| OUTER HOUSE, COURT OF SESSION |
| | [2013] CSOH 129 |
| P529/12 | OPINION OF LORD BANNATYNE in the cause THE SCOTTISH MINISTERS For a Recovery Order in terms of Section 266 of the Proceeds of Crime Act 2002 Petitioners; against Y K Respondent: ________________ |
Petitioners: Carmichael; Civil Recovery Unit
Respondent: Cheyne; Francis Gill & Co (for Fleming & Reid, Glasgow)
30 July 2013
Introduction
[1] A proof came before me in which the petitioners were the Scottish Ministers, who are the enforcement authority in relation to Scotland for the purposes of Part 5 of the Proceeds of Crime Act 2002 ("the 2002 Act"). They were represented by Ms Heather Carmichael, advocate.
[2] The respondent at all material times was either the tenant or the owner of a property ("the subject property") which on or about 20 December 2010 she sold and in relation to which the petitioner sought recovery in terms of section 266 of the 2002 Act of the proceeds of sale. She was represented by Mr Cheyne, advocate.
Issue
[3] The broad primary issue between the parties can be summarised as follows: whether the respondent obtained a mortgage loan to purchase the subject property by means of fraud in that she falsely stated, for the purposes of the relevant mortgage application, that she was in employment, in her daughter's business, as a receptionist earning £17,000 per annum and that she had been so employed since June 2006.
The statutory framework
[4] Before proceeding further it is perhaps convenient to set out first the statutory framework governing this petition. The relevant provisions are set out in Part 5 of the 2002 Act and are as follows:
[5] Part 5 of the 2002 Act is headed "Civil recovery of the proceeds etc. of unlawful conduct". These provisions form part of an initiative to tackle serious crime across the United Kingdom (Asset Recovery Agency v T [2004] EWHC 3340 (Admin) at paragraph 22). They are civil proceedings; it is not part of the scheme to establish that some particular offence has been committed by any particular person.
[6] Section 240, which sets out the general purpose of this Part so far as material for the purposes of this matter, provides:
"(1) This Part has effect for the purposes of:
(a) enabling the enforcement authority to recover, in civil proceedings before the... Court of Session, property which is, or represents, property obtained through unlawful conduct,
(b) ...
(2) The powers conferred by this Part are exercisable in relation to any property (including cash) whether or not any proceedings have been brought for an offence in connection with the property."
[7] The civil nature of proceedings has been authoritatively recognised in Scottish Ministers v McGuffie 2006 SLT 1166 and Scottish Ministers v Doig 2009 SLT 1106.
[8] The circumstances in which the court makes a recovery order are set out in section 266(1) which provides:
"(1) If in proceedings under this Chapter the court is satisfied that any property is recoverable, the court must make a recovery order."
[9] Subsection 3 thereof provides for circumstances in which the court may not make a recovery order. The first of these relates to where the recoverable property was obtained in good faith. This issue did not arise in this case. Secondly, where any provision in respect of the recoverable property is incompatible with any of the convention rights. It was not asserted in the present case that such a point arose.
[10] Property for the purposes of the 2002 Act is defined in section 316(4) which provides as follows:
"(4) Property is all property wherever situated and includes -
(a) money,
(b) all forms of property, real or personal, heritable or movable, ....."
[11] The concept of recoverable property is defined in section 304 which provides:
"(1) Property obtained through unlawful conduct is recoverable property.
(2) But if property obtained through unlawful conduct has been disposed of (since it was so obtained), it is recoverable property only if it is held by a person into whose hands it may be followed.
(3) Recoverable property obtained through unlawful conduct may be followed into the hands of a person obtaining it on a disposal by -
(a) the person who through the conduct obtained the property, or
(b) a person into whose hands it may (by virtue of this subsection) be followed."
[12] As to when property is obtained through unlawful conduct section 242(1) provides:
"(1) A person obtains property through unlawful conduct (whether his own conduct or another's) if he obtains property by or in return for the conduct."
Subsection (2) provides, so far as material for the purposes of this matter:
"(2) In deciding whether any property was obtained through unlawful conduct - ...
(b) it is not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct."
[13] Section 305 provides for tracing of property. So far as material for the purposes of this matter, it is in the following terms:
"(1) Where property obtained through unlawful conduct ... is or has been recoverable, property which represents the original property is also recoverable property.
(2) If a person enters into a transaction by which -
(a) he disposes of recoverable property, whether the original property or property which (by virtue of this Chapter) represents the original property, and
(b) he obtains other property in place of it,
the other property represents the original property."
[14] It was contended on behalf of the petitioners that the sale proceeds of the subject property which were held by the respondent's solicitors constitute recoverable property in terms of this section.
[15] Lastly, section 306 makes certain provisions regarding mixing property:
"(1) Subsection (2) applies if a person's recoverable property is mixed with other property (whether his property or another's).
(2) The portion of the mixed property which is attributable to the recoverable property represents the property obtained through unlawful conduct.
(3) Recoverable property is mixed with other property if (for example) it is used - ...
(b) in part payment for the acquisition of an asset,"
[16] An issue arose in this case as regards whether said sale proceeds were mixed property in that it was contended on behalf of the respondent that only part of the sale proceeds had been obtained through unlawful conduct (if unlawful conduct was proved).
[17] Having set out the framework of the 2002 Act, it is also appropriate at this stage, given the way that argument developed before me, to set out the relevant provisions of the Housing (Scotland) Act 1987 (hereinafter referred to as "the 1987 Act").
[18] The provisions of the 1987 Act which are material for the purposes of this matter are contained in Part III of the 1987 Act headed Rights of Public Sector Tenants and which in particular deals with tenants right to buy.
[19] Section 61 sets out the secure tenants' right to purchase and provides insofar as material:
"(1) Notwithstanding anything contained in any agreement, a tenant of a house to which this section applies ... shall, subject to this Part, have the right to purchase the house at a price fixed under section 62."
[20] Section 62 insofar as material provides:
"(1) Subject to [subsection (6A)], the price at which a tenant entitled to purchase a house under this Part shall be fixed ... by subtracting a discount from the market value of the house."
The agreed factual background to the petition
[21] From 2000 to 2007 the respondent was the tenant of the subject property. Her landlord was the Dunedin-Canmore Housing Association.
[22] The respondent decided she wished to purchase the subject property. She qualified for a discount on the purchase price in terms of the 1987 Act. She first contacted her landlord regarding the possible purchase of this property in or about 2003. She failed to secure loan funds to finance the purchase and the transaction was abandoned by her landlords about a year later. In October 2006 she reapplied. She was due to pay arrears of rent. She failed to clear these and the purchase did not proceed.
[23] In order to purchase the subject property the respondent required a mortgage loan.
[24] In or about June 2007, the respondent consulted Robert Dick, mortgage introducer, in order to seek to obtain a mortgage loan to purchase the subject property.
[25] Mr Dick did not obtain a mortgage loan for her.
[26] On or about 13 August 2007, the respondent consulted Keith Whiting, an independent financial advisor, of Keith Whiting Financial Services. She advised him that she wished to purchase the subject property.
[27] At all material times the respondent was unemployed and in receipt of state benefits. At no material time was she employed in any capacity by her daughter in her hairdressing salon earning £17,000 per annum.
[28] A mortgage loan was sought for the respondent by Mr Whiting in the sum of £63,000. The mortgage loan ultimately granted was £62,925. That mortgage loan was provided by GMAC. Said mortgage loan was used to purchase the subject property.
[29] The respondent purchased the subject property for £54,000 following application of the said discount. The respondent used the mortgage loan funds of £62,925 provided by GMAC to purchase the subject property. The balance of £7,800.22 available after the purchase price was paid was remitted to her by her then solicitors.
[30] The respondent sold the subject property on or about 20 December 2010. The sale price for said property was £122,500. £65,124.75 of the purchase price was paid to the assignee of the mortgage loan, namely: Webb Resolutions Limited. The net free proceeds of sale were £51,289.33, held in the client account of the respondent's solicitors. As at 3 April 2012 the funds amounted to £51,421.07.
Evidence on the disputed issues
[31] I heard evidence from a number of witnesses. I first heard evidence on behalf of the petitioners from Mr Dick. He was a mortgage introducer. He acted as an intermediary introducing people to mortgage companies. The respondent had been his client at one point. He was advised by her that she was looking for a mortgage. She wanted to buy her council house.
[32] She gave him certain information which he sent to a mortgage packaging firm to see if it could provide a mortgage. Among the information which he obtained from her was that at the time he saw her she was working for her daughter in Portobello and that her daughter ran either a beautician or hairdressers business.
[33] Mr Dick went on to explain that the mortgages he provided were for those who had an adverse credit record. Because of the nature of his business he was only able to obtain mortgages for those with such a credit record. It turned out that the respondent did not have such a record and therefore he was unable to continue to act for her in relation to the obtaining of a mortgage. Because of this he passed her to Keith Whiting and at the same time passed Keith Whiting an application form with information relative to the respondent.
[34] The second witness for the petitioners' was Lynda Whiting, who is the wife of Keith Whiting and worked in his business. Her role in his business was as a general administrator. She was shown 6/12 of process, which she said was largely in her handwriting, although a little bit was in her husband's handwriting. She described this document as a mortgage questionnaire. The document related to the respondent. She advised that she normally completed such documentation from information that her husband had taken. She was sure that she had not spoken to the respondent personally. It was her position that the information had come partly from a form filled out by Robert Dick and partly from her husband.
[35] She remembered on one day seeing the respondent in the office with her daughter.
[36] The next witness was Keith Whiting. He remembered the respondent. He said that some of the information which was in his files came from a form filled in by Robert Dick who had brought the respondent to his firm. He had done this because she was not an adverse credit mortgage case.
[37] He advised that at his first meeting with the respondent she said that she wanted a mortgage to buy her council house. During the course of that first meeting he told her of his status as a financial advisor, gave her a compliance form and terms of business letter.
[38] He asked her at the first meeting for certain information and in addition asked her to produce certain further documentary information for a second meeting broadly to confirm her identity and she supplied this at the second meeting.
[39] The respondent told him that she was in employment and worked in her daughter's hairdressing business. She advised him of her income. When asked about whether he would have wished proof of her employment/income, he said that in those days he would not have wanted proof of income as there were self-certified mortgages in those days and proof of employment/income was therefore not required. The respondent at no point produced documentary evidence of her income. However, it was his position that he met the respondent's daughter who confirmed that the respondent worked for her.
[40] He spoke to 6/12 of process, that this had been prepared by his wife from information he had given her and it was an accurate reflection of what the respondent had told him. It included the following information:
"receptionist @ Hairdresser, employed by daughter"
"Basic Earnings: £17K"
"Years with current employer 1.6.2006"
With this information he made an application to a mortgage packager (Primrose) in order to get a decision in principle.
[41] He spoke to 6/11 of process, a copy of a paper application which followed on from the decision in principle. This had been filled out after the respondent had left his office. It was based upon information which the respondent had provided and this form was what was sent to Primrose, who were mortgage packagers, i.e. intermediaries who enquired as to who would be the most suitable mortgage provider. He confirmed the information at pages 10‑12 was as provided to him by the respondent, including the details regarding the name and address of the business for which the respondent worked, that she worked as a receptionist and earned £17,000 per annum. He explained that the respondent had a chance to look at the form before it was sent to Primrose. The application was made online to Primrose. He accepted that the form was not signed by the respondent. At page 10 a cross was inserted at full status and not at self‑certification (under "loan type"); the self-certification declaration at page 14 was not completed and signed. He explained that somewhere there must be a copy with this completed. He identified 6/10 of process as the form filled out by the mortgage packager on the basis of the information provided by him in 6/11 of process. It was his position that the respondent obtained a self-certified mortgage which was what she applied for. He denied in cross-examination that he did not care if he had proof of income and did not care if the respondent was telling him the truth. His position was that he had no reason to disbelieve her when she said she was working in her daughter's business. He denied she had ever said that she was in receipt of state benefits. He explained that self-certification was certifying yourself as to how much you earned.
[42] The next witness was Michael Foskett who was a senior investigation officer with GMAC's successor company. He advised that he was familiar with the respondent's application and, in particular, was familiar with 6/10 of process. He advised that this had been printed off from GMAC's computer system. He in addition identified 6/8 of process, pages 27-46; 53; 56; and 75-79 as having come from their computer system.
[43] He advised that the type of mortgage which the respondent had been granted was what was described as a non-verified rather than a self-certified mortgage. It was his position that in relation to this type of loan they would not be looking to see wage slips or a P60 confirming income. Although this was a non-verified and not a self-certified mortgage nevertheless it was his position that information regarding the respondent's income was an important part of the decision making process of the mortgage lender. He advised that it was the policy of GMAC that if the respondent had not been in employment they would not have granted her the mortgage. They would have rejected her application if she had not been in employment and had she not had the level of income stated, namely £17,000 per annum.
[44] He accepted that 6/10 was not signed by the respondent. He explained that this was because the form was an online application. He accepted that there was no evidence that the respondent had signed any declaration regarding income.
[45] The final witness for the petitioners was DC Michael Clark. His evidence was in very short compass and related to the obtaining of search warrants and the recovery of a large number of documents.
[46] Turning to the case on behalf of the respondent, the first witness was the respondent herself. She admitted purchase of the subject property. She advised that she purchased it from a housing association of whom she had been a tenant. It was her position that at all times when she was in the subject property she was in receipt of state benefits. She wanted to purchase the subject property in or about 2006 or 2007. She initially, in order to obtain a mortgage, saw Mr Dick and then went across the road to Mr Whiting. She said that she saw Mr Whiting twice and that the only information he asked for was about her benefits and she gave him a letter setting out her benefits. Her position was that she told him that she was considering starting employment with her daughter in her daughter's business to top up her benefits. She denied telling him she was in employment with her and earning £17,000 per annum. She said that on the second visit she signed a mortgage form but did not look at it, she did not sign a declaration of income. She advised that she was assured all along by Mr Whiting that though she was in receipt of benefits she could get a mortgage.
[47] In the course of cross-examination she was shown 6/12, which stated: "prev. name 20.11.97". She denied giving Mr Whiting any such information although 6/20 was a copy of her marriage certificate showing a date of marriage of 20 November 1997. When asked where information on 6/10 and 6/11 came from as to her working for her daughter and her earnings, she said they would have to ask Mr Whiting. She was in addition shown an account opening form 6/14/3 of process which appeared to be signed by her and dated 8 May 2008 in which her job was stated to be "care assistant" "Date started 01/2007" and against Net monthly income was noted £1060.00. She denied that she had ever described herself as a care assistant.
[48] The final witness for the respondent was her daughter who was a self-employed hairdresser. Her position was that she had never employed the respondent. She said that at one point she had needed a cleaner and there had been discussions with her mother about doing this, however, this never went beyond discussions. She accepted once going to Mr Dick's office however she could not remember going anywhere else. She had said nothing about her mother's employment status.
Submissions on behalf of the petitioner
[49] Ms Carmichael commenced her submissions by referring to certain authorities which gave guidance as to the approach the court should take when considering Part 5 of the 2002 Act.
[50] First she directed my attention to The Director of the Assets Recovery Agency v Jackson [2007] EWHC 2553 (QB) and the judgment of Mr Justice King at paragraph 109 where he usefully summarises what is required to be proved by the applicants in a case of this type:
"109.1 Under section 241(3) the court must decide on the balance of probabilities whether it has been proved that 'any matters alleged to constitute unlawful conduct have occurred'.
109.2 Under section 242(1) 'a person obtains property through unlawful conduct (whether his own or another's) if he obtains property by or in return for the conduct'. This will accordingly include a person innocent of the conduct in question, subject always to the defence of good faith to which I have already referred (section 266(3)).
109.3 Under section 242(2)(a) in deciding whether any property was obtained through unlawful conduct it is 'not necessary to show that the conduct was of a particular kind if it is shown that the property was obtained through conduct of one of a number of kinds, each of which would have been unlawful conduct'."
[51] She then turned to The Director of the Assets Recovery Agency v Szepietowski [2007] EWCA Civ 766. At paragraphs 106 and 107, Lord Justice Moore-Bick sets out the general principles which the court should have in mind when considering the approach to an application for a recovery order.
"106. As Waller L.J. has observed, neither party took issue with the conclusions reached by Sullivan J in R (Director of Assets Recovery Agency) v Green, but in my view that should not deter us from considering them with a critical eye. When deciding what the Director must prove it important to bear in mind that the right to recover property does not depend on the commission of unlawful conduct by the current holder. All that is required is that the property itself be tainted because it, or other property which it represents, was obtained by unlawful conduct. Section 304 allows property to be followed into different hands and although section 308(1) of the Act protects a bona fide purchaser for value without notice, it is not difficult to think of circumstances in which property might be recoverable from someone who is himself entirely innocent. It is important, therefore, that the Director should be required to establish clearly that the property which she seeks to recover, or other property which it represents, was indeed obtained by unlawful conduct.
107. In order to do that it is sufficient, in my view, for the Director to prove that a criminal offence was committed, even if it is impossible to identify precisely when or by whom or in what circumstances, and that the property was obtained by or in return for it. In my view Sullivan J. was right, therefore, to hold that in order to succeed the Director need not prove the commission of any specific criminal offence, in the sense of proving that a particular person committed a particular offence on a particular occasion. Nonetheless, I think it is necessary for her to prove that specific property was obtained by or in return for a criminal offence of an identifiable kind (robbery, theft, fraud or whatever) or, if she relies on section 242(2), by or in return for one or other of a number of offences of an identifiable kind. If, as I think, that is what the judge meant in paragraph 50 of his judgment, I respectfully agree with him."
[52] She then turned to look at the issue of unlawful conduct which in the instant case was fraud. For a definition of fraud she referred me to MacDonald, Criminal Law of Scotland at page 52:
"a false pretence made dishonestly in order to bring about some definite practical result."
And at page 54 where the following example of fraud was given and which it was her position was of relevance to the matter before me:
"It is criminal to assume a character for a purpose of advantage e.g. ... to get credit."
[53] This definition had been endorsed by Lord Bracadale at paragraph 65 of The Scottish Ministers v Smith [2009] CSOH 167.
[54] In addition to referring me to the foregoing paragraph in the case of Scottish Ministers v Smith, Ms Carmichael also directed my attention to paragraph 84 of Lord Bracadale's opinion in which mortgage fraud was accepted by Lord Bracadale as being unlawful conduct within the meaning of the 2002 Act.
[55] Ms Carmichael also directed my attention to Olupitan v The Director of the Assets Recovery Agency [2008] EWCA Civ 104. In particular she referred me to paragraph 51 in the judgment of Toulson LJ where he made certain observations regarding the recoverability of property in terms of the 2002 Act when a property is obtained in part with money loaned by a building society through the perpetration of a fraud:
"51. As a matter of simple fact, the property was acquired in part with money loaned by the building society through the perpetration of a fraud by Mr Olupitan (and for the rest from tainted sources). If the mechanics had been that the building society had paid the amount of the loan to Mr Olupitan, who had used it in part payment of the purchase price, the money received by him would have been recoverable property while it remained in his hands. On its being used to purchase the property, the property would pro tanto have represented that property and would be recoverable. However, the building society's interest in the property as a charge for value would fall within the definition of associated property in s 245, and in making any recovery order the court would have to have proper regard for the building society's rights (see, for example, s 272(4))."
[56] She then referred me again to The Director of the Assets Recovery Agency v Jackson and to paragraph 128 where Mr Justice King made certain observations as to whether in the absence of hearing directly from the mortgage provider the court could nevertheless hold that a mortgage loan had been obtained by deception:
"128. I accordingly have no hesitation in concluding that the Respondent did knowingly supply to the mortgage provider false particulars on material matters in support of his mortgage application and thereby obtained the mortgage loan by deception and thus by fraud. I do not in the context of proceedings under the 2002 Act accept that such a conclusion is not open to me because I have not heard evidence directly from the mortgage provider. The notion that this false declaration of employment and income would not have materially influenced the decision to lend £50,000 on a property being purchased for £65,000 is fanciful. I am fortified in taking this approach by a similar approach taken by Langley J. in Olupitan at paras 29-36. I further infer that had the Respondent answered the questions on the form truthfully he would not have obtained a mortgage. By putting forward false particulars the Respondent was patently seeking to avoid disclosing the truth which he was anxious to conceal from the lender. As will be seen below the overwhelming probabilities are that at this time the Respondent was not conducting any legitimate trade of significance - not least because had he been so doing he would have informed Mr Matto of such trading, which on my findings he did not."
[57] Ms Carmichael submitted that this passage was of some significance when considering the evidence of Mr Foskett, who was not the specific employee within GMAC who had granted the respondent's application.
[58] Turning to the evidence the position of Ms Carmichael was shortly put: all of the witnesses led on behalf of the petitioners I should hold as credible and reliable and I should reject the evidence of the respondent and her daughter as not being credible and reliable.
[59] It was her submission that on the evidence of Mr Whiting supported by the evidence of Mr Dick it was clear that the respondent had represented that at the material time she was employed by her daughter and was earning £17,000 per annum. It was not disputed that at that time she was unemployed and in receipt of benefits and that accordingly the statement was false. She submitted that it was a reasonable inference from the whole evidence that making such false representations was being done with the intention of defrauding the mortgage lender.
[60] She submitted that it was not necessary for the petitioners to prove that the false statement was contained in a signed declaration, it was enough to prove that she made a false statement with fraudulent intent.
[61] As regards whether the false representations had produced a practical result, namely: the granting of the mortgage loan. She referred me to the evidence of Mr Foskett which she submitted in summary was to this effect: the respondent's stated employment and income were material matters when considering whether to grant a mortgage and if the mortgage lenders had been aware she was unemployed and on benefits they would not have given her a mortgage. She submitted that it was indisputable that the false information had achieved a practical result.
[62] She contended that although Mr Foskett was giving evidence regarding the policy of the mortgage lenders this in no way detracted from his evidence. She reminded me of the observations in The Director of Assets Recovery Agency v Jackson, at paragraph 128.
[63] Lastly she turned to consider the significance of the discount which the respondent had obtained in relation to the purchase of her property in terms of the 1987 Act. The question she submitted regarding the discount was this: did the discount amount to other property and therefore were the net proceeds of sale mixed property and accordingly not entirely recoverable?
[64] Ms Carmichael directed my attention to section 61(1) and 62 of the 1987 Act. She sought to take from these two sections this: the discount is a means of calculating the price. The discount is not a part payment of the price. Thus in terms of section 306(3)(b) of the 2002 Act the discount had not been used as part payment for the acquisition of the subject property. It was her position that it did not follow that because the subject property had been acquired at a discount price that the proceeds of sale of it were only recoverable in part (namely under deduction of the discount).
[65] In support of her submissions under this head, she referred me to Scottish Ministers v Marie Buchanan and others [2008] CSOH 5. In this case a proposition was put forward on behalf of the petitioners in the following terms:
"'111. In this case it is submitted that the transaction which has been entered into is the part repayment of the loan. In return for the part repayment Mrs Buchanan has received an increase in the equity in the house. Her indebtedness has been reduced from £70,000 to £62,443 by the application of the recoverable property to the repayment of the loan. This should be considered to be recoverable property in the hands of Mrs Buchanan.' "
[66] Lord Penrose considered this proposition and made the following observations at paragraph 52 as regards it:
"...(it) involves a degree of confusion of thought. At its core is a contention that the reduction of a liability may be an addition to what has otherwise been identified as recoverable property. The reduction of a liability is not property on any ordinary use of language. Nor was I referred to any provision of the Act that would entitle one to treat it as such. The reduction of the debt put nothing in Mrs Buchanan's hands that could be described as property. Her interest as proprietor was not changed in any respect by the repayment. The 'equity' referred to confuses her interest in the property with its value. Paragraph 112 further confuses the issue. The assertion that the whole 'profit' attributable to the increase in market value accrued on the £45,000 component of the price is without merit and is a denial of common sense. The comment that the profit on the mortgage was the interest paid confuses the situations of the lender and the owner of the interest in the heritage. It is extremely doubtful whether an unrealised increase in value of an asset that has not changed over time is a 'profit' in the sense of the Act at all. If an asset is recoverable property it will be recovered as it exists: in this case a heritable asset with whatever value the market puts on it at the point of realisation. What that asset might realise on sale at the instance of the Trustee would be a price. It would be of no significance for the operation of the Act that the price realised was greater or less than the price originally paid for the asset. The terms of section 307(1) support the view that the 'profits' in contemplation are separate from the property generating those profits. It is 'further property' that is targeted."
[67] Ms Carmichael submitted that the foregoing supported her submission, namely: the value placed on the subject property at the point of realisation under deduction of the sum due to the mortgage lender was recoverable.
[68] Beyond that she directed my attention to R v Waya [2012] 3 WLR 1188, a decision of the Supreme Court. She referred to this case in order to highlight why in her submission it was not relevant to the circumstances of the case before me. In so submitting, she founded on four particular factors:
(a) it related to Part 2 of the 2002 Act and not Part 5.
(b) The confiscation part of the 2002 Act was a value based system unlike Part 5.
(c) It was distinguishable in any event upon its facts. Very sophisticated arguments which were put forward on behalf of Mr Waya could not be applied to the straightforward circumstances of the instant case.
(d) It did not disapprove the decision in Olupitan upon which she relied.
[69] For the foregoing reasons she moved that I should grant the order sought.
Reply on behalf of the respondent
[70] Mr Cheyne commenced his submissions by turning first to look at the issue of the credibility and reliability of the various witnesses.
[71] As regards Mr Dick, his position was this: the court should not accept his evidence. He submitted that he was a completely unsatisfactory witness. He pointed out that this witness should have known from the outset that he could not be of assistance to the respondent unless she had an adverse credit rating. Yet he represented her for a substantial period and had a number of meetings with her. It was his position that the witness had little memory of what had happened at his meetings with the respondent.
[72] Turning to Mr Whiting he submitted that I should not accept his evidence. He submitted that the acceptability of his evidence depended on the clarity of his explanation of what had happened. It was his position that he was not sufficiently clear in his explanation of what had happened for his evidence to be accepted. He contrasted his lack of clarity with what he contended was the clarity of the respondent's position. It was his position that when his whole evidence was looked at the witness had little recollection of how matters involving the respondent had progressed. It was his position that this witness's evidence had to be accepted for the petitioners' to be successful and he submitted that in the circumstances it could not be accepted.
[73] He contended that when his evidence as a whole was looked at it was clear how he might have made a mistake in making entries on the application form.
[74] He submitted that the evidence of the respondent's daughter was that she had no recollection of going to his office. He submitted that she had no reason to lie about that matter. Yet Mr Whiting had claimed that she did come to the office. It was his submission that if there was a faulty recollection of what had happened at these meetings then it was Mr Whiting's. He pointed out that Mr Whiting had no clear recollection of how information had come to get in to the various forms.
[75] Beyond that Mr Cheyne submitted that in looking at this matter the starting point was the documentation upon which the decision to make the mortgage loan was made, namely 6/10 of process. He made the following points regarding this document:
(a) none of the questions on page 1 of the document were answered;
(b) it was not signed at page 3; the document was not designed for completion by electronic means;
(c) page 4 was to be completed by the applicant, however, on the evidence this part of the application was completed by Mr Whiting;
(d) on page 6, the first column, the entry there made was the alleged fraud, he submitted that that part of the form was not signed. It was his position overall that no reliance could be placed on the information contained in that form.
Equally, in 6/11 of process, the declaration regarding income was not signed at page 14.
[76] As regards the issue as to what could the court take from Mr Foskett's evidence, it was his position that the court should take nothing from this evidence.
[77] In elaboration of this argument he made the followings points: he described the evidence of Mr Foskett as being of limited value as he could not speak to the specific decision regarding the respondent's mortgage loan. He was unable to say whether the earnings of the respondent and her employment were significant factors in the granting of her loan. All that Mr Foskett was able to say in evidence was that as a matter of general policy if the applicant was unemployed and in receipt of benefits the mortgage loan would not have been granted. This court, he said, did not have the benefit of the evidence of anyone who had scrutinised the respondent's application form and was able to comment upon the basis upon which this loan was granted. As an illustration of the importance of this hole in the petitioners' evidence, he said this: supposing the criteria relative to lending to someone who was purchasing their property on the basis of a discount was to take into account the high loan to equity ratio and therefore they would be willing to lend on that basis without the applicant being required to be in employment. In addition, he pointed to the fact that no proof of income had been asked for, which in his submission raised questions as to the importance in the lending decision of income and its level. Mr Foskett knew no more, than that, as a matter of generality, the company only lent to people in employment. He said that it was not possible upon this evidence to reach the conclusion that without the information regarding her employment and earnings this mortgage loan would not have been granted. He contended that the crime of fraud must be established rather than mere misrepresentation. In other words, there must be a clear connection between the alleged misrepresentation and the practical result, namely: the granting of the mortgage loan. Even if I preferred Mr Whiting's evidence the next hurdle was for the petitioners' to establish a linkage between the misrepresentation and the granting of the loan and on the evidence of Mr Foskett, for the reasons he had advanced the petitioners had not made this connection.
[78] Lastly Mr Cheyne turned to look at the approach which he said the court should take when considering the issue of the discount. He submitted that the court should approach this in the following manner: the respondent made an application for a loan, the company advanced the loan monies, she was under an obligation to pay this to the seller and what she got was a property which was a property at a discounted price. What was now sought to be recovered by the petitioners was the value on resale (less the amount owed to the mortgage loan provider). He submitted that the resale value of the property is a combination of, first, the property allegedly recoverable and, secondly, the property not recoverable, which was: the monetary value of the discount. The third party who was buying the property was paying the market value. The third party monetised the value of the discount, that being so the provisions of section 306 of the 2002 Act were applicable. He submitted that on the resale part of the sale proceeds were recoverable but not that part of the value relative to the discount as it had no relation to the unlawful conduct. It was his position that some support for his position could be found in R v Waya.
Discussion
[79] There appeared to me to be three principal issues in this case:
1. Had the petitioners' proved that the respondent had falsely told Mr Whiting that she was in employment with her daughter and earning £17,000 per annum which information he had then included in the form (6/11 of process) (the form for Primrose) which was used as the basis of the information in the application to GMAC (6/10 of process)?
2. If the answer to the first question was in the affirmative then the next question was: if the misrepresented information had not been in the application form would the mortgage lenders have granted a loan to the respondent? Or put another way: did the said information contained in the form have a material effect on the decision to grant the mortgage loan?
3. If the answer to the second question was in the affirmative then the third question was this: how should the discount which the respondent obtained when purchasing the subject property be treated for the purposes of section 306 of the 2002 Act?
[80] Looking to the first issue, it turned on the credibility and reliability of five witnesses - Mr Dick, Mrs Whiting, Mr Whiting, the respondent and her daughter.
[81] The first witness, Mr Dick I found to be credible and reliable. On the central issue of what the respondent told him about her employment, his evidence was clear and was to this effect: she worked in Portobello for her daughter who had a beauticians or hairdressers shop. I could see no reason for him to lie about this matter. He was entirely independent (in that he had not proceeded to obtain a mortgage for the respondent). He had nothing to gain from giving any particular evidence. He was clearly credible.
[82] As regards the issue of reliability, I could not identify any basis on which he could be mistaken about the information he had been given regarding the respondent's employment. It seems to me implausible that he would be mistaken as to this type of information. It seems to me inherently unlikely that he would make a mistake about such an issue. Further, it is in my judgment noteworthy that he was able to give some detail about the employment, namely: that it was her daughter who was employing her, that it was at a beauticians or hairdresser shop and that it was in Portobello. His ability to give this information, where her daughter did have such a beauticians/hairdresser shop in Portobello tends to support the accuracy of his evidence.
[83] Turning to Mr Whiting, who is the central witness as regards the first issue, I regarded him as a reasonably impressive witness on the central issue of what he was told regarding the respondent's employment and her earnings. He was supported by the contemporaneous documentation. I could identify no reason why he should lie about these matters. Given that the respondent's position was that she had given him a letter or similar setting out her benefits, the issue of this witness's credibility was very much at the forefront of the matter. He seemed to me entirely credible. There was no reason for him to lie; there was no reason for him not to submit the information given to him by the respondent. As with Mr Dick I thought it was most unlikely, for the reasons I have above articulated, that he would have made a mistake in relation to these matters. It is a most unlikely mistake to make: between a person who has said she is unemployed and in receipt of benefits who may take up part-time employment and someone who is employed and earning £17,000 per annum. He simply could not have guessed some of the information he had regarding the respondent. He had to have been given the information.
[84] His evidence was supported by the evidence of Mr Dick who gave similar evidence as to what he had been told by the respondent. There was also a small adminicle of evidence arising in the course of his wife's evidence. She said that she had seen the daughter of the respondent at their premises. Mr Dick's position was that she had been there. The daughter said that she had not. It seems to me again that it is most unlikely that these two witnesses were lying about this, they had no reason so to do. Nor did it seem to me likely that they were mistaken.
[85] In summary I found the petitioners' witnesses on this issue both credible and reliable.
[86] Turning to the respondent's evidence, I did not find her to be an impressive witness. Her position did not ring true. When asked anything about the application for the mortgage, her position was this:
"I left mortgage to Mr Whiting"
"I left it to Mr Whiting who dealt with everything"
"I put my confidence in him"
"I knew nothing about mortgages I put my faith in Mr Whiting 100%"
"I signed the form"
[87] It appeared to me that in the course of her giving evidence, she very much wished to distance herself from the mortgage application and to emphasise that she took no part in completing it. This evidence did not ring true it seemed to be very much exaggerated.
[88] It did seem to me that the respondent had a motive for lying, namely: in order to purchase the subject property at a discount which she had been attempting to do for some time. None of the petitioners' witnesses had any such motive.
[89] There was one further matter which in my view was of some significance when judging her credibility and that was the bank account application form, 6/14 of process, which was signed by her on 8 May 2008. In this form the respondent was described as a care assistant. She said that this was a mistake. She could not explain however how that particular detail had appeared there other than to say that it was a misunderstanding. She claimed that at the material time she was caring for her mother and brother, but accepted that she had never been a care assistant.
[90] This explanation was wholly unconvincing and it appeared that this was an example of the respondent misdescribing her employment position in the same way as it was contended she had done in relation to her application for a mortgage. Mr Cheyne in his submissions said that I should not make much of 6/14 (it was a different type of document from a mortgage application form) and asked me to accept the respondent's explanation. For the reasons I have stated, I could not accept the respondent's evidence relative to this and I did regard it as a matter of some importance.
[91] Overall I came to the view that the respondent was not telling the truth on the critical issues. I, without difficulty, preferred the evidence of Mr Dick, Mr Whiting and his wife on this first issue.
[92] Lastly, I turn to the evidence of her daughter. Her evidence was in very short compass. When she said that she had not gone to Mr Whiting's office and that she had said nothing about her mother's employment to him I did not believe her. I believed that to some extent she was simply there to support her mother and in order to do so was not telling the truth. I preferred Mr and Mrs Whiting's evidence on this matter.
[93] Accordingly I answer the first question which I posed in the affirmative.
[94] I turn now to the second issue. In relation to this there was a single witness, namely: Mr Foskett.
[95] Mr Cheyne's criticism of the evidence of Mr Foskett was in summary this: Mr Foskett could not specifically speak to the granting of the respondent's application for a mortgage loan as he was not the person who granted the application, all he was able to speak to was the general policy of the lender which was not in the whole circumstances sufficient. In addition, Mr Cheyne contended that in circumstances where mortgages were granted without proof of employment or income being provided the proper inference was that these factors were not of any importance in the granting of a mortgage application. I do not believe that there is any substance in the foregoing submissions. It seems to me sufficient that the witness was able to speak to the policy of the mortgage lender as regards the circumstances in which they would grant a particular type of mortgage and as to what factors would have been of importance to them when considering the granting of a particular type of mortgage.
[96] As regards the type of mortgage which the respondent was granted his evidence, as I have it noted, was this:
[97] In examination in chief:
Question: "How important were the employment details/income details?"
Answer: "they were important part of the decision making process."
Question: "How did they affect the decision?"
Answer: "person had to have been employed for a minimum period of time before loan and income were taken into consideration, for use of income table multipliers, for purpose of establishing affordability."
Question: "If the (respondent) not in employment earning £17,000 per annum, would she have got a mortgage of £63,000?"
Answer: "No."
Question: "Even with £52,000 worth of equity approximately and value of £112,000 would she have got the loan if on welfare benefits?"
Answer: "No."
Question: "Would she have got £63,000 loan on a self-certified basis if only income welfare benefit?"
Answer: "No."
In cross-examination he was asked this:
Question: "How important was it to GMAC if not going to check up on it (employment and income)?"
Answer: "Loan to value, didn't need verification of income but length of employment and income was taken into account as part of decision making process."
He went on to say this in cross-examination:
"Loan to value dictated - income was important as taken into account in seeing if met affordability and company lending policy."
Lastly, in cross-examination he was asked this:
Question: "If you're company had known not in employment?"
Answer: "lending policy was wouldn't have lent if unemployed"
Finally at the close of cross-examination he said this:
Question: "Your organisation would have rejected the application?"
Answer: "Yes if unemployed and didn't have this income."
[98] I am satisfied that his evidence on this issue was crystal clear, that had the respondent not put forward that she was in employment and earning £17,000 per annum she would not have been granted this mortgage. That if what had been put forward was that she was unemployed and in receipt of benefits she would not have been granted this mortgage.
[99] Therefore this false information was a material factor in her obtaining the mortgage loan. Had she supplied the true information she would not have been granted a mortgage loan by GMAC, accordingly, in my view, the essentials of fraud have been established. The misrepresentation which she made and which was then used, as she knew it would be, in the application form produced a practical result. A clear causal link between her false statements regarding employment and the granting of the mortgage loan on the evidence was established. In the whole circumstances I did not require to have recourse to the approach outlined by Mr Justice King at paragraph 128 in the Jackson case. I accepted the submission made by Ms Carmichael that it was not necessary for the petitioners' to establish that the false statement was contained in a signed declaration and that it was enough that the respondent made the false statement with fraudulent intent. It appears to me that looking to the whole evidence there is no doubt that I should be satisfied that fraudulent intention is established. Thus the mortgage loan was obtained by fraud (unlawful conduct for the purposes of the 2002 Act).
[100] Turning lastly to the third issue, it appears to me that on a sound construction of sections 61 and 62 of the 1987 Act the submissions made on behalf of the petitioners are correct.
[101] The secure tenant's right to purchase is set out in section 61(1) as follows:
"have the right to purchase the house at a price fixed under section 62"
Section 62 insofar as material provides:
"(1) Subject to [subsection (6A)], the price at which a tenant shall be entitled to purchase a house under this Part shall be fixed... by subtracting a discount from the market value of the house".
[102] Thus the price is fixed by reference to two figures, the market value and the discount. The discount is accordingly part of the price fixing mechanism of the 1987 Act.
[103] It does not seem to me that, on any ordinary use of language, the discount could be said to be a part payment for the acquisition of the subject property. On any ordinary use of language no part payment has been made by the respondent towards the purchase of the subject property. The setting of the price by the 1987 Act is no different than the setting of the price by the market in an ordinary transaction. In my view the discount obtained on no ordinary use of language could be said to be property and I was referred to no provision within the 2002 Act which would justify holding it as property. It appears to me that no mixing of property has taken place in terms of section 306 of the 2002 Act. There is no property with which the recoverable property has been mixed.
[104] In my view the proper approach to this question is as observed in Olupitan at paragraph 51, which is set out in full earlier in this opinion, namely: that on a loan being obtained through the perpetration of a fraud being used to purchase a property "the property pro tanto would have represented that property and would be recoverable".
[105] Thus in the circumstances of the instant case, the loan, which would have been recoverable in the respondent's hands on being used to purchase the subject property, the recoverable property becomes the subject property. The fact that she obtained the subject property at a discounted price, because of her position as a secured tenant makes no difference as all it did was to have an effect on the price paid by the respondent. The recoverable property after purchase is the subject property. On the sale of the subject property, the sale price under deduction of the sum of the outstanding mortgage becomes the recoverable property. The resale value of the property is not a combination of recoverable property and the discount which is not recoverable. The resale value is the market value which is the recoverable value as it exists (see: Scottish Ministers v Buchanan and others, paragraph 52).
[106] I am not persuaded that the decision of the Supreme Court in R v Waya in any way affects the conclusion which I have reached on this issue.
[107] I note first that the following comment is made at the outset of the court's judgment:
"This appeal raises important and difficult issues as to the meaning and effect of Part 2 of the Proceeds of Crime Act 2002... dealing with post-conviction confiscation. It does not concern civil recovery under Part 5... "
[108] For this reason anything which is said in the judgment must be approached with some measure of caution when seeking to apply it to a consideration of Part 5 of the 2002 Act.
[109] Secondly, it is observed in paragraph 2 of the judgment as follows:
"Despite the use of the term 'confiscation', which is a misnomer, orders under Part 2 of POCA are made in sums of money ('value-based') rather than being directed, as are Civil Recovery Orders under Part 5 of POCA, at the divestment of specific assets. "
[110] This is a further factor which makes the reading over of this decision into a Part 5 case one which should not be lightly attempted.
[111] Equally of some importance is that no adverse comment is made regarding the approach of the court in Olupitan. Beyond that on the basis of the decision in the matter as summarised at paragraph 2, page 1189 of the judgment, it can be seen how far the circumstances of that case were from those in the instant case and how different are the provisions of the 2002 Act which the court was considering. In my view the case can be distinguished on the foregoing basis.
Decision
[112] For the foregoing reasons I have found in favour of the petitioners and grant the order sought. I have reserved all issues of expenses.