The Law Commission

SECTION 15 OF THE THEFT ACT 1968

2.1 Section 15 of the Theft Act 1968 provides in part:

(1) A person who by any deception dishonestly obtains property belonging to another, with the intention of permanently depriving the other of it, shall on conviction on indictment be liable to imprisonment for a term not exceeding ten years.

(2) For purposes of this section a person is to be treated as obtaining property if he obtains ownership, possession or control of it, and "obtain" includes obtaining for another or enabling another to obtain or to retain.

2.2 Section 4(1) of the 1968 Act (applied to section 15(1) by section 34(1) of the Act) provides that property "includes money and all other property, real or personal, including things in action and other intangible property".

PREDDY AND SLADE; DHILLON(1)

The facts

2.3 Lord Goff of Chieveley, in his speech in Preddy, set out the facts of the case.(2)

[Preddy and Slade] applied to building societies or other lending institutions for advances which were to be secured by mortgages on properties to be purchased by the applicant. In relation to each count, the mortgage application or accompanying documents contained one or more false statements, the applicant knowing the statements to be false. The statements related to, for example, the name of the applicant; his employment and/or income; the intended use of the property; or the purchase price. Some of the counts related to mortgage applications which were refused, in which event the applicant was charged with an attempt to obtain property by deception. The remaining counts related to successful applications, the applicant then being charged with the full offence.

Both appellants accepted that the applications were supported by false representations. But they were confident that the advances would be repaid because, in the economic climate at that time, the houses could and would be resold at a price higher than the purchase price and, even if there were a shortfall, this would be covered by an endowment policy taken out at the time of the advance. Indeed the lenders appear to have been more interested in the value of the property in question than in the personal details of the applicant.

In [Dhillons] case, the misrepresentations related to the intended occupancy of the properties in question ; failure to declare the existence of other mortgage commitments; or particulars of employment. This appellants case also was that he intended to honour his obligations. Again the lending institutions were not really concerned with his personal details, but rather with the value of the property in question which in each case was more than enough to cover the debt if the property were sold.

2.4 The mortgage advances were paid by the lenders to the appellants in various ways: by cheque, by telegraphic transfer and by the Clearing House Automated Payment System ("CHAPS").(3)

The certified questions

2.5 Having dismissed the appeals in Preddy and Slade(4) and Dhillon,(5) the Court of Appeal (Criminal Division) certified the following questions as points of law of general public importance:

(1) Whether the debiting of a bank account and the corresponding credit of anothers bank account brought about by dishonest misrepresentation amounts to the obtaining of property within section 15 of the Theft Act 1968?

(2) Is the answer to (1) above different if the account in credit is that of a solicitor acting in a mortgage transaction?

(3) Where a defendant is charged with obtaining intangible property by deception, namely an advance by way of a mortgage, is his intention to redeem the mortgage in full relevant to the question of permanent intention to deprive or only to dishonesty?

2.6 Although all three questions fell to be considered by the House of Lords, the first was regarded by Lord Goff to be the most important.(6)

The decision

The first question: whether the debiting of a bank account and the corresponding credit of anothers bank account brought about by dishonest misrepresentation amounts to the obtaining of property within section 15 of the Theft Act 1968?
2.7 Lord Goff was not troubled by the notion that a credit entry in a bank account should be construed as property for the purposes of the 1968 Act. Unlike the Court of Appeal, however, which had taken the view that a sum of money represented by a figure in an account constituted "other intangible property" under section 4(1) of the Act,(7) Lord Goff was of the opinion that such a credit entry fell within a different part of the section 4(1) definition of property, namely a chose in action belonging to an account-holder and exercisable against the institution where the account had been placed.(8)

2.8 In Lord Goffs view, the appeal turned on whether the appellants could be said to have obtained (or attempted to obtain) property belonging to another. In short, he concluded that they could not; that what they had, in fact, obtained was property (namely a chose in action) which had come into existence at the time of the dishonest transaction and which could not, therefore, have belonged to anyone prior to that time.(9)

2.9 The kernel of each appellants dishonest conduct was that he had, dishonestly, induced a lending institution by deception to make a mortgage advance in his favour: in effect, therefore, on Lord Goffs analysis, the lending institutions chose in action represented by the credit balance(10) standing in its account had been extinguished (to the extent of the sum of the advance) when the advance was made, and a corresponding chose in action created in favour of the appellant and represented by the credit balance standing in the account of the appellant (or his solicitor), when the advance was received. Lord Goff describes the difficulty in applying section 15 of the 1968 Act in these circumstances and, in particular, in satisfying the requirement that the property should have belonged to another:

when the bank account of the defendant (or his solicitor) is credited, he does not obtain the lending institutions chose in action. On the contrary that chose in action is extinguished or reduced pro tanto, and a chose in action is brought into existence representing a debt in an equivalent sum owed by a different bank to the defendant or his solicitor.

In truth the property which the defendant has obtained is the new chose in action constituted by the debt now owed to him by his bank, and represented by the credit entry in his own bank account. This did not come into existence until the debt so created was owed to him by his bank, and so never belonged to anyone else.(11)

2.10 On that vital reasoning, the House of Lords answered the first certified question in the negative.(12)

The second question: is the answer to (1) above different if the account in credit is that of a solicitor acting in a mortgage transaction?
2.11 Some criticism was levelled at the broad way in which the second question had been framed, and certain assumptions were made by Lord Goff as to the part played by the solicitor in the mortgage transaction. He cast doubt on the applicability of section 15 to the circumstance in which a solicitor receives a mortgage advance in the capacity of an agent of the lending institution, where that institution retains control over the money while it is in the solicitors hands. In any event, he said,

the same difficulties arise as they do where the money has been paid direct to the mortgagor by electronic transfer, or by cheque. [A]ny chose in action which comes into existence by the crediting of the solicitors bank account (simultaneously with the debiting of the lending institutions bank account), or by the receipt by the solicitors of a cheque from the lending institution, can never have belonged to the lending institution or its bank and so can never have belonged to another as required by section 15(1).(13)

The third question: where a defendant is charged with obtaining intangible property by deception, namely an advance by way of mortgage, is his intention to redeem the mortgage in full relevant to the question of permanent intention to deprive or only to dishonesty?
2.12 The law lords did not address this question.(14)

The lacuna in the applicability of section 15 exposed by Preddy and the relationship between Preddy and Halai(15)

2.13 Although Preddy was concerned only with what are usually called mortgage frauds, the decision of the House of Lords is relevant to all circumstances in which the effect of the dishonest deception by the fraudster (D) is to cause the victim (V) to authorise the debiting of his or her account (thereby extinguishing Vs chose in action, in whole or in part) and bring about a corresponding credit to Ds (or anothers) account (thereby creating in Ds, or anothers, favour a new chose in action). Preddy has therefore exposed a very substantial lacuna in the applicability of section 15. Professor Edward Griew expresses the impact of Preddy as follows:

It clearly demonstrates that section 15(1) is inapt for any case of obtaining a thing in action, other than a rare case in which what is induced by deception is the transfer or assignment of an existing thing. Neither a movement of funds between bank accounts nor the issuing of a cheque involves such a transfer or assignment.(16)

2.14 The lacuna exposed by Preddy overlaps the lacuna created by Halai in the following way:

(1) Non-cash loans, obtained dishonestly and by deception, cannot be the subject of either a section 15 charge (Preddy: the property obtained has not belonged to another) or a charge under section 1 of the 1978 Act (Halai: loans are not included in the meaning of "services").

(2) Non-cash payments other than loans, obtained dishonestly and by deception, also cannot be the subject of a section 15 charge or a charge under section 1 of the 1978 Act; but, whereas the reason for the former is the same as that in subparagraph (1) above (namely Preddy), the reason for the latter is not Halai but the requirement under section 1 of the 1978 Act that the service be understood to be paid for. Apart from loans, one does not normally pay money on the understanding that that payment is itself to be paid for.

2.15 Therefore, although the reversal of Halai would close part of the Preddy lacuna, by ensuring that the offence under section 1 of the 1978 Act would again cover the obtaining by deception of non-cash loans, it would not address the problem of the obtaining by deception of non-cash payments other than loans.

Footnotes to Part II

(1) Preddy and Slade (consolidated appeals) and Dhillon (conjoined appeal) [1996] 3 WLR 255. Lord Goff of Chieveley made the main speech; the other members of the Appellate Committe (the Lord Chancellor, Lord Jauncey of Tullichettle, Lord Slynn of Hadley and Lord Hoffmann) agreed with him.

(2) [1996] 3 WLR 255, 257H-258B; 258C-D; 258E-F.

(3) [1996] 3 WLR 255. At p 263E Lord Goff describes the CHAPS system by reference to the "useful description" found in Law Com No 228, para 4.29, n 83, which states:

The System is operated by a company owned by the major clearing banks. It can be used only for "irrevocable guaranteed unconditional sterling payment for the same day settlement". A bank or customer who wishes to make payments through CHAPS makes its payments through its electronic terminal (a "gateway") to the recipients gateway or, if the recipient member is not itself a CHAPS settlement member, the recipients settlement bank. Settlement is effected by each settlement bank transmitting to the Bank of Englands CHAPS gateway the details of its end-of-day net position with every other settlement bank. The Bank of England then makes the appropriate payments across the settlement banks accounts with it.

(4) [1995] Crim LR 564.

(5) Unreported.

(6) [1996] 3 WLR 255, 260D.

(7) See para 2.2 above.

(8) [1996] 3 WLR 255, 264B-D. Professor Sir John Smith, in his commentary on the Court of Appeals decision in Preddy [1995] Crim LR 564, at p 565, is critical of that courts description of the credit balance as "other intangible property":

the property belonging to the lender at the beginning of the transaction was the credit balance in his bank account, or his right to overdraw, both of which are things in action, and the question was whether that property was obtained from him by deception. If property was "obtained" by the appellant, it too was a credit balance in a bank account, another thing in action. References to "other intangible property" are puzzling and surely unnecessary.

(9) [1996] 3 WLR 255, 264C-H. At p 270G Lord Jauncey of Tullichettle gave a short speech in which he concurred with Lord Goff as to the crux of the case:

These cases turn upon the words "belonging to another" . In applying these words to circumstances such as the present there falls to be drawn a crucial distinction between the creation and extinction of rights on the one hand and the transfer of rights on the other.

(10) In setting out the problem, Lord Goff assumed that the lending institutions account is in credit: see p 264H.

(11) [1996] 3 WLR 255, 264E, G-H. (Emphasis added)

(12) [1996] 3 WLR 255, 265B.

(13) [1996] 3 WLR 255, 268A-B.

(14) [1996] 3 WLR 255, 268H-269B.

(15) See paras 1.6 1.8 above.

(16) Archbold News Issue 7, 15 August 1996, p 1.