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SECTION 74 APPEAL BY CRAIG WHYTE AGAINST HER MAJESTY'S ADVOCATE


Submitted: 09 March 2017

Web Blue HCJ

APPEAL COURT, HIGH COURT OF JUSTICIARY

[2017] HCJAC 14

HCA/2017/000006/XC

Lord Justice Clerk

Lord Turnbull

Lord Clarke

OPINION OF THE COURT

delivered by LADY DORRIAN, the LORD JUSTICE CLERK

in

SECTION 74 APPEAL

by

CRAIG WHYTE

Appellant

against

HER MAJESTY’S ADVOCATE

Respondent

Appellant:  Findlay QC, V Young, A J MacLeod; Paterson Bell

Respondent:  Prentice, QC (sol adv), AD, Jajdelski;  Crown Agent

9 March 2017

[1]        The appellant faces an indictment containing one charge at common law and a further charge under sections 678 and 680 of the Companies Act 2006.  At a preliminary hearing on 22 December 2016 the Court repelled pleas to the relevancy of both charges.  Leave to appeal against that decision has been granted in relation only to the common law charge. 

[2]        The basis of the appeal is that it is arguable that the case of Adcock v Archibald 1925 JC 58, which was binding on the preliminary hearing judge and which he applied as the basis for his decision, was wrongly decided and should be reviewed by a larger court. 

[3]        In Adcock, the Lord Justice General (Clyde) observed at p 61, that:-

“It is … a mistake to suppose that to the commission of fraud it is necessary to prove an actual gain by the accused, or an actual loss on the part of the person alleged to be defrauded.  Any definite practical result achieved by the fraud is enough.”

 

Lord Hunter in the same case, also at page 61, stated that:-

“A fraud may be committed, although in the result the person defrauded may not have suffered any pecuniary loss.  The essence of the offence consists in inducing the person who is defrauded either to take some article he would not otherwise have taken, or to do some act he would not otherwise have done, or to become the medium of some unlawful act.”

This in turn led to the very familiar passage in McDonald’s Criminal Law, 5th edition p52, that:

“Fraud involves a false pretence made dishonestly in order to bring about some definite practical result. It is not necessary that the result should be actual gain to the offender or actual loss to some victim. Where the practical result is achieved, the fraud is complete.”

[4]        The submission before the preliminary hearing judge was that the indictment did not aver a definite practical result of the kind which was an essential element in a charge of fraud thus rendering the charge irrelevant.  Before this court it was submitted on behalf of the appellant that in a case such as this the “dupe” must be shown to be in a worse position than he or she otherwise would have been but for the fraud.  Legally there must be some significant prejudice suffered.  The “dupe” must have suffered some actual loss.  Counsel sought to distinguish the case of Adcock v Archibald on the basis that (a) it did not reflect what he suggested was current commercial practice, which had changed substantially since 1925; and (b) the opinion in the case was short and not easily understood.  In support of the appeal it was argued that the result in Adcock does not accord with the treatment of fraud by Hume, who described it as an offence against property. Although the matter had developed somewhat by the time of the decision in Adcock there were even at that stage differing views which the case of Adcock did not resolve. For example, the case of HMA v Witherington (1881) 4 Coup. 475 in which the Lord Justice General (Inglis) stated (p486) that:

“The crime charged in the major proposition is falsehood, fraud, and wilful imposition.  To the constitution of this offence it is necessary that the accused shall have (1) made false representations; (2) for the fraudulent purpose of cheating the person to whom they are made; and (3) to the effect of obtaining from that person by this means goods, money, or some other value or advantage, without any return or consideration, to the profit of the accused, and the corresponding injury of the other party.”

[5]        This was at odds with what was said in Adcock. Furthermore, Adcock had been the subject of criticism, most recently in Gordon, Criminal Law, (4th Edition) where it as suggested that the practical result should at least involve some legally significant prejudice. All of this suggested that the matter was sufficiently unclear to justify reconsideration of Adcock by a larger court.

[6]        The advocate depute argued that in the present case the sale of the majority of the shares in the Club was a definite practical result.  The Crown offered to prove that the sale would not have taken place but for the false pretences averred, thus the seller had done some act which they would not otherwise have done.  There was a consistent line of authority that the central elements of the crime of fraud were:  a false pretence;  a definite practical result;  and a causal link between the two.  The conclusion in Adcock was the culmination of a line of authority rejecting the notion that it was necessary to aver that the “dupe” had suffered pecuniary loss as a consequence of the fraud.  The cases included HMA v Smith (1893) 1 Adam 6;  Turnbull v Stewart (1898) 25 R (J) 78; J & P Coats Limited v Brown 1909 SC (J) 29 and Hood v Young June 10 1853, 1 Irv 236.  In the last mentioned case, (upon which the decision in Turnbull v Stewart later proceeded) the court held relevant an allegation of fraud involving the sale by auction of two unsound horses by false pretence as to their quality and provenance and which contained an averment that the horses were “knocked down” at a certain price but did not aver that any price was in fact paid.  In holding the charge relevant, the Lord Justice Clerk (Hope) said that “even if the trick had been discovered the moment the horses were knocked down, the statement of the crime here given would still have been sufficient”. The Advocate Depute submitted that there was also a consistent line of subsequent authority following Adcock where no criticism of the ratio has been made.  Examples included Richards v HM Advocate 1971 JC 29, where there was no financial loss but the appellant had induced a proprietor to feu heritage to a third party by causing the third party to make false representations as to the future use of the subjects, where the use was of crucial importance and a governing factor in the completion of the contract for sale. In the numerous cases which have followed Adcock the validity of the proposition there expressed does not appear to have been challenged. 

 

Decision

[7]        The principle in Adcock is one which has been accepted and applied without apparent difficulty in our courts for over 90 years. Whatever may have been the case in the past, by the time of Adcock fraud was clearly being treated as a crime of dishonesty.  There had been a series of cases, several of which had been cited to the court, both to the effect that no economic loss need be proved, and that a definite practical result was sufficient. In these cases it is relatively clear that the Court concentrated on the making of a false statement, with the intent of inducing an action which would not otherwise have followed, and where the action did follow.

[8]        The passage in McDonald, 5th edition (1948) was preceded in the 4th (1929) edition by a direct quote (p93) from Adcock that “any practical result achieved by fraud is enough” with no qualification or adverse comment.  In the 3rd edition, revised by the Author to 1894, it was stated (p87), on the question how far fraud must proceed to make the crime completed, that:

“It depends on circumstances how far the action must proceed, to constitute the completed crime. It is not necessary that the accused should have made gain.”

[9]        This statement, of course, was made after the Criminal Procedure (Scotland) Act 1887 had made it possible to indict for attempted fraud.

[10]      As regards authority, the high water mark of the submission of senior counsel for the appellant might be thought to be the case of Witherington and the comment by the Lord Justice General quoted above.  However, that was a case in which it was averred that there had been both a loss to the “dupe” and a gain to the panel, and the Lord Justice General’s comments were merely in the context of stating that the averments in the charge so made were relevant.  The case was not one in which the issue before us was raised, concerning as it did merely the question of jurisdiction: could the Scottish court claim jurisdiction when part of the execution of the fraudulent scheme occurred in England? The charge was that the panel had sent letters to a trader in Scotland, Muirhead, in which he fraudulently represented himself as a genuine trader seeking to purchase goods from Muirhead, inducing Muirhead to dispatch the goods to him, yet without paying or intending to pay therefor. In addressing the question of jurisdiction, the Lord Justice General stated that there are crimes which may be fully committed without the criminal succeeding in the object for which he commits the crime, giving the example of uttering. He went on to say (491):

“Now, the question of jurisdiction here seems to me to depend on whether the offence charged in this indictment belongs to the former or the latter of these descriptions of crime.  The false and fraudulent representations are contained in a letter written in Blackburn.  But the writing of that letter was not in itself a criminal act. The sending of the letter to Muirhead and its receipt by him would still fall short of constituting the crime charged.  It is the success of the scheme which is necessary to complete the crime, and without such success in imposing upon Muirhead and inducing him to send the goods ordered there would be no ground for this indictment.  While, therefore, the initiatory act of writing and posting the letter takes place in Blackburn, every other step in the action which is necessary to the constitution of the crime takes place in Edinburgh.  It is here that Muirhead is imposed on and induced to believe the false and fraudulent representations of the panel; it is here that he acts on the belief so fraudulently created and delivers the goods in Scotland to a public carrier, who is thereby constituted the innocent agent of the panel in carrying out the fraudulent scheme to its completion.  When the goods were delivered to the carrier they passed beyond the control of Muirhead, and the imposition was successful and complete.  The poison contained in the Blackburn letter had done its work.”

[11]      It appears to us that this analysis of the offence is one which concentrates, as the court in Adcock later did, on the question of a definite practical result, not on a question of loss, gain or advantage.  The focus in that passage is on the completion of the scheme which is the accomplishing of the practical result to which the false and dishonest misrepresentation has been directed.

[12]      In the case of Smith, cited in Adcock, the Court held that in a charge of obtaining money by pretending that certain documents were genuine, knowing them to be false and fabricated, it was not necessary to aver that the amount obtained was more than the intrinsic value of the documents.  In due course, in his charge to the jury, the Lord Justice Clerk (Macdonald) dealt thus with an argument that the crime could not be committed in the absence of loss (pp31/32):

“I turn now to deal with a point of law raised by counsel for the defence.  It was maintained to you that if the persons who received the documents in question, and had paid money for them, relying on a false representation, should in turn sell them, and succeed in getting as much, or more, money for them than they had given, then the prisoner could not be convicted of fraud. I am bound to tell you that that is not the law.  If the prisoner, by falsehood and fraud, induced the person libelled to give him money for documents which he knew to be fabricated documents, then the crime charged against him was completed, and nothing which happened afterwards can have any bearing upon the question which you have to determine…………. suppose in the case before you, that a detective had stepped into the shop where the prisoner has just been selling these documents, and charges him with obtaining money on false pretences, and the prisoner had at once said, ‘Very well; I won't stand by the bargain.  There is the money back.’  The fact that no loss had accrued would make no difference on the question of whether the prisoner had committed a fraud. This is not only sound law, but common-sense.

 

No doubt, after the question of guilt has been settled, the fact that no one has suffered any loss by the prisoner's guilt may affect the question of the amount of punishment to be awarded.  But the question of crime has no relation to what occurs after completion of the criminal act.”

[13]      Senior counsel for the appellant accepted that he was unable to point to any judicial authority since Adcock where the principle contained in it was doubted.  His argument was, to a great extent, based on passages at pp 127-135 of Gordon, Criminal Law, 4th edition, which criticised the decision but we consider that the criticisms largely turn on the facts of the case, and the application of the law to the particular facts which arose.  The issue before us, however, is the question whether the principle therein enunciated is a sound one.  In a passage cited to us from Gordon (para 25.19, -131) in support of the argument that there must be prejudice suffered by the “dupe” for the crime of fraud to be established, the editors state:

“The dupe must be induced to do something which places him in a worse position than he would otherwise have been in.  This does not necessarily mean that he must suffer actual or potential economic loss.  It is probably a crime to induce B to pay a fair price for an article by making false statements.”

 

[14]      How far the description in that last sentence puts in issue the principle enunciated in Adcock may be questioned.  After examining further examples of the crime of the fraud the editors reach the following conclusion (p132):

“These examples indicate that the crime of fraud is not in practice so extensive as Adcock seems to indicate.  It may well be that fraudulent conduct is criminal, or at any rate would be prosecuted, only where there is some potential pecuniary or personal injury, unless in very exceptional circumstances when it might be used to punish some significant piece of dishonesty which obviously merited being treated as criminal but did not fall within the normal cope of any common law crime.”

 

[15]      With respect, we consider that the proviso contained in that passage undermines the criticism of the clear statement of principle in Adcock.  It seems to accept that there are circumstances in which the principle, as enunciated in Adcock might properly be applied, without specifying what these may be.  Such an approach would in our view involve the introduction of uncertainty into the application of the law in this area and would not provide a definition of fraud based on clear objective criteria, applicable in all cases where the crime of fraud can be said to have been committed.  By contrast, the principle in Adcock has the virtue of being clear, objective, sufficiently flexible to address changing commercial situations, and which apparently has worked successfully for over 90 years.

[16]      It must be borne in mind that the initiating point of the offence of fraud is a dishonest misrepresentation of fact which is designed to bring about the practical result which eventuates.  There must be a definite practical result which is causally connected to the pretence.  These components of the definition of fraud are important safeguards against the criminalisation of innocent behaviour, or mere lies.  In our view there is no need to convene a larger court to reconsider Adcock and this appeal must be refused.