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Mortgage Fraud: Property does not pass in bank transfer; which Sections of the Theft Act 1968 are effective

(1996) The Times, July 11 House of Lords

Regina v Preddy, Slade, & Dhillon

(Conjoined appeals)


"S.15(2) . . . 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. . ."


LORD GOFF said that the cases concerned mortgage frauds. Preddy Slade & Dhillon had applied to building societies or other lending institutions for advances to be secured by mortgages. In each case, the mortgage application or accompanying documents had contained one or more statements known by the appellant to be false.

Some applications had been refused, in which event the appellant had been charged with an attempt. In the case of Preddy and Slade, the advances had totalled more than 1,000,000.

S.15(1) of the 1968 Act replaced obtaining by false pretences con contrary to S.32(1) of the Larceny Act 1916. The question was whether the debiting of a bank account and the corresponding crediting of another brought about by dishonest misrepresentation amounted to the obtaining of property within S.15.

The sums had been paid sometimes by cheque, sometimes by telegraphic transfer and sometimes by CHAPS (clearing house automated payment system) involving electronic transfer as between banks. No distinction needed to be drawn between telegraphic and electronic transfer.

S.4(1) 1968 provided that property included money and all other property, real or personal, including things in action and other intangible property. The Court of Appeal had held that an electronic transfer was intangible property.

It had identified the sums 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 his Lordship's opinion, represent debts owing by the bank to the lending institution constituting choses in action belonging to the lending institution and as such falling within the definition of "property" in section 4(1).

His Lordship's belief was, however, that identifying the sum as property did not advance the argument very far. The crucial question was whether the defendant had obtained, or attempted to obtain property belonging to another.

The question was whether the debiting of the lending institution's bank account and the corresponding crediting of the bank account of the defendant or his solicitor constituted the obtaining of the chose in action belonging to the lending institution.

The difficulty in the way of that conclusion was that, when the bank account of the defendant, or his solicitor, was credited, he did not obtain the lending institution's chose in action. On the contrary, that chose in action was extinguished or reduced pro tanto and a chose in action was brought into existence representing a debt in an equivalent sum owed by a different bank to the defendant or his solicitor.

In those circumstances, it was difficult to see how the defendant thereby obtained property belonging to another, that was, to the lending institution.

If the bank accounts of the lending institution and the defendant, or his solicitor, were not sufficiently in credit to allow for choses in action to be extinguished and created further problems arose.

Where the payment was made by cheque, the chose in action represented by the cheque came into existence when the cheque was obtained by the payee from the drawer and so 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: see R v Danger (1857) 7 Cox CC 303). R v Duru [1974] 1 WLR 2) and R v Mitchell [1993] Crim L R 788 had to that extent been wrongly decided.

S.15(1) was as inapt in the case where the money was transferred to a solicitor as it was where it was transferred direct to the mortgagor who had perpetrated the deception.


Where a payment was made between two bank accounts telegraphically, electronically or by cheque no identifiable property passed from the payer to the payee and, accordingly, the payee could not be guilty of dishonestly obtaining or attempting to obtain property belonging to another within the meaning of S.15(1) of the Theft Act 1968.

The House of Lords allowed appeals by Preddy, Slade and Dhillon from the Court of Appeal [1995] Crim L R 564 who had dismissed their appeals against convictions on counts under S.15(1).


This Lords ruling is a bombshell in the fight against mortgage fraud; by holding that such frauds do not amount to "obtaining property by deception. The ruling could prompt appeals by scores of persons convicted under S.15. which seems to have been the chief means of combating mortgage fraud in the past three years

Unless the law moves fast this will provide a loophole in the law" through which mortgage defendants can escape.

Prosecuting authorities will no longer be able to use S.15 of the Theft Act to prosecute mortgage cheats. The crux of the ruling given was that when money is passed between bank accounts there is no identifiable property involved, so it cannot amount to an attempt to obtain property dishonestly from another.

"Professor Sir John Smith, in his commentary on the subject, said at [1995] Crim LR 564, 565-566), '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 debt 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, S.15(1) is here being invoked for a purpose for which it was never designed, and for which it does not legislate."

The selection of appropriate charges has caused considerable difficulties in recent case involving fraudulent mortgage applications, primarily because of problems in identifying what exactly is obtained in a successful application, see O'Connell (1991) 94 Cr. App. R 39, King [1992] QB 20, Bolton (1991) 94 Cr. App. R 74, Dhillon [1992] Crim L R 889, Manjdadria [1993] Crim L R 73 and Johl [1994] Crim L R 552.

Blackstone's Criminal Practice (1995) points out at page 289 that in the past prosecuting Authorities have relied on a charge of conspiracy to defraud at common law, this obviates the need for proving if any substantive offence has been committed. This is of course assuming a conspiracy can be proved.

Depending upon the type of arrangements a safer charge may be procuring the execution of a valuable security contrary to S.20(2) Theft Act 1968 or Obtaining Services by Deception, S.1 Theft Act 1978, see Halia [1983] Crim L R 624 and Teong Sun Chuah [1991 Crim L R 463.

It is already being predicted that a spate of appeals will follow, (see Hawkins below)

Mortgage Lenders and others will be pressing for legislation at the earliest opportunity to close this loophole."

The Law Commission, recently published a report recommending a change in the law which would remedy the defect exposed in the law Lords' ruling. A short draft Theft (Amendment) Bill accompanied it. Clearly this matter is urgent.

The Crown Prosecution Service said it prosecuted between 300 and 350 a year for fraud, roughly 50 of which were mortgage fraud. It is estimated that last year there was 9 million worth of mortgage fraud, each case involving more than 100,000.

Future Hope may lie partly in S.17 1968, see (1996) The Times 6 August R v Hawkins (Paul) in which a self-confessed mortgage fraudster failed in an application for a seven-month extension of time to apply for leave to appeal out of time against conviction after the House of Lords, in another case, had decided that counts under S.15(1) of the Theft Act 1968 to which he had pleaded guilty had been invoked for a purpose for which it was never designed.

The Court of Appeal, refused an application by Hawkins, from conviction at Crown Court after pleas of guilty to five counts of obtaining property by deception, contrary to S.15(1) of the 1968 Act, two counts of attempting to obtain property by deception, contrary to S.17(1)(b) of the 1968 Act and one count of attempting to obtain property by deception, contrary to S.1(1) of the Criminal Attempts Act 1981.

He was sentenced to two years imprisonment concurrent on each count.

On appeal sentences of 18 months concurrent were substituted.

S.17 of the 1968 Act provides: "(1) Where a person dishonestly, with a view to gain for himself or another or with intent to cause loss to another . . . (b) in furnishing information for any purpose produced or makes use of any account, or any such record of document as aforesaid, which to his knowledge is or may be misleading, false or deceptive in a material particular . . . shall . . . be liable to imprisonment.