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You are here: BAILII >> Databases >> The Law Commission >> Offences of Dishonesty: Money Transfers [1996] EWLC 243(5) (15 October 1996)
URL: http://www.bailii.org/ew/other/EWLC/1996/243(5).html
Cite as: [1996] EWLC 243(5)
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PART V
THE NEW OFFENCE OF OBTAINING A MONEY TRANSFER BY DECEPTION
5.1 In the previous Part we explained our reasons for concluding that the lacuna exposed by Preddy in the law of deception should be filled by the creation of a new offence. In this Part we consider the form that that offence should take.
THE ELEMENTS OF THE NEW OFFENCE
5.2 All the existing deception offences require that the defendant should dishonestly procure a specified result by deception, and the new offence should clearly take the same form: the main issue to be resolved is what the specified result should be. The draft Bill describes that result as the obtaining by the defendant, for himself or another, of a "money transfer" a phrase which seems to us to convey in simple terms the essence of the offence and defines the circumstances in which a money transfer occurs.
The accounts debited and credited
5.3 The essence of a money transfer is the debiting of one account and the making of an associated credit to another. The draft Bill circulated for comment required that both the account debited and the account credited should be held at a bank or other financial institution. Some of our consultees suggested that this is too narrow, since
(1) there are ways of recording one persons indebtedness to another which are arguably not "accounts", and
(2) there are accounts which are not held at a financial institution.
5.4 The Commissioner of the City of London Police, for example,(1) pointed out that
in addition to money, the City of London and other major financial centres are daily electronically transferring value from accounts within and between financial institutions in the form of shares, derivatives and other negotiable instruments. For example, shares are often electronically transferred from one account to another as collateral for bank loans or to adjust the level of security applied to a loan facility.
5.5 He added that the Bill
would not provide a remedy where the same circumstances as in Preddy occur, but where the parties to the fraud hold accounts at neither banks nor financial institutions. For example, if the deception involved loans made from one entity to another within a large corporation or group of companies by means of inter-company accounting, then the terms of the Bill would be insufficient.
5.6 Similarly the Chief Executive of the Financial Law Panel(2) wrote:
In wholesale markets there are many situations where payments are made through a clearing system of some sort, and which do not directly involve the debit of a bank account and the credit of another. For example, the system operated by Lloyds under which payments between market participants are settled involves an informal netting of sums due between the participants, and the delivery of one bank payment to settle the net amount.
And the Bank of England queried whether the draft Bill would cover frauds involving stored-value payment cards such as a "Mondex" card, or Internet banking.
5.7 We are only too aware that the law of dishonesty has failed to keep up with the ever-increasing complexity of modern commercial life and with the technological developments of the last 30 years: indeed, it is this awareness that prompted our decision to review the whole of the law of dishonesty.(3) We fully intend to address these issues in our forthcoming consultation paper. However, the urgency of the problem posed by Preddy is such that, for the purposes of the present report, we have been unable to carry out the extensive formal consultation(4) which usually precedes our reports; and in the absence of such consultation we have thought it right to confine the new offence to the particular situation where the lacuna revealed by Preddy appears to be most specifically and urgently in need of attention, namely the transfer of funds between bank accounts, or other accounts of a conventional nature.(5)
5.8 However, the requirement that the account should be held with a "financial institution" was thought to be both insufficiently precise and potentially too restrictive; and the draft Bill now refers, in effect, to an account kept with a bank or with a person carrying on a deposit-taking business for the purposes of the Banking Act 1987:(6) this approach seems to capture more precisely the kind of situation with which we are concerned.
The connection between the debit and the credit
5.9 Our intention was to require that the debit and the credit should be, in effect, no more than two sides of the same coin two aspects of what a lay person would regard as a simple movement of money from one account to another. The draft Bill circulated for comment required that the debit and the credit should "correspond" to one another and should be made "as part of the same transaction". Some of those we consulted(7) thought that these requirements were unduly restrictive and might give rise to difficulty, for example where the amount of the credit is for some reason different from the amount of the debit; or where there has been some delay between the making of the debit and that of the credit (or vice versa); or where an administrative error has resulted in the wrong account being debited or credited, and the error is subsequently discovered and the debit or credit is made to the correct account. We therefore decided to relax these restrictions, and the draft Bill now requires only that the credit should result from the debit, or vice versa. This wording would seem wide enough to cover all the examples above. It also makes it clear that it is immaterial whether the debit precedes the credit or succeeds it.
5.10 Similarly, for the avoidance of doubt, subsection (4) of the new section 15A provides that it is immaterial whether the amount credited is the same as the amount debited, or whether any delay occurs in the process by which the money transfer is effected, or (to take account of variations in the relevant banking procedures) whether any intermediate credits or debits are made in the course of the money transfer.
Overdrafts
5.11 Even under the law as it was understood to be before Preddy, a major practical difficulty in the prosecution of fraud was the need to prove that the account from which the funds were transferred was, at the time of the transfer, either in credit or overdrawn to an extent less than the amount of an overdraft facility to which the holder was legally entitled (and, arguably, that this was also the state of the account to which the funds were transferred after the transfer). If the relevant account is overdrawn, and its holder has no right to overdraw further, it does not represent any chose in action belonging to its holder. There seems little or no moral difference between the obtaining by deception of funds transferred from (or to) an account which is in credit, on the one hand, and from (or to) an account which is overdrawn on the other. We believe that this difficulty, though not strictly attributable to the decision in Preddy, should nevertheless be removed; and we recommend that, for the purposes of the new offence, it should be immaterial whether either of the accounts is overdrawn before or after the money transfer is effected. (Recommendation 2)
Cheque payments
5.12 Deceiving another person into drawing a cheque amounts to the offence of procuring the execution of a valuable security by deception, contrary to section 20(2) of the 1968 Act; so there is no lacuna in this case. However, Lord Goff said in Preddy that this conduct does not amount to an obtaining of property by deception, whether that property be regarded as the funds obtained or the cheque form.(8) Where funds are obtained by deception we think that it should be possible to frame a charge which refers to the funds obtained, rather than merely the document by which they are obtained, and that it would be illogical to exclude cheque payments from the new offence merely because another offence is available in this case. This suggestion met with widespread agreement.
5.13 A second argument(9) in support of including cheque payments within the new offence rests on the complexity of founding a charge under section 20(2) of the 1968 Act when it is framed in terms of either a conspiracy or an attempt. As we noted in Part III,(10) an inchoate offence under section 20(2) requires proof that a defendant had intended the advances to be paid by one method rather than another. Since it is unlikely that a defendant will have given any thought whatsoever to whether an advance will be by way of valuable security (by cheque or CHAPS order) or otherwise (by electronic or telegraphic transfer), a charge of attempting or conspiring to procure the execution of a valuable security is at risk of foundering on what Hirst LJ in Mensah Lartey and Relevy(11)described as the "very technical problem posed by modern methods of the transmission of funds".(12) If the new substantive offence consists in the obtaining of funds by deception, irrespective of the means by which those funds are transferred, a charge of conspiring or attempting to commit it will require proof of an intention to obtain funds, but will not require proof of an intention that the funds should be transferred in any particular way.
5.14 We recommend that the new offence should extend to payments made by cheque as well as those made electronically. (Recommendation 3)
5.15 It was suggested to us(13) that we should take the opportunity to recommend an amendment which would make it clear that the obtaining of a cheque by deception can be charged as the obtaining of property, contrary to section 15. We make no such recommendation, for two reasons. First, there is no lacuna; indeed, under our recommendations such conduct could be charged either under section 20(2) or under the new section 15A. Secondly, we are not convinced that it should be possible to charge, under section 15, the obtaining of a piece of paper whose value lies only in the funds to which it gives access, and which can be recovered by its owner after it has been processed by the banking system. Such a charge seems artificial, and outside the mischief at which section 15 is directed. We think that the new offence will be far more appropriate.
TERRITORIAL JURISDICTION
5.16 Under the present law, a person cannot be convicted in England and Wales of an offence of securing a particular result by deception unless that result is secured in England and Wales. For example, it is not an offence under English law to obtain property abroad by means of a deception in England.(14) Under this principle, a person would commit the offence of obtaining a money transfer by deception only if the money transfer were obtained in England and Wales.
5.17 Howver, Part I of the Criminal Justice Act 1993,(15) when it is brought into force, will greatly extend the territorial jurisdiction of the English courts over a number of offences of dishonesty (referred to in the Act as "Group A offences"), including all the deception offences under the Theft Acts 1968 and 1978. Under section 2(3) of the Act,
A person may be guilty of a Group A offence if any of the events which are relevant events in relation to the offence occurred within the jurisdiction.
Section 2(1) defines a "relevant event" as
any act or omission or other event (including any result of one or more acts or omissions) proof of which is required for conviction of the offence.
5.18 For example, the offence of obtaining property by deception requires proof of a deception and an obtaining. Both the deception and the obtaining are therefore relevant events, and it is sufficient not only if the obtaining occurs within the jurisdiction (as at present) but also if the deception does.
5.19 We see no reason why the new offence of obtaining a money transfer by deception should not be included among the list of Group A offences together with all the other deception offences. The consequence would be that it would be immaterial that the money transfer occurred abroad, if the deception occurred in England and Wales. We recommend that the offence of obtaining a money transfer by deception should be included among the Group A offences listed in Part I of the Criminal Justice Act 1993. (Recommendation 4)
SENTENCE
5.20 The new offence is in essence comparable to the existing offence of obtaining property by deception, which carries a maximum sentence of ten years. It is true that that offence requires an intention permanently to deprive, which is not an element of the new offence,(16) and this might be thought to justify a lower maximum. However, under the law as it was assumed to be before Preddy it was virtually inconceivable that this requirement might not be satisfied in the case of a transfer of funds between bank accounts, because the transferors chose in action was inevitably extinguished in whole or part. The transferee might intend to replace the funds transferred with other funds, but this would go only to the issue of dishonesty. There could be no question of restoring the very same chose in action of which the transferor was deprived.(17) Therefore the new offence is not in reality a less serious offence than that under section 15.
5.21 What maximum is appropriate is a matter on which others are better qualified to pronounce than we, and we make no recommendation on the subject.
RETROSPECTIVE EFFECT
5.22 We are conscious of the lacuna present in the law and we have, therefore, considered whether our draft Bill should have retrospective effect.
The presumption of legislative intention
5.23 It is a primary canon of construction that Parliament does not intend statutory provisions to apply retrospectively. This is not to say that Parliament cannot legislate retrospectively provided that it does so in clear terms. The War Damage Act 1965, for example, was introduced with the purpose of retrospectively altering the law in the wake of the House of Lords decision in Burmah Oil Co (Burma Trading) Ltd v Lord Advocate.(18) The then Financial Secretary to the Treasury,(19) introducing the Bill for the Government at second reading, stated that its object was "to restore the common law of England and the law of Scotland to the position which was generally thought to exist before the decision of the House of Lords [in the Burmah Oil Co case] and to provide that about 12 cases now pending before the court are disposed of on the basis of the law as it has always been thought to be."(20)
"Technical" changes to the law
5.24 While, in the words of Professor Sir John Smith, "[i]t would clearly be objectionable if legislation operated to render criminal any act which was not a crime when it was done",(21) a change in the law which is merely of a "procedural", or technical, nature may escape the censure of the courts.
5.25 Redmond,(22) a case of fraudulent trading,(23) provides an example. It was submitted on appeal that one of the counts should have been withdrawn from the jury on the ground that a condition precedent to the offence (namely, that at the time of fraudulent trading, the company should be in the course of winding up) had not been satisfied. It was argued that although subsequent legislation had removed the condition, conduct prior to that legislation coming into effect could not be the subject of a prosecution unless the condition were satisfied. The Court of Appeal rejected the submission, stating that a change to the rules in respect of a condition precedent for the offence was a merely procedural change, and did not render criminal something which had not previously been criminal.
The European Convention on Human Rights
5.26 The United Kingdom is a party to the European Convention on Human Rights ("ECHR") and, as such, is subject to the general obligation contained in Article 1, which provides:
The High Contracting Parties shall secure to everyone within their jurisdiction the rights and freedoms defined in Section 1 of this Convention.
5.27 Section 1 of the ECHR contains Article 7, which provides a right of protection against the retroactivity of the criminal law. It states:
1. No one shall be held guilty of any criminal offence on account of any act or omission which did not constitute a criminal offence under national or international law at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the criminal offence was committed.
2. This Article shall not prejudice the trial and punishment of any person for any act or omission which, at the time when it was committed, was criminal according to the general principles of law recognised by civilised nations.
5.28 Although the ECHR is not directly binding on the United Kingdom, the United Kingdom is subject to the well-established principle that "a State which is party to a treaty is under an obligation to ensure that its national law conforms to its international obligations".(24)
5.29 Article 7 is one of the more important provisions in the Convention, and is not subject to derogation under Article 15, which provides for the possibility of derogation in times of emergency. It does not, however, prohibit retrospective legislation in general, and applies only to the retrospective creation of criminal offences. Article 7 generally applies to legislation, but can also apply to judicial decisions if the effect of such a decision is so far-reaching that it constitutes the creation of an entirely new criminal offence. In addition, Article 7 will not prevent the courts from clarifying the law when this is felt to be necessary.(25)
5.30 Recently, the Strasbourg Court had occasion to consider Article 7 in SW v United Kingdom and CR v United Kingdom.(26) These appeals concerned defendants who were convicted of, or pleaded guilty to, raping their wives, and subsequently argued that there had, in relation to their cases, been violations of Article 7(1). They pointed out that, at the time when the incidents giving rise to liability had occurred, husbands were immune from prosecution for marital rape in England, and that it was only after the incidents had occurred that the English common law had removed this immunity; their liability being attributable to this change in the law.(27) The Court, holding that there had been no violation of Article 7(1), observed that, however clearly drafted a legal provision may be, there will always be a need for judicial interpretation, "for elucidation of doubtful points and for adaptation to changing circumstances".(28) The Court went on to state:
in the United Kingdom the progressive development of the criminal law through judicial law-making is a well entrenched and necessary part of legal tradition. Article 7 cannot be read as outlawing the gradual clarification of the rules of criminal liability through judicial interpretation from case to case, provided that the resultant development is consistent with the essence of the offence and could reasonably be foreseen.(29)
5.31 It will be noted that the comments of the Court are expressly limited to judicial "clarification" of the common law. It is, perhaps, less likely that the Court would take the same line if the change emanated from statute, rather than from the courts.
5.32 Furthermore, in reaching its decision in the marital rape appeals the Strasbourg Court took the same line as the Court of Appeal in Redmond: the applicants had, but for the fact that the victims were their wives, done everything necessary to satisfy the elements of rape. The Court therefore viewed the immunity as a peripheral matter which could be severed from the "core" elements of the offence. It is unclear whether the same could be said in relation to the Preddy question.
5.33 The Court also held that a series of cases, which had whittled down the marital immunity in rape, gave fair warning to the applicants and satisfied the requirement of foreseeability.(30) Any legislative reversal of Preddy would be unlikely to satisfy this foreseeability requirement.
5.34 Article 7(2) of the Convention was inserted in order to make it clear that the trial of war criminals for acts which were criminal according to international law would be consistent with the Convention. It is most unlikely that this saving clause could be invoked in any other cases.(31)
Conclusion
5.35 We take the view that, although the offence contained in the new section 15A could arguably be regarded as a technical regularising of the law (so as to make it an offence to do what was thought to be an offence before the House of Lords decision in Preddy), no good reasons can be found to justify a departure from the principle against retrospective effect. In any event, if an attempt were made to give the new law retrospective effect, it is likely that it would be found to be in breach of the ECHR.
5.36 We recommend that nothing done before the new section 15A comes into force, which would not have been an offence had that section not been enacted, should amount to an offence by virtue of that section. (Recommendation 5)
Footnotes to Part V
(1) William Taylor QPM.
(2) Colin Bamford.
(3) See para 1.2 above.
(4) See para 1.11 1.14 above.
(5) For this reason the draft Bill defines a "credit" and a "debit" as a credit or a debit of an amount of money.
(6) Strictly speaking the effect of the new s 15B(3)(6) is to include an account kept with a person carrying on a business which would be a deposit-taking business, by virtue of s 6(1) and (3) of the Banking Act 1987, were it not for the fact that s 6(2) of that Act excludes a business carried on by a person who does not hold himself out as accepting deposits on a day-to-day basis and which accepts deposits "only on particular occasions". We understand from the Bank of England that this latter phrase causes much difficulty in practice. The word "deposit" is defined by the new s 15B(4) as having the same meaning as in s 35 of the Banking Act (the offence of fraudulent inducement to make a deposit), which refers to the definition of a deposit in s 5 of that Act but includes any sum that would otherwise be excluded by s 5(3): s 35(4).
(7) Eg the Legal Unit of the Bank of England.
(8) Lord Goff thought that in the latter case, though the defendant does obtain property belonging to another, there is no intention to deprive the other of that property: [1996] 3 WLR 255, 266. His Lordship did not expressly deal with the argument that the necessary intention may be deemed to exist by virtue of s 6(1) of the 1968 Act.
(9) We are grateful to Mr Justice Jowitt for drawing our attention to this point.
(10) See para 3.31 above.
(11) [1996] Crim LR 203.
(12) See para 3.31 above.
(13) Eg by the Department of Social Security.
(14) Harden [1963] 1 QB 8; Tirado (1974) 59 Cr App R 80.
(15) Based on this Commissions report Criminal Law: Jurisdiction over Offences of Fraud and Dishonesty with a Foreign Element (1989) Law Com No 180.
(16) Indeed, the difficulty of incorporating this requirement was one of our main reasons for abandoning the idea of extending s 15 rather than creating a new offence: see paras 4.9 4.10 above.
(17) See para 4.9 above.
(18)Burmah Oil Co (Burma Trading) Ltd v Lord Advocate [1965] AC 75.
(19) Mr Niall MacDermot QC MP.
(20) Hansard (HC) 3 February 1965, vol 705, col 1091.
(21) See commentary to Redmond [1984] Crim LR 292.
(22) Ibid.
(23) Companies Act 1985, s 458.
(24) A H Robertson and J G Merrills, Human Rights in Europe: a study of the European Convention on Human Rights (3rd ed 1993) p 26.
(25) Application 6689/74, 3 D & R, p 95: a case involving the common law offence of blasphemous libel, where the Commission concluded that while the domestic courts had been required to resolve a point of principle relating to the scope of the crime, their decision did not create a new offence and was, therefore, unobjectionable.
(26) SW v United Kingdom [1996] 21 EHRR 363. These appeals were heard together.
(27) R [1992] 1 AC 599.
(28) SW v United Kingdom [1996] 21 EHRR 363, 399 (para 36/34).
(29)Ibid.
(30) See, inter alia, Steele (1977) 65 Cr App R 22 and Roberts [1986] Crim LR 188.
(31) A H Robertson and J G Merrills, op cit, at p 127.