PART I
INTRODUCTION

1.1 In this report, we are looking at the problem of prosecuting those who commit mortgage fraud(1) or otherwise obtain a transfer of funds dishonestly and by deception. As we shall show, the very recent decision of the House of Lords in Preddy(2) has radically changed the law, creating important lacunae in the law.

1.2 As we have previously announced,(3) we are just starting a major review of the law of dishonesty. However, we have decided to report on the problems caused by Preddy as a matter of urgency, although logically we would have proposed to look at it as part of our co-ordinated revision of the law. On account of the urgency of this project we have limited it to the more immediate problems raised by Preddy and have not looked at other complaints about the Theft Acts.

THE PROBLEM

1.3 Prosecutors have traditionally charged those who commit mortgage frauds with dishonestly obtaining property by deception, contrary to section 15(1) of the Theft Act 1968; this provides that

A person who by 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.

1.4 On 10 July 1996, the House of Lords unanimously allowed the appeals of Preddy and others. They were alleged to have committed mortgage fraud and had been charged under section 15(1) of the Theft Act 1968. The basis of the House of Lords decision was that the borrowers, the alleged mortgage fraudsters, had not obtained "property belonging to another" as required by section 15.(4)

1.5 Essentially, the House of Lords did not accept that when the bank accounts of the appellants or their solicitors were credited they had obtained any property belonging to the lending institution. According to the House of Lords, the proper analysis was that the lending institutions credit balance was a chose in action (the debt owed to the institution by the bank) which was extinguished and subsequently the defendant obtained something different, namely the chose in action constituted by the debt owed to him by his bank as represented by a credit in his own bank account. This asset was created for him and had therefore never belonged to anybody else. Thus the prosecution could not show that the borrower defendant had obtained property "belonging to another".

1.6 Prosecutors had felt compelled to use section 15 to prosecute mortgage frauds because the Court of Appeal had previously held in Halai(5) that it was not possible to prosecute mortgage fraudsters for obtaining or attempting to obtain services by deception(6) because no service had been obtained. In that case, the services which the defendant was alleged to have obtained, or to have attempted to obtain, were the opening of a savings account, a mortgage advance, and the increase of an apparent credit balance in a savings account. The decision in Halai has been heavily criticised.(7) This Commission has recommended its reversal and put forward a draft Bill which would achieve that purpose:(8) this recommendation has been accepted by Government but has not yet been implemented.