Attorney General's Reference (No. 1 of 1985)
| Jurisdiction | England & Wales |
| Judge | THE LORD CHIEF JUSTICE |
| Judgment Date | 07 March 1986 |
| Judgment citation (vLex) | [1986] EWCA Crim J0307-2 |
| Docket Number | No. 4204/R/85 |
| Court | Court of Appeal (Criminal Division) |
| Date | 07 March 1986 |
[1986] EWCA Crim J0307-2
IN THE COURT OF APPEAL
CRIMINAL DIVISION
Royal Courts of Justice
The Lord Chief Justice of England (Lord Lane)
Mr. Justice Mann
and
Sir Roger Ormrod
No. 4204/R/85
MR. A. ARLIDGE, Q.C. and MR. B. HOULDER appeared on behalf of the Attorney General.
MR. M. WORSLEY, Q.C. and MR. T. LANGDALE appeared as Amici Curiae.
This is a reference under section 36 of the Criminal Justice Act 1972.
The Court of Appeal is asked to give its opinion on the following points of law:
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(1) If an employee contracts with his employer to sell on his employer's premises only goods supplied by his employers and to retain and deal with the proceeds of such sales for the benefit of his employer, does he receive monies on account of his employers within the meaning of section 5(3) of the Theft Act 1968 when they are paid to him by customers on the said premises for goods he has secretly obtained from someone other than his employers and sold on the said premises to the said customers?
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(2) On a charge of theft, where an employee has used his employer's premises and facilities to make a secret profit, will that secret profit be subject to a constructive trust in favour of the employer? And if so.
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(3) Does that constructive trust give the employer a proprietary right or interest in the secret profit within the ambit of section 5(1) of the Theft Act 1968?
The material facts of the case were these. A and B appeared before a Crown Court charged on an indictment containing five counts. In the first count both men were charged with going equipped for theft and in the second count they were charged in the alternative with going equipped for cheat. In the remaining counts A alone was charged with stealing sums of money belonging to his employer.
At the time of the alleged offences A was the salaried manager of a "tied" public house and B was a barman employed by A. One of the terms of A's employment was as follows: "All wines, liqueurs, beers, spirits and other excisable articles and all tobaccos, cigars and cigarettes and mineral waters and other non-alcoholic beverages required for sale or consumption on or off the premises will be supplied by or on account of the company to the manager and the company will also supply or cause to be supplied such other stock as may be required for sale and the manager may not purchase any of the before mentioned articles or stocks unless the company shall from time to time so direct." A was under a duty to pay all the takings of the public house into an account owned or managed by his employers.
A and B were discovered by the police transporting 18 barrels of beer to the public house at night. A admitted to the police that he had bought the barrels of beer from a wholesaler and intended to make a secret profit by selling the beer to customers in the public house, a practice he had followed for some time. B told the police that he had helped A to move the 18 barrels of beer. He said he knew that A was only entitled to sell the customers beer which had been supplied by the brewery, but maintained that he believed that the 18 barrels of beer had been bought by A for consumption at leaving parties which A was going to give.
At the close of the case for the Crown counsel made submissions of no case to answer.
Prosecuting counsel submitted that A was in a fiduciary position vis-a-vis his employers; that a fiduciary who makes a secret profit becomes in equity a constructive trustee of that profit; that A's employers as beneficiaries of that constructive trust had a proprietary right or interest in the secret profit within section 5(1) of the Theft Act 1968; that the sums of money in counts 3 to 5 (which were specimen counts relating to secret profits allegedly made by A by selling barrels of three different kinds of beer) were property belonging to A's employers; the barrels of beer in count 1 were articles for use in the course of or in connection with theft.
Defending counsel conceded that equity gave the employers a right to recover the secret profits in a civil action but contended that the criminal courts had never recognised the existence of any proprietary right or interest arising from a constructive trust; and that the secret profits did not "belong to another" for the purposes of the Theft Act 1968.
The learned Judge ruled that the submissions of defending counsel were well founded and withdrew counts 1, 3, 4 and 5 from the jury. The jury ultimately acquitted both defendants at the conclusion of the trial of count 2, which was an allegation of going equipped to cheat.
We were told at the outset of this hearing that this sort of behaviour by managers of "tied" houses is becoming more prevalent. They do not, it seems, appear to be deterred by the prospect of losing their job or of being compelled by civil action to disgorge their illicit profit. An additional deterrent, it is suggested, in the shape of a conviction for theft would not be inappropriate.
That is not a matter which concerns us. We have to decide whether Parliament intended to bring such behaviour within the ambit of the criminal law and in particular whether, as alleged by the Crown, the illicit profit obtained by A was "property belonging to another".
Mr. Arlidge bases his submission on two of the subsections to section 5 of the Theft Act 1968. First of all section 5(3), which reads as follows: "Where a person receives property from or on acctont of another, and is under an obligation to the other to retain and deal with that property or its proceeds in a particular way, the property or proceeds shall be regarded (as against him) as belonging to the other."
Although, goes the argument, at first sight the money which A receives from selling the beer which he bought seems to belong to him, the effect of this subsection is to make the profit element in the money notionally belong to the employers. Thus when A appropriates the profit, he is guilty of theft, assuming that he is acting dishonestly.
Whether that argument is correct or not depends on whether A can properly be said to have received property (i.e. the payment over the counter for the beer he has sold to the customer) "on account of the employers". We do not think he can. He received the money on his own account as a result of his private venture. No doubt he is in breach of his contract with the employers; no doubt he is under an obligation to account to the employers at least for the profit he has made out of his venture, but that is a different matter. The fact that A may have to account to B for money he has received from X does not mean necessarily that he received the money on account of B.
Although we appreciate that references to pre-1968 statutes and decisions are not always helpful, it does we feel cast some light on the meaning of section 5 if one looks at the provisions of the Larceny Act 1916 which section 5(3) sought to replace and simplify.
Section 17 of the Larceny Act 1916 reads as follows: "Every person who – (1) being a clerk or servant or person employed in the capacity of a clerk or servant – (a) steals any chattel, money or valuable security belonging to or in the possession or power of his master or employer; or (b) fraudulently embezzles the whole or any part of any chattel, money or valuable security delivered to or received or taken into possession by him for or in the name or on the account of his master or employer ….. shall be guilty of felony….."
That was designed to deal first with the case of the servant who dishonestly took goods belonging to his master of which he had the lawful custody and secondly, with the servant who dishonestly intercepted property handed to him to be delivered to his master and before it reached the master.
It seems to us that section 5(3) was designed to replace the old provisions relating to larceny by a servant and embezzlement by the simpler and all embracing words of section 5(3), namely, "who receives property from or on account of another…". Section 17 of the 1916 Act was in almost identical terms to section 68 of the Larceny Act 1861.
There is a decision upon the meaning of that latter section which is in point, R. v. Cullum (1873) L.R. 2 C.C.R. 28. That was a case in which the defendant was captain of a barge and in the exclusive service of its owner. His remuneration was half the earnings of the barge, and he had no authority to take any other cargoes except those appointed for him. It was his duty to account to his master for the proceeds of each voyage which he undertook. On one occasion, although he had been ordered to bring the barge back empty from a certain place, and forbidden to take a particular cargo, he nevertheless loaded such cargo in the barge and returned therewith, being paid by the freight owners for that service. He told his master that the barge had come back empty and he never accounted for the money which he had received.
The question was whether the defendant was properly convicted of embezzlement. The Court of Crown Cases Reserved held that on those facts the defendant was not guilty.
Chief Justice Bovill in the course of his judgment at page 31 said this: "The facts before us would seem more consistent with the notion that the prisoner was misusing his master's property, and so earning money for himself, and not for his master. Under those circumstances, the money would not be received 'for' or 'in the name of', or 'on account of', his master, but for himself, in his own name and for his own account. His act, therefore, does not come within the terms of the statute, and the conviction must be...
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