Stephens v The Queen

[1978] HCA 35

HIGH COURT OF AUSTRALIA

Barwick C.J., Gibbs, Stephen, Jacobs, and Murphy JJ.

STEPHENS v. THE QUEEN

(1978) 139 CLR 315

8 September 1978

Criminal Law

Criminal Law—Fraudulent conversion—Person entrusted with property in order to retain it in safe custody or apply, pay or deliver it for any purpose or to any person—Building contract—Amount paid as deposit—Obligation to repay if payer unable to obtain building finance within specified period—Whether moneys entrusted—Whether obligation to retain equivalent amount for repayment if finance not obtained—Criminal Law Amendment Act, 1902 (S.A.), s. 1 (1).* * Section 1 (1) of the Criminal Law Amendment Act, 1902 (S.A.) provides: "Whosoever - (a) Being entrusted, whether the instructions are written, verbal, or implied, either solely or jointly with other person with any property in order that he may retain in safe custody, or apply, pay, or deliver for any purpose or to any person the property or any part thereof, or any proceeds thereof; or (b) Having, either solely or jointly with any other person, received any property for or on account of any other person: fraudulently converts to his own use or benefit, or the use or benefit or any other person, the property or any part thereof, or any proceeds thereof, or fraudulently destroys the said property or any part thereof, or any proceeds of such property or part thereof, shall be guilty of a misdemeanour, and be liable on conviction to imprisonment, with or without hard labour, for a term not exceeding seven years."

Decisions

Sept. 8.
The following written judgments were delivered:-
BARWICK C.J. The applicant for special leave to appeal from a judgment of the Federal Court of Australia was tried in the Supreme Court of the Northern Territory before a judge (Muirhead J.) and a jury upon five indictments charging, in each case, that between certain dates in 1975 the applicant, "having been entrusted with property", viz. a cheque, "...in order that he Gary Bowden Stephens apply or pay the proceeds thereof in accordance with a certain building agreement entered into with" (the persons therein named, being the drawer or drawers of the cheque in question) "fraudulently converted to his own use and benefit or the use or benefit of Seatoun Pty. Ltd." the sum mentioned in the indictment. He was found guilty, convicted and sentenced. His appeal to the Federal Court of Australia (St. John, Northrop and Toohey JJ.) was dismissed. (at p317)

2. Section 1 (1) (a) of the Criminal Law Amendment Act, 1902 (S.A.) ("the Act"), effective in the Northern Territory by virtue of s. 7 of the Northern Territory Acceptance Act 1910 (Cth), upon which the indictments were founded, is in the following terms:
"1. (1) Whosoever -
(a) Being entrusted, whether the instructions are written, verbal, or implied, either solely or jointly with any other person with any property in order that he may retain in safe custody, or apply, pay, or deliver for any purpose or to any person the property or any part thereof, or any proceeds thereof ... fraudulently converts to his own use or benefit, or to the use or benefit of any other person, the property or any part thereof...shall be guilty of a misdemeanour, and be liable on conviction to imprisonment, with or without hard labour, for a term not exceeding seven years." The terms of the section derive from s. 199 of the Criminal Law Consolidated Act, 1876 (S.A.). They have their counterpart in s. 20 (1) of the Larceny Act, 1916 (U.K.). The offence which this section creates is subsumed under fraudulent conversion, that is to say, the fraudulent use of the property of another for one's own purposes, or for purposes alien to the purpose for which the property was held. There has been an endeavour to express the substance of the section, or at any rate to include that substance in s. 5 (3) of the Theft Act, 1968 (U.K.). (at p318)

3. The applicant has made a single attack on the conviction. He says that there was no evidence given at his trial that the moneys in respect of which the indictments were laid were "entrusted for a purpose within the meaning of s. 1 (1) (a) of the Act" properly construed. Put another way, he submits that upon the true construction of the Act the trial judge ought to have directed the jury to acquit, the circumstances in which the moneys were paid not amounting to an entrustment within the meaning of the Act. (at p318)

4. The application thus involves the construction and application of s. 1 (1) (a) of the Act. (at p318)

5. The facts necessary to be known to enable discussion of the applicant's submission are few and undisputed. (at p318)

6. Seatoun Pty. Ltd. ("the company") is a company registered under the Companies Act, 1961-1972 (Q.) with a paid up capital of $2. The applicant and his wife (Dale Elizabeth Stephens) are the sole shareholders and directors of the company. The applicant under the articles at relevant times had the capacity to exercise the powers of the company. No distinction has been sought to be raised either at the trial or in the appellate proceedings between the company and the applicant. He has been treated as completely identified with the company. But, in any case, the distinction between the company and the applicant would in the circumstances of the case have no consequence: see R. v. Grubb (1915) 2 KB 683 ; Reg. v. Prast (1975) 2 NZLR 248 . (at p318)

7. The company "the builder" entered into separate written contracts with a number of persons (there described, and in these reasons, as owners) in identical terms. The contracts, excepting purely formal parts, contained the following provisions:

"WHEREAS: (a) The builder has agreed to erect a cyclone proof home, Design No. 953, on the owners land being described as: situated at: save and except for drainage. Any rise in the cost of labour and/or materials within 30 days of the date of execution of this contract shall be borne by the purchaser. THE FIRM PRICE OF THIS HOUSE IS $ (b) The builder agrees to erect the above described home with ten (10) weeks of receiving written approval from the Local Authority that the plans and specifications lodged with that Authority meet with its requirements, or if the owner agrees to clear his own site which ever is the greater. (c) The builder further agrees to construct the house in accordance with the approved plans and specifications, as submitted to the Local Authority, referred to in the preceding sub-clause. (d) The owner agrees to endeavour to obtain the necessary finance from any Bank, Finance Company, Building Society, or any other approved finance institution to the extent of $ ( )in order to complete the purchase and to notify the builder in writing that approval for such finance has or has not been granted within thirty (30) days from the date hereof. On approval of such finance, then both parties agree to be bound by this Agreement and its conditions therein. Should finance not be approved, then all monies paid as deposit, will be refunded to the owners. (e) It is expressly agreed that immediately approval for finance has been given, the builder will be given authority to use any funds held in trust for the purpose of fulfilling in part its obligations under the terms of the Contract. (f) Notwithstanding anything herein contained, it is agreed that the builder is not bound to proceed with any portion of this Agreement until such time as he has been notified in writing that the owner's finance has been approved, save that he may, if he so desires, submit the plan and specification to the Local Authority in order to obtain approval. (g) Both parties agreed that should finance not be approved within a period of thirty (30) days, then either party may terminate this Agreement, and all monies paid by way of deposit will be refunded in full, except those monies used for the preparation of plans, etc., or incidental to obtaining approval, save that the builder, at its option, may extend the time to obtain finance for a further period, not exceeding sixty (60) days. (h) It is further agreed by both parties executing this Contract, that progress payments will be made by the owner in the following manner: (i) $ (various sums appeared here in the various contracts ranging from $ to $ ) on the signing hereof. (ii) Forty Five per centum (45%) on completion of foundation slab and delivery of house on site; (iii) Twenty five per centum (25%) when roof is on and the house is lockable; (iv) Fifteen per centum (15%) when linings are completed; (v) Ten per centum (10%) on handover to owner; (vi) Five per centum (5%) within ninety (90) days of completion, (conditional upon the architect in his opinion alone, agreeing that the builder has completed properly). All above payments will be made within seven (7) days of written advice from the builder.

NOTE: The amount shown in (i) above, paid as security deposit shall be refunded to the owner on completion of the contract." (at p320)

8. The various sums mentioned in par. 1 of cl. (h) of the contracts were paid by cheque to the company by the owners upon the signature of those contracts. The only evidence of the applicant being entrusted with money was this payment of the various sums to the company under and upon the terms of these contracts. (at p320)

9. Finance to enable the work under the contracts to proceed (cl. (d)) was not forthcoming in any instance. But before the time for obtaining such finance under the contracts had expired, the applicant as director of the company had used for his own benefit portion of the moneys received by the company under the contracts. Ultimately, the company went into liquidation with the result that the amounts so paid to the company were lost to the various owners. In the course of his summing up, the learned trial judge observed:

"It was not of course part of the Crown case that this money was in the first place, obtained by false pretences. If that was the evidence of course, the accused would have been charged with obtaining money by false pretences. It is not the prosecution case that the accused or his company, necessarily concocted this whole scheme as a fraud; entered into this franchise agreement and came to Darwin with the intention then, of defrauding the people. You may have little doubt, madam and gentlemen, that the accused entered into the arrangement, with a view to making a substantial and a legitimate profit. You may think he was naive or unlucky or impetuous, but there is, I suggest, no evidence that the project was initially intended as a project to be fraudulent. As I said, he wanted to make a profit. That is still legitimate in our system."

The case against the applicant was thus based exclusively on a breach of s. 1 (1) (a) of the Act. (at p320)

10. The trial judge left to the jury the question whether the moneys were entrusted to the applicant without any direction as to the meaning of the contracts or as to the effect of that meaning in relation to that question. (at p320)

11. The applicant's submission, succinctly put by his counsel, is that the amounts paid by the owners under the terms of these contracts were not "entrusted" within the meaning of the Act: that they were at no time fixed with a trust, nor was any fiduciary duty imposed by the contracts in relation to them. On the contrary, so he submits, the relationship of the parties in respect of the moneys paid was no more than contractual: in truth, if and when the moneys became repayable under the contract, the relationship of the builder to the owner was no more than that of debtor and creditor. (at p321)

12. The Solicitor-General for the Northern Territory, who represented the Crown on this application, contended that, according to the terms of the contract, the moneys so paid were held to the builder on trust for the owners who paid them, subject only to the right of the builder to retain thereout amounts to recoup expenditure made in obtaining approval of the plans for the construction of the buildings. In this connexion, the Solicitor-General placed particular reliance on the use of the words "any moneys held in trust" in cl. (e) of the contract, which he submitted could only refer to the deposit moneys. (at p321)

13. Before moving to consider the meaning of the section, some features of the contract between builder and owner might be noticed. The amount of the moneys to be paid is mentioned only in cl. (h). It is there expressed to be a progress payment, i.e. a prepayment of part of the price ultimately to be paid by the owner. However, if all the payments for which that clause provides are added together, the total would exceed the contract sums by the amount of the first progress payment. (at p321)

14. In cl. (d), the reference is to "all monies paid as deposit" and in the note to cl. (h) the amount is spoken of as "paid as security deposit". (at p321)

15. Failure to obtain finance within the stipulated time or any extension thereof is said to give occasion for termination of the agreement (cl. (g)); but cl. (d) purports to postpone the attachment of any obligation of the contract until finance has been obtained. (at p321)

16. The amount of the deposit less any amount expended in obtaining approval of plans is to be refunded to the owner if finance is not obtained (cl. (d)) or on completion of contract (cl. (h)). (at p321)

17. Clause (e) calls for authority to be given to the builder to use "any funds held in trust" so soon as finance has been approved. (at p321)

18. Although an attempt was made at the trial to establish that the written contracts were affected by oral statements made to the applicant by the owners or by some of them, it is clear from the evidence given at the trial that the only contractual arrangement between the owner and the builder and the only material determining the nature of the relationship of the applicant to the moneys the company received is to be found in the written agreements. Thus, the only evidence of "entrustment" to satisfy the terms of the Act is contained in those writings. It was therefore clearly for the trial judge to determine the true meaning of the written instruments and to decide whether, upon their of the written instruments and to decide whether, upon their proper construction, the payment of money according to their terms constituted an "entrustment" for a purpose within the meaning of the Act. If upon the proper construction of the writing such payment did not amount to an entrustment, the applicant was entitled to an acquittal. On the other hand, if upon that construction such payment did amount to entrusting the builder with the moneys paid, the further question arose whether the entrustment for the purpose expressed in the indictments was for a purpose within the Act. That again, in my opinion, was a question exclusively for the trial judge for it depended entirely on the meaning and effect of the writing. But the identification of the purpose clearly must bear upon the question whether the moneys were entrusted. If the writing did not evidence such a purpose, again the applicant was entitled to be acquitted: but if such a purpose was evidenced, it was for the be acquitted: but if such a purpose was evidenced, it was for the jury to determine whether the moneys had been applied to that purpose and, if not, whether the application of the moneys to another purpose was fraudulent. (at p322)

19. It is clear enough on the evidence that the moneys were applied to the applicant's own use and benefit and the jury found that the applicant was fraudulent in so applying the moneys. (at p322)

20. The questions to be resolved, therefore, are whether the payment of moneys as required by cl. (h) of the agreements was on the proper construction of the contract an entrustment of those moneys within the meaning of the Act and, if so, whether they were entrusted for a purpose as required by the Act. The matter to be resolved could be expressed as a single question: were the moneys entrusted for a purpose within the meaning of the Act? (at p322)

21. It is apparent that to answer this or these questions the section itself must first be construed. There have been a number of decisions in connexion with charges brought under the section, or under its predecessors or counterparts. There have also been decisions in the Chancery or Equity jurisdiction as to the creation of a trust of moneys paid, decisions which have some bearing on the application of the section. The conclusions reached in these cases, to some of which I shall later refer, both those directly on the section and those in the Chancery or Equity jurisdiction, may not all be consistent with each other. But it has emerged from them quite clearly that the creation of the mere relationship of debtor and creditor will not amount relevantly to an entrustment. It has been said that a fiduciary relationship in relation to property or money is required if the payment or passing over of money or property is to satisfy the terms of the section, fiduciary because the money has never become the property of the recipient. But it has not been decided that the creation of a trust which equity would recognize and enforce is necessary to constitute an entrustment. Nor, in my opinion, is that necessary. (at p323)

22. What the section, in my opinion, contemplates by the use of the word "entrusted" is that money or other property is placed in the hands of another on terms that that money or property shall remain the property of the person paying or delivering it or for whom it was received, that is to say, remain the property of that person at law or in equity, and that it shall be held for safe custody or be applied to some specific and specified purpose or used in some specific and specified way. Little difficulty can arise in the application of the section in the case of property other than money. But, in the case of money, which can be identified and followed without being confined to specie, difficulties may arise, as indeed they do in this case. To constitute entrustment to satisfy the section, the mutual intention of the parties, payer and recipient, express or implied, in my opinion, must be that the money shall remain the property of the payer or the person for whom it is received until it is due to be repaid or until it is applied to the specified purpose for which it was paid and received. It is not necessary that the recipient be required to place the money in any particular place. Indeed, payment into a separate account may not itself necessarily be decisive of the ownership of the money: see Mosely v. Cressey's Co. (1865) LR 1 Eq 405 . (at p323)

23. In my opinion, the test of entrustment is whether or not the common intention of the parties was that the money handed over should remain the property of the payer. The existence of this common intention is the discrimen or test of the applicability of the section. Whether or not such an intention exists is the question to be asked and answered. Such questions as Professor Smith suggests in an article "The Scope of Fraudulent Conversion", (1961) Crim Law Review, 797 at p 800, are but indicative of or consequential on the determination of the common intention of the parties, the existence of which may, or perhaps generally will, be, where it does not depend exclusively upon a writing, inferred from the facts of the case and the relationship of the parties which the facts disclose. Where the money is handed over exclusively on the terms of the writing, that common intention must be derived from that writing properly construed. (at p324)

24. It seems to me that what the section requires in relation to money is that if the moneys, by that common intention, remain in the ownership of the payer, the recipient must maintain a fund equal in amount to the moneys received which he can and in due course does apply for the specified purpose or use. This obligation will attach although there is neither express nor implied obligation upon the recipient to segregate the moneys though in some circumstances, but not in all, the existence of such an obligation may suggest that those moneys have been relevantly entrusted. Thus, in the case of moneys paid over to a recipient, the question to be resolved in relation to the Act may be expressed: was it the common intention of the parties that the moneys should remain the property of the payer so that the recipient was required to maintain intact and available a fund equal in amount to the moneys paid and to apply that fund for the specified purpose or use? Perhaps the instance of moneys handed over for safe-keeping points up the requirements of the section. In such a case, the recipient is not bound to keep the money in specie - as, indeed, cannot be done if the payment is by cheque - nor is he bound to keep it in some segregated form. But he would be bound to maintain and keep available a fund in identifiable form of equal amount to the moneys received. (at p324)

25. So it seems to me it is necessary in this case in order to satisfy the section that it should be concluded that the terms on which money was handed over for application to a purpose should expressly or impliedly require the recipient to maintain in identifiable form a fund available for application to the designated purpose. No doubt, as in the case of moneys handed over for safekeeping, the nominated purpose to which the moneys is to be applied will assist to determine whether a fund must be maintained. There is a distinct interaction between the two elements, namely, the ownership of the money and the purpose for which it is held. (at p324)

26. It will be convenient at this point to refer to some of the reported decisions. It was decided in R. v. Hotine (1904) 68 JP 143 that a sum of money deposited as security for the honesty of employees during their employment was not "entrusted" with the meaning of the Larceny Act, 1901 (U.K.) which, so far as presently relevant, had the same effect as s. 20 (1) of the Larceny Act, 1916 (U.K.). It was said that the depositee was "under a contract to pay" the servant who left the employment without being in default. The distinguished Common Serjeant said: "That is a promise, and not a trust. He is not entrusted with it", i.e. the deposit, "for that purpose, it is for his own benefit. It is only a credit." The Common Serjeant consulted Phillimore J., who agreed that the matter did not come within the statute. (at p325)

27. Of course, whether or not property is entrusted to another within such a section is a question of fact, to be decided as such unless the suggested entrustment is exclusively referable to the terms of a document. Being a question of fact, the answer will turn on the particular circumstances of the case. In the case of a handing over in the terms of the document, the relationship of the parties may have some bearing on the construction of the writing, but the meaning of the writing will answer the question. Thus, no conclusion about money deposited is necessarily universally true. Therefore, in my opinion, it was correctly said by Lord Hewart C.J. in R. v. Smith (1924) 2 KB 194, at p 196 that a universal statement in terms of the Common Serjeant's words could not be supported for the reason, if for no other, that each case must turn on its own particular circumstances. But, upon the material disclosed in the somewhat meagre report of R. v. Hotine (1904) 68 JP 143 , the conclusion of the Common Serjeant in that case, in my opinion, was correct. Further, I agree with the reasons he expressed, arguendo, for his conclusion. (at p325)

28. But Ridley J. in R. v. Noel (1914) 10 Cr App R 255, at p 260 , speaking of R. v. Hotine (1904) 68 JP 143 , said: "According to the view of the Common Serjeant and of Phillimore J., the money could not be so treated; they regarded it as money the employer was entitled to use. If so, it became a loan." The case before Ridley J. was of a different order to that in R. v. Hotine (1904) 68 JP 143 and clearly could not be governed by that decision. In R. v. Noel (1914) 10 Cr App R 255, at p 260 the money was entrusted for safe custody, a purpose which, as I have indicated, virtually decided the question of the ownership of the money. In R. v. Smith (1924) 2 KB 194 a deposit of money was made on oral terms which required the money to be deposited in a specified bank with the provision that it would be returned after three months. The jury convicted the appellant of fraudulent conversion of the money. The decision of the Court of Criminal Appeal (Lord Hewart C.J., Roche and Branson JJ.) was that the question of entrustment of the money was for the jury. But the Court had been pressed with R. v. Hotine as deciding as a universally true proposition that a fidelity deposit could never constitute an entrustment of money within the Larceny Act. The Court said of R. v. Hotine that only two observations were necessary: "The first is that the facts do not appear to be fully reported; the second is that if the Common Serjeant intended to lay down in general terms that where money is paid by way of deposit as security for the honesty of the person so paying it, the person to whom it is paid is entitled to use it as his own, then the judgment cannot be supported" (1924) 2 KB, at p 196 . The Lord Chief Justice then made the quotation from R. v. Noel which I have made and added (1924) 2 KB, at p 197 : "In other words, it may appear from the facts of a particular case that the money was really lent, but it is a question of fact whether that is the true nature of the transaction." (at p326)

29. If these passages mean no more than that where the evidence of entrustment is wholly or partly oral, the matter is one for the tribunal of fact, each case depending on its own facts, I am able respectfully to agree. But I would not analyse the situation in which there was not a common intention that the money should remain the property of the payer as involving a loan of the money paid. To put the choice to the jury as one between loan and trust is, in my opinion, quite incorrect and seriously prejudicial to an accused. It is proper and better, in my opinion, to ask them to answer the question whether the common intention was that the money, though in the hands of the recipient, should remain the property of the payer. (at p326)

30. In R. v. Lord (1905) 69 JP 467 a collector of debts which he was obliged to pay over less his commission was held to have been entrusted with the amount collected. With that conclusion I can agree. On any view of R. v. Hotine, its decision was irrelevant to the resolution of the charge in R. v. Lord. I might add in passing that, in my opinion, Lord Alverstone in R. v. Lord did not justify the situation in R. v. Hotine as a transaction of loan. Similarly in R. v. Messer (1913) 2 KB 421 a taxi cab driver under obligation to hand over a specified portion of his takings was held to come within the Larceny Act. In both these cases, it could properly be decided that the common intention of the parties was that the amounts collected should remain the property of the person on whose behalf they were collected or received. The duty to pay over the money in each case depended upon the existence of that common intention. To place the resolution of each case squarely upon the existence or non-existence of such an intention is much more likely, in my opinion, to result in a just conclusion than to use the suggested alternative of loan or trust. (at p327)

31. In my opinion, not only was R. v. Hotine correctly decided on the disclosed facts, but, in my opinion, if no more appears than that money is paid over as a deposit or guarantee, whether it be of faithful service, or due performance, it is unlikely that it was the common intention that the amount deposited should remain the property of the payer. Rather, reliance is placed by the payer on the promise to pay a like sum, in the event that the sum is not forfeited by failure to be honest, or to perform stated obligations. (at p327)

32. I turn now to the terms of the writing. If the payment for which they call is as a security deposit - a guarantee of good faith or of due performance - it cannot be concluded, in general, in my opinion, that the money was relevantly entrusted. In this connexion, I am unconvinced by what was said in this connexion in R. v. Noel (1914) 10 Cr App R 255 and in R. v. Smith (1924) 2 KB 194 A requirement for the repayment or refunding in stated events of the amount deposited would not, in my opinion, alter that situation. No more may be achieved by such a requirement than a contractual obligation to pay or repay. This is quite clear if the initial payment is no more than a progress payment against the builder's price. (at p327)

33. The difficulty in this case arises, in my opinion, from the terms of cll. (d), (e), (f) and (g). (at p327)

34. After consideration, I am unable to read cl. (d) as denying the existence of a contract and of obligations thereunder before the approval of the finance necessary to complete the building. It seems to me that both parties are bound from the time of the execution of the contracts to perform their respective obligations. The owner is bound to endeavour to obtain the necessary finance. Should he fail to do so he would be in breach: and, of course, he may repudiate the contract before making any endeavour to obtain finance. The deposit, called a security deposit in the note to cl. (h), was clearly at least an earnest of the performance of this as well as of other later obligations by the owner. Thus, in my opinion, the obligation to repay or refund the deposit as in cll. (d) and (g) was dependent on the due performance by the owner of this obligation under a contract. Similarly, the obligation imposed by the note to cl. (h) was dependent upon the payment by the owner of the price. Clearly, if he failed to do so, the deposit could be applied towards the price of the building. (at p327)

35. It might be thought that the liberty given to the builder by cl. (f) to submit the plan and specification to the local authority for approval and the authority given to him by cl. (g) to retain the cost of doing so tended to the conclusion that the deposit moneys remained the property of the owners at least until finance has been approved. But, in my opinion, on the assumption that the owners have made due endeavour to obtain finance, it was necessary to qualify the obligation to refund the deposit in order to secure reimbursement of the builder's expenditure in obtaining the approval of the local authority. I do not think that this qualification establishes or tends to establish a common intention that the deposit remain the property of the owner. As I have pointed out, had the owner defaulted in his obligation to endeavour to obtain finance or had he repudiated the agreement, the obligation to refund the deposit would not arise. It might be observed that, although by cl. (f) not bound to commence building until finance was approved, the builder might properly incur liabilities in prepration for the construction in anticipation of such approval. Whether or not the builder could establish an amount of damage to equal the amount of the deposit need not be considered. It is enough that, in the supposed circumstances, he would not be bound to refund the entire deposit, quite apart from the qualification to cl. (g): he could resort to it for repayment of his damages. (at p328)

36. I have considered whether it should be concluded from the terms of the contract, including cl. (e) to which I will later specifically refer, that the common intention was that the moneys paid over should remain the property of the owners until there was default on his part, or finance was obtained. Although there may be much in this possible construction of the writing I have come to the conclusion that it should not be adopted. Clause (e) apart, there is really nothing in the contract which would differentiate the payment of the money as deposit, or security deposit, or as progress payment, from the payment of the deposit on a real estate transaction. It could not properly be concluded, apart of course from some specific contrary term of a contract, that there was a common intention that the deposit money in such a case should remain the property of the purchaser until occasion arose under the contract of sale and purchase for the vendor to resort to the deposit. (at p328)

37. Much stress was laid on the terms of cl. (e). But if upon consideration of the other terms of the contract no mutual intention that the deposit money should remain the property of the owner is established, the terms of this clause would, in my opinion, be insufficient to do so. The clause contemplates that the funds to which it relates could not be used in payment of the contract price, even after finance was approved, without the specific authority of the owner in that behalf. But, quite clearly, the deposit money cannot fall into the category of any such fund. Upon the approval of finance, the deposit moneys are available as part of that price, even if full effect were not given to the description of progress payment in cl. (h). So far from cl. (e) necessarily referring to the deposit moneys, it is, in my opinion, at least doubtful whether, and I am not satisfied that, those moneys are covered by the clause. In any case, in my opinion, in a criminal proceeding, it would be unsafe to rely on a construction of this clause which treated the words "any funds" as exclusively referring to the deposit moneys. (at p329)

38. Therefore, upon consideration of all the terms of the writing, it cannot properly be said, in my opinion, that it evidences a mutual intention that the deposit moneys remain the property of the owner so that the builder came under a fiduciary obligation to maintain intact a fund equal in amount to them. The relevant relationship of owner and builder established by the writing was no more than that of debtor and creditor, their rights in that respect remaining purely contractual. In my opinion, the present case is stronger in favour of the applicant than the case of Reg. v. Hall (1973) 1 QB 126 which, in my opinion, was correctly decided. (at p329)

39. The indictments did not charge the applicant with having been entrusted with the proceeds of the cheques for safe custody. The entrustment was said to be "for the purposes of the building contract". Having already expressed myself as to the meaning of the contract, it is unnecessary to deal at length with the question whether this purpose is a relevant purpose. But, as I have indicated, the purpose within the section must be both specific and specified. In my opinion, the purpose stated in the indictments was not so specified in the circumstances of this case, and bearing in mind the construction of the contract, it was not, in my opinion, a relevant purpose. Had finance been obtained and the contract proceeded, I would find difficulty in concluding that the builder giving credit for the deposit had at any stage done other than apply the deposit for the purposes of the contract. The use of the money meantime for his own purposes would not, in my opinion, deny that he had so applied the deposit. The contractual obligation to refund the deposit can scarce be said itself to be a purpose within the purview of the section. (at p329)

40. No doubt the position of those who deposit money as in the present case or in comparable cases needs protection against the event that the recipient of the deposit may fail to make the required refund when the time for its payment arrives. Statutory obligations to place the deposit in safe hands commend themselves. It seems to me quite unsatisfactory to attempt the protection of the depositors by resort to the criminal law under such a section as s. 1 (1) (a) of the Act. (at p330)

41. In my opinion, the trial judge ought himself to have decided the meaning and relevant operation of the contract in this case and, having done so, ought, in my opinion, to have directed an acquittal. The writings on their proper construction did not evince a mutual intention that the deposit moneys remain the property of the owners. (at p330)

42. The appeal should be allowed and the conviction and sentence set aside. (at p330)

GIBBS J. The applicant was convicted in the Supreme Court of the Northern Territory on five charges of fraudulent conversion. His appeal to the Federal Court of Australia was unsuccessful and he now seeks special leave to appeal to this Court. (at p330)

2. The charges were laid under s. 1 (1)(a) of the Criminal Law Amendment Act, 1902 (S.A.) which has been adopted as part of the law of the Northern Territory. Sub-section (1) reads as follows:

"Whosoever- (a) Being entrusted, whether the instructions are written, verbal, or implied, either solely or jointly with any other person with any property in order that he may retain in safe custody, or apply, pay, or deliver for any purpose or to any person the property or any part thereof, or any proceeds thereof; or (b) Having, either solely or jointly with any other person, received any property for or on account of any other person:

fraudulently converts to his own use or benefit, or the use or benefit of any other person, the property or any part thereof, or any proceeds thereof, or fraudulently destroys the said property or any part thereof, or any proceeds of such property or part thereof, shall be guilty of a misdemeanor, and be liable on conviction to imprisonment, with or without hard labor, for a term not exceeding seven years." (at p330)

3. The applicant and his wife were the only directors and shareholders of a company named Seatoun Pty. Ltd. ("Seatoun") which had a paid up capital of $2. The applicant, as the holder of class A ordinary shares, was alone entitled to attend and vote at the meetings of the company. After the cyclone in December 1974 there was an urgent need for accommodation in the Northern Territory, and during the latter half of 1975 Seatoun entered into a number of building agreements with persons in the Territory, including the five persons whose money was said to have been fraudulently converted. The agreements were all in the same printed form. Each agreement recited that Seatoun (described therein as "the builder") had agreed to erect a cyclone-proof home on the land of the other contracting party ("the owner") within ten weeks of receiving from the local authority written approval of the plans and specifications. The price of the house was named in the agreement. By cl. (d) the owner agreed to endeavour to obtain the necessary finance from a financial institution "to the extent of $ in order to complete the purchase and to notify the builder in writing that approval for such finance has or has not been granted within thirty (30) days from the date hereof" No amount was inserted in the blank space after the $ sign. Clause (d) continued as follows:

"On approval of such finance, then both parties agree to be bound by this Agreement and its conditions therein. Should finance not be approved, then all monies paid as deposit, will be refunded to the owners."

Clause (e) provided:

"It is expressly agreed that immediately approval for finance has been given, the builder will be given authority to use any funds held in trust for the purpose of fulfilling in part its obligations under the terms of the Contract."

No other reference to funds being held in trust appears in the agreement. Clauses (f) and (g) were in the following terms:

"(f) Notwithstanding anything herein contained, it is agreed that the builder is not bound to proceed with any portion of this Agreement until such time as he has been notified in writing that the owner's finance has been approved, save that he may, if he so desires, submit the plan and specification to the Local Authority in order to obtain approval. (g) Both parties agree, that should finance not be approved within a period of thirty (30) days, then either party may terminate this Agreement, and all monies paid by way of deposit will be refunded in full, except those monies used for the preparation of plans etc., or incidental to obtaining approval, save that the builder, at its option, may extend the time to obtain finance for a further period, not exceeding sixty (60) days."

By cl. (h) it was provided that "progress payments will be made by the owner in the following manner:-". There followed six numbered paragraphs. Number (i) provided for a specified sum to be paid "on the signing hereof"; (ii) to (vi) provided for further payments to be made on various specified events, the last being within ninety days of completion. The payments mentioned in pars. (ii) to (vi) amounted to 100 per cent of the purchase price, so that the sum of the payments required to be made exceeded the purchase price. Clause (h) continued:

"Note: The amount shown in (i) above, paid as security deposit shall be refunded to the owner on completion of the contract."

Each of the owners paid a deposit, in the amount mentioned in cl. (h) (i) of the agreement, either directly to the applicant, or to an employee of Seatoun who delivered it to the applicant. The moneys were paid into Seatoun's account. In four of the five cases small amounts were properly paid by Seatoun in an endeavour to obtain approval from the local authority to the plans and specifications, but the balance of each of the five deposits was drawn out by the applicant and applied for his own purposes or for purposes of Seatoun unconnected with the building agreements in question. In no case was any finance approved by any financial institution. No work was done on any of the houses and none of the money was repaid. The provisions of s. 1 (1) of the Criminal Law Amendment Act, 1902 (S.A.) are a re-enactment of those of s. 1 (1) of the Larceny Act, 1901 (U.K.) which themselves were re-enacted as s.20 (1)(iv) of the Larceny Act, 1916 (U.K.). The lastmentioned provisions were repealed by the Theft Act, 1968 (U.K.). On a charge of fraudulent conversion it is essential that three things be proved to the satisfaction of the jury: "first, that the money was entrusted to the accused person for a particular purpose; secondly, that he used it for some other purpose; and thirdly, that such misuse of the money was fraudulent and dishonest.": Reg. v. Bryce (1955) 40 Cr App R 62, at p 63 . In the present case the only question raised is as to the first of these essentials. The sole point taken on behalf of the applicant is that there was no evidence on which the jury were entitled to find that he was entrusted with the moneys within the meaning of the section. No reliance is placed on the circumstances that the moneys were in all cases intended to be paid to Seatoun, and that in some cases they were not handed to the applicant personally. A person may be entrusted with property within the meaning of the section notwithstanding that it is not delivered directly to him by the owner, and that the owner does not know of his existence and has no intention of entrusing it to him; if the accused has obtained or assumed the control of the property of another under circumstances whereby he becomes entrusted, and he fraudulently converts it, he commits an offence against the section. So much is established by R. v. Grubb (1915) 2 KB 683 a case in which the accused fraudulently converted cheques sent to a company which he controlled. That case has consistently been followed not only in England but elsewhere: see R. v. Cuffin (1922) 127 LT 564 ; R. v. Morter (1927) 20 Cr App R 53 ; Reg. v. Gilbert (1953) SASR 163, at p 167 ; Reg. v. Goodall (1975) 11 SASR 94, at pp 99, 111 ; Reg. v. Prast (1975) 2 NZLR 248 . The argument of Mr. Derrington on behalf of the applicant is that in the circumstances of the present case the receipt of the deposits did no more than place the applicant under a contractual obligation to repay the moneys that he received but did not create any fiduciary obligation. The appellant, it is said, was not prevented from dealing with the moneys as his own; He merely became a debtor in respect of the moneys paid to him. (at p333)

4. It is accepted that there can only be an offence under this sub-section if there was a fiduciary element in the relationship of the accused person to the property alleged to have been fraudulently converted by him: see R. v. Jones (1948) 33 Cr App R 11, at p 13 ; Russell on Crime, 12th ed. (1964), vol. 2, p. 1120; Weinberg and Williams: Australian Law of Theft, p. 191. In R. v. Hotine (1904) 68 JP 143, at p 144 , and in R. v. Cuffin (1922) 127 LT, at p 565 , the court went so far as to suggest that there must be a trust. Nevertheless it does not seem to me necessary that either the jury or the Court of Criminal Appeal should inquire whether the accused received the property in circumstances giving rise to a trust. Such a construction would lead to undesirable complexity in the administration of the criminal law and is not made necessary by the words of the section. One of the ordinary meanings of the word "entrust" is "to confide the care or disposal of" (see Shorter Oxford English Dictionary) and it is in that sense that the word is used in the section. To bring the case within the section the property must have been entrusted to the accused either for safekeeping or to be applied, paid or delivered for a particular purpose or to a particular person. In other words it must have been earmarked for certain purposes which are not purposes of the accused himself (see Smith and Hogan: Criminal Law, 1st ed. (1965), p. 433; Weinberg and Williams, op. cit., p. 191). It is necessary to consider the terms on which the property was received. If money were given to the accused on terms that he might use it as he wished, but must later return it (for example if an ordinary loan were made to the accused) the case would not be within the section. This of course does not mean that the section only applies where the accused was obliged to keep the money in specie. For example money deposited as security for the honesty of the payer, on terms that the payee will pay it into a bank account and return it at the end of a specified period, will come within the section: R. v. Donald Smith (1924) 2 KB 194 . Professor Smith, in an article "The Scope of Fraudulent Conversion", (1961) Crim. Law Review 797, at p. 800, suggests the following test where the ownership in money is transferred:

"Was the transferee permitted, under the terms of the contract, to use the money as he thought fit; or was he obliged to apply it in a particular way or to retain an equivalent sum, either in his possession or in a bank? Only in the latter event can the transferee commit fraudulent conversion."

This seems to me a satisfactory practical test to apply. (at p334)

5. Where an accused person promises to do work for another and is paid moneys in advance fine distinctions are sometimes drawn. In R. v. Jones (1948) 33 Cr App R 11 the accused was advanced money by one person for the purchase of paint against the sum agreed to be paid for painting a room and by another person to buy some plywood, again the payment being an advance. The Court of Criminal Appeal quashed the convictions for fraudulent conversion, saying (1948) 33 Cr App R, at p 12 : "These are simply cases of a man representing that he was willing to do some work, getting payment in advance, and then not doing it." In Reg. v. Bryce (1955) 40 Cr App R 62 the accused, who had agreed to do some gardening work, got payments on account on various pretexts that he would have to buy material and so forth. The conviction was quashed for misdirection, but the Court doubted whether there was sufficient evidence of entrustment. On the other hand, in Reg. v. Hughes (1956) Crim LR 835 the accused, a builder, asked for an advance to buy materials but having obtained it used it for other purposes. His conviction was sustained; the Court said: "In the present case the money was paid over for a particular purpose and not generally on account." It is unnecessary to consider whether these decisions can be reconciled on the facts, but there is no inconsistency in the grounds on which they proceeded - in the two earlier cases it was held that there was nothing more than a payment on account, whereas in the later case it was held that the money was entrusted to the accused for the particular purpose of buying the materials. In every case the decision must depend on its own facts. Similarly, where a deposit is paid to an agent, it will be right to hold that it was entrusted to him within the section if it was paid to him to hold and refund if a particular event did not occur (see R. v. Brownrigg (1933) NZLR 1248, at p 1254 ; Reg. v. Pilkington (1958) 42 Cr App R 233, at p 236 ) but it will depend on all the circumstances whether the agent was under that obligation which must exist before he can be said to have been entrusted with the money (cf. Reg. v. Hall (1973) QB 126 a case under s. 5 (3) of the Theft Act, 1968 (U.K.)). (at p335)

6. We were referred to the decision of this Court in Andrews v. The Queen (1968) 126 CLR 198 . In that case the charge, which arose under the Crimes Act, 1900 (N.S.W.), as amended, was of fraudulently omitting to account for certain moneys. The Court, in quashing the conviction, said (1968) 126 CLR, at p 210 :

"He" (the building owner) "paid them" (the moneys) "in advance upon an understanding that they would be applied to the building of the home, a statement which in its setting can only mean that he advanced the moneys on the understanding that their payment would be in satisfaction of his obligation under the agreement . . . In our opinion, no evidence was produced by the Crown that the applicant received these moneys on terms that he should account for them to Payne" (the building owner) "or to him and his wife. The most favourable view for the Crown is that he received them on terms that he would use them to enable him to perform the building agreement."

Somewhat different considerations arose in that case from those which arise on a charge of fraudulent conversion, but again the decision depended on the exact circumstances under which the payment had been made. (at p335)

7. I now turn to the circumstances of the present case. The terms of the building agreement made it clear that the builder was not authorized to use any of the moneys received as deposits for any purpose of the contract until finance was approved, except for the preparation of plans or for the purpose of obtaining approval to plans: cll. (e), (g). Since no moneys other than those paid as deposits answer the description of "funds held in trust" in cl. (e), those words must have been intended to refer to the moneys paid by way of deposit. In any case it is also clear that the moneys received as deposits were to be refunded if finance was not approved within the periods mentioned: cll. (d) and (g). Even if the contracts were completed the deposits were to be returned, but the obligation to return them in those circumstances must be understood as subject to the builder's right to resort to the deposits if the other payments required by cl. (h) were not made. I doubt whether any fiduciary duty would have existed in relation to a deposit once finance had been approved, but it is unnecessary to decide that point. However it seems to me that the moneys paid by way of deposit could not be regarded merely as payments in advance or on account, to be used by Seatoun for its own purposes. They were in my opinion made on terms that Seatoun was obliged to retain an equivalent amount and repay it (less moneys used in the preparation, or in obtaining approval, of plans) if finance was not approved. The moneys were earmarked by the contract for particular purposes, at least until finance was obtained. There was therefore evidence on which the jury were entitled to conclude that the requisite fiduciary obligation existed and that the applicant had become entrusted with the moneys within the meaning of s. 1 (1) of the Criminal Law Amendment Act. (at p336)

8. For these reasons in my opinion the challenge which has been made to the conviction cannot be sustained and the application for special leave to appeal should be refused. (at p336)

STEPHEN J. I have had the advantage of reading the reasons for judgment prepared by the Chief Justice. I am in entire agreement with those reasons both as to the effect of s. 1 (1) (a) of the Criminal Law Amendment Act, 1902 (S.A.) and as to the difficult question of the interpretation of the form of contract under which the moneys in question were paid to the applicant. It is from that form of contract that it must be determined whether any entrustment, within the terms of the section, was here involved. Those moneys were not, I think, to remain the property of the party paying them over, the recipient being obliged to set aside and maintain a fund equal to the amount paid over: the judgment of the Chief Justice provides, for me, compelling reasons for this conclusion. (at p336)

2. I would grant special leave and would allow this appeal, setting aside the conviction and sentence. (at p336)

JACOBS J. I have had the advantage of reading the reasons for judgment prepared by Gibbs J. I agree with those reasons and with his conclusion. There is little that I wish to add. In this particular case once it was established that the moneys the subject of the charge were paid pursuant to the terms of the written contract the question whether or not there was an "entrusting" depended upon the construction of that written contract. This was a question of law for the presiding judge. However, this does not mean that guilt or innocence turned substantially upon the construction of an obscurely worded instrument. The real question for the jury was whether the applicant had fraudulently converted the money. For him to be guilty of fraud knowledge that he was not entitled to treat the money as his own was a necessary element. The jury clearly found that he had the knowledge and belief. He would not have been guilty of fraudulent conversion if he had not had that knowledge and belief but once it is held that in law he was entrusted with the moneys and it having been found that in fact he knew and believed that this was so the offence was duly proved to have been committed. (at p337)

MURPHY J. I agree with Gibbs J. The application for special leave to appeal should be refused. (at p337)

Orders

Application for special leave to appeal refused.