United Kingdom House of Lords Decisions

Parliamentary Archives,
HL/PO/JU/18/256

Regina v Freddy (Appellant)

(On Appeal from the Court of Appeal (Criminal Division))

Regina v Slade (Appellant)

(On Appeal from the Court of Appeal (Criminal Division))

(Consolidated Appeals)

Regina v Dhillon (Appellant)

(On Appeal from the Court of Appeal (Criminal Division))

(Conjoined Appeals)




JUDGMENT

Die Mercurii 10° Julii 1996

Upon Report from the Appellate Committee to whom was referred the Cause
Regina against Freddy, Regina against Slade and Regina against Dhillon, That the
Committee had heard Counsel as well on Wednesday the 13th as on Thursday the 14th day
of March last upon the Petition and Appeal of John Crawford Freddy, of 12 St James
Court, 81 The Drive, Hove, East Sussex, of Mark Slade, care of Bishops and Light
Solicitors, 8 Fasten Place, Brighton (which said Appeals were by an Order of this House of
the 15th day of November 1995 consolidated), and of Rajpaul Singh Dhillon, of 18 Great
Wheatley, Rayleigh, Essex, praying that the matter of the Orders set forth in the Schedules
thereto, namely Orders of Her Majesty's Court of Appeal (Criminal Division) of the 5th
and 8th days of August 1994, might be reviewed before Her Majesty the Queen in Her
Court of Parliament and that the said Orders might be reversed, varied or altered or that
the Petitioners might have such other relief in the premises as to Her Majesty the Queen in
Her Court of Parliament might seem meet; as upon the cases of the Director of Public
Prosecutions (on behalf of Her Majesty) lodged in answer to the said Appeals; and due
consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of
Parliament of Her Majesty the Queen assembled, That the said Orders of Her Majesty's
Court of Appeal (Criminal Division) of the 5th and 8th days of August 1994 complained of
in the said Appeals, and the Orders of the Crown Court of the 22nd day of January 1993
and the 14th day of March 1994, be, and the same are hereby, Set aside and that the
convictions be, and the same are hereby, Quashed: And it is further Ordered, That the first
and second questions certified in each case be answered in the negative in the terms set out
in the speech of the Lord Goff of Chieveley.

Cler: Parliamentor:

HOUSE OF LORDS

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

REGINA

v.

PREDDY
(APPELLANT)

(ON APPEAL FROM THE COURT OF APPEAL)
(CRIMINAL DIVISION)

REGINA

v.

SLADE
(APPELLANT)

(ON APPEAL FROM THE COURT OF APPEAL)

(CRIMINAL DIVISION)
(CONSOLIDATED APPEALS)

REGINA
v.

DHILLON

(APPELLANT)

(ON APPEAL FROM THE COURT OF APPEAL)

(CRIMINAL DIVISION)

(CONJOINED APPEALS)

ON 10TH JULY 1996

Lord Chancellor
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
Lord Slynn of Hadley
Lord Hoffmann




LORD MACKAY OF CLASHFERN L.C.

My Lords,

I have had the privilege of reading in draft the speech to be delivered
by my noble and learned friend Lord Goff of Chieveley. For the reasons he
gives I would allow these appeals and quash the convictions of the appellants.

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LORD GOFF OF CHIEVELEY

My Lords.

There are before their Lordships appeals from two decisions of the
Court of Appeal. In the first, [1995] Crim.L.R. 564 the Court dismissed
appeals by John Crawford Freddy and Mark Slade, and in the second
(unreported) they dismissed an appeal by Rajpaul Singh Dhillon, against
conviction on a number of counts of obtaining or attempting to obtain property
by deception, contrary to section 15(1) of the Theft Act 1968. All three were
sentenced to terms of imprisonment, but each had been released before his
appeal came before your Lordships' House. I propose immediately to set out
the relevant terms of section 15, which provides as follows:

"15(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 for a term of
imprisonment 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 retain.

. . . .

(4) For purposes of this section 'deception' means any deception
(whether deliberate or reckless) by words or conduct as to fact or as
to law, including a deception as to the present intentions of the person
using the deception or any other person."

To this I must add that, by section 4(1) of the Act (applied to section 15(1) by
section 34(1)), it is provided that property includes money and all other
property, real or personal, including things in action and other intangible
property.

The cases before your Lordships are both concerned with what are
usually called mortgage frauds. The appellants 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.

- 2 -

At the trial of Freddy and Slade, the Crown relied on some 40
transactions between October 1988 and August 1989 involving advances from
various lending institutions, in some cases to one or other individually, in
some cases to them both together, the advances totalling a sum in excess of
£1 million. Freddy was convicted of eight counts alleging the full offence,
and seven attempts; Slade was convicted of five counts alleging the full
offence, and four attempts. It is plain from the dates that all the advances
were sought during the period of the property boom. 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.

Dhillon was tried on an indictment containing 7 counts of obtaining or
attempting to obtain mortgage loans by deception. In his case, the
misrepresentations related to the intended occupancy of the properties in
question (which in all cases were subsequently let to tenants); failure to
declare the existence of other mortgage commitments; or particulars of
employment. This appellant's 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.

The central point in each appeal was whether, having regard to the
nature of the transactions, the appellants were properly charged with and
convicted of obtaining property by deception contrary to section 15(1). At
both trials, submissions were made that no property of the lending institutions
had been obtained, or attempted to be obtained, by the appellants. I shall
return to the precise basis of this submission at a later stage. The submissions
were in each case rejected by the judge, and the appellants were then
convicted. The same submissions formed the principal ground of the appeals
before the Court of Appeal. The Court of Appeal first heard the appeals of
Freddy and Slade, and gave a reasoned judgment in which they dismissed their
appeals. It was recognised by counsel for Dhillon that, if the appeals of
Freddy and Slade were dismissed, Dhillon's appeal, which raised the same
points of law, must inevitably fail; and so the Court then gave a formal
judgment dismissing his appeal. The Court refused all three appellants leave
to appeal to your Lordships' House, but certified certain questions as fit for
consideration by your Lordships, to which I will refer in a moment. Leave
to appeal was granted by this House.

Such, in outline, is the factual background against which the appeals
arose. Mr. Krolik, in his powerful argument on behalf of Freddy and Slade.
submitted however that it was essential, for the purposes of addressing the



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points of law which arose on the appeal, to have regard to the precise
circumstances in which mortgage advances are made. With that submission
I agree, and I will next set out a summary which owes much to the assistance
provided to the Appellate Committee by Mr. Krolik.

The typical mortgage transaction

1. Agreement to purchase. P agrees to purchase Blackacre from V for
   an agreed price, subject to mortgage.

2. The nature of the advance. P applies to BS for an advance to be
   secured by a mortgage over Blackacre. The advance, if made, will be
   repayable over a period of time; and the mortgage will frequently be an
   endowment mortgage, whereby P pays only instalments of interest to BS, but
   in addition pays regular premiums on a life assurance policy taken out with
   an insurance company. The life policy is charged to BS as additional security.
   On expiry of the mortgage term, the capital sum advanced by BS will be
   redeemed from the proceeds of the insurance policy payable on its maturity.
   
   

3. The nature of the application. P's application to BS requires him to
   furnish information on a number of matters, e.g. his personal finances;
   Blackacre; the intended use of Blackacre. BS will use this information to
   ascertain whether the loan falls within its lending criteria, and whether P is
   likely to be able to meet his obligations to BS. BS also requires a personal
   reference for P, and a valuation of Blackacre; and it is usual for P to be
   required to nominate a solicitor who will act for him in the transaction.

4. The transaction proceeds. If BS approves P's application, it submits
   a written offer of an advance to P, and obtains his agreement. P then
   instructs S as his solicitor, and BS usually instructs S to act as its solicitor too.
   S will open negotiations with V's solicitor; exchange purchase contracts; and
   investigate title. S will report on title to BS. and notify it of the anticipated
   completion date.

5. Payment. A few days before completion, BS will put S in funds to
   complete the mortgage transaction. This is generally by cheque or electronic
   transfer.




1. BS's bank account may be in credit, so that the effect
   of the transfer is to deplete the credit balance by the transfer; or it may be
   overdrawn, in which event the debt is increased by the transfer. P will be
   unaware of the state of BS's bank account before the transfer, as to which
   there was no evidence in the case of the present appeals.

2. If the money is transferred electronically, there will be
   a simultaneous debit of BS's bank account and credit of S's bank account. If
   the money is transferred by cheque, S's bank will on receipt of the cheque
   
   

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immediately credit S's bank account, and BS's bank account will be debited
when the cheque is presented to its bank.

(c) On receipt of the money, S will ordinarily place it in his
client account. In the present cases, there was no evidence as to how S held
the funds pending completion of the mortgage transaction.

6. Completion V executes a deed of transfer or conveyance, which is held
   by S in escrow pending completion; P executes a mortgage deed in favour of
   BS; S transmits the purchase price to V's solicitor. The purchase price
   comprises the funds received by S from BS, but may also include funds
   provided by P, and will usually be transmitted to V's solicitor by banker's
   draft. S will register P's interest, and BS's legal mortgage. In the present
   cases, there was no evidence of completion.

7. Repayment of the loan This is, as already stated, commonly obtained
   by BS from the proceeds of a life assurance policy taken out by P and charged
   to BS.

The questions of law

It is against this factual background that the questions of law certified
by the Court of Appeal fall to be considered. They are as follows:

1. Whether the debiting of a bank account and the corresponding credit
   of another's 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?

It is the first of these three questions which is central to these appeals, since
it addresses the question whether it is appropriate to charge a person, accused
of a mortgage fraud, with the offence of obtaining property by deception.

The legislative history

The appellants were, as I have already recorded, all charged with
offences contrary to section 15(1) of the Act of 1968. This subsection
replaced the old offence of obtaining by false pretences contrary to section
32(1) of the Larceny Act 1916. It is reasonable to assume that offences such
as the mortgage frauds which are the subject of the present appeals were
relatively rare in the old days. If they had occurred, it is probable that the



- 5 -

perpetrator could have been charged either with obtaining by false pretences
contrary to section 32(1) of the Larceny Act 1916, or with obtaining credit by
fraud contrary to section 13(1) of the Debtors Act 1869. Both of these
provisions were in very wide terms. In particular, section 32(1) applied in a
case where the defendant by any false pretence "with intent to defraud . . .
causes or procures any money to be paid ... to himself or to any other
person for the use or benefit ... of himself or any other person." The
section was therefore, unlike section 15(1) of the Act of 1968, not limited to
obtaining "property belonging to another." Moreover, the expression "intent
to defraud" was broadly interpreted, and could apply even where the
defendant intended, if he could, to return the money in due course: see Russell
on Crime, 12th ed., pp. 1191-1192. It appears that the crime of obtaining
credit by fraud was also understood to be capable of being committed in cases
of fraudulent borrowing: see ibid, at pp. 1208, et seq. These provisions were
however repealed by section 33(3) of, and Schedule 3 to, the Act of 1968,
which introduced a new and comprehensive law of theft.

The Theft Act 1968 was the fruit of the 8th Report of the Criminal
Law Revision Committee (Cmnd. 2977) published in May 1966. The
Committee's proposals with regard to criminal deception are to be found in
clause 12 of the draft Bill appended to their Report, with Notes at p. 130.
The relevant section of the body of the Report is paragraphs 86-101 (at pp.
39-51).

It seems that, when consideration is given to the form of offences
relating to fraud, which embraces a very wide area of criminal activity, two
competing schools of thought will inevitably emerge. The first is that there
should simply be a general offence of fraud, the essence of which is (broadly
speaking) dishonestly deceiving another for the purpose of gain, or (possibly)
thereby causing him simply to act to his detriment. This is in fact the
approach adopted by Scots law, in which the common law offence of fraud
consists simply of "the bringing about of some definite practical result by
means of false pretences": see Gordon on the Criminal Law of Scotland, 2nd
ed., p. 588. The second school of thought is that a general offence of fraud
is undesirable, and that it is more appropriate that a series of specific offences
should be identified. How a division of opinion along these lines developed
among members of the Criminal Law Revision Committee is described in
paragraphs 97-99 of their Report, where the competing arguments are
rehearsed. Those favouring a broad general offence considered that it would
be unsatisfactory and dangerous to define the different objects of deception,
because it would be impossible to be certain that any list would be complete,
and technical distinctions would inevitably be drawn. These may, in the
event, be regarded as prescient words. Those who supported a series of
specific offences were affected by two considerations in particular. The first
was that "it is a principle of English law to give reasonably precise guidance
as to what kinds of conduct are criminal." This is the so-called principle of
legality, which has a respectable theoretical foundation but can perhaps be a



- 6 -

little unrealistic in practice. The second consideration was however of a
more practical nature. I quote from paragraph 99(iii) of the Report:

"The offence would cover many minor cases of deception of
various descriptions which public opinion has not regarded, and would
scarcely now regard, as requiring the application of the criminal law
to them .... The offence would also cover deceptions of a kind
which, though criminal under the existing law, are only punishable
with minor penalties on summary conviction .... No such general
extension of the criminal sanctions against deception is called for . .
. . "

The same criticism can, of course, be levelled at Scots law which appears,
however, to suffer from no adverse consequences in practice, no doubt
because of the good sense of the prosecuting authorities. At all events the
Committee (with one dissentient) opted for a compromise, combining two
specific offences with a general offence. Clause 12 contained four subclauses.
The first provided for the successor to the old offence of obtaining by false
pretences, referring simply to property as such but adding the qualification
"belonging to another" - an expression defined in clause 5(1). The second
provided for a new and improved version of the old offence of obtaining
credit by fraud, in terms which (since it included credit in respect of the
repayment of money) would, I understand, have been wide enough to embrace
mortgage frauds. The third provided for a general offence of deception, but
with a limited penalty of two years' imprisonment. The fourth provided for
a broad definition of deception.

As I have said, therefore, the clause combined two specific offences
with a general offence of deception. It was this compromise which exposed
the clause to severe criticism when it came before your Lordships' House
acting in its legislative capacity. On 12 March 1968 (see the Official Report
of that date, cols. 157 et seq.), Viscount Dilhorne moved successfully (though
by a small majority) that subclause (3) of clause 12 be deleted from the Bill.
He relied in particular upon the overlap, and some inconsistency, between the
particular offences in subclause (1) and (2), and the general offence in
subclause (3). Lord Wilberforce, whose speech merits careful study, observed
that nothing in subclauses (1) or (2), or anywhere else in the Bill, dealt with
services, the whole Bill being concentrated on property; though he recognised
that "the case of loans" also had to be addressed. In the result, subclause (2)
- the improved version of obtaining credit by fraud - was jettisoned together
with subclause (3); and a new clause (which became section 16), concerned
with "obtaining pecuniary advantage by deception" was, as Professor Griew
has put it (see the 6th ed. (1990) of his The Theft Acts at p. 127), "hurriedly
devised to cover obtaining credit by deception together with so much of the
rejected general offence as was felt to be acceptable."

Thus was the baby thrown out with the bathwater. Moreover, hurried
amendments to carefully structured comprehensive Bills are an accident-prone



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form of proceeding; and the principal offence created by the new section 16,
that contained in section 16(2)(a) - concerned with persons who by deception
dishonestly obtain the reduction, or the total or partial evasion or deferment,
of a debt or charge for which they have made themselves liable or were or
might become liable - proved to be so incomprehensible as to be unworkable
in practice. Section 16 was then referred to the Criminal Law Revision
Committee who proposed, in their 13th Report published in February 1977,
the adoption of a new Bill under which section 16(2)(a) would be repealed and
three new offences would be created. The Committee considered whether the
basic offence designed to replace section 16(2)(a) should be obtaining services
by deception; but they found difficulty in formulating a definition of services
which was not so wide as to attract criticisms similar to those which had
caused clause 12(3) of their original Bill to be rejected (see paragraph 7 of
their 13th Report). In the result the principal new offence proposed was
concerned with deception as to the prospect of payment; but this was itself
subject to criticism in the House of Lords and, following a reference back to
the Committee, there was substituted an offence of obtaining services by
deception, which was indeed widely defined. This was subsequently refined
in the House of Commons, and became section 1 of the Theft Act 1978. I
shall take the opportunity at this stage to set out the text of section 1 of the
Act of 1978, which provides as follows:

"(1) A person who by any deception obtains services from another
shall be guilty of an offence.

(2) It is an obtaining of services where the other is induced to
confer a benefit by doing some act, or causing or permitting some act
to be done, on the understanding that the benefit has been or will be
paid for."

The combined result of this extraordinary legislative history was that
(i) the offence of obtaining credit by fraud, originally intended to be section
15(2) of the 1968 Act, has disappeared; (ii) section 16 of that Act, intended
to take the place of section 15(2) and (3) as proposed, is now left (following
the repeal of subsection (2)(a)) in a truncated form, limiting the offence of
obtaining a pecuniary advantage by deception to the two unimportant examples
in the remaining subsections (b) and (c); and (iii) section 1 of the Act of 1978.
providing for obtaining services by deception, now appears as a separate
offence, defined in wide terms. It is legitimate to comment that it is
improbable that obtaining a loan such as a mortgage advance by deception
should have been intended to fall within section 15(1) of the Act of 1968,
when section 15(2) as proposed provided for a separate offence of dishonestly
obtaining credit by deception in terms wide enough to include obtaining credit
in respect of the repayment of a loan.

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The first question

Against the above background, I now turn to the first question which
your Lordships have to consider, which is whether the debiting of a bank
account and the corresponding crediting of another's bank account brought
about by dishonest misrepresentation amount to the obtaining of property
within section 15 of the Act of 1968.

Under each count, one of the appellants was charged with dishonestly
obtaining, or attempting to obtain, from the relevant lending institution an
advance by way of mortgage in a certain sum. In point of fact it appears that,
when the sum was paid, it was sometimes paid by cheque, sometimes by
telegraphic transfer, and sometimes by the CHAPS (Clearing House
Automated Payment System) system. However in the cases where the sum
was paid by cheque the appellants were not charged with dishonestly obtaining
the cheque. A useful description of the CHAPS system is to be found in the
Law Commission's Report, Criminal Law: Conspiracy to Defraud (Law Com.
No. 228) (1994), p. 39, n. 83. It involves electronic transfer as between
banks, and no distinction need be drawn for present purposes between the
CHAPS system and telegraphic transfer, each involving a debit entry in the
payer's bank account and a corresponding credit entry in the payee's bank
account.

The Court of Appeal in the present case concentrated on payments by
the CHAPS system. They considered that the prosecution had to prove that
the relevant CHAPS electronic transfer was "property" within section 15(1)
of the Act of 1968. They then referred to the definition of property in section
4(1) of the Act as including "money and all other property, real or personal,
including things in action and other intangible property"; and they concluded,
following the judgment of the Court of Appeal in Reg. v. Williams
(Jacqueline) (unreported) 30 July 1993, that such a transfer was "intangible
property" and therefore property for the purposes of section 15(1).

The opinion expressed by the Court of Appeal in Reg. v. Williams
(Jacqueline) on this point was in fact obiter. The case related to a mortgage
advance, the amount having been paid by electronic transfer. The Court
however concluded that a sum of money represented by a figure in an account
fell within the expression "other intangible property" in section 4(1), and that
the reduction of the sum standing in the lending institution's account, and the
corresponding increase in the sum standing to the credit of the mortgagor's
solicitor's account, constituted the obtaining of intangible property within
section 15(1).

In holding that a sum of money represented by a figure in an account
constituted "other intangible property," the Court relied upon the decision of
the Privy Council in Attorney-General of Hong Kong v. Nai-Keung [1987] 1
W.L.R. 1339, in which an export quota surplus to a particular exporter's
requirements, which under the laws of Hong Kong could be bought and sold.



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was held to constitute "other intangible property" within section 5(1) of the
Hong Kong Theft Ordinance (Laws of Hong Kong, 1980 rev., c. 210)
(identical to section 4(1) of the English Act of 1968). I feel bound to say that
that case, which was concerned with an asset capable of being traded on a
market, can on that basis be differentiated from cases such as the present. But
in any event, as I understand the position, the Court of Appeal were
identifying the sums which were the subject of the relevant charges as being
sums standing to the credit of the lending institution in its bank account.
Those credit entries would, in my opinion, represent debts owing by the bank
to the lending institution which constituted choses in action belonging to the
lending institution and as such fell within the definition of property in section
4(1) of the Act of 1968.

My own belief is however that identifying the sum in question as
property does not advance the argument very far. The crucial question, as I
see it, is whether the defendant obtained (or attempted to obtain) property
belonging to another. Let it be assumed that the lending institution's bank
account is in credit, and that there is therefore no difficulty in identifying a
credit balance standing in the account as representing property, i.e. a chose
in action, belonging to the lending institution. The question remains however
whether the debiting of the lending institution's bank account, and the
corresponding crediting of the bank account of the defendant or his solicitor,
constitutes obtaining of that property. The difficulty in the way of that
conclusion is simply that, when the bank account of the defendant (or his
solicitor) is credited, he does not obtain the lending institution's 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
these circumstances, it is difficult to see how the defendant thereby obtained
property belonging to another, i.e. to the lending institution.

Professor Sir John Smith, in his commentary on the decision of the
Court of Appeal in the present case [1995] Crim.L.R. 564. 565-566, has
suggested that "Effectively, the victim's property has been changed into
another form and now belongs to the defendant. There is the gain and
equivalent loss which is characteristic of, and perhaps the substance of
obtaining." But even if this were right, I do not for myself see how this can
properly be described as obtaining property belonging to another. 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. True, it corresponded to the debit entered in the lending
institution's bank account; but it does not follow that the property which the
defendant acquired can be identified with the property which the lending
institution lost when its account was debited. In truth, section 15(1) is here
being invoked for a purpose for which it was never designed, and for which
it does not legislate.

- 10 -

I should add that, throughout the above discussion, I have proceeded
on the assumption that the bank accounts of the lending institution and the
defendant (or his solicitor) are both sufficiently in credit to allow for choses
in action of equivalent value to be extinguished in the one case, and created
in the other. But this may well not be the case; and in that event further
problems would be created, since it is difficult to see how an increase in
borrowing can constitute an extinction of a chose in action owned by the
lending institution, or a reduction in borrowing can constitute the creation of
a chose in action owned by the defendant. It may be that it could be argued
that in such circumstances it was the lending institution's bank whose property
was "obtained" by the defendant; but, quite apart from other problems, that
argument would in any event fail for the reasons which I have already given.
For these reasons, I would answer the first question in the negative.

Payment by cheque

Before I leave this topic I wish to turn briefly to cases in which a
mortgage advance has been made not by telegraphic or electronic transfer, but
by cheque. It appears that, in the case of some of the mortgage advances
made in the present cases, the money was in fact advanced by cheque.
Strictly speaking cases concerned with payment by cheque do not fall within
the scope of the three questions posed for your Lordships' consideration, and
they were not considered by the Court of Appeal. Even so, they provide a
common alternative to cases of payment under the CHAPS system and raise
very similar problems. It would therefore be unrealistic to ignore them and,
since they were the subject of argument before the Appellate Committee, I
propose to consider them.

None of the appellants was charged with obtaining the cheques
themselves by deception. They were, even in the cases in which payment was
made by cheque, charged with the obtaining by deception of the relevant
advance. But whether they had been charged with obtaining the cheques by
deception, or (as they were) with obtaining the advances by deception, the
prosecution was, in my opinion, faced with the same insuperable difficulty as
that which I have already discussed, viz. that the defendant must have
obtained property belonging to another to be convicted of obtaining property
by deception under section 15(1) of the Act.

The point in question has been much discussed in the literature on the
subject, and there now appears to be a broad consensus on the point, with
which I find myself to be in agreement. I can therefore consider the point
relatively shortly.

I start with the time when the cheque form is simply a piece of paper
in the possession of the drawer. He makes out a cheque in favour of the
payee, and delivers it to him. The cheque then constitutes a chose in action
of the payee, which he can enforce against the drawer. At that time,
therefore, the cheque constitutes "property" of the payee within section 4(1)



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of the Act of 1968. Accordingly if the cheque is then obtained by deception
by a third party from the payee, the third party may be guilty of obtaining
property by deception contrary to section 15(1).

But if the payee himself obtained the cheque from the drawer by
deception, different considerations apply. That is because, when the payee so
obtained the cheque, there was no chose in action belonging to the drawer
which could be the subject of a charge of obtaining property by deception.
This was decided long ago in Reg. v. Danger (1857) 7 Cox C.C. 303. There
the defendant was charged with obtaining a valuable security by false
pretences, on the basis that he had presented a bill to the prosecutor who
accepted it and returned it to the defendant, his acceptance having been
induced by false pretences on the part of the defendant. The court held that
in these circumstances the defendant was not guilty of the offence with which
he was charged because, before the document came into his possession, the
prosecutor had no property in the document as a security, nor even in the
paper on which the acceptance was written. Lord Campbell C.J., delivering
the brief judgment of the court, said at p. 309:

"... we apprehend that to support the indictment the document must
have been a valuable security while in the hands of the prosecutor.
While it was in the hands of the prosecutor it was of no value to him
nor to any one else, unless to the prisoner. In obtaining it the prisoner
was guilty of a gross fraud, but we think not of a fraud contemplated
by this Act of Parliament (7 & 8 Geo. 4, c. 29, s. 53)."

Unfortunately this authority does not appear to have been cited in
Reg. v. Duru [1974] 1 W.L.R. 2. There the defendants were involved in
mortgage frauds perpetrated on a local authority. The advances were made
by cheque, and the defendants were charged with obtaining the cheques by
deception. The principal question for consideration was whether there was an
intention on the part of the defendants to deprive the council of the property.
The Court of Appeal held that there was such an intention. Megaw L.J., who
delivered the judgment of the court, had this to say, at p. 8:

"So far as the cheque itself is concerned, true it is a piece of
paper. But it is a piece of paper which changes its character
completely once it is paid, because then it receives a rubber stamp on
it stating that it has been paid and it ceases to be a thing in action, or
at any rate it ceases to be, in its substance, the same thing as it was
before: that is, an instrument on which payment falls to be made. It
was the intention of the defendants, dishonestly and by deception, not
only that the cheques should be made out and handed over, but also
that they should be presented and paid, thereby depriving the council
of the cheques in their substance as things in action."

That decision was followed and applied by the Court of Appeal in Reg. v.
Mitchell [1993] Crim.L.R. 788.

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Both these decisions have been the subject of academic criticism,
notably by Professor Smith in his commentary on Mitchell in the Criminal
Law Review (in which he withdrew the support which he had previously given
to the decision in Duru). The point is simply that, when the cheque was
obtained by the payee from the drawer, the chose in action represented by the
cheque then came into existence and so had never belonged to the drawer.
When it came into existence it belonged to the payee, and so there could be
no question of his having obtained by deception "property belonging to
another." This is the point which was decided in Danger. The case of a
cheque differs from Danger only in the fact that the cheque form, unlike the
paper on which the bill was written in Danger, did belong to the drawer. But
there can have been no intention on the part of the payee permanently to
deprive the drawer of the cheque form, which would on presentation of the
cheque for payment be returned to the drawer via his bank.

For these reasons I am satisfied that in Duru and Mitchell are to this
extent wrongly decided, and that the prosecution of the appellants in cases
where the advance was made by cheque would have been equally flawed if
they had been charged with obtaining the cheque in question by deception, as
they were when charged with obtaining the advance itself by deception,
contrary to section 15(1). Whether they could have been charged with
dishonestly procuring the execution of a valuable security by deception
contrary to section 20(2) of the Act of 1968 does not arise for consideration
in the present appeals.

The Second Question

I turn next to the second question which your Lordships have to
consider, which is (in effect) whether the answer to the first question would
be different where the transfer is to a firm of solicitors acting in a mortgage
transaction.

I feel bound to say that I find this question to be framed in such broad
terms that it is, in truth, an academic question unrelated to the facts of any
particular case. Certainly, so far as the present appeals are concerned, the
relevant facts are not all known to your Lordships, with the result that it is not
possible for your Lordships to answer the question with reference to any
particular transaction in respect of which one of the appellants has been
charged and convicted. However, rather than simply decline to answer the
question, I propose to approach it on the basis of certain assumptions: and this
approach should, in my opinion, be sufficient to demonstrate that section 15(1)
is as inapt in the case where the money is transferred by the lending institution
to a solicitor acting in a mortgage transaction as it is where it is transferred
by it direct to the mortgagor who has perpetrated the deception.

I shall proceed on the basis of the following assumptions:

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(1) The solicitor is acting for both the lending institution and the
mortgagor in relation to the mortgage transaction.

2. The money is transferred by the lending institution to the
   solicitor by electronic transfer pursuant to the CHAPS system, or by cheque.

3. The lending institution's bank account was sufficiently in credit
   to finance the advance without recourse to an overdraft facility.

4. The money was credited to the solicitor's client account, which
   was already in credit.

5. On completion, the solicitor with authority from the lending
   institution paid an equivalent sum to the vendor's solicitor by banker's draft,
   the solicitor's client account being in due course debited with the relevant
   sum.

The deception would of course have been perpetrated by the mortgagor
on the lending institution before the money was paid by the institution to the
solicitor. The question whether there has been an obtaining of property by
deception falls to be considered first when the money is received by the
solicitor, and second when the banker's draft is received by the vendor's
solicitor.

I turn first to the stage of the payment to the solicitor. At this point
of time, the question has to be considered on the basis that the solicitor, when
he receives the money, does so as agent of the lending institution and holds
it as bare trustee for the lending institution: see Target Holdings Ltd. v.
Redferns (a firm) [1996] 1 AC 421, 436, per Lord Browne-Wilkinson. Now
it is true that, by reason of the deception of the mortgagor, the legal interest
in the money has vested in the solicitor; and it may be suggested that in those
circumstances the mortgagor has obtained the money either for himself, or for
another within section 15(2). But (like Sir John Smith - see his commentary
on the decision of the Court of Appeal in the present case [1995] Crim.L.R.
564) I find difficulty in conceiving that in either case section 15 applies
where, as here, the solicitor receives the money in his capacity as agent of the
lending institution, in circumstances in which the lending institution retains
control over the money while in his (the solicitor's) hands and can require it
to be repaid at any time. Furthermore, in any event the same difficulties arise
here as they do where the money has been paid direct to the mortgagor by
electronic transfer, or by cheque. This is because any chose in action which
comes into existence by the crediting of the solicitor's bank account
(simultaneously with the debiting of the lending institution's 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).

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I turn next to the release of the money by the solicitor, with the
lending institution's authority, to the vendor's solicitor in the form of a
banker's draft. Presumably the solicitor's bank will debit the solicitor's
general account with the amount of the draft, and in due course the solicitor
will effect an adjustment in his own accounts as between his client account
and his general account. The banker's draft will be made payable to the
vendor's solicitor who will, on receipt of the draft, obtain property in the
form of a chose in action represented by the draft; but once again that chose
in action never belonged to another - either to the solicitor acting in the
mortgage transaction or his bank, or to the lending institution itself. It is true
that the consequence will have been that the lending institution's equitable
interest, such as it was, was extinguished. But the identification of that
equitable interest is not altogether easy. True, the solicitor acting in the
mortgage transaction received the money as trustee, but the money itself was
paid directly into the solicitor's client account where it was "mixed" with
other money and its identity lost. I suppose that, if the solicitor became
bankrupt, the lending institution could assert an equitable proprietary claim in
the form of an equitable lien upon the chose in action represented by the credit
balance (if any) in the account: but that contingency did not occur and, in any
event, despite the broad words of section 5(1) of the Act applicable in the case
of obtaining property by deception by virtue of section 34(1), I find great
difficulty in conceiving the possibility of the mortgagor "obtaining" any such
interest, which is not transferred to the mortgagor or to the vendor, but is
simply extinguished, being replaced in due course by the lending institution's
rights as mortgagee. In truth, the more one examines this problem, the more
inapt does section 15 of the Act appear to be in cases of this kind.

It is for these reasons that I have concluded that in circumstances such
as these it is not appropriate to charge the mortgagor with having obtained
property by deception contrary to section 15(1) of the Act of 1968.

The third question

I come now to the third question, which is whether an intention to
redeem the mortgage advance in full is relevant to the issue of permanent
intention to deprive or only to dishonesty.

As I understand the position, this question presupposes that (contrary
to my opinion) the first question should be answered in the affirmative. As
a result, the question becomes not only academic but unreal, and in
consequence any answer to the question itself assumes an air of unreality.
Moreover consideration of the appropriate answer not only involves the almost
metaphysical question whether restoration of a chose in action constitutes
restoration of precisely the same "thing" as that which was obtained, but also
makes it necessary to assume certain facts (e.g. whether the lending institution
has to be repaid out of the proceeds of an endowment policy taken out by the
mortgagor and charged to the lending institution) before the question can be
answered. In addition, it will be necessary to consider how section 6(1) of the



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Act of 1968 (made applicable to section 15 by section 15(3)) falls to be
applied in the case of borrowing money, which may depend on the facts of the
particular case. In all the circumstances your Lordships should, in my
opinion, decline to answer the third question, on the ground that it does not

arise for decision.

Obtaining services by deception

In Reg. v. Halai, which is briefly reported [1983] Crim.L.Rev. 624,
the defendant who had committed a mortgage fraud was convicted on four
counts contrary to section 1 of the Theft Act 1978 and one count contrary to
section 15 of the Theft Act 1968. It is not necessary for present purposes to
explore in detail each of these counts. It is enough to refer to three counts -
counts 2, 3 and 4 - under each of which he was convicted of obtaining or
attempting to obtain services by deception, and his convictions were quashed
by the Court of Appeal on the ground that no service had been obtained. The
services which the defendant was alleged to have obtained, or to have
attempted to obtain, were respectively the opening of a savings account; a
mortgage advance: and the increase of an apparent credit balance in a savings
account. For present purposes, the most relevant conclusion was that the
provision of a mortgage advance was not a service for the purposes of
section 1.

This decision has been strongly criticised, both by Sir John Smith (Law
of Theft, 7th ed., paras. 4-70 et seq.) and by Professor Griew (Theft Acts, 6th
ed., para. 8.08). It has also been criticised by the Law Commission in their
Report on Conspiracy to Defraud (Law Com. No. 228) at paras. 4.30-4.33,
and described by Lord Lane C.J. in Reg. v. Teong Sun Chuah [1991] Crim.
L. R. 463, 464 as bearing "all the hallmarks of being per incuriam." I hope
that I do not do injustice to these criticisms if I epitomise them as founded
essentially upon subsection (2) of section 1, which provides "that it is an
obtaining of services where the other is induced to confer a benefit by doing
some act ... on the understanding that the benefit has been or will be paid
for." It is said that, in the present context, the act is the making of the
advance, and that that act is plainly to be paid for because interest is to be
charged for the advance.

There is considerable force in this criticism; and certainly, if accepted,
it would close a manifest gap in our criminal law. I feel bound to comment
however that, although a wide definition of "services" appears to have been
intended (see Professor Smith's Law of Theft, 7th ed., p. 112), nevertheless
if subsection (2) were to be construed in the literal manner which is
understandably urged upon us in the literature on the subject, it would follow
that the ambit of section 1 of the Act of 1978 would be remarkably wide. It
would stretch far beyond what is ordinarily included in the notion of services
as generally understood. In particular, although we have become used to the
expression "financial services" as describing a range of services available from
those involved in that service industry, it is not altogether natural to think of



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the simple making of a loan upon interest as itself constituting a service.
Moreover on this approach it is, I suppose, arguable that for example the
supply of goods (at an underpayment) or procuring the execution of a valuable
security might also fall within this section, which could lead to an overlap
between the section and sections 15(1) and 20(2) of the Act of 1968. The
effect is that section 1 of the Act of 1978 is exposed to some of the criticisms
which led to the rejection of clause 12(3) of the Criminal Law Revision
Committee's original Bill, though its scope is restricted by the requirement
that the relevant benefit should be conferred on the understanding that it has
been or will be paid for.

The Appellate Committee was invited to hear argument on this point,
and to rule upon it; but in the end they resisted the temptation to do so. This
was because the question did not arise, even indirectly, in the appeals before
your Lordships. In so ruling, the Committee had to recognise the fact that
this left prosecuting authorities in a difficult position. While Halai stands, its
effect is that they can hardly charge defendants, alleged to have committed
mortgage frauds, with the offence of obtaining services by deception; and yet
they cannot obtain an authoritative ruling whether Halai is right or wrong,
because it is not practicable to launch a prosecution on a basis which the
Court of Appeal has held to be wrong in law, and an Attorney-General's
reference to the Court of Appeal under section 36 of the Criminal Justice Act
1972 is only available in cases where a defendant has been charged and
acquitted. However the Law Commission has addressed the problem and.
following a recommendation made in its previous Report (Law Com. No. 228,
para. 4.33), has prepared a simple two-clause Bill which could be introduced
as a matter of urgency, under which it is made clear that dishonestly inducing
another to make a loan, or to cause or permit a loan to be made, could
constitute the offence of dishonestly obtaining services by deception contrary
to section 1 of the Act of 1978. This solution would appear to provide the
most effective means of dealing rapidly with the particular problem. In these
circumstances, I do not think it necessary or appropriate for your Lordships
to say anything more on the subject.

Conclusion

For the above reasons, I would answer the first two questions in the
manner I have indicated: and I would allow the appeals of all three appellants,
and quash their convictions.

LORD JAUNCEY OF TULLICHETTLE

My Lords

These cases turn upon the words "belonging to another" in section
15(1) of the Theft Act 1968. In applying these words to circumstances such



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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. It is only to the latter situation that the words apply.

It would be tempting to say that the appellants by deception obtained
money belonging to the lenders and therefore offences have been committed.
That however would be to adopt a simplistic approach ignoring the nature of
the precise transactions which are involved. I start with the proposition that
the money in a bank account standing at credit does not belong to the account
holder. He has merely a chose in action which is the right to demand
payment of the relevant sum from the bank. I use the word "money" for
convenience but it is of course simply a sum entered into the books of the
bank. When a sum of money leaves A's account his chose in action quoad
that sum is extinguished. When an equivalent sum is transferred to B's
account there is created in B a fresh chose in action being the right to demand
payment of the sum from his bank. Applying these simple propositions to the
cases where sums of money are transferred from the lender's account to the
account of the borrower or his solicitor either by telegraphic transfer or
CHAPS the lender's property which was his chose in action in respect of the
relevant sum is extinguished and a new chose in action is created in the
borrower or his solicitor. Thus although the borrower has acquired a chose
in action quoad a sum of money of equal value to that which the lender had
right, he has not acquired the property of the lender which was the latter's
right against his own bank. It follows that section 15(1) has no application to
such a situation. The position is, of course, even more obvious if the lender's
account is in debit at the time of transfer in which event he has no right to
demand payment of the sum transferred.

My Lords, it is singularly unfortunate that Parliament has achieved by
the means described by my noble and learned friend Lord Goff of Chieveley
the result of legalising fraudulent conduct of the type involved in these appeals
- conduct which was almost certainly criminal prior to the Theft Act 1968.
Building Societies may however derive some small comfort from the fact that
in Scotland common law and common sense rather than Parliamentary wisdom
still prevail. It is almost certain that conduct such as that of the appellants
would constitute the common law offence of fraud in that country.

My Lords, for the reasons given in the speech of my noble and learned
friend Lord Goff of Chieveley I too would allow the appeal.

LORD SLYNN OF HADLEY

My Lords

I have had the advantage of reading in draft the speech prepared by my
noble and learned friend Lord Goff of Chieveley. For the reasons he gives



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I too would allow the appeals, quash the convictions and answer questions 1
and 2 in the manner indicated by him.

LORD HOFFMANN

My Lords,

I have had the privilege of reading in draft the speech delivered by my
noble and learned friend Lord Goff of Chieveley. For the reasons he gives
I would allow these appeals and quash the convictions of the appellants.

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