England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM CARDIFF CROWN COURT
His Honour Judge David Wynn Morgan

		Royal Courts of Justice Strand, London, WC2A 2LL
		14/03/2012

President of the Queen's Bench Division :

1. In this appeal the appellant contended that the judge should have given the second limb of the Ghosh direction in relation to dishonesty. The Crown's response was that such a direction was unnecessary on the facts. The case appeared to give rise to an issue on another part of the decision in Ghosh [1982] QB 1053 was wrong in law. In the result, however, the issue did not arise as, for reasons which we set out, the appellant had in fact no case to answer on the charges as framed in the indictment, though that point had not been taken by those who appeared at the trial. We wish therefore to make clear that the decision in Ghosh remains good law.
2. It is necessary to explain this by setting out the facts as briefly as possible.

The facts

(i) The background

3. The appellant is a solicitor who qualified in 1997. He built up an expertise in property and conveyancing transactions and moved to the firm of W Parry & Co in Swansea. Apart from his work as a solicitor, he made his own investments in property through contacts he had in the local property market.
4. In late 2007 the appellant became aware that Mortgage Express, a subsidiary of the Bradford and Bingley Building Society (to which we shall refer together as the Building Society) had changed the way it provided buy-to-let mortgages. The Building Society was prepared to relax the six month rule which had prevented an owner from obtaining a mortgage on a buy-to-let basis until the owner had owned the property for more than six months. Under the new arrangements it became possible to make an application for a mortgage before the property had in fact been purchased; a bridging loan could be obtained for a short period in order to purchase a property and then a re-mortgage with the Building Society could be used to repay the bridging loan. The Building Society was prepared to advance up to 85% of the value of the property as valued by an independent valuer.

(ii) The scheme

5. In the first half of 2008 the appellant acted in eight transactions. In some of these David Richards was the purchaser and in the case of others Matthew Benjamin was the purchaser. The appellant provided a bridging loan to the purchaser in the transaction which the appellant financed through a facility he enjoyed from a bank. The purchaser used the loan to pay cash for the property which was for sale in circumstances where a cash price would secure the property at less than its market value. As security for that loan the appellant required a declaration of trust. The declaration provided in very simple terms that the purchaser would hold the property and net proceeds of sale and net income upon trust for sale for the appellant (or for the appellant and the purchaser in equal shares).
6. The property was then independently valued and on the basis of that valuation a mortgage under the scheme we have described was provided by the Building Society at 80% of the value. In the eight transactions the amount of the loan under the mortgage was a sum between £63,750 and £106,695.
7. In the course of acting in the transaction for both the purchaser and the Building Society, the appellant provided the Building Society with a Certificate of Title in the form required in the Solicitors' Code of Conduct 2007. The face of the Certificate set out details in respect of the property; the Certificate then contained in a standard form a number of matters which the appellant certified. Certificates of Title in that form (the relevant parts of which we refer at paragraph 24 below) were provided in each of the transactions, save one where an earlier form was used.
8. When the monies had been advanced under the mortgage the amount of the loan advanced by the appellant was repaid. The appellant received a salary that was related to the fees he generated for W Parry & Co. In addition to the fee received by W Parry & Co., when the appellant acted for the purchasers and for the Building Society, the appellant received a cash sum from the purchasers for assisting them. He took steps to ensure that the accounts of W Parry & Co were falsified so that the provision of finance by him was not apparent on the face of those accounting records.
9. There was clear evidence that the Building Society would not have advanced funds to the purchasers under the mortgages, if they had known of the appellant's personal interest in the transactions.

(iii) The police investigation

10. In June 2009 the police began to investigate the affairs of David Richards. They attended the offices of W Parry & Co and obtained the files relating to the transactions with David Richards. The appellant spoke to the police officers, told them that David Richards was his client, but did not mention any personal or business connection. The conveyancing files were delivered to Richard Hegarty, a solicitor specialising in the field of solicitors' regulation and conveyancing. In a report served in the form of a statement dated 18 September 2009, Mr Hegarty provided a detailed analysis of the files. He concluded that the personal interest of the appellant in the transactions breached the conditions of the Council of Mortgage Lenders' Handbook; that he had acted in a position where he had a personal conflict of interest which was in breach of Rule 3 of the Solicitors' Code of Conduct. Mr Hegarty also concluded that there had been no disclosure to the Building Society of any details of the appellant's interest.
11. The appellant was arrested on 20 October 2009 and served with a restraint order under the Proceeds of Crime Act 2002 prohibiting him from dealing with his assets. Amongst those assets was a Lamborghini Gallardo motor car valued at approximately £85,000.
12. In June 2010, the appellant was charged with offences of fraud and money laundering. In October 2010, the appellant told the police that he wanted to sell his Lamborghini. In February 2011, steps were taken to vary the restraint order and a hearing was arranged for an agreed amendment to the order to be made.
13. However it was discovered that the appellant had in fact sold the car in September 2010 and the proceeds of sale, £89,200, were held by a friend. The friend said that he had acted on the instructions of the appellant and he still held the proceeds. The funds were transferred to a restrained bank account. The appellant was charged with perverting the course of justice to which he pleaded guilty.

(iv) The trial

14. Shortly before the trial commenced, David Richards pleaded guilty. Consequently the appellant was tried on his own. Matthew Benjamin was never charged with any offence.
15. The appellant faced two counts in respect of each transaction, one count of fraud and the second an offence of transferring criminal property (or money laundering) contrary to s.327(1)(d) of the Proceeds of Crime Act 2002. As far as the appeal is concerned, the relevant count is that relating to fraud. It was in these terms in respect of each of the eight properties:

"BENJAMIN JASON CORNELIUS between the .... 2008 and the ... 2008 committed fraud in that, dishonestly and intending thereby to make a gain for himself or another, he made a false representation to Bradford and Bingley plc which was and which he knew was untrue or misleading, namely gave a false certificate of title in relation to the purchase of [the property], in breach of section 2 of the Fraud Act 2006."

16. It was on that indictment he was sent for trial at Cardiff Crown Court in March 2011 before His Honour Judge David Wynn Morgan and a jury. The prosecution case, as left to the jury, was that the Building Society would not have advanced the funds if the false representation as to the Certificate of Title had not been made. The appellant was representing by signing the Certificate that the title of the purchasers (Mr Richards or Mr Benjamin) was unencumbered. He plainly knew what he was doing was dishonest. As an experienced solicitor, he would have known that the Building Society would not have allowed him to act in the transaction for the Building Society and the purchasers as he was lending the latter money and that gave rise to a conflict of interest. He must have known he was in breach of the Council of Mortgage Lenders' Handbook and the Solicitors' Code of Conduct. The fact he knew he had acted dishonestly could be inferred from the way in which he had covered up the transactions in the books of the firm. The motive of the appellant had been to increase his pay and to receive the cash sums for enabling Richards and Benjamin to enter into the transactions. He knew he was exposing the Building Society to the risk of loss as, acting on the basis of the Certificate of Title, it had lent money which it would not have done if it had known the appellant had lent money to the purchasers.
17. The defence case was that although it was admitted that the transactions were carried out in the way we have described and though he may have unknowingly been in breach of the Solicitors' Code of Conduct and the Council of Mortgage Lenders' Handbook, the appellant had not acted dishonestly. The title was going to be unencumbered once the bridging loan he had advanced had been repaid with the money received from the mortgage provided by the Building Society; he had no intention of enforcing the declarations of trust. He had not tried to obscure the dealings by falsifying the accounts, as the book-keeper at the firm must have been aware of what had been done.
18. At the conclusion of the evidence, the judge gave both the Crown and the defence advocates a copy of his proposed directions in law. No Ghosh direction was included. No comment was made on the proposed directions by the advocates then representing the appellant.
19. The judge summed up the case succinctly. He went through the elements of each offence. The directions relevant to the appeal can be summarised as follows. The jury must be sure that:

i) In the case of each property, the appellant had made a false representation to the effect that the title of David Richards and Mathew Benjamin to the properties was unencumbered.

ii) The title in each case was not good. Until the appellant had been repaid, the appellant would have had a beneficial interest in the property to the value he had lent and he had taken a declaration of trust. The declarations were never registered and so never disclosed to the Building Society. Title in each case was encumbered by the appellant's beneficial interest.

iii) The appellant had acted dishonestly. He outlined to the jury the prosecution and defence case on that. He did not give them any further direction on dishonesty.

20. The appellant was convicted on 16 March 2011 on all counts after a retirement of just over two hours. He was sentenced to four years imprisonment on each count on which he was convicted with a consecutive sentence of 8 months for perverting the course of justice.

The appeal

21. As we have set out, the principal ground of the appeal was that the judge had not given a Ghosh direction. There were other grounds of appeal relating to the directions in relation to the consideration of the counts separately, the admissibility of Mr Heggarty's views on some issues and the fact that the jury were informed, with the assent of the appellant's trial advocates, of Mr Richards's plea of guilty.
22. In the light of the issue as to whether part of the decision in Ghosh was wrong, a five judge court was constituted. Detailed skeleton arguments which had been the product of considerable research and learning were submitted by Mr David Perry QC for the Crown and by Mr Peter Rouch QC for the appellant. The court found the skeleton arguments of the greatest assistance and is immensely indebted to counsel.
23. In the course of the hearing of the appeal, the court raised with counsel the question as to whether on a proper construction of the Certificates of Title false representations had in fact been made. We heard argument and gave the parties the opportunity to make written submissions. If there were no false representations, it was common ground that there was no case to answer and the convictions on all the counts must be quashed. The Crown invited us to substitute convictions for attempt. In either of those circumstances, it would not be appropriate for us to consider whether Ghosh had been correctly decided.

Were the representations false?

24. The two paragraphs in the Certificate on which the Crown relied as containing false representations were:

"(i) … we have investigated the title to the Property, we are not aware of any other financial charges secured on the Property which will affect the Property after completion of the mortgage, and upon completion of the mortgage, both you and the mortgagor … will have a good and marketable title to the Property and to Appurtenant rights free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title.

(x) neither the principal nor any other solicitor or registered European lawyer in the firm giving this certificate nor any spouse, child, parent, brother or sister of such a person is interested in the property (whether alone or jointly with any other) as mortgagor."

25. These paragraphs are part of a standard Certificate contained in the Council of Mortgage Lenders' Handbook. They are clearly professionally drafted for use in conveyancing transactions up and down the country. In interpreting standard forms of Certificate such as these the court must apply consistent interpretations and not draw fine distinctions. The Certificate is drafted by the Council of Mortgage Lenders; and if they wish to impose liability on conveyancers, they must do so in clear terms: Barclays Bank plc v Weeks Legg & Dean [1999] QB 309; Midland Bank plc v Cox McQueen [1999] PNLR 593. In addition many of the phrases used in these paragraphs have well recognised technical meanings derived from centuries of conveyancing practice. Thus, for example, the phrase "good and marketable title" was explained by Millett LJ in Barclays Bank plc v Weeks Legg & Dean [1999] QB 309:

"A good marketable title." The bank submits that this means a freehold title free from incumbrances; and that such a title is better than "a good title" since it must be both "good" (in the sense of being without blemish) and "marketable" (in the sense of relating to property which is readily saleable). Both propositions are quite untenable. They are the product of a growing unfamiliarity with the language which was once the common currency of conveyancers of unregistered land. They confuse the subject matter of the sale (what has the vendor agreed to sell?) with the vendor's duty to prove his title to the subject matter of the sale (has the vendor sufficiently deduced title to what he has agreed to sell?)."

26. In the present case the Crown relied on the existence of the trust deed and its non-disclosure as amounting to a breach of both paragraphs in the Certificate.

(i) The representation that the properties were free from onerous encumbrances

27. The trust deed was executed by the registered proprietor and declared a trust in favour of the appellant (or in some cases a trust for the registered proprietor and the appellant in equal shares). It was not expressed to be a trust by way of security. Importantly, however, the existence of the trust deed did not appear on the register of title at HM Land Registry. The appellant was not in actual occupation of any of the properties in question.
28. The effect of the trust deed upon a mortgage was governed by the Land Registration Act 2002. Section 29 of that Act provides:

"(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.

(2) For the purposes of subsection (1), the priority of an interest is protected—

(a) in any case, if the interest—

(i) is a registered charge or the subject of a notice in the register,

(ii) falls within any of the paragraphs of Schedule 3, or

(iii) appears from the register to be excepted from the effect of registration…"

29. The grant of a mortgage or charge is a registrable disposition. Schedule 3 contains a list of interests which rank as overriding interests. The interests created by the trust deeds in this case are not among them. On the registration of a registrable disposition, equitable interests binding the disponer do not bind the disponee as interests in land, even if the disponee was a party to the creation of those interests: Halifax plc v Curry Popeck [2008] EWHC 1692 (Ch). Consequently the mortgages to the Building Society executed by the purchasers took priority over the interests created by the trust deeds.
30. It follows therefore, in our view, that the Building Society, as the mortgagee, acquired a good and marketable title free from the interest created by the trust. Even if it could be described as an encumbrance (which is itself doubtful) it could not be described as an "onerous" encumbrance. Accordingly paragraph (i) of the Certificate was true.
31. The Crown submitted that it was open to the appellant to have registered his charge post completion and that he had done so in other transactions. The appellant was therefore aware of a charge that would affect the property after completion. We cannot accept that submission. There was no evidence that he had decided to register any of the charges in the transactions which were the subject of the indictment, but that he had simply postponed the registration. There was clearly a possibility he might register the charge, but the language of paragraph (i) is clear; it only applies to a charge that affects the property.

(ii) The representation that no solicitor in the firm was interested in the property as mortgagor

32. Paragraph (x) of the Certificate is qualified by the two words at the end: "as mortgagor". It was submitted by the Crown that this should be construed widely to protect lenders. The phrase as "mortgagor" should be read so as to capture those interested in the transaction "as if" they were mortgagor; it would be a surprising result if a solicitor was able to conceal his interest on the basis of a narrow interpretation.
33. The word "mortgagor" is a technical term. It means the person who grants the mortgage. It would be wrong to interpret this technical term more widely, given that this is a standard form of Certificate, the text of which was agreed in the manner we have set out. The appellant did not grant the mortgage: it was granted by the registered proprietor. Accordingly paragraph (x) was also true.

(iii) Conclusion

34. As it is clear that the representations set out in the indictment were not false, the convictions on the fraud counts cannot be sustained, as the appellant was not only indicted on the basis that the representations were false, but the judge left the case to the jury on the basis that they had to be sure that the representations were false. It was common ground that in that eventuality the convictions on the money laundering counts must also be quashed.

Should a verdict for attempted fraud be substituted?

35. S.3 of the Criminal Appeal Act 1968 provides as follows:

"(1) This section applies on an appeal against conviction, where the appellant has been convicted of an offence to which he did not plead guilty and the jury could on the indictment have found him guilty of some other offence, and on the finding of the jury it appears to the Court of Appeal that the jury must have been satisfied of facts which proved him guilty of the other offences.

(2)The Court may, instead of allowing or dismissing the appeal, substitute for the verdict found by the jury a verdict of guilty of the other offence, and pass such sentence in substitution for the sentence passed at the trial as may be authorised by law for the other offence, not being a sentence of greater severity."

36. The Crown submitted we should substitute in respect of each count of fraud and money laundering a conviction for an offence of attempted fraud and attempted money laundering under s.1(1) of the Criminal Attempts Act 1981. The argument can be summarised as follows:

i) The essence of the offence of attempt is intention.

ii) If a defendant believes what he intends to do is a crime, but he was mistaken in his belief, he will not be guilty of attempt to commit that crime if he endeavours to carry out his intention. That is because what he is attempting to do is not a crime.

iii) However provision is made in s.1(2) and (3) of the Criminal Attempts Act 1981 to deal with attempts to commit an offence where the facts make it impossible to commit the offence:

(2) A person may be guilty of attempting to commit an offence to which this section applies even though the facts are such that the commission of the offence is impossible.

(3) In any case where—

(a) apart from this subsection a person's intention would not be regarded as having amounted to an intent to commit an offence; but

(b) if the facts of the case had been as he believed them to be, his intention would be so regarded,

then, for the purposes of subsection (1) above, he shall be regarded as having had an intent to commit that offence.

iv) There are three situations covered by the provisions - physical impossibility, impossibility arising from inadequacy of means and legal impossibility.

v) The discussion of R v Deller (1952) 36 Cr App R 184 by the editors of Smith's Law of Theft is helpful:

"D induced V to accept his car in part exchange for a new one by representing that it was free from encumbrances. D had previously executed a document purporting to mortgage the car to a finance company. He probably believed that this was effective in which case the car was subject to an encumbrance. If so, he intended to tell a lie; but the document was probably void in law as an unregistered bill of sale. In that case the car was not subject to any encumbrance: 'quite accidentally and, strange as it may sound, dishonestly the appellant had told the truth.' Clearly D could be guilty of attempting fraud by attempting to make a false representation (contrary to section 2 of the Fraud Act 2006) …"

vi) In Smith and Hogan (13^th edition, 2011), the editor discusses attempted fraud by false representation in the following terms:

"The most important circumstances in which an attempt will be charged may well be those in which D has unwittingly made a true statement."

After discussing Deller he continues:

"D's conviction was, therefore, quashed by the Court of Appeal, for though he had mens rea, no actus reus had been established. Under the 2006 Act, D could be convicted of an attempted fraud as soon as he made the true representation with intent."

37. Although Deller was relied on only as an illustration, it is useful to refer to the case in a little more detail. The defendant was charged with obtaining by false pretences on the basis that he had represented a car he was selling was his and free from encumbrances whereas the Crown contended it was not his as it was on hire purchase and produced the hire purchase agreement. The defendant's case was that the documents did not reflect the true nature of the transaction; he had borrowed money on the security of the car. The car had remained his and as the documents had not been registered under the Bills of Sale Act 1878 the loan transaction was void. This court held that the jury should have been directed to determine whether the transaction was a hire purchase (in which case the falsity of the representation had been established) or whether it was a loan on the security of the car.

"If they came to the conclusion that the documents represented only a transaction of loan on the security of the car, then the documents were all void and of no effect, and the falsity of the representations was not proved because, it may be quite accidentally and strange as it may sound, dishonestly, the appellant had told the truth."

The conviction was quashed because the jury had not been clearly directed to that effect.

38. In the present appeal, on the directions given to the jury as to the basis on which they could find that the representations were false, it is hardly surprising that the jury found the appellant was dishonest. The appellant had, on a proper construction of the Certificate of Title, in fact been truthful when providing the very technical representations required in the Certificate of Title. Unlike the position in Deller, we cannot conclude that the jury must have been sure that he had intended to be dishonest in respect of those very technical representations he was required to make; it is quite possible from the lax way in which he conducted his business that he paid little attention to the details of representations in the Certificate of Title.
39. The reality was that the Building Society's evidence was that it would not have made the loans had the appellant disclosed his interest in the transactions; indeed he had falsely recorded the transactions in the books, not because the internal book-keeper needed to be misled but in case any external eye should discover his conflict of interest. The jury might well have found he was dishonest in failing to disclose those interests, but the Crown have rightly not sought on this appeal to contend that this court should substitute a conviction on a basis other than the offence of attempt to make the representations set out in the Certificate of Title. Given the observations in R v Graham [1997] 1 Cr App R 302 at 309-313, it was right to do so.

Conclusion

40. We therefore quash the convictions on all the counts on which the appellant was found guilty; the count of conspiracy to pervert the course of justice to which he pleaded guilty is unaffected. As he has served the sentence for that count, he is entitled to be released.
41. The Crown applied for a re-trial in the event we quashed the convictions and did not exercise our powers of substitution. We do not consider it is appropriate to order a re-trial. The Crown was in error in failing to identify the correct basis for charging. The appellant has now spent almost a year in custody. Given his conviction for perverting the course of justice, quite apart from his conduct in these transactions, it is unlikely that he will ever be permitted to practise again.