds were to be placed in accounts which were called trust accounts. However, what the documentation showed was that in effect the investors were purchasing copyright in the films to be produced. They would be the first owners of the copyright upon production and upon production they would be entitled to a refund of what they invested and a share – I think a 50 per cent share – of the profits, Trainex getting the other 50 per cent share of the profits.

GUMMOW J: Why? Is that what the documentation really said as they signed it?

MR BRERETON: Yes, and that is ‑ ‑ ‑

GUMMOW J: It did not accord with what had been promoted? That state of affairs did not concur with what had been promoted, namely, they were not told that what they were investing in was some future copyright in a cinematographed film yet to be made.

MR BRERETON: They were certainly told it was a film; they were certainly told the name of the film and I think they were told the substance of the film and were provided a precis of what the film was to be about. But let it be assumed for present purposes that in the way in which the moneys were raised, the investors were to a greater or lesser extent deceived. Now, subsequently, Mr Macleod took money from those trust accounts ‑ ‑ ‑

GLEESON CJ: Before you go any further – this is what I am interested in – the money is paid by the investors to Trainex, is that right?

MR BRERETON: Yes.

GLEESON CJ: That money was not intended to be beneficially owned by Trainex, was it, according to the documentation?

MR BRERETON: At least until the subscription conditions were satisfied, no. At least until the subscription conditions were satisfied – and I think they never were – it was not intended to be beneficially the property of Trainex, although this seemed to have received precious little attention at the trial.

GLEESON CJ: The money was then paid into a bank account of Trainex?

MR BRERETON: Yes, called a trust account.

GLEESON CJ: When you say “called”, where and by whom?

MR BRERETON: The accounts were described, I think, in their titles, but, in any event, in the documentation as – and they were not Trainex’s working account. I think there were six separate accounts, one for each film, and they were described as trust accounts for each of the films by the name of the film.

GUMMOW J: This is with Chase AMP, is it?

MR BRERETON: Yes.

GLEESON CJ: Described by Chase AMP?

MR BRERETON: In Chase AMP’s – in the account statements, yes.

GLEESON CJ: They were called trust accounts.

MR BRERETON: I think that is right, your Honour. I am pretty sure that is right, yes.

GLEESON CJ: Then the moneys were not used for any business purpose of Trainex?

MR BRERETON: A small proportion were but ‑ ‑ ‑

GLEESON CJ: The moneys with which we are concerned were never used for any business purpose of Trainex?

MR BRERETON: That was so.

GLEESON CJ: Indeed, they did not beneficially belong to Trainex.

MR BRERETON: That is so.

GLEESON CJ: Then what happened to the money?

MR BRERETON: They were applied, in one case, to paying the purchase price for a unit in the name of Mr Macleod on the Gold Coast – all that is in three cases, the first three charges – and in the other two, to a payment to a company called Starlight, which was treated as a reduction of Mr Macleod’s loan account in Starlight. Starlight was a new company which was, in effect, in the course of taking over the business of Trainex in 1992.

GLEESON CJ: So by the time the authorities, whoever they were, intervened, all that had happened in relation to this money was that it had been paid by investors to Trainex, paid by Trainex into the accounts with Chase AMP.

MR BRERETON: Yes.

GLEESON CJ: And by an act of your client, paid out of Chase AMP accounts and applied for the purchase of real estate or, in a couple of cases, applied to Starlight to reduce loan accounts of your client.

MR BRERETON: Yes, your Honour.

GLEESON CJ: Now, what was the relationship between Trainex and Starlight? Starlight was a public company, was it not?

MR BRERETON: Yes, it was, but Starlight was – I do not know off the top of my head, and Mr Papayanni will dig this out, what the shareholding was – as I recall, promoted by Mr Macleod for the purposes of being a more appropriate name and vehicle to conduct the business which up to that point was being conducted by Trainex. Trainex was said to have a connection with training films; the films now in contemplation were not training films and so it was thought that the business would be transferred, for want of a better word, to Starlight.

GLEESON CJ: Thank you.

HAYNE J: Now, how much of that description can we identify from documentary exhibits tendered at trial?

MR BRERETON: The principal document which will make – it is in volume 5 where the exhibits are ‑ ‑ ‑

HAYNE J: The chart is at 824/825.

MR BRERETON: The investor’s deed, which perhaps is the most important document, is at page 835. That, as I understand it, is a specimen of the investor’s deeds. Justice Simpson summarised its terms in her Honours judgment, but that runs from 835 to 848 and that, in effect, sets out what appear to be the legal terms of the investment.

Page 849 and following set out certain representations made by Trainex to the investors and then the balance sheet is, Mr Papayanni is just showing me, at page 905 as I think Your Honour Justice Hayne said. They are the critical documents. In terms of – I am just trying to think what shows the application of the funds. The application of the funds was largely proved through one of the Crown witnesses who had analysed the accounts and put into evidence a document which was said to be the tracing of the flow of funds and that ‑ ‑ ‑

HAYNE J: As I say, 824/825 are charts but not exactly revealing.

MR BRERETON: Yes, your Honour is quite right. I think 824 and 825 are the highest that gets.

My learned friend reminds me of the statements of admissions which are at page 956 and that certainly deals with the application of each of the sums in question. It is 956 to 959.

HAYNE J: Yes, I see, thank you.

GLEESON CJ: What was the nature of the defence?

MR BRERETON: As presented at trial the defence was, in essence, Trainex owed me at least as much money as I took for the work that I had done over the years for Trainex and for the copyright that I had acquired and sold to Trainex. In any event, I directed that these transactions be recorded as loans and at the end of the day what was advanced to me by Trainex was to be set off against what Trainex owed me to strike a balance of indebtedness one way or the other at the end of the day.

GLEESON CJ: The second part of that seems inconsistent. Indeed, both parts of that seem inconsistent with the proposition that Trainex held these funds on trust.

MR BRERETON: Yes. The idea that Trainex held the funds on trust was raised only in an oblique way at the trial. It was certainly part of the Crown case but, in our submission, inconsistent with the terms of the charge itself, that these funds were impressed in some way with an obligation to apply them in accordance with the expectation of the investors.

As far as I can see it was never put to the jury, either by the Crown or by the trial judge, that in fact these funds were held on trust but it was put to the jury that it would have been contrary to the expectation of the investors for the funds to be applied in the way they were.

I was about to come to the point when Your Honour the Chief Justice asked me a question, that this is why the prosecution case was fundamentally misconceived although precious little was made of it at trial. It charged the fraudulent application of property of the company, not a fraud on the creditors nor a fraud on persons in dealing with the company as was charged in Spies Case under 176A. The charge admitted and assumed that the money was money of the company’s. In those circumstances the starting point is that for the purposes of the charge they were not trust moneys, they were the property of the company. So, the charge admitted that the property in question was property of the company. The Crown did not prove that the company’s purposes were limited in any way. It sought to establish dishonesty generically from the way in which the funds were raised in the first place and from representations made to the investors along the way but it did not seek to point to or identify any particular dishonesty in the actual application of the funds, the subject of the charge.

GLEESON CJ: Mr Brereton, I am not conscious of having looked at this in the past, but does the expression “property of a company” within the meaning of section 173 of the Crimes Act include property that the company holds on trust?

MR BRERETON: In my submission, not.

McHUGH J: Why not? It must surely. On any theory of trust it is the property of the company. It might not have the beneficial interest but it has the legal title to the property. I would have thought the fact that the money is held on trust makes almost an open and shut case against your client. It is money that is held on trust, and what does he do? He takes the money. That is not applying it for the company’s purposes.

GUMMOW J: It is causing the company to breach its trust actually, which is not an entirely honest activity.

GLEESON CJ: You can certainly steal money from a trustee.

MR BRERETON: Yes.

McHUGH J: In fact, historically this charge was almost certainly directed at the very situation of the joint stock company, where those who held the property were in fact trustees.

GUMMOW J: I think section 173 has a long history to it.

MR BRERETON: I think it was introduced in about the 1850s or 1870s. The history is set out in the judgment of the New South Wales Court of Criminal Appeal in R v Glenister. It was said to be part of the second wave of reforms to the law of larceny.

McHUGH J: Your best point seems to me that the Crown has not run the case the way it should have perhaps run it.

MR BRERETON: The case that these were trust moneys and that they were applied inconsistently with a trust was never articulated before the jury and never articulated by the trial judge and the case was run on the basis that this was property of the company. The defence to that was, “It’s property of the company. I own the company and I’m entitled to do with the property of the company what I please”.

GLEESON CJ: If these were trust moneys, the fact that nobody had mentioned that seems to have been strongly to the advantage of your client.

MR BRERETON: I do not know, with respect, that that can be said, your Honour, because ‑ ‑ ‑

GUMMOW J: It cannot help your claim of right. It is an odd thing for a director to have a claim of right to go pillaging trust moneys from a company.

MR BRERETON: It probably cannot help the claim of right. My learned friend refers to a passage that I was going to take your Honours to anyway, but it is at volume 3, page 588. The way it was put by the Crown – and the trial judge more or less incorporated this by reference in the summing up at line 35 – was:

So the Crown says that the source of these funds in each instance were investor funds ‑ ‑ ‑

McHUGH J: Sorry, what page was that again?

MR BRERETON: Page 588, your Honour.

the money became the property of the company but they were investor funds that were put in and the Crown charges the accused with appropriating the money from the company in effect but they were in substance investor funds subject to those obligations to the investors that we have already dealt with, namely looking at the terms and conditions and the documents and so forth.

Now, perhaps at this point it is best if I go back to the deed which, on the Crown case, regulated the investment. That is volume 5 page 835. The schedule is at page 836. Under item 3:

The film is to:-
(a) be based on the synopsis/outline (the Outline) attached as Annexure “A” ‑

For present purposes Annexure “A” at page 847 is blank. Paragraph (b), it was to:

Have a proposed Budget as shown in the Budget attached as Annexure “B” –

which at 848 is also blank. Item 6 were the “Subscription Conditions” and provided that the total of all money provided, in effect, that the subscription conditions were receipt of the total of all moneys towards the cost of production and marketing “at least equal to the Budgeted Cost”‑ a bit hard to work out what that means in the absence of the budget at page 848 – or receipt of a total of all moneys towards the cost of production and marketing equal to the budgeted cost or a binding written agreement with an underwriter. The terms and conditions set out at page 838 relevantly refer at 839 line 39 to a:

“Trust Account” means the account described in item 5 of the Reference Schedule.

That is the Chase AMP account called “Trainex Toddler Taming Film Account”.

GLEESON CJ: It would have been an offence under the Corporations Law, would it not, to have raised money from investors without having a provision that the money would be paid into a trust account?

MR BRERETON: Raising the moneys in the circumstances in which they were raised without a prospectus was, in any event, an offence with which he was charged and dealt with and for which he served a sentence.

GUMMOW J: These copyright interests were prescribed interests, were they not?

MR BRERETON: So the Crown contended and so the jury necessarily found. But the point is, of course, that he has been tried, convicted and served a sentence in respect of those matters. At page 840, clause 2.1 at line 4, the investor shall pay to the production company the amount of the investment.

2.2 The Production Company shall deposit the moneys received from the Investor into the Trust Account.

2.3 Funds in the Trust Account may be invested in any one or more of interest bearing or discounted securities authorised by the Trustee Act, 1925 and any interest so derived shall be owned by the Investor.
2.4 The moneys received from the Investor shall not become the Investment of the Investor until the Subscription conditions have been met PROVIDED THAT the Investor may by notice in writing to the Production Company agree to forego the above requirements and request the early release of its moneys from the Trust Account for the purposes of production and Marketing . . .
2.5 On satisfaction of the Subscription Conditions the Production Company shall:-
(a) redeem any invested funds;
(b) within fourteen (14) days of the date of redemption of invested funds account to the Investor for any interest . . .
(c) before the Completion Date pay any funds to be used for Marketing into the Marketing Account.

There is a provision about copyright. At page 842, line 25:

6.1 The Production Company warrants, covenants and agrees with the Investor that:-
(a) the Investor will be one of the first owners of the Copyright;
. . . it or its agent will have and hold on behalf of the owner or owners of the copyright all rights necessary to make the Film and all rights for the Marketing of Film –

GLEESON CJ: Did all of the investors get a letter of the kind on page 849?

MR BRERETON: I think the answer to that is, yes, your Honour. And “DISBURSEMENT OF NET PROCEEDS at 843 line 59:

Net Proceeds shall be applied in the following manner and order:-
(a) Firstly as a license fee for granting the license . . . the Investor shall be entitled to a share of Net Proceeds in the proportion that its Investment . . .
(b) Secondly in repayment to any person not being an investor . . . any moneys advanced to complete the Film . . .
(c) Thirdly in payment to the owners of the Copyright in the same proportions as their ownership of the Copyright.

So that deals with what the investor ultimately gets.

GLEESON CJ: Were all the moneys received from investors paid by cheques of the kind described on page 851 line 40?

MR BRERETON: I am not sure that that was of universal application, your Honour, but I will check that and let your Honour have an answer.

Now, that document, in essence, governs the terms on which, as I understand it, the Crown contended and the jury must be taken to have found that the investors invested. Part of Mr Macleod’s defence was that the true arrangement was not as set out in that document. The true arrangement was that the investors were purchasing an interest in the copyright and the moneys paid over were the company’s moneys, and that was the defence he propounded first in his evidence and, secondly, in his address, and that was put to the jury by the trial judge.

GLEESON CJ: Now, was that communicated to the investors? What was the evidence that the investors were told that?

MR BRERETON: My learned friend says he said that he told investors that at parties and the like, but I will just check on the extent to which the evidence covered that. Part of the problem was that early in his own case, having been represented during the Crown case, Mr Macleod dispensed with his counsel and a number of the matters about which he gave evidence, it is true to say, were not put to the Crown witnesses. I will just have to check his evidence to see exactly what he said on that topic of communication to the investors.

GLEESON CJ: Is there a list of investors and the amounts invested?

MR BRERETON: I do not think there is a comprehensive list, your Honour. I have certainly not seen one. Now, what in my submission, ultimately happened was that by concentrating on the expectation of the investors and by concentrating on Mr Macleod’s conduct vis-à-vis the investors, the Crown and the trial judge confused and failed to address his dealings vis-à-vis the company that he was said to have defrauded.

When we come back to what “property” means in section 173 and the observations of some your Honours about that, that cannot be viewed in isolation from the words “fraudulently applies” or the words “the concept fraudulently applies” which appears in the section. When I come to the components of “fraudulently applies”, it will be seen, in my submission, that it necessarily involves some detriment or prejudice to the interests of the company in question and that that really cannot be applied where the only interest is a bare legal interest as distinct from a beneficial interest.

Essentially, on this appeal, there are two broad issues. On the first, if the appellant is right, he is entitled to an acquittal. That issue is this: whether a company officer can be guilty of fraudulent application of company property when he or she applies it in accordance with the unanimous consent and intention of the members of the company.

GLEESON CJ: How many members did this company have?

MR BRERETON: One.

GLEESON CJ: There was a time when the law changed to permit of companies having only one member. When was that?

MR BRERETON: I think it was the late 1980s, your Honour.

GLEESON CJ: Up until then, there had to be at least two members, although there need only be one beneficial owner of shares.

MR BRERETON: Yes, your Honour.

GLEESON CJ: Could you just ask Mr Papayanni at some stage to check on the legislative amendment that brought about that result?

MR BRERETON: Certainly.

GLEESON CJ: Thank you.

MR BRERETON: That issue presents in an acute form here, where the officer in question is the sole shareholder of the company, or, alternatively, is the sole beneficial shareholder of the company. So that the same issue would arise, even if there were two legal shareholders, if the beneficial interest was held by the one person.

GLEESON CJ: What was the position about the directors of this company?

MR BRERETON: The Crown case, I think, was that the second director, one Mr Calvert, did not exist, or, if he did exist, was not in truth a director, although he appeared on the documents and such.

GLEESON CJ: Did the Crown tender some register of directors, or something?

MR BRERETON: Yes, and that register disclosed, during the period of the first three charges, a Mr Calvert as a director, as well as the appellant. The Crown says that, by the time of the events the subject of the fourth and fifth of the fraud charges, the appellant had resigned as a director and been replaced by another – I think, Mr Wood, from recollection. What we say to that is, first, that the evidence does not establish that the cheques the subject of the fourth and fifth fraud charges were in fact drawn after his resignation as a director, but that, even if they do, the key to this case lies not in the directorships but in the shareholding.

The proposition for which I contend is that where there is a unanimous consent and intent of the shareholders, there cannot be a fraudulent application. Now, that question is not answered by reference to the test of a person exercising “dominant control” of the company, or a person being the “directing mind” of the company, so that the issue is rather distinct from that which Justice Mason in the Court of Appeal actually resolved – as his Honour framed his holding in terms of a person in dominant control. The proposition for which we contend is that the sole beneficial shareholder cannot defraud himself.

GLEESON CJ: That would come as a surprise to some liquidators, who would be the persons usually interested in this. You would have to test that proposition against a company that goes into liquidation.

MR BRERETON: One has to keep apart the concept of fraudulent appropriation, or taking, or application, in the criminal law sense, and misfeasance as a director, in the equitable or corporate law sense.

GLEESON CJ: But there are some shareholders who enthusiastically defraud companies, to the ultimate detriment of the creditors.

MR BRERETON: Well, that may be a fraud on creditors and if the object of the fraud is the creditors, that is a completely different question, the consent of the ‑ ‑ ‑

GLEESON CJ: But it can be fraud on the company first; that is what Salomon’s Case stands for, is it not; that the company has an existence separate from its shareholders?

MR BRERETON: But that very same case stands for the proposition that if all the shareholders know what is going on and approve, that cannot be a fraud on the company, and I will come to that shortly. The very same case that holds that there is a separate identity also holds that the unanimous consent of the shareholders is a defence to an allegation of fraud, but we will come to that in a moment.

The answer to your Honour’s question is this: if what is charged is a fraud on creditors and an intention to defraud creditors, then the consent of the shareholder is no answer to that, because a fraud must have an object as was said in Welham v the Director of Public Prosecutions and as was cited by your Honour Justice McHugh in Peters’ Case. Under section 173 the object of the fraud is the company. The unanimous consent of the shareholders is an answer to such a fraud. If the charge is a fraud on the creditors, then the unanimous consent of the shareholders would be no defence at all. What would be required would be the consent of the persons, the object of the fraud, the creditors in that case. So the answer to your Honour’s proposition is that it depends on who was the object of the fraud, but where the object of the fraud is the company, as it is for the purposes of section 173, the consent of the shareholders is the defence to that.

GLEESON CJ: Of course, a fraud may have more than one object; you can defraud two people.

MR BRERETON: Yes, but you could not be convicted of defrauding both of those people if one of them – if you are charged with defrauding two people and one of them at all material times knew exactly what you intended to do and consented to that, then you could not be convicted of defrauding that person, though you could be convicted of defrauding the other. If Mr Macleod was charged with defrauding the investors or defrauding the creditors, it may well be that he could have been properly convicted of those charges. But what he could not have been convicted was defrauding the company.

GLEESON CJ: No, what he could not have been convicted of was defrauding the shareholders.

MR BRERETON: Yes, but for the purposes of a fraud on a company, the equivalent of the shareholders in general meeting, that is the unanimous consent of the shareholders, is to be treated as the same as the company. The creditors are not part of the company for the purposes of defrauding a company.

HAYNE J: Does that chain of argument lead to the conclusion that where there is unanimous consent of the kind you have described, that the party who defrauds the creditors is the company, not the shareholders who unite to cause the company to do something? Is that the consequence of your argument.

MR BRERETON: I think not, your Honour, because, at least for the purposes of the criminal law, offences such as that created by section 176A of the New South Wales Act, which was the subject of this Court’s judgment in Spies, permits an individual to be guilty of defrauding persons in their dealings with the company. So it may well have been open to charge Mr Macleod under 176A with defrauding persons, investors, in their dealings with Trainex. The consequence of my argument would not be that only the company could be guilty of defrauding the creditors.

The second main issue would not result in an acquittal in the ordinary course but on the probabilities on a new trial and it is concerned with the sufficiency of the summing up. The issue is whether on a charge of fraudulent application where a defence of claim of right is raised and where it is alleged that the transactions were loans, it is sufficient to direct the jury in the terms of the summing up in this case, which essentially was that fraudulently means dishonestly, and you can have regard on the question of honesty to whether the accused thought that he was entitled to deal with the company property.

In my submission, much more than that was required. First, it was necessary that the summing up identify the need for dishonest means in the application of the funds, including the absence of informed consent of the victim of the fraud. Secondly, it was necessary that the summing up identify the facts from which dishonesty was to be inferred. Thirdly, it was necessary that the summing up identify the need for there to be prejudice to the company. Fourthly, it was necessary that the summing up advert to the requirement for the Crown to exclude a bona fide claim of right and that all that that involved was a genuine belief, not a reasonable belief. And, fifthly, it was necessary to tell the jury that the accused was entitled to be acquitted unless they were satisfied that the transactions were not loans in circumstances where the corporate constitution had not been tendered to prove that a loan was not a purpose of the company.

Can I turn then to the first of those issues. The submission is that a company officer is not guilty of fraudulent application under section 173 if the application is in accordance with the unanimous consent and the intention of the members. The starting point for that is the proposition that a fraudulent application, this composite concept in section 173, involves three components. The first element is an application of property to the prejudice of the company.

GUMMOW J: That was present here. Prejudice to the company because it exposed it to actions for breach of trust by these investors.

CALLINAN J: And perhaps claims by other creditors.

GUMMOW J: In respect of these very moneys.

MR BRERETON: I think, with respect, that is right, and let us assume for the moment that that component could have been established, but what I am seeking to do at the moment is simply to identify the components of a fraudulent application.

The second component is the use of dishonest means in making that application. The third component is the absence of a bona fide claim of right. One of the chief things that arises out of that analysis, which I will make good in a moment by reference to the decisions of this Court in Peters and Spies, is that the use of dishonest means and the absence of a claim of right are separate components, a matter which was not appreciated in the Court of Criminal Appeal.

To make good that first proposition, may I take your Honours first of all to the judgment of this Court in Peters v The Queen (1998) 192 CLR 493. Because Justice Kirby ultimately withdrew his Honour’s reasons and concurred in the judgment of Justices Toohey and Gaudron, the ratio of the case is to be found in their Honours’ judgment. The relevant passages for present purposes commence at paragraph 21 on page 505. It should be said at the outset that it has to be acknowledged that Peters v The Queen was decided in the context of a charge of conspiracy to defraud but it will be seen when we come to Spies v The Queen that the elements as identified in Peters are not affected by that circumstance except that of course the need for agreement between conspirators is not necessary in the absence of a charge of conspiracy.

In paragraph 21 their Honours, by reference to what was said by Viscount Dilhorne in R v Scott, identified that fraud in essence involved depriving:

a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled”. The clear focus of that statement is that, for an agreement to constitute a conspiracy to defraud, it must be an agreement to bring about a result –

and the result is the prejudice of the company –

by dishonest means –

so that is where we get initially the two elements of the prejudice to the company and the dishonest means. At 22, by reference to the judgment of Lord Diplock, there is identified the two components of:

economic loss by depriving him of some property or right . . . The intended means by which the purpose is to be achieved must be dishonest.

Paragraph 24, in rejecting concerns of the Model Criminal Code Officers Committee, their Honours say that those concerns fail:

to pay sufficient regard to the elements of the offence of fraud. First, it overlooks the need for the use of dishonest means or, more precisely in the context of conspiracy to defraud, the need for there to be an agreement to use dishonest means. And it also pays insufficient regard to the consideration that fraud involves an element of dishonesty over and above the use of dishonest means.

At paragraph 30 their Honours say:

The second difficulty with the statement of the Model Criminal Code Officers that it is too broad to define conspiracy to defraud by reference to an intention to inflict economic loss . . . is that it tends to assume that fraud does not involve an element of dishonesty over and above the use of dishonest means. As has already been pointed out, there are difficulties in attempting an exhaustive statement . . . Ordinarily, however, fraud involves the intention creation of a situation in which one person deprives another of money or property or puts the money or property of that other person at risk or prejudicially affects that person . . . knowing that he or she has no right to deprive that person of that money or property –

and then the next statement highlights the need for the absence of a bona fide claim of right:

Thus, to take a simple example, a “sting” involving an agreement by two or more persons to use dishonest means to obtain property which they believe they are legally entitled to take is not a conspiracy to defraud.

At 31 – and this is still really on the bona fide claim of right:

It is necessary to note one practical matter with respect to knowledge that must be proved . . . As a matter of ordinary experience, it will generally be inferred from an agreement to use dishonest means to deprive . . . or to imperil . . . that the parties to that agreement knew they had no right to that property . . . as with the defence of honest claim of legal right, it will be taken that there is no issue in that regard unless the absence of knowledge or, which is the same thing, belief as to legal right is specifically raised and there is some evidence –

The Crown accepted at the trial that the issue had been raised, and we will come back to that. In paragraph 33 their Honours said:

But when properly analysed, the offence of conspiracy to defraud involves dishonesty at two levels. First, it involves an agreement to use dishonest means.

But applying that to a case of actual fraud as opposed to conspiracy to defraud the use of dishonest means. Then their Honours say:

Ordinarily, the means will be dishonest if –

in essence, there is a false representation –

or if they are means which the conspirators know they have no right to use or do not believe that they have any right to use . . . And quite apart from the use of dishonest means, the offence involves an agreement to bring about a situation prejudicing or imperilling –

So there again are the two components. Then their Honours say that over and above that dishonesty is not an additional requirement. Your Honour Justice McHugh differed in some respects, but on the essential points ‑ ‑ ‑

GUMMOW J: Well, you have to read paragraph 34 of the joint judgment, have you not? That is the statement by those two Justices, the degree of what they understood to be the difference.

MR BRERETON: But what their Honours are saying there – I am sorry. Is your Honour referring to the last sentence of that?

GUMMOW J: Yes.

MR BRERETON: Yes. Well, quite so, and although Justice McHugh took a different view on some points, on the present issues, in my submission, that is not so. At paragraph 72 in your Honour Justice McHugh’s judgment, your Honour cited the passage from Lord Radcliffe in Welham, to which I referred earlier:

“[D]efrauding involves doing something to someone. Although in the nature of things it is almost invariably associated with the obtaining of an advantage for the person who commits the fraud, it is the effect upon the person who is the object of the fraud that ultimately determines its meaning.”

Pausing there, for the purposes of section 173, the object of the fraud is the company. Other people can be the object of frauds under different sections. Third parties can be, under section 176A, but in a charge under 173, the relevant object of the fraud is the company. At paragraph 84 ‑ ‑ ‑

GLEESON CJ: What do you mean by the expression, “object of the fraud”?

MR BRERETON: The victim.

GLEESON CJ: Victim in what sense? The one who is deprived of property?

MR BRERETON: Yes, your Honour. At paragraph 84, your Honour identified the types of things that could amount to dishonest means. Again, the paradigm case of false representations or promises, or concealment, or the third category was:

engaging in conduct which they had no right to engage in. In the latter class of case, it will often be sufficient for the Crown to prove that the defendants used dishonest means merely by the Crown showing that the defendants intended to engage in a particular form of wrongful conduct. Proof of an agreement by the defendants to engage in conduct that involves a breach of duty, trust or confidence or by which an unconscionable advantage is to be taken of another will usually be sufficient evidence of dishonest means –

absent claim of right, et cetera.

GLEESON CJ: Now, take that expression, “taking unconscionable advantage of another”, and apply that to the case of a single shareholder company, and look at it from the point of view of a liquidator.

MR BRERETON: If you look at it from the point of view of a liquidator, in the context of a single shareholder company, then the question must be: is the person who is being taken unconscionable advantage of the company or someone external to the company? If, in fact, it is the creditors, ultimately represented, so to speak, by a liquidator, then it is someone external to the company, not the company, that is the victim.

GLEESON CJ: The reason for looking at it from the point of view of a liquidator is that, as some English judge once famously remarked, “Behind all commercial law stands the spectre of insolvency”. That is what it is all about.

MR BRERETON: I concede, with respect, and accept the significance of that, your Honour, but ultimately one has to ask, who is the victim who is the object of the fraud? And then, if the object of the fraud is the creditors ‑ if it is the creditors who are sought to be deprived, defeated or prejudiced – then that is not a fraud on the company. That is a fraud on the creditors.

McHUGH J: Mr Brereton, do you not have to distinguish Adams’ Case in the Privy Council at appeal from New Zealand about Equiticorp where the directors were held guilty of conspiracy to defraud the company where in breach of their duty they bought property, did they not, and then sold – sorry, they bought shares in a company owned by Equiticorp and then sold them back to Equiticorp, did they not, I recollect?

MR BRERETON: I looked at the case but some years ago and the facts are much clearer in your Honour’s mind than they are in mine at the moment but we will have a look at it over lunch. I remember the case because I am pretty sure it was a judge alone trial in New Zealand.

McHUGH J: It went to the Privy Council.

MR BRERETON: Yes. Can I come from Peters to Spies and the importance of Spies 201 CLR 603 is that it applied this same analysis to a case where the allegation was simply defrauding under 176A as distinct from conspiracy to defraud. The relevant passages in the joint judgment commence at paragraph 78 on page 630. Firstly, it is said and we accept for present purposes that deceit is not a necessary element of defrauding, although dishonest means is, and what their Honours conclude there is:

Nevertheless, to prove a defrauding the prosecution must establish that the accused used “dishonest means” to achieve his or her object.

Then the passage to which I referred in Peters is cited and the passage from your Honour Justice McHugh’s judgment in Peters is also cited and in paragraph 81:

To prove that the appellant defrauded a “person in his or her dealings” with Sterling Nicholas, therefore, the prosecution had to prove that the appellant used dishonest means to prejudice the rights of such a person in his or her dealings with Sterling Nicholas. The “persons” identified by the prosecution were the creditors of Sterling Nicholas.

Now, it may well be that the Crown could successfully have charged Mr Macleod with an offence under section 176A. It is obviously not for us to make a concession about that here or now. But the point is not whether, of course, he could have been charged successfully under some other section, it is whether he could be charged with fraudulently applying money of the company or property of the company under section 173. That, with respect, is where this prosecution ultimately miscarried.

What Spies and Peters taken together then establish, in my submission, is that there needs to be three components: an application of property to the prejudice of the company, a use of dishonest means to do so and the absence of a bona fide claim of right.

GUMMOW J: Why are there no dishonest means here?

MR BRERETON: Because none relating to the application were identified. What Mr Macleod did was, as the sole shareholder of the company, to say, “The company is mine. The property of the company is effectively at my disposal. The company knows” ‑ ‑ ‑

GUMMOW J: That was all wrong. That was not true.

MR BRERETON: Even if it was, what is critical is his belief, but what had to be identified here was some dishonesty not in obtaining the funds from the investors in the first place but in the application of them at the critical time of the application. Where, in my submission, this miscarried is the focus was on how he obtained the funds and how he continued, as it were, to deceive the investors while he retained the funds but not in his application of the funds, and that was the critical question.

Essentially, what had to be identified was some false representation to the company or some concealment from the company or some breach of trust – to use your Honour Justice McHugh’s third category – in his capacity as a director of the company vis-à-vis the company not vis-à-vis persons outside the company.

HAYNE J: Is it irrelevant in that inquiry to take account of whether he knew that the company owed obligations in relation to those funds to others?

MR BRERETON: Yes, your Honour, and if I can illustrate ‑ ‑ ‑

HAYNE J: So you shut from your mind the fact that he knew that the company owed obligations to others about the disposition of those funds?

MR BRERETON: Yes, because if I agree to sell property under contract to a purchaser and I then agree to sell the same property to a subsequent purchaser, who does not have notice of the first contract, I am under an obligation – certainly an equitable obligation if not a legal one – to deal with the property in a certain way as a result of the first contract, but no one would say that I had defrauded the first purchaser by selling to the second purchaser. I would have acted in breach of my equitable and contractual obligations, but no one would suggest that it was a fraud to do so.

HAYNE J: I understood you to say that in assessing whether his conduct was dishonest you shut out of account his knowledge that the company owed obligations in respect of the funds which he was applying to his own use. Is that the proposition?

MR BRERETON: For the purposes of the criminal law, yes, your Honour.

GUMMOW J: Now, who were the signatories of these cheque accounts? They were cheque accounts, were they?

MR BRERETON: Yes, they were. He was the sole signatory of the relevant accounts. Mr Staume was also a signatory to the working account but the ‑ ‑ ‑

GUMMOW J: Not to the trust account?

MR BRERETON: ‑ ‑ ‑moneys in issue here, Macleod was the sole signatory.

GUMMOW J: Well, the means adopted was the drawing of the cheques, I guess?

MR BRERETON: Well, he had authority to do that. He was the sole signatory. There was nothing dishonest about him drawing a cheque. That is not a use of dishonesty.

GUMMOW J: To his own account? Who was the payee of the cheques? Were they drawn to cash or what?

MR BRERETON: Ultimately, by one course or another ‑ I think they were initially used to purchase bank cheques, but ultimately, the destination was the vendor of the Gold Coast property, on the one hand, or Starlight, on the other.

HAYNE J: Was he the immediate purchaser of the Gold Coast property? Was he named as purchaser?

MR BRERETON: Yes, your Honour. Mr Papayanni reminds me that Mr Staume had witnessed the appellant’s signature to the contract of purchase, so that Staume, the accountant, knew of the course, but I am not sure that that takes the answer to your Honour’s question any further. Now, the next point, having established those three elements of fraudulent application ‑ ‑ ‑

GUMMOW J: Well what do you want to say about claim of right? You say it is distinct from the second step.

MR BRERETON: Absolutely, your Honour, and it can best be seen by the example given by Justices Toohey and Gaudron in Peters, that a sting, or a cause of obtaining by dishonest means property of a company to which the, in that case, conspirators believed they were entitled, provides a defensive claim of right even though the means used to obtain it were dishonest. For example, if believing that I am entitled to be paid certain money by the company, I make a false representation to the company to induce it to pay me that money, then I have a defence of bona fide claim of right so long as I believe that I am entitled to the company, and that is what makes it a separate component from the use of dishonest means.

GLEESON CJ: He would have signed those cheques in his capacity as an officer of the company, not as a shareholder. Shareholders usually do not have authority to draw cheques on a company’s bank account.

MR BRERETON: With respect, he would have signed the cheques because, in whatever capacity, he was the duly authorised signatory and ‑ ‑ ‑

GLEESON CJ: Which would make him an officer of the company; he was an agent of the company to sign cheques.

MR BRERETON: Yes.

GUMMOW J: Now this belief, it does not have any particular quality about it, does it? It could be irrational could it?

MR BRERETON: It does not have to be rational; all it has to be is genuine, and I will come to the claim of right in a little while. Before I do that, can I just focus first on the dishonest means. So far as the dishonest means is concerned, those dishonest means have to be in the relevant application in dealing with the company’s property and not, for example, in the way in which the company originally gains or retains the property. In the context of this case, the dishonesty had to be related to the act of application; the drawing of the cheque and its application to the purchase. That is because the fraud has to have an object and under section 173 the object is the company. I referred to what was said in Welham’s Case, but can I just take your Honours to a couple of other passages on that. They are conveniently gathered together in the judgment of Justice Lee in Re Hyams & the Public Accountants Registration Act [1979] 2 NSWLR 854. At the top of page 862A his Honour again cited Lord Radcliffe in Welham, in the passage to which I have already referred, and continued:

It requires a person as its object; that is, defrauding involves doing something to someone. Although in the nature of things it is almost invariably associated with the obtaining of an advantage –

and so on. Then at page 863G, after reviewing the authorities, his Honour concluded:

The offence contained in section 173 is one of a multitude of offences in which the doing of a particular act is charged as having been done “fraudulently”. Offences of this kind are found, not only in the Crimes Act, but in many other Acts. In such cases the word “fraudulently” is intended to apply to the accused’s state of mind, and has a meaning usually equivalent to “dishonesty” in relation to the particular thing done by the accused so far as it affects or may affect the person who is the “victim” of the “fraud”.

So again, the need for a nexus between the fraud and the victim is identified. That was adopted by the New South Wales Court of Criminal Appeal in R v Glenister [1980] 2 NSWLR 597, relevantly at page 605 in paragraph (18) of the judgment between E and F. It is also explicit in the judgment of this Court in Spies 201 CLR, relevantly at paragraph 87, where about seven lines, eight lines in:

Second, his directions omit to say that the use of the dishonest means is an essential element in a defrauding offence. Third, they omit to direct the jury that the dishonest means must have taken place in relation to the dealings of the creditors with Sterling Nicholas.

Now that, of course, is under 176A. Our submission here is that under 173 what was required is that the dishonest means must have taken place in relation to the dealings of the accused with the company, as distinct from with the creditors or the investors.

That then brings us to the third proposition in the first issue and the critical one which is that use of dishonest means cannot be established when what is done is done with the true informed consent of the company, that is, that all the members are fully informed as to what is proposed, including the purpose of the application.

CALLINAN J: “All of the members”, what do you mean?

MR BRERETON: Shareholders, your Honour. The starting point for that proposition is the ‑ ‑ ‑

CALLINAN J: Even if that is contrary to the articles of association, the objects of the company?

MR BRERETON: Yes, your Honour, because the doctrine of ultra vires and the like has no place, in my submission, in the criminal law and there are a couple of cases in this territory that say that which I will turn up since the issue has arisen.

CALLINAN J: I would like to see them myself.

MR BRERETON: The answer in part is the same answer that I gave to Justice Hayne a little while ago, that I can have legal and equitable obligations in respect of my property and act inconsistently with those obligations, but a person who deals with me with my consent does not defraud me or defraud the persons to whom I have those obligations.

CALLINAN J: But how can officers of a company consent on behalf of the company to do something which is ultra vires the company? How can there be a consent in that situation?

MR BRERETON: The significance of consent is to the question of dishonest means. The issue is whether you can be said to be acting dishonestly if you do something which the putative victim knows you are going to do and consents to you doing. Now, that is not a question which depends on the powers of the victim or any other obligations ‑ ‑ ‑

CALLINAN J: I do not know about that. You keep on really overlooking the separate legal personalities of the company and an officer of it. They are not one and the same.

MR BRERETON: I accept that, your Honour, and Salomon of course establishes that and I will be coming directly to Salomon.

GLEESON CJ: But one of the most fundamental principles of company law is that the shareholders of a corporation cannot ratify an act of a director of the corporation which involves a misappropriation by the director of property of the corporation. There is a lot of law on the circumstances in which conduct of directors can be ratified by the shareholders and that is the fundamental limit to it.

Now, if you analyse your argument, what it amounts to is, as I would understand it, that even though Mr Macleod might have acted improperly as an officer of the company in drawing cheques and paying them out for his own benefit, that was capable of being ratified by the shareholders of the company assembled in general meeting. My problem is that such conduct is not capable of being ratified by the shareholders in general meeting because it involves a misappropriation of the company’s property.

CALLINAN J: Consent just is not available.

MR BRERETON: That, with respect, is not the way I would put it. The way I would put it is that Mr Macleod cannot be said to have acted dishonestly vis-à-vis the company if the company knew and approved of what he was doing.

GLEESON CJ: By “the company” you mean the shareholders assembled in general meeting?

MR BRERETON: Yes.

GLEESON CJ: Or in the case where there is only one shareholder, him?

MR BRERETON: Yes.

GLEESON CJ: The shareholders had no capacity to approve. They had no legal capacity to approve misappropriation by a director of the company’s property.

MR BRERETON: For the purposes of his obligations as a director and the effect of those acts in the civil law, that is undoubtedly correct. For the purposes of whether he can be said to have been dishonest for the purposes of the criminal law, that is a different issue. Because this issue was obviously important and present – I will just turn up those cases on the irrelevance of the ultra vires doctrine in this area and come back to that.

Can I go at this point to Salomon v Salomon [1897] AC 22. Obviously the case is best known for holding that a corporation is a separate legal identity from its shareholders, but part of the case involved a cross‑claim to have set aside a transaction as fraudulent by which the company acquired Mr Salomon’s business from him at what was said at trial and found by the trial judge to be an exorbitant price. The facts are summarised at page 25 line 4.

GUMMOW J: What are you getting out of Salomon’s?

MR BRERETON: The proposition that the knowledge and assent of the shareholders to a transaction is an answer to a charge of fraud on the company.

GUMMOW J: It was not a criminal case, was it?

MR BRERETON: No, it was not. At 25 line 4, the essential facts were that it was alleged and the trial judge found, “that the price paid by the company” to acquire Mr Salomon’s business “exceeded the real value” by a substantial amount. It was described elsewhere as exorbitant. At the foot of that page:

It also appears from the evidence that all the members of the company were fully cognisant of the terms of the agreements . . . and that they were willing to accept and did accept these terms.

At page 33, in the judgment of Lord Halsbury, his Honour said at point 3:

Vaughan Williams J. appears to me to have disposed of the argument that the company (which for this purpose he assumed to be a legal entity) was defrauded into the purchase of Aron Salomon’s business because, assuming that the price paid for the business was an exorbitant one, as to which I am myself not satisfied, but assuming that it was, the learned judge most cogently observes that when all the shareholders are perfectly cognisant of the conditions under which the company is formed and the conditions of the purchase, it is impossible to contend that the company is being defrauded.

GUMMOW J: Lord Halsbury is the high‑water mark of English muscular rather than cerebral judicial activity. What did Lord Macnaghten say about all of that?

MR BRERETON: I am coming to that, your Honour. Still on Lord Halsbury at point 7 ‑ ‑ ‑

GLEESON CJ: What page?

MR BRERETON: At 33 point 7, your Honour:

if every member of the company – every shareholder – knows exactly what is the true state of the facts (which for this purpose must be assumed to be the case here), Vaughan Williams J.’s conclusion seems to me to be inevitable that no case of fraud upon the company could here be established.

Lord Watson at page 36 says on that point at about point 8:

Upon that branch of the case –

this is the fraud branch –

there does not appear to me to be much room for doubt. With this exception, that the word “exorbitant” appears to me to be too strong an epithet, I entirely agree with Vaughan Williams J. when he says: “I do not think that where you have a private company, and all the shareholders in the company are perfectly cognisant of the conditions under which the company is formed, and the conditions of the purchase by the company, you can possibly say that purchasing at an exorbitant price –

and the trial judge found it was –

is a fraud upon those shareholders or upon the company.” The learned judge goes on to say that the circumstances might have amounted to fraud if there had been an intention on the part of the original shareholders “to allot further shares at a later period to future allottees.”

At page 37 point 7:

But in this case the agreement of July 20 was, in the full knowledge of the facts, approved and adopted by the company itself, if there was a company, and by all the shareholders who ever were, or were likely to be, members of the company.
Then Lord Herschell, at page 47, dealt with the point shortly, at point 3:

It was contended on behalf of the company that the agreement between them and the appellant ought, at all events, to be set aside on the ground of fraud. In my opinion, no such case has been made out –

and then, for your Honour Justice Gummow, Lord Macnaghten, at page 54 ‑ ‑ ‑

GUMMOW J: And Lord Davey, too.

MR BRERETON: I am coming to that ‑ ‑ ‑

GUMMOW J: He is the other significant figure.

MR BRERETON: Lord Davey helps me ‑ ‑ ‑

GUMMOW J: Anyhow, what does Lord Macnaghten say?

MR BRERETON: Lord Macnaghten says, at page 54, about the seventh line:

There are, it seems to me, two answers to –

the fraud argument –

In the first place, the directors did just what they were authorized to do by the memorandum of association. There was no fraud or misrepresentation, and there was nobody deceived.

Lord Morris concurred with Lord Macnaghten. Lord Davey dealt with the issue at page 57, at point 3:

Mr Farwell also relied on the alternative relief claimed by his pleadings, which was quite open to him here, namely, that the contract for purchase of the appellant’s business ought to be set aside for fraud.

Then, after summarising the facts, says, in the last three sentences of that paragraph:

Nor was the absence of any independent board material in a case like the present. I think it an inevitable inference from the circumstances of the case that every member of the company assented to the purchase, and the company is bound in a matter intra vires by the unanimous agreement of its members. In fact, it is impossible to say who was defrauded.

Now, can I then come ‑ ‑ ‑

GUMMOW J: Well, that is not the last word, is it? What has been said since then?

MR BRERETON: A few things, your Honour, and I am coming to them.

GUMMOW J: Quite a bit, I would think. Quite a bit.

MR BRERETON: The next decision to which I would come is that of this Court in ‑ ‑ ‑

GUMMOW J: Now, before we start trudging through all these decisions, we need to know under what Act this company was incorporated. Does that appear in the evidence?

MR BRERETON: It probably appears in the material that ‑ ‑ ‑

GUMMOW J: Because it is crucial to understand what the incorporating statute provides about matters like ultra vires, and so on.

CALLINAN J: It is not later than 1990, is it?

GUMMOW J: Ultra vires today is not what it used to be.

MR BRERETON: Page 948, in volume 5. The date of commencement of registration was 18 August 1997, but it is taken ‑ ‑ ‑

McHUGH J: It is 1977.

MR BRERETON: 1977. But it is taken to be registered as a company under the Corporations Law.

HAYNE J: Does ’77 put it back into the uniform ’61 Act days?

MR BRERETON: Well, the next change after ’61, I think, was 1980, so it must – yes, your Honour. I think that is the only evidence.

GLEESON CJ: The current edition of Gower’s Principles of Modern Company Law, 6^th edition, at page 648, says this:

In short, in English law at least it would seem that a wide range of breaches of duty by directors may be ratified, whether arising out of lack of bona fides, improper purposes, conflict of interest or negligence, provided that no dishonesty or expropriation of corporate property is involved in the transactions which are approved.

What your argument amounts to, is it not, is that there could have been no offence here, because what was done by your client in his capacity as an officer of the company was approved by your client in his capacity as a shareholder. I am suggesting for your consideration the proposition that if what was done involved an expropriation of the company’s property, he had no capacity as a shareholder to approve it.

MR BRERETON: Again, and with the greatest respect, your Honour, I would put it slightly differently. He could not be said to be acting dishonestly for the purposes of the criminal law if he believed he was acting in accordance with the consent and intention of the company a fortiori if he in fact had the consent of the company. I will come momentarily to the cases that, in my submission, make that proposition good.

GUMMOW J: Do we not need to know at some stage anyway the effect of those provisions of the Corporations Law of New South Wales which deemed anterior ‑ ‑ ‑

MR BRERETON: To be registered.

GUMMOW J: Yes, and the effect of that.

MR BRERETON: Whether that brings up to date ultra vires.

GUMMOW J: Did they pick up further capacities?

MR BRERETON: Yes.

GUMMOW J: Do not do it on your feet or over lunch but we need to be told at some stage. It is an important question, or it may be, and I do not think it is very much explored ‑ ‑ ‑

MR BRERETON: Can I come to the decision of this Court in Balcombe v de Simoni (1972) 126 CLR 576. This was a fairly seminal case in the evolution of fraud in the criminal law in this country. At the end of the day what this case, taken in conjunction with Peters and Spies, establishes is this, that there may be fraud, for example, by a director of a company or a trustee if the director or trustee acts secretly or without disclosing what he or she is doing in breach of trust – and that is really your Honour Justice McHugh’s third category in Peters. He may act dishonestly if he acts with consent but he obtains the consent by dishonest means, by some sort of false representation. He may act dishonestly if, having obtained the consent regularly, he nonetheless intends to apply the property for a purpose different from that which the company understood and intended it would be applied. But if he has a regularly obtained consent, a fully informed consent, and he applies it in accordance with the purpose for which the company understood it would be applied, then he cannot be said to act dishonestly or fraudulently.

So far as Balcombe is concerned, may I begin with the judgment of Sir Garfield Barwick, which was in the minority but which illustrates the point, at page 582. It should be noted from 581 that the offence in question here was:

by any false pretence or by any wilfully false promise . . . and with intent to defraud, obtains from any other person anything capable of being stolen –

At the top of page 582 his Honour refers to the judgment of Mr Justice Channell in R v Carpenter. The concluding passage of that citation says:

and if he was intending to use the money so obtained for purposes different from those for which he knew the depositors understood from his statements that he intended to use it, then . . . we have the intent to defraud . . . ”
Ultimately the majority judgments will show that that was not essential. It was enough to obtain the property by a false statement even if there was not that intention. The point is that I accept that even if you obtained the property regularly, if you did so with an intention to use it for purposes different from those which the company or the shareholders understood it would be used, that would be good enough to make a case of fraud. At point 5 on that page his Honour says:

But in addition to the false pretence there must be an intent to defraud by the obtaining of the property. To treat the intended inducement by the false pretence as in itself of necessity proof of an intent to defraud is in effect to dispense with the need for an intent to defraud.

At the foot of the page there is reference again to Welham and at page 583 point 9:

Again, in so far as the intent must be to defraud by the obtaining of the property, it would seem that the intent must be to do something to or with that property which the representee in handing it over did not intend, contemplate or understand should be done with it.

At the top of the next page:

there must be an intent to divert or use the property obtained in a dishonest way.

Against that, in the judgment of Justice Gibbs, page 594 ‑ and his Honour was in the majority ‑ his Honour says at the third line:

In relation to the present charge an intent to defraud must mean an intent to deprive another of property by deceit.

At point 5 his Honour refers to Carpenter and the passage cited by Chief Justice Barwick.

McHUGH J: That proposition cannot be accepted as law any longer, can it?

MR BRERETON: To the extent that deceit is no longer in every case an essential component, that is correct. His Honour then says:

That passage mentions an element which is not found in the present case, namely, an intention to use the property obtained for purposes different from those for which the representee understood from the representations made by the accused that he intended to use it –

and His Honour then says:

the question arises whether those words ought to be regarded as expressing a general principle applicable to all cases.

I accept, on the authority of Balcombe v de Simoni, that that is not a general principle applicable to all cases, that that additional component has to be proved but it may well be a sufficient component if the others cannot be proved to establish dishonesty.

The converse of that is if at the end of the day you have a putative victim who consents to handing over the property whose consent is not obtained by a false representation, who knows how the property is going to be applied by the putative fraudster and who agrees to it being applied in that manner, then it cannot be said that that person has been defrauded by the fraudster. If you have a concurrence of consent, absence of misrepresentation and knowledge of the actual application to be made and concurrence in that, it cannot be said that there is fraud.

Perhaps the high point of the argument is the decision of the House of Lords in R v Lawrence [1972] AC 626. It is the high point for the additional reason that this is the case the authority of which is said to have been resurrected and re‑established by Gomez and on which Justice Mason relied in the Court of Criminal Appeal. The critical passage is at page 632 in the judgment of Viscount Dilhorne. This was the taxi fare case. Of course, this case was dealt with under the English legislation which has some special components but its general analysis is still useful. At page 632, between A and B there is reference to the judgment of Lord Justice Megaw, that:

the offence created . . . involved four elements . . . (i) dishonest (ii) appropriation (iii) of property belonging to another (iv) with the intention of:

permanent deprivation. Viscount Dilhorne agreed, said there was appropriation:

That an appropriation was dishonest may be proved in a number of ways. In this case it was contended that the appellant had not acted dishonestly.

Then at C:

Section 2(1) provides . . . that a person’s appropriation of property belonging to another is not be regarded as dishonest if he appropriates the property in the belief that he would have the other’s consent if the other knew of the appropriation and the circumstances of it.

Then:

A fortiori, a person is not to be regarded as acting dishonestly if he appropriates another’s property believing that with full knowledge of the circumstances that other person has in fact agreed to the appropriation.

Then a sentence further on:

When Megaw L.J. said that if there was true consent, the essential element of dishonesty was not established, I understand him to have meant this. Belief or the absence of belief that the owner had with such knowledge consented to the appropriation is relevant to the issue of dishonesty, not to the question whether or not there has been appropriation.

Now that is the area of discourse that R v Roffel and R v Morris and R v Gomez subsequently entered into, but what Lord Justice Megaw, who perhaps is, with the greatest respect, one of the high-water marks of the last century so far as equitable and corporate jurisprudence is concerned, said there, in the passage approved by Viscount Dilhorne is that, if there was true consent, the essential element of dishonest could not be established. And what that was explained to mean was that knowledge of all the circumstances, including the manner in which the property was to be applied, was an answer – knowledge of and consent to, all of that – to a charge of dishonesty. If you did something with the knowledge and consent of the person allegedly prejudiced, you could not be said to be acting dishonestly.

Now from there the law developed and has then gone back to Lawrence, but Lawrence stands to today as authority on that point. The law went forward in R v Morris [1984] AC 320. It is probably unnecessary for present purposes that I spend much time on Morris, but the essence of Morris was to hold that if the putative victim of the fraud consented, then that meant that there was no appropriation. In effect, appropriation, it was held, involved an adverse interference with the rights of the owner and if the interference was not adverse, but consensual, there was not an appropriation for the purposes of the English Act.

Then the Victorian Full Court in R v Roffel [1985] VR 511 founded on that to hold that there was no appropriation where the sole shareholders and directors of a small company were the persons charged with dishonestly appropriating property belonging to the company, because those shareholders and directors knew of and consented to it, there was therefore a consensual transaction. Mr Justice Brooking dissented and his Honour’s dissent has been influential in the course that the law has followed subsequently. Can I just touch on a couple of passages in the majority judgments before I come to the dissenting judgment. At page 513 in the judgment of the Chief Justice, his Honour said at line 10:

it is not an element of the offence to be proved by the Crown that the “appropriation” was without the consent of the owner. Nevertheless it is difficult to imagine that Parliament intended to treat as an appropriation the taking of property from a person if the taking was done with the full concurrence of the original owner. Thus if A gives $10 to B, intending B to have the money for his own use and benefit, there can be no appropriate (within the meaning of the section) by B. If it was said that the receipt of an unsolicited gift was an appropriation within the section but that the recipient would not be guilty of theft because the appropriation would not be dishonest, criminal liability would be made to depend upon the subjective view of the recipient.

With great respect to his Honour, the better view of the law now is exactly that, that there may well be an appropriation, but that if it is done with full informed consent, it cannot be said that the act of the appropriation is dishonest.

In the judgment of Justice Crockett at page 521, his Honour refers at line 47 to R v Baruday, a decision of this Court in which it was held:

that there was an appropriation of property where possession was gained by consent if that consent has been gained by deception or fraud.
I accept that. If the consent is gained by deception, then there has been a use of dishonest means, but if the consent is gained without the use of deception, then that is an answer to an allegation of dishonesty.

In the dissenting judgment at page 523 Justice Brooking notes, commencing at line 21, a series of authorities in various jurisdictions in which different views have been taken on this question. The first case to which his Honour refers at 21, R v Arthur, is important because that makes the critical point here. There were three shareholders there: a principal shareholder, his wife and a third person. It was held that there was fraud in that case, “fraudulent conversion”. The court is said to have observed:

that there was a fraud on the company because it was a separate entity and consisted of more shareholders than the appellant, or the appellant and the third person.

That, with respect, is the precise point. The appellant and the third person had consented but the second shareholder, his wife, had not, so there was not a unanimous consent of the shareholders.

GLEESON CJ: In the present case, who on behalf of Trainex consented to the payment of these funds to Mr Macleod?

MR BRERETON: Mr Macleod.

HAYNE J: Is not the real debate in this case whether that consent is effective? That is, you are spending a deal of time establishing a proposition that if there is consent by one to something done by another, certain consequences flow. But in this case, is the question not, was there consent? Now, saying Macleod agreed is one thing, but what is the effect of that? Most of the cases that you have taken us to are cases concerning dealings between natural persons.

MR BRERETON: Yes.

HAYNE J: Here the key step in your argument is to attribute the act of one natural person who, if you like, appears on both sides of the record to the corporation. Is that right?

MR BRERETON: Again, with respect, I would put it slightly differently. The key question is whether Macleod can be said to have acted dishonestly where he believed he had the consent of the only person beneficially interested in the company, a fortiori, if he in fact had the consent of the only person beneficially interested. Now, that is not quite the same as saying the consent of the company per se. It is whether he can be said to have acted dishonestly if he believed and/or actually had the agreement of the only person with a beneficial interest in the topic.

Now, that does not really give rise to the question as to whether the consent was effective on behalf of the company. The question focuses on Macleod’s state of mind as to honesty, rather than on the effectiveness of the consent.

CALLINAN J: How could he possibly honestly believe that he could commit a breach of director’s duty, because that is what he was doing, was he not?

MR BRERETON: If it effect of it all was the company was making a loan to him ‑ ‑ ‑

CALLINAN J: It does not stop there, though. It is a loan of money that the company was holding in trust. You cannot leave that out of account either. “For a purpose”, a purpose covered by a very explicit deed. How could he possibly believe that the company could consent to that? “To buy a home unit”. What did the home unit cost, in his name, several hundred thousand dollars?

McHUGH J: Nine hundred‑odd thousand.

MR BRERETON: Something just under a million dollars, yes.

CALLINAN J: How could he possibly imagine that any consent could be given to that, and involving, as it did, the use of trust funds?

MR BRERETON: Because every day closely held companies make loans to their shareholders and directors.

CALLINAN J: What do you mean by “closely held companies”? This is a company whose funds were almost entirely funds that it was obliged to hold in trust for application to a very specific purpose?

MR BRERETON: That may well mean that there are offences under the Corporations Law ‑ ‑ ‑

CALLINAN J: It might, but it also might mean – it might also have a lot to say about his honesty and his beliefs which are tied up with the question of consent, and also it has a lot to do with directors’ duties. You cannot leave them out of account?

MR BRERETON: Well, again, there was, with great respect, precious little reference – in fact, I think no reference at the trial to what a director’s duties were, which left ‑ ‑ ‑

CALLINAN J: I do not care whether there was reference or not. A director’s duty cannot possibly be faithfully undertaken by using trust moneys to buy – trust moneys invested for a very specific purpose and subject to a very explicit deed to be used to buy a home unit at the Gold Coast in his own name, whether there was any reference to director’s duties at the trial or not.

MR BRERETON: With the greatest of respect, your Honour, that proposition may very well be correct, but he was not charged with taking the investors’ moneys.

CALLINAN J: I am not suggesting he was charged with that, but it is all relevant to his honesty which, in turn, is relevant to whether any consent was given or could be given?

McHUGH J: This was not a loan either, was it? He claimed it was a repayment to him for money owed to him and does not that raise a question as to whether or not there was a payment of the company’s capital out to him without court sanction?

MR BRERETON: The Chief Justice early on in my submissions correctly pointed out that there was some tension between the proposition that these transactions were loans or that he was owed money by the company, but Mr Macleod at trial advanced both those propositions. He certainly advanced the proposition that all of these transactions were loans and that he directed that they all be recorded as loans – at least one of them was.

GLEESON CJ: But you are setting out to persuade us, are you not, that it was legally impossible for him to behave dishonestly in this fashion?

MR BRERETON: Yes.

GLEESON CJ: In other words, your argument is that not even Mr Macleod was capable of being dishonest in this way?

MR BRERETON: May I put it ‑ ‑ ‑

GLEESON CJ: Less tendentiously.

MR BRERETON: May I put it this way, that no one who believes that he has the consent of the victim of the fraud – the victim of the fraud for the purposes of this charge necessarily being the company – can be said to act dishonestly if he believes – I have said what I mean by “consent” and I would just be repeating myself if I go there again. My learned friend says that none of them were recorded as loans. My learned friend has been in this case for a lot longer than I have, but my recollection was that the $5,000 was. I will check that; I may well be wrong on that point.

At the end of Justice Brooking’s judgment, his Honour says at page 530 at about point 8:

The argument that all manner of innocent and harmless acts become appropriations unless some limitation is imported is met by the need to establish as elements of the offence the intention permanently to deprive and dishonesty.

Then at page 531, line 8:

In cases like the present the real question for the jury will be whether the Crown has proved dishonesty in the Victorian sense.

I accept that the law now is that this concept of consent applies at the dishonesty or dishonest means stage, not at the appropriation or application stage. So that we do not need to overcome Mr Justice Brooking on that issue. The point that we do make is that it goes a little bit further than just being relevant. An honest belief that there is consent, a fortiori the existence of actual consent, is inconsistent with dishonesty.

That was the position that was adopted really by the House of Lords in Director of Public Prosecutions v Gomez at [1993] AC 442. The headnote might be slightly more favourable to me than the actual judgments are and I should just point out what the headnote says before I go to the judgments, lest it overstate the position. It is said there that the holding was:

that an act expressly or impliedly authorised by the owner of goods or consented to by him could amount to an appropriation . . . where such authority or consent had been obtained by deception –

that is a proposition with which we would not take issue for a moment –

and that, accordingly, the defendant had been rightly convicted of theft.

The better view of the judgments is that at least the majority took the view that consent was irrelevant to the question of appropriation but was relevant to the question of honesty.

The principal judgment was that of Lord Keith. At 444G, summarising the passage in Lawrence to which I took your Honours a little while ago, he says:

(b) Where consent is in issue, it is relevant, not to appropriation, but to dishonesty. (c) Consent in the context of the law of theft means true consent with full knowledge of the relevant facts.

We accept that. Indeed, we adopt and urge it. At 446D there is a reference to what Professor Smith says:

if there is an intention on the pat of the owner to pass all his property rights to another so that that other gets a voidable title, there is nothing left for him to appropriate . . . If, however, an owner of property is induced by a misrepresentation ‑ ‑ ‑

McHUGH J: This is counsel’s argument. This is Mr Austin’s argument, is it not?

MR BRERETON: I am sorry, your Honour is absolutely right, the judgement starts at page 452.

GUMMOW J: They are construing the Theft Act, are they not?

MR BRERETON: Absolutely and I accept that that means that there are limitations in its applicability but when it comes ‑ ‑ ‑

GUMMOW J: It has been copied in Victoria, I think, but not in New South Wales.

MR BRERETON: But when it comes to true knowledge of the facts by the victim being a defence to dishonesty, it is difficult to see that that is any different plight under the Theft Act to the common law.

At page 460, is the passage is was meaning to go to in Lord Keith’s judgment from C to E. Indeed, at E:

Lawrence is a clear decision to the contrary since it laid down unequivocally that an act may be an appropriation notwithstanding that it is done with the consent of the owner.

His Honour comes to the company cases ‑ sorry, I should say at page 463B at the end of the citation there:

appropriation can occur even if the owner consents –

At page 464A:

The actual decision in Morris was correct, but . . . erroneous . . . to indicate that an act expressly or impliedly authorised by the owner could never amount to an appropriation.

Again, we accept that that is the current state of the law but that does not mean that consent does not negative dishonesty. At H on that page, his Honour turns to the company cases:

There were cited to your Lordships a number of case involving the abstraction of moneys from a limited company by a person who was in a position to give the consent of the company to the abstraction. It is sufficient to say that I agree with what . . . Lord Browne‑Wilkinson, has to say about these cases in the speech to be delivered by him, and that in my opinion who thus procures the company’s consent dishonestly and with the intention of permanently depriving the company . . . is guilty of theft.

But what his Lordship is there saying is that if the consent is procured dishonestly it is guilty of theft as defined which includes what we would call fraudulent application.

GLEESON CJ: Your argument amounts to the proposition, does it not, that it is legally impossible for a sole shareholder to defraud the company of which he is a shareholder?

MR BRERETON: Yes, it must amount to that, your Honour.

GUMMOW J: Do we not have to look at Lord Browne‑Wilkinson at page 496?

MR BRERETON: I am just going there, your Honour.

GUMMOW J: Time is marching on, Mr Brereton.

MR BRERETON: Lord Browne‑Wilkinson’s judgement commences at page 495. At page 496G says that R v Lawrence is re‑established and that:

renders the whole question of consent by the company irrelevant. Whether or not those controlling the company consented or purported to consent –

there will have been an appropriation.

The question will be whether the other necessary elements are present, viz, was such an appropriation dishonest and was it done with the intention of permanently depriving –

and Roffel was not followed. The essence of that again is to say that consent is relevant to honesty and R v Lawrence which was re‑established by this decision holds that true consent is inconsistent with dishonesty.

GLEESON CJ: I think it is the preceding paragraph that is perhaps the most important, the one beginning with the words “In my judgement”. It is the second and third sentences in that paragraph that I would have thought are crucial in this case.

MR BRERETON: Although, with respect, it is a slightly different point because the point there is directed to the directing mind and will of the company. My argument does not depend on the directing mind and the will of the company in the sense of the de facto controller. It depends on the position of all those beneficially interested. It is quite conceivable that the directing mind and will of the company, the governing director with plenary powers and with 99 per cent of the shares, if there is anyone else with any beneficial interest, then that governing director is capable of acting in fraud of the company. If the whole of the beneficial interest is vested in that governing director, then, in my submission, he is not capable of acting in fraud of the company because whatever he does is necessarily done with the consent of all of those beneficially interested.

McHUGH J: I thought you had accepted that for the purpose of the civil law there is no consent and your argument was pitched at the dishonest element.

MR BRERETON: Yes.

McHUGH J: Take a case where a company is in funds, the sole shareholder knows that a creditor is about to sue it or obtain judgment against it and he then pays the money to himself. Surely it is open to a jury in those circumstances to conclude that he has acted dishonestly. He has acted so as to deprive the company of its capacity to deal with the pending judgment debt.

MR BRERETON: Ultimately the question has to be whether he has acted fraudulently in the manner charged.

McHUGH J: You may have an argument about the directions in this case, but on your verdict point it seems to me that whenever a sole shareholder takes a company’s funds, it must ordinarily – perhaps always – be open to the jury to conclude it was done dishonestly. It depends on what the person’s purpose was. If the jury in this case was to take the view that his only purpose was to use it for his own purposes to buy a home unit, which has nothing whatever to do with the company, why can they not hold that it is dishonest? If you want to say it must be dishonest means, why is not using the cheque to do it the dishonest means?

MR BRERETON: Because dishonesty involves a belief that you do not have the concurrence of the victim to what you are doing.

McHUGH J: Yes, but is it not open to a jury to say, “That’s just a sham. On one hand you say that you’re doing this but you know as well as anybody else that you’ve got no right to do this under company law”?

MR BRERETON: Where you are a sole shareholder, with respect, not so.

McHUGH J: But it is not. A sole shareholder cannot pay out the whole of the company’s funds to himself, or at least that was the law, without, first of all, a resolution in the company and, secondly, a sanction of the court and, thirdly, he cannot act in breach of his director’s duties.

MR BRERETON: That for the purposes of the civil law is no doubt correct, but the question is whether he can be said to act dishonestly if he does so believing that his supposed victim knew and agreed to everything that he was doing for the purposes of the criminal law. I cannot say anything more on that than I have.

McHUGH J: Yes, I understand.

CALLINAN J: But how can the victim consent to a breach of trust, not only a breach of director’s duties – I know he is not charged with any trust offence – but how can a consent be lawfully given to a breach of trust? Why is that not evidence of dishonesty?

MR BRERETON: Because a beneficiary can give fully informed consent to his ‑ ‑ ‑

CALLINAN J: Well, we know that did not happen here.

McHUGH J: But he is not the beneficiary. The company is a trustee.

MR BRERETON: I see, your Honour is asking me – I am misunderstanding the focus of your Honour’s question.

CALLINAN J: And I am asking you in relation to dishonesty. It is not an answer to that to say he is not charged with a trust offence. The fact that what was happening was a clear breach of trust is relevant to the question of his state of mind, his honesty or otherwise.He must know that the company would not and could not sanction a breach of trust.

MR BRERETON: But the question ultimately has to be whether he fraudulently applied property of the company and, as I am seeking to put, that is a composite concept which involves depriving this company ‑ ‑ ‑

CALLINAN J: Well, not only the factor, fraudulently, the property held in trust by the company. It was not just property of the company. It was property held in trust by the company.

MR BRERETON: That, with respect, is not how the charge was put.

CALLINAN J: No, but it is a relevant fact which was proved, indeed, incapable of disproof.

MR BRERETON: Perhaps my argument is directed at a more conceptual level than that, that on the charge under section 173, if the company director or secretary or whoever he is, is not shown to have acted other than with the fully informed consent of the company, or the shareholders in this case, that it is just not capable of – well, that is my point, that it matters not that there may have been dishonesty in some other respect than the way in which the company’s funds were dealt with.

CALLINAN J: You used the words “fully informed”.

MR BRERETON: Yes.

CALLINAN J: Well, would not “fully informed” involve, necessarily, information that the money was trust money?

MR BRERETON: But the only shareholders had that information. They were fully informed of that.

CALLINAN J: The further information would be that it would also be a breach of trust, not confined simply to factual information, but also legal information. It is elementary legal information.

MR BRERETON: I am just trying to think of an analogy, but if a beneficiary says to his or her trustee, “I know” – it is not quite apt ‑ ‑ ‑

McHUGH J: Let me give you another illustration. Supposing a company has a vehicle under lease, has the possession of it. Now, larceny is a crime against possession. Your client as the sole shareholder takes the vehicle and sells it. I mean, on your argument, he could not be charged with stealing a car.

MR BRERETON: I think that is right, because the vehicle is in his possession in any event.

McHUGH J: No, it is in the company’s possession?

MR BRERETON: But I think your Honour is right, in my argument he could not be convicted of stealing, he cannot, because he believed he had the consent of the company to do what he did.

McHUGH J: Exactly.

GLEESON CJ: You must be getting very close to the second issue?

MR BRERETON: I am getting extremely close to the second issue. What I was going to do from this point was simply to apply that and take your Honours to the Court of Criminal Appeal judgment shortly.

There was nothing in the evidence to suggest that the company, in the sense of the only shareholder, did not intend the appellant to have the benefit of this money and to use it as he did. The inference that the company had that intention and consented to it is inescapable from the identity of the appellant and the only shareholder in the company. Where the Court of Criminal Appeal dealt with this was in the judgment of Justice Mason at volume 5, commencing at page 998.

HAYNE J: Paragraph ‑ ‑ ‑?

MR BRERETON: It commences at paragraph 8, your Honour. At paragraph 12 on 999 his Honour identifies the reasoning in the Victorian case of Roffel and in Morris, and at paragraph 13 on 1000, refers to the dissent of Justice Brooking, which his Honour finds compelling, and for example, in the course of addressing the judgment of Lord Browne‑Wilkinson in the third line of the quote says in paragraph 15:

where those in de facto control of the company have been charged with theft from it.

That is slightly different from the position here. We are not concerned with “de facto control”, so much as complete beneficial ownership. Then there is the passages which your Honours have already seen from Lord Browne‑Wilkinson. His Honour says, in respect of Roffel first that if Roffel should continue to be followed, which his Honour doubts, then it should be confined to the statutory context of appropriation in the English and Victorian Acts. Then he says in paragraph 19 – and this is the nub of it:

Section 173 . . . does not . . . use the word “misappropriate” . . . in the context of provisions like s173 there is clear authority that being in dominant control of a company provides no defence to a director proven to have fraudulently “applied” company cheques for his or her own purposes.

Now that again, with respect, is not the point. The point is not “dominant control”. The point is “entire beneficial ownership”.

I am, as your Honour the Chief Justice reminded me, ready to move to the second issue, and the directions which ought to have been given to the jury. Can I introduce that this way: at least absence evidence to the contrary, to apply money of the companies by way of a loan is a purpose or use of the company. So much was held by Mr Justice Nagel in R v Armstrong (1972) 1 NSWLR 559 at 562. I should immediately say that that was said to depend on its own facts.

In R v Glenister (1980) 2 NSWLR 602. No evidence was adduced in this case that a loan to a director was ultra vires or otherwise than a use of the company. There was evidence, however one might characterise it, that the transactions were loans. The accused certainly repeatedly said that they were, and Mr Staume, a Crown witness, conceded in cross‑examination that he was directed to record at least some of the transactions as loans. There is an issue between us as to the extent of what Mr Sloane conceded, but he clearly conceded in cross‑examination that he received a direction to record moneys advanced to Mr Macleod as loans.

Against that background, the jury ought to have been directed that, unless satisfied beyond reasonable doubt that the advances were not loans, the appellant was entitled to be acquitted. I will come to exactly what was done in the summing up shortly.

The second part of this is the claim of right. It follows from what I have said about Peters and Spies that the absence of a claim of right is an essential element of a fraudulent application. The cases plainly establish that it is not necessary that a claim be reasonable, only that it be genuine. Without going to the cases in any detail, can I refer to R v Nundah (1916) 16 SR 482, R v Langham (1984) 12 A Crim R 391, R v Lawrence [1997] 1 VR 459 and Peters v The Queen at paragraph 31. It is trite law that the Crown must negative a claim of right. That there was a claim of right in this case – at least, that the defence of claim of right had been raised – was conceded by the Crown.

GLEESON CJ: Mr Brereton, I would like to understand a little better than I do at the moment what the practical difference in the present case was between the issues relating to dishonesty and the claim of right.

MR BRERETON: In my submission, to prove dishonest means, the Crown had to point to something done in the application of the funds which was dishonest, in, for example, one of the three senses referred to by Justice McHugh in Peters: a false representation to persuade the company to part with the funds; a use of the funds for a purpose not contemplated by the company, if they were already entrusted to him by the company; something dishonest in the application.

The additional component to that, of a claim of right, is that, even if there was a breach of trust vis-à-vis the company or a breach of director’s duties in the application of the funds, even if there was a false representation – which I do not think was suggested – to the company for the purpose of separating it from the funds, so long as he honestly believed he was entitled to those moneys by way of loan or by way of repayment, that gave him a defence, even if he used dishonest or unlawful means to take them. So, at the simplest level, even if it was a breach of director’s duties to pay the moneys to himself, it was still a defence to a charge of fraudulent application for him to say, “I honestly thought I was entitled to that money”.

GUMMOW J: What is the force of the word “honestly” there?

MR BRERETON: Genuinely.

GUMMOW J: Genuinely.

MR BRERETON: “Genuinely” is a better word than “honestly”.

GUMMOW J: What was the particular passage in Peters you referred to? I think you said paragraph 31.

MR BRERETON: It is 31, I think.

GUMMOW J: I am not sure that is right.

MR BRERETON: It is the last sentence:

As with the defence of honest claim of legal right, it will be taken that there is no issue in that regard unless the absence of knowledge or, which is the same thing, belief as to legal right is specifically raised –

What is identified there is that the claim be honest or genuine, that there be a belief, but not that it be a reasonable belief. Perhaps if it is not clear enough from Peters, can I turn on that issue to R v Lawrence [1997] 1 VR 459, a Victorian case. That was a case of fraudulent misappropriation. Just to summarise from the headnote at page 460, the third holding:

The common law concept of dishonesty, at least in a criminal context, is subjective in the sense that, if a person has a belief inconsistent with dishonesty, he cannot be convicted of an offence of which that is an element even if the belief is unreasonable. The reasonableness of the belief goes only to its plausibility. Accordingly, a genuine belief that one has a lawful claim is a defence in relation to property offences at common law and under statutes to which the common law applies. Such a bona fide claim of right may be both unreasonable and unfounded, although, if it is, it is less likely to be believed –

That is in essence the point: it only has to be genuine, not reasonable.

Now, for the purposes of identifying the deficiencies in the summing up it is necessary to bear in mind first what I have said about the components or the elements of the offence, the three aspects; secondly, what I have said about claim of right; and thirdly, what I have said about the loans. Can I then before going to the summing up itself, just refer to the two decisions of this Court which touch on what a summing up needs to cover in this area, again, Peters and Spies. First of all, Peters 192 CLR 493, relevantly at page 504 paragraph 18. Essentially what is said there is when dishonesty is an issue:

the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render the act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest.

And at page 510, paragraph 34, second sentence:

In either case it will ordinarily be necessary for the trial judge to explain precisely what the legislation requires. In the case of conspiracy to defraud, it will ordinarily be sufficient to instruct the jury as to the facts they must find if the agreed means are to be characterised as dishonest. Alternatively, it will be sufficient to instruct them that, if satisfied as to those facts, they will be satisfied that the agreed means were dishonest.

Then in Spies 201 CLR 603 at 631, paragraph 83, having said at 82, that:

the Crown must prove beyond reasonable doubt is that the accused, by deceit or deliberate falsehood, caused those creditors to be delayed or hindered –

says:

At no stage, however, did the learned judge identify the deceit or deliberate falsehood.

And that is a necessity to identify the dishonest means.

Nor does there appear to have been any.

And page 633, paragraph 87, to which I have already referred in part:

Second, his directions omit to say that the use of dishonest means is an essential element in a defrauding offence. Third, they omit to direct the jury that the dishonest means must have taken place in relation to the dealings of the creditors with –

the company. So there is a need there identified to identify the requirement for dishonest means and to identify that the dishonest means must relate to the actual dealing charged and not generally to the circumstances.

Against that background, can I turn to the summing up. The summing up included the provision to the jury of some written directions. They are in volume 3 at page 706. The relevant charges are dealt with at 711 and 713. At paragraph (30) is the direction about what “fraudulently” means. It is repeated at 713, paragraph (42).

Now, before we go to the oral summing up, if this was all that was before the jury, in my submission, this did not identify the need to find dishonest means in the actual application. It did not refer to the significance of consent in the sense that he was the sole shareholder. It did not refer in any way to the Crown having to negative a claim of right and it did not identify the facts or knowledge relied upon for saying that the application was dishonest. The question is whether any of that was cured by what followed. The summing up, then is in volume 4. It turns to these charges initially at 736, but at 736, lines 1 to 18, that is merely introductory and, again, at 736 lines, 32 to 50, that is merely introductory, it does not add anything. The substance of the charges is dealt with at 750 and commencing at line 37, his Honour turns to the first three of the fraud counts and, in effect, his Honour is speaking to the jury from the written directions. The crux of it is at 751, line 30:

Now, the property on the Crown case which was applied was the money standing to the credit of Trainex at the Chase AMP Bank. For his own use, paragraph 29, the Crown case is that such use of Trainex funds was for the accused’s own use ‑

then:

You know from the documentation that you have that the money came from persons, the various investors and you know from the documentation that you have what, according to both documents you may think the expectation on the Crown case of each of the investors was.

That, with respect, is a problem because the expectation of the investors is, in my submission, irrelevant to whether there was a fraudulent misapplication of the company’s funds.

At the foot of that page his Honour goes on to “fraudulently is to act dishonesty” and the Glenister test of applying the current standards of ordinary decent people.

Nothing up to this point has cured what was not in the written document. His Honour then turns to the alternative charges which we can pass over and comes back at page 753 at line 52 to the remaining fraud charges. So far as what fraudulent or fraudulently means nothing is added at 755 to what has been said in the written document. That is at that stage, in effect, all that is said in the original summing up to assist the jury to resolve these issues. At the foot of page 771, his Honour says, “he”, that is Macleod:

said he was owed a deal of money by Trainex. He said that he gave instructions to Mr Storm to deal with monies by way of loan. He said Trainex owed him far more than he owed it.

Then he goes on to CEN, which is irrelevant for present purposes. At page 772, line 38:

You have the benefit of arguments from the Crown and from Mr Macleod. The Crown ask you to look at the matter in a global way, the plethora of documentation you have. The Crown says there is a consistency whether you look at what happened in the early counts –

that is, the raising of the money and then its disbursement, “used in ways which were fraudulent” or improper. At page 773, line 12:

That what these people acquired, as an interest in copyright, that copyright is property –

this is Macleod’s defence ‑

having sold off an asset in the form of a copyright . . . this money was company funds. It was company income and it was his company and he controlled it and he directed the policy of the company.

That is, in essence, his Honour summarising the two cases but in particular summarising the fact that the Crown asked that the matter be looked at in a global way, a pattern of consistency from the original raising of funds through to their ultimate application. In my submission, that distracted or was calculated to distract the jury from focusing on the need to see fraudulent means in the actual application by inviting them to look at the whole course of their raising as well as their ultimate application. At page 775, line 6:

a final reminder you have to unanimous in your verdicts and you should consider each count separately –

There is then extensive argument as to the perceived deficiencies in the summing up and the Crown, in essence, said that the cases of the parties ought to have been put to the juries in somewhat more detail. At page 779, line 10, the Crown, in essence, said we have to negative beyond reasonable doubt the claim of right and the loan defence. At page 781, line 20, the Crown again said, in essence, that the jury should be told ‑ ‑ ‑

GUMMOW J: What page?

MR BRERETON: Page 781, about line 20, your Honour. Again, the jury should be told that Mr Macleod said “he was entitled to use these sums” but the Crown says he could not “entertain such a belief”. His Honour did reinstruct the jury, commencing at page 808.

The first part of the redirections dealt with the other charges. He came to the charges, relevant for present purposes, at page 814. At line 35 his Honour comes to “the fraud and improper purpose count”, line 41, and says:

You are also entitled to look at the totality of the evidence in a global way. I mean the Crown has conducted his case that way. You have been given a mass of paper and you are asked to look at the matter globally, notwithstanding that you have to come to some conclusion as to the guilt or otherwise of the accused on each individual count. So you would inevitably as you are entitled to look at the totality of the evidence globally.

His Honour then says:

you must nonetheless bear in mind the importance of assessing each of the charges separately.

Page 815 line 26 his Honour turns to impropriety. Now, that, in essence, or that was the alternative counts which ultimately verdicts were not taken on, but at line 37 his Honour said:

I should have said this to you yesterday that the accused’s state of mind may also be relevant to the question of whether or not he acted improperly. For example if he reasonably believed that what he did was genuinely for the benefit of the company that belief may be relevant in determining whether he can be held to be criminally responsible –

That is important because his Honour introduces the concept of a “reasonable belief” into that passage, which is not the law so far as claim of right is concerned, but his Honour was there apparently addressing the alternative counts, although it would take a lawyer to ultimately work out where his Honour shifts from the alternative counts to the principal counts. His Honour then says at line 51:

I might not have made clear to you yesterday that in the accused’s case after counts one to thirteen –

and that means fourteen onwards, which means the fraud charges and the alternative improper purpose charges –

is that he was legally entitled to use the company funds in the way that he did. Specifically he said that one, he is owed money . . . Two, that he directed Mr Storm to record all money advanced to him as loans and three, that Trainex owed him more money than he owed Trainex. Of course you also recall the Crown addressed to you and his submissions as to why you should find the accused acted dishonestly.

Now, in my submission, none of that cured the essential defects. Those last two paragraphs from 815 line 37 to 816 line 15 would have conveyed to the jury that it was relevant to the claim of right, for want of a better word, that the belief be reasonable. The jury would have no way gained from those directions that all Mr Macleod had to have was a genuine belief and that the Crown had to negative that he had a genuine belief that he was entitled to act as he did.

GUMMOW J: Now, where do you say Justice Simpson went wrong, because that is what you are really appealing against, was it not, in the Court of Appeal?

MR BRERETON: Your Honour is quite right, and Justice Simpson went wrong essentially in two places. At paragraph 101, her Honour says:

One specific complaint that was made –

perhaps I should be a little broader. Her Honour, first at paragraph 95 in saying that there was:

ample evidence on which the jury could conclude that the appellant, at the relevant times, acted dishonestly –

her Honour points to a range of matters which do not go to dishonest means in the application of funds, but essentially go to the way in which the funds were raised or the way in which representations were made to the investors while the funds were retained that income was being generated. It does not go to fraud on the company in the application of the funds.

Secondly, at paragraph 101 ‑ and this is the claim of right point ‑ her Honour says that:

the oral direction . . . used the word “reasonably” where it should have used the word “honestly” –

but says that –

Given that the judge had given the usual directions as to the onus of proof –

it cannot be said –

that the direction reversed the onus of proof.
The use of the word “reasonably” could, potentially, be of more significance. However, it was, to my mind, inconsequential in the overall summing‑up.

In my submission, that is the critical error, I suppose. If you take out that passage then the jury received no guidance whatsoever on the defence of claim of right. They received no guidance whatsoever that all that Mr Macleod had to have was a genuine belief and that the Crown had to exclude genuine belief and that is where her Honour fell into error on that point.

At paragraph 111 in her Honour’s judgment at page 1031 – I will pass over that. Her Honour concludes at 113 that paragraph 112:
was an entirely adequate direction. It is difficult to see how, if the jury found that the appellant had acted dishonestly, they could then find that he acted under a bona fide belief –

In my submission, that conflates with two separate elements of dishonest means in the application and bona fide belief which can provide a defence notwithstanding dishonest means in the application, and that is what her Honour overlooks in paragraph 113.

GLEESON CJ: Well, there are some cases in which you can set out to trick a person into returning your property. There might be dishonesty in the means that you employ, but no intent to defraud, because you believe that it is your property.

MR BRERETON: Exactly.

GLEESON CJ: But that is not this case, is it?

MR BRERETON: Well, as I apprehend it, one way in which the argument of dishonesty might be put – although it is not explicit anywhere I have seen – is that, being a director of the company, he acted in a manner inconsistent with his duties as such, and it might well be said that that falls within your Honour Justice McHugh’s third category from Peters. That could be dishonesty. It would be a defence to dishonest means of that sort to say, nonetheless, “Well, maybe it was in breach of my duties as a director, but I believe the company owed me money, so I cannot be said to have had the fraudulent intent necessary”.

GLEESON CJ: Is that a convenient time?

MR BRERETON: Yes. I have almost finished.

GLEESON CJ: We will adjourn until 2.00 pm.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.00 PM:

GLEESON CJ: Mr Brereton, you were going to tell us as a result of Mr Papayanni’s researches when these one-man companies came into possibility.

MR BRERETON: We cannot do that yet, your Honour. We are still ‑ ‑ ‑

GLEESON CJ: Could both sides let us have a joint note on that.

MR BRERETON: Certainly, your Honour.

GLEESON CJ: Then in the note, relate it to this particular company and this particular case.

MR BRERETON: Yes. The short answer is the evidence in the case does not appear to deal with the issue at all, except that there are repeated statements by Mr Macleod to the effect, “I own the company; I am the only shareholder” and the Crown then in the cross‑examination of Mr Macleod seems to embrace that proposition. There is certainly no evidence to the contrary of that.

GUMMOW J: We all heard that before, but it is not, in fact, what ‑ ‑ ‑

MR BRERETON: But that appears to be the evidentiary provision.

GUMMOW J: There have been some nominee shareholders.

MR BRERETON: What I propose to do is to conclude very shortly on the submissions I was making before lunch concerning the summing up, then to answer such of the outstanding questions as I can at this stage answer and then to sit down.

So far as the summing up was concerned, the essential defects, in my submission boil down to these. First, the summing up did not identify for the jury what it was that was said to make the application dishonest, except by reference to the Crown address to the jury. The summing up itself did not refer to the matters.

In so far as it incorporated by reference the Crown address in that respect and, indeed, in some express passages in the summing up, it encouraged the jury to take a global approach to Mr Macleod’s conduct overall, instead of directing the jury that it was essential to find dishonest means in the particular applications charged. That was calculated to mislead the jury into thinking it was enough to find that there were dishonest aspects of the entire scheme without finding that specific applications were made using dishonest means.

The summing up did not identify that if, as was inevitable, those beneficially interested in the company knew of and consented to the proposed application, that was at least relevant to, if not – as I would put it, primarily – determinative of, the question of dishonesty. The summing up did not give directions that on a claim of right, it was sufficient that Mr Macleod have a genuine belief that he was entitled to do as he did, and that the Crown had to negative that. Justice Simpson in the Court of Criminal Appeal thought that that defect was overcome, page 1029, paragraph 103. That:

The use of the word “reasonably” could, potentially, be of more significance. However, it was to my mind, inconsequential in the overall summing-up. The last words spoken to the jury by the judge were a reminder that the onus of proof lay upon the Crown.
Those last words are at page 816, in volume 4. Finally, I remind your Honours that, again, the onus remains on the Crown to establish the elements of the charges beyond reasonable doubt. That was calculated to focus the attention of the jury on the elements of the charges listed in the written directions. It did not tell the jury that the Crown had to negative genuine claim of right beyond reasonable doubt.

HAYNE J: Could the jury have been satisfied beyond reasonable doubt of the subject of dishonesty without rejecting the suggestion that it was an authorised loan for repayment of moneys owed?

MR BRERETON: Properly instructed, the jury could have found dishonest means in the sense of a breach of director’s duties, for example, and then not turned its mind to honest belief that he was entitled to the moneys, anyway.

HAYNE J: It is not immediately evident to me how, in the context of this case, there could be a breach of director’s duties – did not itself repel the suggestions of entitlement. In other circumstances, undoubtedly that could be so, but in this case.

MR BRERETON: Because it may well have been contrary to his duties as a director to pay money out of the company to himself without going through the requisite forms of reduction of capital and the like, yet he may, at the same time, have believed that he had a claim against the company for X dollars.

GLEESON CJ: But no question of reduction of capital or return of authorised capital could arise if he was paying out of a trust fund.

MR BRERETON: That must be right, but then he is not prejudicing the company’s property; then he is not defrauding the company.

GLEESON CJ: That is where we came in.

MR BRERETON: Exactly.

GLEESON CJ: That seems to assume that if a solicitor’s clerk embezzles money from the trust account, he is not defrauding his employer.

MR BRERETON: He is defrauding the clients.

GLEESON CJ: He may be defrauding both.

MR BRERETON: In my submission, he is defrauding the clients.

GLEESON CJ: He is exposing his employer to a ‑ ‑ ‑

MR BRERETON: I have tried to formulate over the adjournment the analogy that I was seeking to develop less successfully beforehand. It is this: if I am the trustee of a trust, say, for the members of my family including myself and in respect of at least some of the trust property I also have legal obligations under contract to a third party and I go to the beneficiaries of the trust and say, “Look, I’ve thought about this but I really don’t want to perform those obligations to the third party and I propose, subject to your concurrence, that I distribute this property to myself under the trust deed”, and all the other beneficiaries fully informed say, “Yes, we’re happy with that”, and I go ahead and do that, in that situation I have quite possibly defrauded the third party, but I have not defrauded the beneficiaries of a trust.

If I do not distribute it to myself under the terms of the trustee, but simply say to the beneficiaries, “Look, this is trust property, but I want to use it for my own purposes”, normally that would be a breach of trust, but I can do it with the consent of all the beneficiaries if, sui generis, fully informed, and the beneficiaries would say, “Yes, go for your life” and I then take the trust property and use it for my own purposes, even though that may be inconsistent with obligations I owe to third parties about that property, it is not a defrauding of the beneficiaries of the trust or a breach of trust. That, in effect, is what happened here. Let us assume it was a breach of trust so far as the investors were concerned, it does not make it a fraudulent application of company property.

Now, there were just a couple of other things I wanted to say largely in response to questions on that point. Your Honour the Chief Justice, I think, asked me a question about the document at page 850: not all the cheques were in accordance with what was stipulated in the document at page 850. There were cheques in evidence in which money was paid directly to Trainex rather than to a trust account as suggested by page 850 and, indeed, the form of investors’ deeds suggested that the payment was to be made to Trainex and then deposited by Trainex to a trust account, page 840, clause 2.1.

The cases to which I was referring before the adjournment about the inapplicability of the doctrine of ultra vires and like doctrines are Morris and Roffel, the first of them in [1984] AC 320 at 334C:

Kaur v Chief Constable is a difficult case. I am disposed to agree with the learned Lord Chief Justice that it was wrongly decided but without going into further detail I respectfully suggest that it is on any view wrong to introduce into this branch of the criminal law questions whether particular contracts are void or voidable on the ground of mistake or fraud or whether any mistake is sufficiently fundamental to vitiate a contract. These difficult questions should so far as possible be confined to those fields of law to which they are immediately relevant and I do not regard them as relevant questions under the Theft Act.

That was then developed in Roffel [1985] VR 511 at 514 by Chief Justice Young and Justice Crockett, at about point 5, through to 515 at the end of the judgment, particularly at page 515, line 7.

Similarly I would regard the fact that it was ultra vires of the company to give the money to the applicant (if it be a fact) as equally irrelevant. If the act of the company were void and the company were able to recover the money from the applicant, it would be able to do so not because the applicant had stolen the money from the company but because he had as the directing mind and will of the company caused the company to apply its money in a manner or towards objects which the company had no power to entertain:

In the judgment of Justice Crockett at 520, at the foot of the page:

the question whether the disposition is ultra vires the company and therefore void or voidable is not one which should be allowed to intrude into this branch of the criminal law.

Then there is reference to the passage in Morris. I should, while I am on that topic, however, refer to the New South Wales Court of Criminal Appeal in R v Glenister (1980) 2 NSWLR 597, 602G:

(10) Relevant also to the question whether an application of company property is, or is not, for a company use or purpose is the legality or illegality of that use or purpose. But the illegality of a company transaction can take many diverse forms. It may be an ultra vires . . . intra vires but is, nevertheless, invalid under the general law; or it may be no more than a breach of a minor prohibition . . . The alleged illegality is always relevant to the question whether a company use or purpose is involved, but no general rule can be laid down that an illegal use or purpose can never be a use or purpose within the meaning of s 173.

So there the question is seen as relevant to “use or purpose” not as to “dishonesty”.

In answer to your Honour Justice Gummow’s question about the impact of the current legislation about ultra vires on a company formed under the 1960 Act, I cannot give your Honour a complete question because the ‑ ‑ ‑

GUMMOW J: Well, include that in what you are preparing ‑ ‑ ‑

MR BRERETON: The preliminary answer is this: the 1998 Corporations Law is too late for our purposes, because these offences were in the early 1990s, but it defines a company to include a company registered or deemed to be registered, and then sections 124 and following say that a company has the legal capacity and powers of an individual, that they may be limited in section 125 by an express restriction in the company’s constitution.

GUMMOW J: Which was not in evidence?

MR BRERETON: Which was not in evidence. Now, some of those provisions were substituted in 1998, so we will need to ascertain for your Honour what the position was in 1990 or thereabouts.

On the question which your Honour the Chief Justice has tested me with more than once about the position of a liquidator and creditors, can I draw attention to what three of your Honours said in Spies v The Queen 201 CLR at 635 at paragraphs 93 and following where, in essence, while noting what had been said by Sir Anthony Mason in Walker v Wimborne about duties to creditors, essentially said that there was no independent duty owed to creditors.

GUMMOW J: “Directly”.

MR BRERETON: “Directly”, yes. Well “direct” is perhaps a better word than “independent”, that there was no direct duty owed to creditors, that creditors had no direct rights in the sort of situation there under contemplation.

GUMMOW J: Because of notions of pari passu participation in liquidations, that is what it says.

MR BRERETON: Yes, yes, but in my submission, what is said there, amongst other things, at paragraph 96:

The appellant had no legal relationship with the creditors such that his conduct in selling the shares to Sterling Nicholas constituted a defrauding of the creditors of that company.

That is obviously not directly applicable here, but here perhaps the correct charge was that he was defrauding, if anyone, the creditors or the investors, rather than the company.

Finally, then, can I come back to what, in my submission, is the critical authority on this point which is the United Kingdom case of Lawrence in [1972] AC and in particular, page 632, just before the letter D:

a person is not to be regarded as acting dishonestly if he appropriates another’s property believing that with full knowledge of the circumstances that other person has in fact agreed to the appropriation.

That is what Lord Justice Megaw meant, belief or the absence of belief is relevant to the issue of dishonesty and if there is, in fact, not just belief, but a fact of consent to the appropriation, that must, in my submission, be inconsistent with the existence of the finding of dishonesty. Where the fraudster and the victim are the same person, no other conclusion can be reached. Those are my submissions.

GLEESON CJ: Thank you, Mr Brereton. Yes, Mr Game.

MR GAME: If the Court pleases. Perhaps if I could just pick up a couple of preliminary matters. There were over a thousand investors and a list of them was exhibits 1 and 2; it has not been reproduced, but we could have it reproduced if your Honours require it.

GLEESON CJ: No, I do not think it is necessary.

MR GAME: The definition of property is to be found in section 4 of the Crimes Act and that clearly includes money held on trust, in our submission.

Now, our case at trial was that knowledge by Mr Macleod of obligations of the company to others was clearly relevant if not critical to an establishment of the element of “fraudulently” and that is how the case was put and much of the criticism that Mr Brereton has put in relation to how the case was put is not actually borne out by an examination of what was put in address to the jury by the Crown Prosecutor who happened to be myself. Now, any defect in the summing up with respect to putting the Crown case, we would submit, acted to the benefit of Mr Macleod because the matter had already been adequately put in address.

Now, there appear to be three principal submissions that Mr Brereton has developed: one relating to absence of consent or belief in absence of consent. That was tied to the element of appropriation in submissions to the Court of Criminal Appeal or application, but it is now tied and in oral submissions for the first time to the question of dishonesty.

The second aspect of his submissions relates to a requirement that the Crown proves dishonest means and as part of that, it is put, as I understand his submissions, the Crown establishes, as it were, that there is a victim of the offence in the sense of there being some identified victim. The third is a proposition that the Crown must displace as an element of the offence any claim of right and a claim of right appears to be construed as widely as covering any form of entitlement of any kind.

Now, your Honours, our answer to all of this is that these are in fact not elements of the offence and that were these elements of the offence it would really destroy much of the work that this offence has to do. None of those three matters identified are in fact elements of the offence.

If I could take your Honours, as a starting point, to Glenister [1980] 2 NSWLR 597. Your Honours have been taken to it just a short time ago. The passage starts at 601. We see the provision produced there at paragraph (5). There is nothing in the language of the provision, we would submit, as you see it there:

“fraudulently takes or applies, for his own use or benefit, or any use or purpose other than the use or purpose of such body corporate . . . or fraudulently destroys –

and “fraudulently”, we would take it, is used in the same sense in both provisions. For instance, “fraudulently destroys” might cover a company director who destroys company records when the auditor is on the way to visit. Absence of consent, dishonest means, are not elements of this offence. Now, on this page, at 601, the elements of this offence are set out at paragraph (7). We would submit they are correctly so, and the trial judge directed the jury in accordance with Glenister, that is to say:

(a) An application of company property by a director of that company; (b) for any use or purpose other than the use or purpose of that company, (c) fraudulently made.

Now, “fraudulently made” covers the aspect of dishonesty and there is, we would submit, no additional requirement of dishonest means. As to the idea that there needs to be a victim, the relationship between the company and the director is prescribed by the provision. As to the notion that there needs to be some prejudice to the victim, we would submit that whatever is required is covered by the second element, which is:

for any use or purpose other than the use or purpose of that company ‑

So that you have the elements of the offence and you do not need to go beyond the elements of the offence to find other or further elements and that, really, what Mr Brereton’s argument has amounted to is establishing a complex artifice and then saying, “The Crown did not prove it”, when the very purpose of this offence was to avoid that complex artifice.

HAYNE J: In the context of this case was it a part of the Crown’s case to demonstrate application of the property for a use or purpose being or as excluding the use or purpose of either loan by the company, as it happened, to a director or payment for services rendered, as it happened, by the director and shareholder?

MR GAME: Yes, we put to the jury that they would be satisfied ‑ yes, we had put to the jury that we had excluded that as being capable of being construed as a proper application for company purposes.

HAYNE J: That is that the application had not been for those purposes.

MR GAME: Yes, your Honour, and nor that he could have believed that that was the case. That was picked up very much by the address that was given in respect of dishonesty and it was demonstrated how that must be so. But it was demonstrated – and I have to say, it was demonstrated by a keen paying of attention to what Mr Macleod’s understandings of the obligations of the company were to the investors and that therefore the company would not be able to meet those obligations in any sense, bearing in mind the application that he had made to himself. That is how the case was put. As to say, if you spend $900,000 out of trust moneys – Mr Macleod, it has to be understood, did not concede that he had any obligations to the investors because he said there had been a straight sale of copyright and he had no further obligations. I can take your Honours to that, but let us just assume that he has the obligations.

CALLINAN J: Just pausing there, copyright could not pass until the film was made.

MR GAME: No, your Honour.

CALLINAN J: Is that not right?

MR GAME: That is correct, your Honour.

CALLINAN J: And the film had to be made by the end of December 1990 and it was not.

MR GAME: That is correct, that is absolutely correct, your Honour. So the money was held on trust pending the making of the film.

CALLINAN J: It did; it held on trust at that stage for a return to the investors.

MR GAME: Yes.

CALLINAN J: Not for any other purpose, because the condition, and it was an essential condition, had not been satisfied. I think the deed says that, does it not?

MR GAME: Exactly, but what Mr Macleod said was this – and he was unable to point to any document that supported it – that the lawyers had made a mistake and that he admonished his lawyer, Mr Heidtman for it and he had admonished Mr Staume and told him not to send the documents out and that the documents did not reflect the state of affairs, but he said that what the investors got – he was unable to point to any document of any kind that supported this – was, as it were, a straight sale of existing copyright in the script and that anything after that was a gift from him to the investors. That was the case that he made and he made it repeatedly; he produced a document that sought to show it and he also sought to show that a subsidy would – all of this is relevant to dishonest application, we say, because he said that there was a subsidy, a 70 per cent subsidy, but how the subsidy would be activated was what he called a trigger ‑ but I have forgotten what the word was, but he said there was a trigger, and that at that point, when an overseas purchaser was obtained, that would be the subsidy.

So that if he spends the money on units and he spends the money on himself, which is what he did for the money that went into Starlight, then they are going to destroy the relationship with the investors. Now, we put it in terms of the obligations that the company had to the investors and we put it in terms that the money was in substance the investors’ funds, but it was money held by the company and Mr Brereton took you to that, legally owned by the company. That is the way how we put our case. As I say, Mr Macleod disputed that very case. He said that what happened was completely different than what the documents showed. Now, were that the case, of course, no investor of 1000 or so investors would have put a cent into this, because they were looking for a tax deduction on a tax deductible investment that required them to band together to make investments for the purposes of their tax deduction ‑ ‑ ‑

CALLINAN J: But you do not need any of those, do you?

MR GAME: No, your Honour.

CALLINAN J: The deed is clear. The money is money held for return as and from the end of December 1990 and, indeed, held on their behalf, but perhaps not for return up to that date.

MR GAME: Yes. Now if as it were – and I am jumping ahead a bit – any requirement of any dishonest means, the concealment of the payments to himself – that is to say, there was no record and a cheque was written by him to himself, and there is no record of any of the five payments, it would be dishonest means if it were an element and it is not an element. The whole of Mr Brereton’s argument would completely destroy the application of this provision to any tightly held company where moneys are held on trust, and that is the very purpose of provisions, such as section 173.

Now, in the context of large intermingled funds from 1000 investors or so, the difficulties that a prosecutor has, that is confronted by a prosecutor in charging an offence under section 176A, are considerable. Section 173 is an offence that immediately comes to mind as an appropriate offence to deal with this kind of conduct, where the moneys are held on trust and the director, who controls the company, takes them and expends them for his own purposes. The case was as simple as that.

As I was saying, to begin, and I can take the Court to what was said in address shortly, but as I say, the elements of the offence are those elements set out in Glenister at page 601. That the notions that Mr Brereton has, as it were, imported into the offence were intended to be, in fact, met by the provisions just of this kind, is seen in the history of the provision. If I could just refer your Honours to paragraph 11 at page 603 the difficulties dealt with there of imposing the common law mens rea with respect to larceny, in particularly there a reference to “without the consent of the owner” and “with the intention that the owner should be permanently deprived of them”. And then further down on that page at E:

The offence by a director of fraudulently applying company property to his own use belonged to a second wave of statutory offences which included, as well, fraudulent disposal of property by trustees, fraudulent selling by bankers of property entrusted to their safe custody, fraudulent conversion by bailees and like offences –

We see at the following page, 604B:

It is antecedently improbable that, in using this term –

that is the term “fraudulently” –

the legislature had in mind to reintroduce all the technical complexities attaching to the proof of animus furandi.

That relates to “intention to permanently deprive”, but equally it must apply to the question of absence of consent.

There is a discussion of Balcombe v de Simoni at the bottom which, as your Honour Justice McHugh pointed out, is substantially, if not effectively, overruled by Spies. The passage I was going to take your Honours to next was a passage at page 605 where it says in paragraph (19):

In R v McEwan this Court approved a summing up which directed the jury that the charge under s 173 involved “proof by the Crown of a dishonest intention to deprive the company of property”. But we ‑ ‑ ‑

McHUGH J: That case has never been reported, has it?

GLEESON CJ: No, that case was special leave refused here.

McHUGH J: Yes, and the Chief Justice and I were against each other in the Court of Criminal Appeal in that case. He was prosecuting.

GLEESON CJ: I was thinking about that case this morning. I wonder whether it is possible to get hold of a report of the decision of the Court of Criminal Appeal on it. The prosecutor at the trial was Mr Hyett and he put the case to the jury on the basis that it was a raid on a cashbox company. It was actually, as I recollect it, a mining company that had outlived its purpose. It had some similarities to this case, as I recollect it.

McHUGH J: Yes.

MR GAME: What I wanted to say about this particular case is that the court went on to say:

But we think it proper to warn against the use of any language which introduces the term “deprivation” into a discussion of the statutory offence. Firstly, the statute makes guilty the act of application which could be established by evidence which falls short of proving either deprivation . . . or taking or destruction . . . Secondly, the term raises a deceptive echo of the discarded mens rea of common law larceny. In emphasizing the special position of s 173 and related offences, another warning is appropriate. “Fraudulently” as a constituent of these offences bears a meaning which differs, not only from its meaning in civil contexts, but also from the significance assigned to it in certain other criminal contexts –

That is all I wanted to say about that part of it but we see on the following page that Nelson is not followed. That is at paragraph (22). Then we see the directions on dishonesty referred to in paragraph (23), applying Feely, and that is the directions that were given in this case. At (24) we see that Mr Glenister had a claim to entitlement which was that:

he had merely borrowed company funds in a regular manner and with honest intentions.

It was not suggested that some special directions should be given on claim of right in that particular instance.

So we say as a starting point that it goes entirely against the history of this provision in the way in which it has been applied to import notions of absence of consent, dishonest means and a victim, and a further separate requirement of disproof by the Crown of any claim of right, however broadly construed that might be.

HAYNE J: Can I just under the proposition you have advanced. I understand what you are saying to be that the relevant element is application for the use or benefit of Mr Macleod.

MR GAME: Yes.

HAYNE J: It matters not whether it was by way of loan or payment for services rendered.

MR GAME: That is correct.

HAYNE J: It is enough that according to ordinary standards that application was a dishonest application by him.

MR GAME: Yes, but it does not exclude a consideration of his subjectivity if the jury think that is a reasonable possibility. No factor is excluded from consideration.

HAYNE J: It must be demonstrated that what he did was dishonest.

MR GAME: Yes. It is a judgment that the jury has to make based on facts that they are satisfied about beyond a reasonable doubt or which they cannot exclude and if he makes a claim of right, as one might call it, or a claim to entitlement, then that is taken into account. Claims of entitlement can cover all sorts of things. They can cover mistakes of law. They can cover mistakes of fact. In this case part of the claim to entitlement seems to have been that it was his company and he could do with it what he wanted. That was really at the heart of his case. He said so in a critical passage in his evidence in‑chief and he said it over and again in cross‑examination.

Now, to elevate all of that to a claim of right that has to be excluded beyond reasonable doubt would destroy altogether the requirement of the dishonesty direction because the element of the offence would be without an honest claim of right, however framed, and the fraudulent element would be otiose. There would be no point in giving that direction.

You would have the situation, your Honour, that if you had one case where there was some claim to entitlement, then you would have to give the claim of right direction and if you did not have a claim to entitlement, then you would not give the direction. That just simply could not be the case. If you look at these cases such as Feely, Glenister, Ghosh, they are all claims of entitlement of one form or another, every single one of them. You are unlikely to find a fraud case where there is not some claim of entitlement of some kind.

HAYNE J: The allegation in Glenister was not application for own use or benefit, rather, it was application for use or purpose other than that of the company.

MR GAME: That is true, but in this case of Macleod the judge directed the jury that it had to be for application for Mr Macleod’s purposes and not for the purposes of the company and he gave a direction that, as it were, picked up the notion that it not only be for his purposes but not for the purposes of the company, in the direction.

HAYNE J: Treated the two as cumulative rather than alternative.

MR GAME: He did. With respect to that aspect of it, he did, your Honour, yes.

I should just say counts 20 and 22 were for the use and benefit other than for Trainex because what Mr Macleod did in respect of those was take funds from a Trainex account, tell Mr Staume that they were his funds, and then apply them to Starlight and tell the directors of Starlight that it was a loan from him to Starlight, and then draw down that sum and additional sums and pay it to himself out of Starlight.

So that is why those two offences were slightly different and that was at the time at which he was no longer a director of Trainex. He was the secretary and he claimed he was entitled to write the cheques because he was the signatory of the account and because he was the secretary or he had the authorisation, I beg your pardon.

Now, if I can just deal, and as briefly as possible, with the points that are raised. First, as we say, we have dealt with in the written submissions but the argument that the Crown has to establish in absence of consent or in absence of belief in consent, I should say first in respect of – I am not sure whether they were criticisms, but the observation that Mr Brereton made about the way in which the Court of Criminal Appeal approached this question and particularly Justice Mason, has to be understood in the light of the fact that the argument that was put to the Court of Criminal Appeal was based not on the notion of dishonesty, but on the notion of appropriation. So it makes no difference in the long run, but Justice Mason thought that he was addressing an argument directed to appropriation, whereas the argument that is put today directs this question of consent to the question of dishonesty.

Now, we found our case on – and I will not take your Honours to it again – you have been taken to it and you have read it – the decision of the House of Lords in Gomez. There are a couple of other cases that I wanted to refer to. I should say first, though ‑ and I said this at the beginning and your Honour the Chief Justice put it in a way, but if it is correct that the argument is put in respect of consent by Mr Brereton and if it is true that, as it were, the shareholder can consent in the way in which he says, then there is no scope for charging this offence in respect of any, as one would say, tightly held company. It simply could not work. The very notion of consent would destroy the application of the provision and we say it could not have been the intention that section 173 was so construed when it was intended to bite at these very kinds of situations.

CALLINAN J: Why can you not have regard to director’s duties in considering the whole matter, in considering honesty?

MR GAME: We say you can have regard to them.

CALLINAN J: Sections 229 of the Code, which I am sure has some similar provision now, positively raises ‑ it does not only create offences but it also states affirmative duties of company directors in breach of which, I think, the appellant ‑ ‑ ‑

MR GAME: Section 232 is one of the provisions and 230 concerns unauthorised loans.

CALLINAN J: Yes, and 229 is honesty and diligence, is it not?

MR GAME: Yes. We say he can and we also say that a loan being ultra vires is clearly a matter that could be relevant. It is not decisive, but it clearly could be relevant and there are cases that say that.

But on the way in which Mr Brereton puts his case, the transactions were necessarily consensual. Well, if that is the case, then you could not have a fraudulent application of company funds when the company funds were held on trust when the shareholders, as it were, or shareholder consented.

Now, your Honours, in relation to this argument, I wanted really to do no more than to refer you to one or two additional references in respect of this argument. First is a case that we have provided your Honours with a reference to this morning and it is approved in Gomez. it is called Attorney‑General’s Reference (No 2)(1984) 1 QB. It is specifically approved in Gomez and it is picked up in Justice Mason’s judgment. Now, we did provide your Honours with a reference to that this morning.

GLEESON CJ: What is the page number, [1984] 1 QB?

MR GAME: It is 1 QB, the page number is 624.

GLEESON CJ: Thank you.

MR GAME: Now, the passage I wanted to refer to and perhaps if I just refer to the headnote first. The offence there is “Dishonest appropriation” of company funds. Now, in the headnote it says that:

whether the acts charged as theft were ultra vires the company were relevant to, but not determinative of, the issue of dishonesty –

Now the passage I wanted to take your Honours to is at 640. We see a similar argument to that put by Mr Brereton’s succeeded and the case was discharged at the prima facie case and one sees that at 639.

At 640 there is a consideration of a case called Belmont Finance in the judgment of Lord Justice Buckley, and I will not read it but it is whole of that quote from 640G to 641B. Now, your Honours, it goes on to say:

So far as the authorities in the realm of the civil law are concerned, this decision directly contradicts the basis of the defendants’ argument . . . There can be no reason, in our view, why the position in the criminal law should be any different.

We would submit, that it is difficult to see why it should be so, and as I say, that decision was approved in Gomez by the House of Lords. That is all I wanted to say about that particular case.

Now, the next case I wanted to refer to, again briefly, but it is a South Australian case where the Roffel point was ‑ ‑ ‑

HAYNE J: Just before you depart from Attorney‑General’s Reference (No 2), the editors of Fraud say that the authority of that case might properly be regarded as limited because of concessions made by counsel that there was a prima facie case of appropriation. The concession to which they are referring is, I think, at 634, in the argument of counsel for the defendants where they discuss the question of appropriation. Now, whether it is properly regarded as weakening its authority, I do not know, but it is a view that has been expressed.

MR GAME: Yes, your Honour. In Gomez, I think they said the director concession was noted and was correctly made. In Gomez they said that at 497. I am not sure whether that was read to you this morning but it was certainly at the very end of the judgment. So I am not sure that that weakens the authority of that case.

The next case that I wanted to refer to is the South Australian case of Attorney‑General’s (No 1). It is 41 SAR 148. That case is a similar argument to the argument that was put in this case. I should say that in respect of that last case they were controlling directors and shareholders of the company. But just coming to this case of Attorney‑General’s Reference, now in this case a similar argument was put to the argument that is put by Mr Brereton today, and again it succeeded on a prima facie level and on a case reserved, it was held to have been erroneously done.

Now the questions reserved appear at page 150, and in relation to the first question that is answered in the affirmative simply by reference to Glenister and that is on page 152. If one looks at 153, with respect to the second question – and I will not read it – but 153 from about point 3, in effect, we have an acceptance of the position that we put:

The fact that he is in dominant control does not render him incapable of fraudulently applying the property of the company in breach of s. 189.

And section 189 is a provision in precisely the same terms as section 173. Then the history of it is considered at the bottom, the reference to the history, “the difficulty with charging people in positions of trust, charging them with larceny and why offences such as this were created”. It goes on at 154:

The trial Judge could not equate this offence with stealing, nor could he properly equate the accused with the company. Section 189 is a form of fraudulent conversion, not larceny. Whatever difficulties remain with respect to company directors and either the common law of larceny, or that reflected by the statutory offence . . . a man in dominant control of a company can fraudulently apply the company’s property.

So it does not take the reasoning really any further but it is clear authority that supports the position that we take and we say that it must be correct.

The last case I wanted to refer to on this – your Honours have been referred to this but I just wanted to refer to a brief passage in Justice Brooking’s judgment in Roffel [1985] VR. An understanding of Justice Brooking’s judgment is really that he goes through the difficulties that would arise if you incorporated a requirement of absence of consent and that this would bring in a close attention to company law and the difficulties that that gives rise to. His conclusion is really that it is because of those difficulties that such provisions were enacted.

The passage I wanted to refer to is at page 525 and it is to state the obvious and it is to take up a point which your Honour the Chief Justice said this morning. Is at line 25:

Quite apart from this matter, it is too unrefined an analysis to say of Pearlberg and O’Brien, as Professor Smith has said . . . that the money was the property of the company and the company could dispose of its own property as it wished. So far as the company law at all events is concerned, it is not correct to say that a company may dispose of its own property as it wishes. For the creditors of a company are entitled to look to its subscribed capital. This is the second basis of the decision of . . . Although, as in the present case, only $2 may have been subscribed, the protection given to creditors extends to the whole of the assets of the company –

Our point in this case is that the knowledge by Mr Macleod that the company would be defeated in its obligations to others is, in our submission, essential and at the heart of the question of dishonesty.

If we go to page 530, his Honour Justice Brooking really sweeps aside any suggestion that you have to establish absence of consent as an element of the offence and that it is really for the reasons that he has previously given. Again, we say that it makes no difference that he does so in the context of an examination of cases concerning an element of appropriation and the analysis that Mr Brereton placed on Lawrence and Morris this morning, we say that that really makes no difference if you focus on the element of dishonesty. So that is what we say about that case.

We say that for the reasons that we have given and that appear in our written submissions that absence of consent is clearly not an element of the offence and it clearly sweeps aside any notion that the jury had to be so directed.

HAYNE J: Justice Brooking referred to the two South African cases. Ford refers to a Hong Kong and to a New Zealand case. They may or may not have anything to tell us. Have you looked at them?

MR GAME: I am sorry, your Honour, but I can and I can send up a note.

HAYNE J: It is simply that there seemed to have been a string of other cases, if there is anything in them.

MR GAME: Yes, certainly, your Honour.

HAYNE J: The two South African cases at 524 in Roffel. Hong Kong is Attorney‑General for Hong Kong v Daniel Chan Nai-Keung [1987] 1 WLR 1339. New Zealand is Craig v The Police [1977] 1 BCR 141. They may have no assistance, I do not know.

MR GAME: I think if we could be allowed to send up a note if there is anything additional in them. I think your Honours would be aware that there has also been quite a deal of academic company law criticism or discussion of Roffel and we could give your Honours some reference to those articles if that is of any assistance.

HAYNE J: In Ford at paragraph 4.090 it gathers them.

MR GAME: He gathers them?

HAYNE J: Some of the academic discussion.

MR GAME: It is actually put in a slightly different context in this court today, but that is the consent aspect.

If we come to the question of fraudulently. As I said before, at the heart of Mr Brereton’s argument appears to be that from “fraudulently” in section 1(3) you can, as it were, lift the reasoning of conspiracy to defraud cases or defrauding cases, such as Spies, you can say Spies requires that there be dishonest means to the prejudice of a victim and those then become elements of an offence under section 173.

We say that that cannot be correct when section 173 has its own elements that both address the dishonest means, which is the application to his own purposes, and the victim, if there be one – identification of the company and him as the director. So we say – and I put this argument in opening – that “fraudulently destroys” also demonstrates the argument. We say that the whole of the argument that has been put to you that incorporates those requirements and then says, “We did not get directions on that”, is to bring into the offence something that is not part of it.

Now, we say that if dishonest means were required, then there was ample evidence of dishonest means. The ample evidence of dishonest means was in the way in which he wrote the cheques to himself and made no record of them and gave no accounting of any kind in respect of them. It is quite beyond argument that there is no record of these payments in any company documents. There is a loan account in the Trainex account but that is payments to Mr Macleod. Those equalled $337,000 but they have nothing to do with this case. Then there is a loan account in Starlight. All that shows is that Mr Macleod took moneys out of Trainex trust accounts, put it in Starlight and then withdrew it and paid it to himself, which, as I say, explains why he was charged in those terms in counts 20 and 22.

We say that dishonest means is not an aspect of “fraudulently”. Now, we go on to develop what we anticipated was to be an argument about what directions should be given as to the meaning of dishonesty. We adopt what your Honour Justice McHugh said in Peters. We say “dishonesty” is used in the ordinary sense in this case. We have extracted it at paragraph 18 of our written submissions. If you look at the passage there in paragraph 18 of our written submissions, you can see the passage we rely on. That is to say it is “an ordinary English word” and:

In a criminal trial involving a statute that makes ‘dishonesty’ an element of an offence, it is for the jury to determine whether the conduct of an accused was dishonest ‑ ‑ ‑

GLEESON CJ: What was the use that had to be made of these moneys to enable the investors to claim their tax deductions?

MR GAME: A film had to be made within a period of 12 months.

GUMMOW J: Hence the importance of that date in the deed.

MR GAME: Yes.

CALLINAN J: And the whole scheme failed if it was not and that is why the money had to be returned.

MR GAME: Yes.

McHUGH J: In fact they wrote a letter, did they not, saying that they had earned $195, or something like that ‑ ‑ ‑

MR GAME: Well, the evidence was they would say there be a discussion about paying income and Mr Staume would say, “Well, how am I going to do that?” and Mr Macleod would nominate a sum, “Shall we say, $5,000”. Then Mr Staume would sit down and divide that up between the investors, so someone might get 72 cents and someone might get $12, but it was all paid out of investor funds and it was all done to create the impression of income from the films.

Now, as I say, if you spend the money on yourself in breach of trust, or however you describe it, then the company is not going to be able to meet its obligations. That is explicitly how the case was put and the jury could have been under no mistake about that. When the judge – and this is jumping forwards – ultimately put Mr Macleod’s case, he gave it a coherence and credibility that an examination of it in evidence would not be befitting. I mean, his whole case was completely untenable and he really, with all due respect, had no feathers to fly with.

GUMMOW J: Now, you will remember that in Peters we were not all that happy with the English decision in Ghosh.

MR GAME: Yes, your Honour.

GUMMOW J: The House of Lords has had another go at the question ‑ ‑ ‑

MR GAME: I was not aware of that, I am sorry.

GUMMOW J: ‑ ‑ ‑ in a case called Twinsectra [2002] 2 AC 164, in particular at 171 to 173. Peters is not referred to, of course.

MR GAME: Does Ghosh get – I am sorry to ask your Honour ‑ ‑ ‑

GUMMOW J: Ghosh is referred to as the bee’s knees.

MR GAME: Well, your Honour, our submission is that the test in Feely is an entirely appropriate test to be put in the context of dishonesty. It is not correct to describe it as an objective test. It is a judgment that the jury makes on the facts that are established beyond any reasonable doubt they may have in relation to the subjectivities that the accused advances. So it does not exclude his beliefs as to entitlement. It takes them into account.

McHUGH J: In Peters we all rejected Ghosh, did we not?

MR GAME: No, Justice Kirby did not reject it.

GUMMOW J: No, but the other four did.

MR GAME: Yes.

McHUGH J: Our test was placed similar to Feely, was it?

MR GAME: Yes, Feely, yes. We embrace Feely and we say that when you talk about – and Feely was embraced in Glenister and that is where the judge got the directions from in this case. The directions have a pedigree to them. But, your Honour, what Justices Gaudron and Toohey said about cases in which dishonesty was used in a special sense, and this really picks up – I am not really sure how far you can push it – what your Honour the Chief Justice said this morning about a claim of right, which is this that if you have an offence that says “dishonestly obtains by deception”, then you may have somebody that claims something by deception that they claim that they are entitled to and you will have to give directions about that and the Victorian Theft Act provision is very much the case in point.

There is a case to which we have referred to, and I will not take your Honours to it, but it says that that reasoning ‑ it is called Smart ‑ does not apply to an offence of fraudulent application, section 166 of the Victorian Act, which is in precisely the same terms as section 173. So, again, Smart makes it clear, that you cannot pull over the “dishonestly obtaining by deception” reasoning and put it into an offence such as this.

There is another case again that we have extracted in our written submissions. It is considered by this Court in Peters. It is called Kastratovic. It is a South Australian case. Again, there is no need to refer to it. Justice White said in that case that unless you confine claims of rights to cases where there are specific disputes in relation to properties that are obtained by deception or by false pretences, then you undermine, as it were, the very statutory provisions or the operation of the criminal provisions that are under consideration. That is what we say, you cannot, as it were, have an offence of fraudulently and then say (and without an honest claim of right); that is not the way the provision is construed. But that is not the correct construction of the provision.

What we say is that the directions on dishonesty are in accordance with what this Court said in Peters. They are sound in principle and they involve an assessment by the jury of the facts they find proved beyond reasonable doubt, including the subjectivities of the accused, and any reasonable doubt they may entertain in respect of it. So it is not correct to say it is an objective test. It is difficult to describe it as mens rea. It does not really make sense to describe it as mens rea and it is not correct to say that it is an objective test. It is an assessment that people have to make.

Ordinary notions of decent people may have a notion of self‑righteousness about it that might trouble some people, but all it is doing is directing people, directing the jury to the fact that they have to make an assessment based on the material that they have. It is not an assessment made in a vacuum, because it involves a weighing and careful consideration of legal rights and obligations and the legal rights and obligations that were under consideration here was the relationship between Mr Macleod and the company and the company and the investors and Mr Macleod’s understanding of the obligations that the company had to the investors. So we say that the directions given in dishonesty were correct. We say that there is no additional need to give a direction as to claim of right.

I have put it very briefly, but those are really the three points at the heart of the submissions put by Mr Brereton. In respect of the way in which the case was put, I should take your Honours to ‑ ‑ ‑

GLEESON CJ: You suggested a direction on page 781 at line 20 on the point that you are now addressing us about.

MR GAME: I have to say I was not sure and I said:

According to ordinary standards and so forth ‑ ‑ ‑

GLEESON CJ: What I wanted to ask you was this: did the judge ever give the direction that you invited him to give on page 781 at line 20?

MR GAME: No, your Honour, but I cannot say that I was an innocent bystander, because we suggested to the judge the directions that he ultimately gave. So I have to say we went back and read Peters and Glenister and we thought the directions that he gave were correct. If we were wrong, so be it. We did ask for that direction but overnight we thought the directions that the judge gave were in accordance with Peters and Glenister and that is how it came about that the directions were given the following day. I could not claim that anything else happened. That is what happened.

I should also mention a couple of points just while dealing with this. I was going to come to what I said in address but I should mention a couple of things about the references in the summing up. I do not query the material that Mr Brereton took the Court to, but if your Honours would look at 755 you will see in respect of counts 20 and 22 the reference to:

The ultimate motives and intentions of the accused are irrelevant to . . . application of the funds but of course they will be relevant to the question whether he acted fraudulently.

That is taken from Glenister.

GLEESON CJ: The problem about the direction that you proffered on page 781, I would have thought, was that even if the company owed Mr Macleod a million dollars, it did not follow that it could have recourse to the investors’ money to pay that then.

MR GAME: No, entirely, your Honour. It could not be correct that he could simply say, “I thought I was entitled to a priority over the creditors”. Let us say he said, “I thought I was entitled to $1,000 an hour for the work that I did”. It could not be the case that if he believed that that he was necessarily entitled to an acquittal.

GLEESON CJ: It would not only be a question of whether he was entitled to $1,000 an hour; it would be a question whether he was entitled to be paid out of the money that was invested.

MR GAME: Exactly, your Honour. A lot of the claims he put were in different kinds of – lots of his claims were different and they were contradictory. If I could say this, if you have a claim of right, the very notion of a claim of right contemplates some legally worked out right that if correct would amount to a legal entitlement. It is a claim. It has a subjectivity but it is of right which has in a sense an objectivity to it. For a true claim of right, it would have to be something that if legally worked out would amount in fact to an entitlement. You cannot elevate, as it were, specious claims, which is what – I could take the company money and I could do with it what I liked. The company owed me a whole lot of money and I was entitled to take it from moneys held on trust.

GLEESON CJ: It is the last step that is the critical one. It may be that the company owed him money, it may be that the company was entitled to lend him money.

MR GAME: Yes.

GLEESON CJ: But it does not follow from either of those propositions that he was entitled to apply the money that the investors had paid to be held on trust to himself.

MR GAME: Quite, and his belief that he had no obligations to investors. Likewise, what is the jury to make of that if he thinks he has no obligations to the investors? You really are bringing in the subject. If you elevate that to a claim of right, you are really applying the subjectivity of the thief to an examination of legally worked out rights and it cannot be correct, in our submission.

Anyway, sorry, your Honour Justice Callinan was going to ask me a question?

CALLINAN J: No, no.

MR GAME: Now, when his Honour directed the jury as he did – sorry, if I go to page 815, his Honour directed the jury. I cannot remember whether the judge took a deep breath after line 50 at page 815, but there is no doubt that when he was talking about “reasonable belief” there, he was talking about the element of impropriety in the director’s misuse of position offence and that what ‑ “I might not have made clear to you yesterday was him turning to a completely different topic”. That is made clear when he says:

I remind you that paragraph thirty-five of my aide memoire –

which is about the requirement of impropriety. His Honour then brings together the different points that are made and he brings them together in a coherent way.

GLEESON CJ: Where do we see paragraph (30) of the aide-mémoire?

MR GAME: Paragraph (35) or (30)?

GLEESON CJ: Paragraph (30). I am looking at the reference on page 816, line 21.

MR GAME: Sorry, your Honour.

GLEESON CJ: Where do we see paragraph (30) of the aide-mémoire?

MR GAME: It is at volume 3, 713, your Honour. Sorry, not page 713, sorry, it is 711, paragraph down the bottom of the page, your Honour.

GLEESON CJ: Thank you.

MR GAME: The other one I referred to is (41) which is similar or it is the same as the judge had said to the jury, where it says:

The ultimate motives and intentions of the accused are irrelevant to a determination of the purpose of the application. But of course, they will be relevant to the question whether he acted fraudulently.

Now, your Honours, when you come back to the summing up, it is not necessary for me to say that the judge was giving Mr Macleod more than he was entitled to, but he put Mr Macleod’s subjective case to the jury. For instance, he said that he was entitled to use the company money that he did and the list of things is listed on 816, so it is not as if to say it has been excluded from consideration and so if the jury thought that those things were reasonably possible, then they would take them into account in their assessment. If that is not how the test applies, then it cannot work as a workable test of dishonesty.

Now, your Honours, the next thing and almost the last I was going to do was to take your Honours briefly to, maybe with some trepidation, what I said in address to the jury. If I could take your Honours to volume 3, page 587 and 588. I explained how and where the moneys came from and at line 38, I said:

the Crown charges the accused with appropriating the money from the company in effect but they were in substance investor funds subject to those obligations –

and then I explained how he did it, both on page 588 and 589. Then at the bottom of page 589, I asked the jury whether it was “done, dishonestly”. Then I told the jury that they were likely to hear from his Honour and maybe a bit too rhetorically, but I said at line 21:

How might the investors have felt if they say “Well how’s my film going”, “Well your film is going great, I actually took out $900,000 from the investment account”
Now, I will not read it all out. It does have a bit of a rhetorical flourish about it, with rereading it. The point is made – and I will not say, it is embarrassing – but, anyway, the point is made that it is clearly an understanding of the fact that he defeats the company’s obligations to other parties. There is no question at all that the Crown was under any misapprehension that it was, as it were, charging and defrauding of the investors by the backdoor. It was all addressed to the position of the company and where the investors stood in relation to the company. Then at the next page, I referred to, line 9:

So the covert nature of it is a matter that you’re entitled to have regard to –

That is at line 8. So I was specifically referring to the – if it is required ‑ dishonest means. Then I referred to the ‑ ‑ ‑

GLEESON CJ: Presumably, the Crown case on this was that he could not have believed that he was entitled to help himself.

MR GAME: That is exactly right, your Honour. I will not trouble you with an examination of his cross‑examination, which goes for about 200 pages but, in my submission, it has clearly established that nobody could have left with the impression that he actually thought that. Now, I then referred to “the sheer size of the funds”. Then I said, line 14:

he couldn’t possibly have thought that he had a legal entitlement to these sums, and he asserted in one form or another that –

it was “due to him”. Then I referred to, at line 35:

one says again, in effect the misconception that lies behind everything that he’s put to you. That the funds of the company were, in effect, his plaything that he could do with them as he saw fit.

GLEESON CJ: What page is that?

MR GAME: That is on 591, line 36. Again, Mr Brereton made submissions that the absence of income, absence of subsidy, absence of films, absence of marketing, were not relevant, but they were relevant, and I referred to them at page 592. Again, there is a bit of a rhetorical flourish about it, but line 25:

No subsidy, no income, no marketing, no films except for –

that should say, $712,000, not – so, money is coming out of accounts. If you say that you are going to produce a subsidy from overseas purchasing of the film, and there is no subsidy, then that is highly relevant to dishonesty when you take the funds and spend them on yourself, because you are not going to be able to produce the subsidy that you assert. Nor are you going to be able to produce the income. So it is all relevant.

In truth, the situation that one was left with at the close of the first day of the summing up was the judge had not put this material seriatim to the jury, but it could not have been of any prejudice to Mr Macleod that this material was not put to the jury, because, with respect, there was absolutely no possibility of any answer to it. There was nothing that could be said. The judge said, in effect – in fact, he said in the exchange, part of which, I think, Mr Brereton read, “What can one say?” I think he said, it is res ipsa loquitur. What can one say about this? There is no possibility of any explanation for it.

Now, your Honours, that is that material. I do not propose to take your Honours in any detail through Mr Macleod’s evidence, but perhaps if I could just refer you to a short passage and this is in-chief. This is at volume 2. All of this was examined in detail in cross‑examination, but at page 262 line 20:

What they have in fact bought and what they own is the copyright on the script –

So, as I said, it would be completely contrary to - and then he said:

Now I have gifted them exactly the same.

And then he said at line 26:

The third step is that upon reaching what I describe as threshold, it’s where the film or the project is then enhanced to a point when I can trigger the overseas finance –

And that is how he explained how the subsidy was going to come in.

GLEESON CJ: The subsidy was a loan from overseas, was it?

MR GAME: It was going to be, but, your Honours ‑ ‑ ‑

GLEESON CJ: This was a leveraged investment.

MR GAME: You could say that.

GLEESON CJ: To magnify the effect of the tax benefit.

MR GAME: Yes. If you put in $3,000, then you would get a letter from Trainex saying that Trainex had lent you $7,000.

GLEESON CJ: And you get a tax deduction for 10,000.

MR GAME: Then you send a letter to the Tax Department and, as Mr Macleod appreciated, that gave you a 333 per cent tax deduction. So, ultimately, for a time none of the investors could care terribly much less what happened with respect to their investment until there were no films, there was no income and the tax man started knocking on the door in relation to the investments, when obviously the funds had gone and the deductions were disallowed. So the investors were in for a bad time when this so-called scheme went belly up, but that is how it worked.

Your Honours, he talks about Mr Calvert. He said we had heard Mr Calvert, he said he did not play any part. That is at 263. Then it just so happens that Mr Calvert, Mr Macleod, Mr Wood, the later director, they all lived at Flat 10C, 50 Whaling Road, North Sydney, so that the prospect that these other people were in existence was quite remote. And then he said at page 264:

Q. In relation to the shares were there any other shareholders?
A. No, I was the owner of the company and I jealously regarded myself as the owner and so I very jealously held on to you know my copyright shares and you know my company.

Then he was cross‑examined on that. I am not sure ‑ ‑ ‑

GLEESON CJ: Was he still represented by counsel on page 262?

MR GAME: Yes, your Honour. He sacked his lawyer during the course of cross‑examination, where it emerged that he was making a series of assertions that had never been put to Mr Staume, and he said he had sacked his lawyers because they had not put the matters to Mr Staume.

GLEESON CJ: Was it part of the Crown case that the incoherence of his attempts to rationalise and justify what he had done was itself some evidence of fraud?

MR GAME: No, the Crown case was the incoherence of his attempts to rationalise it meant that you would reject it, not that that would be additional evidence.

CALLINAN J: You cross-examined him about the copyright at 348 to 351.

MR GAME: Yes, he ended up disputing that the documents reflected the situation. He disputed that the deed was ‑ ‑ ‑

CALLINAN J: He said he was inexperienced and he relied on his solicitor and his solicitor ‑ ‑ ‑

MR GAME: His solicitor got it all wrong and Mr Staume should never have sent the documents out. They were not investor funds. He did not have any obligations to the investors and he was entitled – it was his company and he could do with it as he wished and he said that on a number of occasions. In respect of loans, the loans, as it were – he really began by saying that it was to be recorded as loans until such time as there was an audit. That is at 272. All the money that was recorded to be a loan, that could only relate to the 337,000. It is not part of this – it is part of the case because it is part of the funds withdrawn. That is at 272. The assertion that, as it were, the 965 and the 361 were loans and that he had a liability to the company, that, as it were, grew in cross‑examination. I could take your Honours to the references. He admitted a liability for them.

CALLINAN J: He said at one stage, did he not, that the $900,000‑odd for the unit was a loan too?

MR GAME: He did. He said “absolutely” more than once in respect of that liability. I think we have extracted that in the written submissions. It is appeal book 310 and he said it more than once:

Q. You owed the $955,000 to Trainex?
A. Absolutely.

He said that more than once. I could take your Honours to pertinent parts of this transcript but, unless your Honours wish me to take it further, I am content to stop my submissions at this point. Those are our submissions. We will provide your Honours with – we did pick up some references to this in the – it may be best if we just put it in a memorandum. With respect to the transitional provisions and in respect of the other question your Honour the Chief Justice asked me, which has now escaped me ‑ ‑ ‑

GLEESON CJ: Yes, it is a question of when one‑man companies ‑ ‑ ‑

MR GAME: 1994.

GLEESON CJ: Let me more accurate, when one‑person companies became possible - while I was at the Bar.

MR GAME: Our searches at lunchtime suggested it was not until 1994 but perhaps that ‑ ‑ ‑

GLEESON CJ: Well, that sounds right.

MR GAME: We will give your Honours a reference to that.

GLEESON CJ: Well then what would it have to do with this case?

MR GAME: Nothing.

GLEESON CJ: Well then there must have been at least two shareholders. You could not have got the company registered unless you had two shareholders?

MR GAME: That is right.

GUMMOW J: You were talking about this other gentleman at one stage?

MR GAME: Well, maybe it was Mr Calvert or Mr Wood. I think it was Mr Calvert was the other shareholder. He said Mr Calvert did not play any part of anything.

GLEESON CJ: You could have a nominee shareholder?

MR GAME: Of course.

GLEESON CJ: But you had to have two names, two subscribers to the memorandum of association.

HAYNE J: And if you were to have a meeting of members you had to have more than one. I think as part of the one‑member‑company arrangements there was a statutory provision omitting or dealing with the circumstance of a one‑person meeting which was effected by signing a note of the resolution.

GLEESON CJ: What, if any, evidence was there about the paid up capital of the company – Trainex, I mean?

MR GAME: The only evidence was from the evidence of Mr…..one dollar or two dollars paid up capital.

CALLINAN J: Mr Game, could you also provide – to me anyway – the sections and the Acts or enactments in which they appear, concerning director’s duties over the period that the offences cover, the offences we are concerned with?

MR GAME: Yes, your Honour.

HAYNE J: In dealing with the one‑member companies, you may perhaps find it necessary to refer to sections 248B, 249B, 251A of the Corporations Law, provisions which I suspect but do not know may have been introduced after the events with which this prosecution is concerned.

MR GAME: Certainly, your Honour. There is just one transcript reference I might just refer to. It is not necessarily terribly important but at 418 I asked him, line 50:

What authority did you have on 30 July to withdraw $361,000 from Trainex?
A. Well I was still a signature on the account, and I’m still a producer in the company.

So that is the extent of the authority that he asserted that he had to actually make that withdrawal on that occasion. As to the other directors, as I said they all seem to live at 12C, 50 Whaling Road, and that is at page 411 and the Crown case was that according to all appearances they were fictions created by Mr Macleod. Those are our submissions, if the Court pleases.

GLEESON CJ: Thank you. Yes, Mr Brereton.

MR BRERETON: As to the one member company point, if it be the case that the legislation was changed in 1994, then the evidence did not identify any other shareholder, the only available inference would be that the shareholding was at least beneficially all in the hands of Mr Macleod and any other shareholder was a mere nominee. That would not affect the submission that he was beneficially entitled to the whole of the capital.

HAYNE J: But it would present a considerable difficulty in the way of any argument that required as a step along its path ratification by members of steps taken by directors.

MR BRERETON: I think is right, your Honour. My learned friend submitted that the three elements of fraudulent application for which I contended should not be accepted and that the section contained in its own terms its own elements. Essentially, what that boils down to is “fraudulently” means dishonestly and nothing more. In a recent case in the District Court at Queanbeyan, an appeal from which ‑ ‑ ‑

GUMMOW J: You said that quickly.

MR BRERETON: ‑ ‑ ‑ an appeal from which currently stands reserved before the Court of Criminal Appeal of New South Wales in Iannelli v The Queen, the trial judge summing up to the jury and applying what his Honour thought was the consequences of Peter’s Case, said that in the criminal law fraudulently bears a wider meaning than it does in ordinary English. It means just dishonestly and dishonestly bears a wider meaning than it does in the ordinary English language.

If the criminal law has truly reached that position, then that is a most extraordinary thing that terms in statutes creating criminal offences are construed in the manner which is wider than the meaning which would be attributed to them by someone ordinarily skilled in the English language reading those statutes.

In my submission, the cases, in particular Peters and Spies show that, in fact, that is not so and that the idea of doing something fraudulently connotes a deprivation or a prejudice to a victim and it connotes dishonest means to achieve that end. It also involves an absence of a claim of right.

Hyams, Justice Lee’s decision, shows that there needs to be an impact on an object and his Honour expressly said that there are many offences of dishonesty which are not offences involving fraud. One can be dishonest without being fraudulent and it is not enough to say that “fraudulently” means dishonestly.

My learned friend referred to Glenister [1980] 2 NSWLR 597 at 603 paragraph 11, and can I go to the passages to which my learned friend referred for a moment.

GLEESON CJ: I suppose you can be dishonest if somebody says to you, “How do I look?”

MR BRERETON: At 603C, his Honour says:

From earliest times the common law crime of larceny had involved three elements, namely: (a) the taking of goods (b) without the consent of the owner (c) with the intention that the owner should be permanently deprived of them. The third ingredient . . . the animus furandi. In the course of applying the elements of the crime . . . the judges introduced a number of refinements. These developments related principally to the first and third elements –

that is not the element relating to absence of consent –

A reaction followed in the form of a series of new offences –

to overcome the judicial refinements. Now, there is nothing in the analysis which takes place in Glenister to suggest that there was any intention in those statutes to overcome the original requirement for absence of consent of the owner. There was an intention to overcome certain aspects of the first and third elements, in particular the animus furandi, but all Glenister establishes at the end of the day is that animus furandi is not a component of section 173. Contrary to my learned friend’s submission, it does not say anything about whether absence of consent is no longer an element.

My learned friend submitted that it would be anomalous if it were only necessary to give a direction in respect of claim of right if the issue were raised but not otherwise, but, in my submission, that is exactly what this Court said in Peters’ Case 192 CLR 493 at 509. At the foot of page 508, perhaps, in paragraph 30:

Ordinarily, however, fraud involves the intentional creation of a situation of –

deprivation –

knowing that he or she has no right to deprive that person of that money or property or to prejudice his or her interests.

So absence of claim of right is an inherent part of fraud. Then their Honours go on to say at 31:

It is necessary to note one practical matter . . . As a matter of ordinary experience, it will generally be inferred from an agreement to use dishonest means . . . that the parties to that agreement knew they had no right to that property or to prejudice those rights or interests. And as with the defence of honest claim of legal right, it will be taken that there is no issue in that regard unless the absence of knowledge or, which is the same thing, belief as to legal right is specifically raised –

So the effect of that is indeed what my learned friend submits is not the position, namely, that where it is raised, a direction should be given on that issue.

My learned friend referred to Attorney-General’s Reference (No 1) [1984] 1 QB 624. A number of points need to be made about that. At 639F the concession of which your Honour Justice Hayne spoke is noted:

As was ultimately accepted on behalf of the defendants, on the case for the prosecution all the ingredients of the definition of theft were present and satisfied in relation to the defendants’ conduct, subject only to the ingredient “dishonestly” –

In other words, appropriation was conceded and that is why the authority of this case was thought dubious by the Victorian Full Court in Roffel because in Roffel, of course, appropriation was in issue and this case was, therefore, regarded as not authoritative in Roffel. At 639G it is said:

Honesty or dishonesty must however always be a question for the jury, and the present type of case is no exception. In our view, this elementary principle itself provides an affirmative answer to the question posed ‑

which is whether the only directors and shareholders could be held guilty of stealing from the company. Now, that may be the law in the United Kingdom. It is not entirely the law here. At least on the offence of conspiracy to defraud, as I understand the judgments of your Honours Justice McHugh and Gummow in Peters, your Honours thought that the question as to whether the facts constituted dishonesty was a matter for the judge and not for the jury. The other members of the Court thought that it should go to the jury if it was capable of constituting dishonesty, but still left open the position that if it was not capable of constituting dishonesty then it was not something for the jury.

Now, essentially, that is my submission here, that where there is consent of the sort of which I have spoken, there is not capable of being dishonesty, and that is a question of law not a question of fact for the jury. At 640D to E there is reference to Multinational Gas:

It was held that in such a case the liquidator cannot maintain an action for negligence or breach of fiduciary against the shareholders or directors in relation to their conduct of the company’s affairs: their knowledge of, and consent to, the decisions alleged to have been taken negligently or in breach of duty were the decisions of the company itself, and ‑ the transactions being intra vires the company’s memorandum ‑ there was no basis for any claim by the liquidator.

But, to be fair, it is then said:

However, neither Salomon v A. Salomon & Co. Ltd [1897] AC 22 nor the Multinational Gas case were concerned with allegations that the shareholders and directors had acted illegally or dishonestly in relation to the company.

Again, I stress the words, reminiscent of what Justice Lee said in Hyams, that the fraud has to be in relation to the company, not, in my submission, in relation to the investors or creditors. At 641E commences a passage which, in my submission, endorses my submissions in this case:

First, a defendant’s “belief that he would have the other’s consent” under section 2(1)(b) must itself be an honest belief, and it must be an honest belief in a true consent, honestly obtained ‑

That is consistent with the point that I accept. If the consent is dishonestly obtained, then there is still dishonesty.

Then what Lord Justice Megaw said in Lawrence is cited, in particular in the passage:

“Of course, where there is true consent by the owner of property to the appropriation of it by another, a charge of theft under section 1(1) must fail. This is not, however, because the words ‘without consent’ have to be implied . . . It is simply because, if there is such true consent, the essential element of dishonesty is not established.

Which is the point at the heart of this case. At 642A:

We can see nothing in the speech of Viscount Dilhorne in the House of Lords [1972] AC 626, with which the other members of the House agreed, to cast any doubt on the correctness of this passage. But the essence of the defendants’ argument in the present case is that their consent must necessarily involve consent by the company. It must then follow that unless they themselves had an honest belief that they were entitled to appropriate the company’s funds, they could not honestly believe that the company had truly consented to the appropriations in question.

In my submission, companies sometimes make gifts. They make gifts to reward employees who have retired. In Woolworths v Kelly in the New South Wales Court of Appeal a pension granted to Sir Theo Kelly approaching his retirement was upheld as something that the company was entitled to do.

CALLINAN J: They give money to political parties too, but I often wonder about that.

MR BRERETON: Your Honour is quite right, they do that, and particularly in what I have described as closely held companies the idea of companies making loans to their directors and shareholders is something we see every day of the week, often on an interest-free basis. It is quite conceivable that no use of the company is advanced by that. If my learned friend’s submissions are correct, that all involves a dishonest breach of director’s duties, application of funds to the use of the director.

McHUGH J: Well, I know there are cases which have recognised claim of rights in this type of situation but it has always struck me that they were wrong in principle. After all, claim of right developed in relation to the law of larceny and where one was taking something physically that you believed belonged to you. It is not easy to carry that concept across where somebody writes out a cheque for money and then says, “Well, I have a claim of right”. It has always struck me as a rather odd application of a claim of right.

MR BRERETON: Probably all I can say to that, with respect, your Honour, is that at this stage I have an authority of this Court in Peters’ Case in my favour on that point.

McHUGH J: Yes, it is said there and there are other cases, but I have a recollection there is a decision of, I think, of Justice Simpson in a case called Hunt in New South Wales, where I think she threw some doubt on it, as to whether it could be raised where questions of dishonesty were involved. But, anyway, you have what was said in ‑ ‑ ‑

MR BRERETON: And that passage about the sting at the bottom of the page is the key passage on that.

My learned friend says that footnote 98 in Peters which is a reference to the R v Bernhard is in fact a larceny case but, in my submission, what their Honours are saying in paragraph 31 is, as with the defence of honest claim of legal right, in other words, just as in a larceny case with honest defence of claim of legal right, so in a fraud case absence of knowledge of entitlement, is taken to be established unless the question is put in issue. So, their Honours are operating by analogy.

McHUGH J: It seems almost absurd in a false pretences case that you can say, “I am not guilty of false pretences because I had a claim for some money so therefore I could make a false misrepresentation and obtain money or property from the ‘victim’ because the ‘victim’ owed me money.”

MR BRERETON: That is the dichotomy between Chief Justice Barwick and Justice Gibbs in Balcombe v de Simoni and your Honours probably got a majority in that case against me on that point.

I am being now showered with gifts from both sides. One wonders where the Greeks are but so far as ‑ ‑ ‑

McHUGH J: The Italians are close by.

MR BRERETON: The case which your Honour had in mind is R v Hunt (1996) 88 A Crim R 397, a decision of Justice Hunt, chief judge at common law, and Justices Smart and Simpson.

Just finishing off with the Attorney‑General’s Reference, in my submission, in fact there is strong support in that case for the significance of consent to dishonesty, a matter which it has to be recognised was not in any sense brought home to the jury in this case.

Finally, at 643B to G there are some observations on the relevance of whether or not the act is ultra vires. In effect, what is said by the Court of Appeal there is whether or not particular acts are or are not ultra vires may be of some evidentiary value but in the criminal law context they are not conclusive or:

determinative of, the crucial issue as to the defendants’ honesty –
I accept my learned friend’s submission in so far as he puts that absence of consent is not a separate element. Your Honours will have detected some shifting of ground from the written submissions, which contended, in effect, that it was, and the oral submissions today, which effectively contend that it is not a separate element, but it is inconsistent with proof of dishonesty, which is an essential element.

The question was raised in the course of my learned friend’s submissions by your Honour the Chief Justice as to whether in the context of the claim of right he could possibly have thought that he was entitled to be paid out of the trust moneys. Against that, it has to be borne in mind, as my learned friend fairly put Mr Macleod’s case, that he said he did not think they were trust moneys; he thought they were the company’s moneys, not trust moneys. That was put to the jury, at least to some extent, by the trial judge at 771 line 40 to 55, 773 and 810, but it was put essentially in the context of the prescribed interest charges, not in the context of the fraud charges.

My learned friend referred to the summing up at page 815 in volume 5, line 50. The submission was that, whether or not his Honour took a deep breath after line 50, it was obvious he was moving to a different topic. The problem with that submission is that if it is a different topic, his Honour said that he is dealing with “the accused’s case after counts one to thirteen”. Now, the case after counts 1 to 13, as your Honours will appreciate, at 14, fraud; 15, section 229; 16, fraud; 17, 229; and so on. So the alternative charges were interspersed after count 13 with the fraud charges and what his Honour was there apparently addressing was both the fraud charges and the impropriety charges.

The essential point is that nowhere there does his Honour say, “If Macleod believed that, even unreasonably, he is not guilty of an offence under section 173”. His Honour puts the case in this way at 815 line 52:

in the accused’s case after counts one to thirteen is that he was legally entitled to use the company funds in the way that he did.

So what his Honour is setting up is a case of actual legal entitlement, not belief in legal entitlement.

The case that Macleod might have had a genuine belief in legal entitlement never found its way into the summing up, although my learned friend had rightly recognised, when he first raised this issue with the trial judge, that that was really the defence that Mr Macleod had if he had any and that is where the ultimate defect in this founding up is to be, that the case of a genuine belief was never left to the jury. Unless there are any other matters than those which we can address in a memorandum.

My learned friend has not addressed your Honours orally on the proviso. My submission is that this is not a proviso case. On the first issue either I am right or I am wrong. If I succeed on the first issue, then the proviso is no answer to that. So far as the summing up is concerned, if the claim of legal right was not left, then it cannot be said that he was not deprived of a chance of an acquittal and at least a chance of having the jury consider what his main defence was. In those circumstances, there is no case for applying the proviso, particularly in the case of an accused who was unrepresented at that point.

GLEESON CJ: Thank you. Could you let us have that written material within, say, seven days.

McHUGH J: What is the situation of your client in respect of the sentences and bail? Is he released on bail pending the outcome of this case, is he?

MR BRERETON: Yes, your Honour. He served all his sentences except those relating to these offences. In fact, he has served many of the sentences for some of these offences, but count 18 which carried a longer sentence and I think there may be one other, but particularly count 18, he is on bail in respect of pending the outcome of ‑ ‑ ‑

GUMMOW J: And when you say “pending the outcome”, how is that to be dealt with when we deliver our judgment?

McHUGH J: Is it the Court of Criminal Appeal’s bail order, is it?

MR BRERETON: Apparently bail was granted by Justice James in the Supreme Court and Mr Jeffreys believes that the terms are that he has to surrender himself on the date that this Court gives judgment.

GLEESON CJ: Surrender himself to whom? The sheriff?

MR BRERETON: To the sheriff, we think.

GLEESON CJ: Thank you.

MR GAME: Could I just say that proviso submissions – I am sorry I did not mention it, but they are maintained in the written submissions and that which I said about Mr Macleod’s case was also addressed to proviso.

GLEESON CJ: We will reserve our decision in this matter and will adjourn until 9.30 tomorrow morning in Sydney.

AT 3.58 PM THE MATTER WAS ADJOURNED