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6.2 Fraud Lecture

1.0 Introduction and Background

The law regarding fraud was reformed through the enactment of the Fraud Act 2006, which came into law in 2007.

The Fraud Act 2006 provides one general offence of fraud which can be committed in three different ways:

(i) By false representation

(ii) By failing to disclose information

(iii) By abuse of position.

The Act also created the key new offence of obtaining services dishonestly.

2.0 Fraud

Section 1 of the Fraud Act 2006 provides as follows:

A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2) (which provide for different ways of committing the offence).

(2) The sections are—

(a) section 2 (fraud by false representation),

(b) section 3 (fraud by failing to disclose information), and

(c) section 4 (fraud by abuse of position).

These offences are all conduct offences and will be committed upon completion of the defendant’s fraudulent conduct.

2.1 Fraud by False Representation

Section 2 of the Fraud Act 2006 provides

A person is in breach of this section if he:

(a) dishonestly makes a false representation, and

(b) intends, by making the representation:

(i) to make a gain for himself or another, or

(ii) to cause loss to another or to expose another to a risk of loss.

2.1.1 Actus Reus

  • Making a false representation

A representation is a statement that portrays and communicates a situation or state of affairs. Section 2(3) provides that the actus reus of the offence covers:

Any representation as to fact or law, including a representation as to the state of mind of—

(a) the person making the representation, or

(b) any other person.

Section 2(4) of the Act deals with this by setting out that a representation may be express or implied. It would also be done by staying silent in those circumstances as this too implies acquiescence to what is being said about the state of affairs.

Cases in Focus

Metropolitan Police Commissioner v Charles (1977) and R v Rai (1999) the Times, November 10

Examples of technological means could be listed at length and accordingly, the Act provides in s.2(5) that for the purposes of the offence a representation may be regarded as made if it is submitted to a system or device designed to receive, convey or respond to communications.

Section 2(2) provides an explanation of what will be considered a false representation stating that a representation is false if it is untrue or misleading.

2.1.2 Mens Rea

  • Dishonestly;
  • Knowing the representation is untrue or misleading, and;
  • Intending to make a gain, cause a loss, or cause a risk of loss.

Dishonestly

For the purposes of fraud, dishonesty is a subjective concept which is assessed using an application of the common law test set out in R v Ghosh [1982] 3 WLR 110. It is a two-part test which asks:

  1. According to the ordinary standards of reasonable and honest people were the defendant’s actions dishonest?
  2. If it was dishonest by those standards, then did defendant himself realise what he was doing was dishonest?

Only where both prongs of this test are answered in the affirmative will the conduct be considered dishonest.

Knowing the representation is untrue or misleading

In order for the representation to be considered false the person making it must know that it is untrue or misleading.

This element of the mens rea requires actual knowledge that the representation might be untrue and not simply a reckless awareness of a risk that it might be untrue.

Intending to make gain, cause a loss or cause a risk of loss

Section 5 of the Act explains how gain and loss will be interpreted.

Section 5 (2) states that gain and loss extends to any gain or loss in money or other property.

An intention to make a gain for another person is sufficient for the mens rea.

Section 5 (3) expands further and stated that gain encompasses keeping what one has, as well as a gain by getting what one does not have and s.5 (4) explains that loss includes a loss by not getting what one might get, as well as a loss by parting with what one has.

As can be seen from the s.5 definition, there is no requirement for a gain to include making a profit (Attorney General’s Reference (No.1 of 2001)).

2.2 Fraud by Failing to Disclose Information

Section 3 of the Fraud Act 2006 provides for the offence of fraud by failing to disclose information in situations where there exists a legal duty to disclose information. The section provides that:

A person is in breach of this section if he

(a) dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and

(b) intends, by failing to disclose the information—

(i) to make a gain for himself or another, or

(ii) to cause loss to another or to expose another to a risk of loss.

2.2.1 Actus Reus

  • Legal duty to disclose information is in existence; and
  • Failure to disclose that information.

Legal duty to disclose

It is impossible to list an exhaustive set of situations where this legal duty would arise, however in general it can be said to arise in the following situations:

  • Under contract law
  • Under certain statutory provisions for example those governing company prospectuses.
  • During good faith transactions
  • From the custom of particular trades
  • Under the existence of a fiduciary relationship
  • Between professionals and their clients
  • When claiming social security

A duty arises strictly from the existence of the relationship.

Failure to disclose the information

This is a situation in English law where the actus reus requires not a positive act, but instead an omission.

There is no requirement that the failure to disclose relates to relevant information that is material to the matter and further, there is no de minimis standard in place.

2.2.2 Mens Rea

  • Dishonestly; and
  • Intending to make a gain, cause a loss or cause a risk of loss

Dishonestly

As before, this is assessed subjectively by applying the Ghosh test.

Intending to make a gain, cause a loss or cause a risk of loss

This is assessed by applying the s.5 provision of the Act in order to assess what a qualifying gain or loss is and then coming to a conclusion as to whether the defendant subjectively intended to make such gain or cause or expose the victim to the loss.

2.3 Fraud by Abuse of Position

Section 4 of the Fraud Act 2006 provides that:

A person is in breach of this section if he—

(a) occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,

(b) dishonestly abuses that position, and

(c) intends, by means of the abuse of that position—

(i) to make a gain for himself or another, or

(ii) to cause loss to another or to expose another to a risk of loss.

2.3.1 Actus Reus

  • Occupation of a position where an expectation to safeguard or not to act against the financial interests of another exists, and;
  • Abuse of that position.

Occupation of a position where an expectation to safeguard or not to act against the financial interests of another exists

These include but are not limited to:

  • The relationship between trustee and beneficiary
  • The relationship between director and company
  • A professional person and client relationship
  • Between an agent and his principal
  • In the relationship of employee and employer
  • As between partners
  • Certain situations within a family
  • In the context of voluntary work
  • Any context where the parties are not at arm’s length.

Almost all of the above listed instances encompass a traditionally recognised fiduciary relationship and indeed any relationship that is classed as fiduciary will be recognised as sufficient.

The term ‘financial interests’ is not defined in the Act so much be taken to have its ordinary meaning.

Abuse of that position

The meaning of abuse for the purposes of committing the offence is not defined by the Act so must be taken to consist of the ordinary meaning of the word.

Note the wording of the provision is that the defendant “occupies a position”, and thus this suggests a present context.

Section 4(2) of the Act further provides that:

A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.

It can be seen from this that once again no positive action is required from the defendant, the abuse can be committed by either an act or omission.

2.3.2 Mens Rea

  • Dishonestly, and;
  • Intention to make a gain, cause loss or a risk of loss.

These two elements of the mens rea carry the same meaning as for the other fraud offences and should be assessed in the same way.

2.4 Charging and Sentencing

Section 1 (3) of the Fraud Act 2006 states that:

A person who is guilty of fraud is liable—

(a) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);

(b) on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).

3.0 Obtaining Services Dishonestly

Section 11 of the Fraud Act 2006 provides for the offence of obtaining services dishonestly stating that:

A person is guilty of an offence under this section if he obtains services for himself or another-

(a) by a dishonest act, and

(b) in breach of subsection (2).

(2) A person obtains services in breach of this subsection if—

(a) they are made available on the basis that payment has been, is being or will be made for or in respect of them,

(b) he obtains them without any payment having been made for or in respect of them or without payment having been made in full, and

(c) when he obtains them, he knows—

(i) that they are being made available on the basis described in paragraph (a), or

(ii) that they might be, but intends that payment will not be made, or will not be made in full.

3.1 Actus Reus

  • Obtaining services
  • Payment required but not made
  • Dishonesty caused the services to be obtained

Obtaining services

This is satisfied upon the successful obtainment of any service. Neither obtain or service is given further definition in the Act, and thus must be taken at the ordinary and natural meanings of the words.

Payment required but not made

The services must be given in return for an expected, legally required payment which is not provided by the defendant.

Dishonesty caused the services to be obtained

This is a result crime and as such a service must actually be obtained as a result of the dishonesty.

3.2 Mens Rea

  • Dishonesty
  • Knowing that payment was required
  • Intending to avoid payment in whole or in part

Dishonesty

Established by applying the Ghosh test.

Knowing payment was required

This requires a subjective understanding from the part of the defendant that payment was expected in return for the service rendered to them.

Intending to avoid payment in whole or in part

This part of the mens rea establishes that the offence cannot merely be committed by the omission of not knowing as the defendant must commit the positive act of knowing that payment was required when he obtained the service and then not providing it.

Payment in whole or in part ensures that all situations are covered so it is not a defence if some form of consideration is provided.

3.3 Charging and Sentencing

Section 11(3) provides that:

A person guilty of an offence under this section is liable—

(a) on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);

(b)on conviction on indictment, to imprisonment for a term not exceeding 5 years or to a fine (or to both)


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