01 June 2007

Fraud and trust litigation news - summer: Acts of fraud

“The cost of fraud”, the “rise of identity fraud”, the need to “take action against fraud”, have been the stuff of news stories for so long that the man on the street would be justifiably surprised to learn that there was no criminal offence of ‘fraud' in England & Wales. 

This all changed on 15 January 2007 with the Fraud Act 2006, a remarkably succinct statute of just 16 sections, which introduces a single general offence of fraud.  It represents a complete redefinition of the old deception offences.  No longer need there be a victim who is actually deceived or actually suffers a loss.  What matters is the fraudster's intention combined with dishonest behaviour.

Fraud itself is still not defined but we are given three clear instances of when a fraud will be committed.  A person is guilty of fraud if, with the requisite intention, he dishonestly makes a false representation (to a person or a device); or he dishonestly fails to disclose information which he is under a legal duty to disclose; or he dishonestly abuses a position he occupies in which he is expected to safeguard, or not to act against, the financial interests of another person.  The requisite intention is met if a person intends to make a gain for himself or another; or to cause a loss to another; or to expose another to a risk of loss.

In addition to the principal offence of fraud, the new Act also creates new ancillary offences, such as the offence of possession, making or supplying articles for use in fraud, and a fraudulent trading offence for sole traders in line with the existing Companies Act offence.  A new offence of obtaining services dishonestly, knowing that they should be paid for, with the intent that full payment will not be made, is more suitable than the old Theft Act ‘obtaining services by deception' for catching those who obtain their services by automated processes (machines are incapable of being deceived apparently) and also for criminalising fare dodging, entering sports grounds without a ticket, illegally downloading music and illicitly decoding satellite TV services.

Key terms used by the new offences are defined or clarified: false, representation, gain, loss, property and articles; with the notable exception of ‘dishonesty'. Dishonesty is the key component of the mens rea or mental element of the new offence, and is thereby the sole diffentiator between what might just be salesman's hyperbole and fraud.  The omission was deliberate; the intention being that the existing common law established by the case of R v Ghosh [1982] 1 QB 1053 will continue to provide the test of dishonesty.

That test has two parts: the objective – would honest and reasonable minded people regard the defendant's conduct as dishonest? And the subjective – did the defendant know that his behaviour was dishonest?

Where a defendant is tried by a jury, it is they who decide what conduct honest and reasonable minded people would regard as dishonest.   If the Government succeeded in its plan to abolish jury trials for some fraud charges, it would be a Crown Court judge who would decide what honest and reasonable minded people would think: one reason perhaps for the strength of opposition to the Government's plans that led to the Fraud (Trials without a Jury) Bill being defeated by the House of Lords.

The potential scope of the new acts of fraud is alarming to some commentators.  Fraud by failing to disclose information, for example, catches those under a ‘legal obligation' to disclose. Such an obligation may be imposed not only by statute, but also by an express or implied term of a contract, the custom of a particular trade or market, the existence of a fiduciary relationship, or even civil court rules of procedure. 

Others see the Act as an admirable simplification and modernisation of an area of criminal law that has proved hard to prosecute effectively.  The Act is too new for any conclusions to be drawn as to its practical effectiveness in easing the prosecution of fraud, but if the prosecuting authorities are cautious about their new offences, they can still fall back on the tried and trusted conspiracy to defraud, which has not been abolished despite the Law Commission's recommendation.

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