By Law Teacher
6.1 Fraud – Introduction
Welcome to the seventh topic in this module guide – Fraud! Fraud can generally be defined as criminal deception intended to result in financial or personal gain. Fraud encompasses a variety of crimes that include, but are not limited to, fraud by false representation, fraud by failing to disclose information, fraud by abuse of position and obtaining services dishonestly.
The law regarding fraud was reformed through the enactment of the Fraud Act 2006, which came into law on 15th January 2007. Prior to this, the fraud offences were set out in sections 15, 16 and 20 of the Theft Act 1968, and sections 1 and 2 of the Theft Act 1978. The decision for reform arose out of the Law Commission’s Report on Fraud, published in 2002, which criticised the law at the time for being too broad and complicated. The report also stated that the law was out of date, in that it did not make any allowance for modern means of defrauding through technological advances.
Goals for this section:
- To understand the actus reus and mens rea components of fraud by false representation, fraud by failing to disclose information, fraud by abuse of position and obtaining services dishonestly.
- To appreciate the charging and sentencing guidelines for each of the offences mentioned above.
Objectives for this section:
- To be able to appreciate the complexities of the concept of dishonesty, which is undefined in the Act, with regards to the mens rea of the fraud offences. This concept is difficult as there is no set universal standard of dishonesty and there is the possibility that this will, in cases where the conduct is contentious, vary significantly from jury to jury.
- To be able to comprehend that obtaining services dishonestly overlaps with making a false representation and often the fraud by false representation offence will be the preferable charge as there is no requirement that any deception need occur.
- To be able to analyse and evaluate the nuances of all the fraud offences, as required in an examination.
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:
- According to the ordinary standards of reasonable and honest people were the defendant’s actions dishonest?
- 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)
6.3 Fraud Lecture – Hands on Examples
The following scenario will assess your knowledge of the fraud offences and give you a chance to try applying the law in a practical context.
Read over the following passage and pull out and key facts and legal issues as you go. Once you have done this try and identify what relevant offences arise on the facts and if you’re feeling really confident, have a go at putting together an answer!
If you don’t feel confident just yet, there is absolutely no need to worry! These types of questions take time to get your head around and you’re taking all the right steps just by having a look and familiarising yourself with them. A step by step outline answer has been provided for you that contains pointers as to how you should go about addressing the scenario. Use this as guidance in putting together or checking your own answer. There is nothing raised in this question that we haven’t already covered so if you get stuck look back over the notes. You’ll find that you have all the tools necessary to do a great job!
Ben is going on a big night out to see a famous DJ with his friends Will and Alex. It is day 5 of Freshers Week at their university and Ben has no money as he spent it all earlier in the week, however Ben does not want to admit this in front of his new friends. As they are arriving at the club Ben tells Will and Alex that he will meet them inside as he needs to run back to the flat to pick up his ID. Once Ben sees that the other two have gone inside the club Ben sneaks round the back and enters through the fire exit in order to avoid paying the entrance fee on the door.
Once inside Ben reconvenes with Will and Alex and the boys go to the bar to buy drinks. Ben has taken out his flat mate Sebastian’s ID with him. Sebastian is a Freshers Rep and the club are offering free drinks to the Reps that night in order to thank them for their hard work throughout the week. Ben show’s Sebastian’s ID to the bar man and as it is very dark and busy the bar man cannot check it properly and assumes that the picture is of Ben. Ben is given Gin and Tonic for free.
Later that week, Ben gets home sick and misses his girlfriend a lot. He decides that university is not for him and that he will quit his studies immediately. Ben is in receipt of a student loan never tells his loan provider that he is no longer studying and continues to receive his loan payments, using them to fund rent on a new flat back in Nottingham.
Discuss Ben’s liability for any potential fraud offences.
Nightclub entry
- Possible offence of obtaining services dishonestly under s.11 of the Fraud Act 2006.
- Actus Reus
- Obtaining services.
Ben gains access to the nightclub facilities and the DJ’s performance.
- Payment required but not made
There was a fee due on the door in order to gain access to the club but this was not paid.
- Dishonesty caused the services to be obtained
But for Ben’s actions of sneaking through the fire exit, he would not otherwise have gained access to the club. It was the only reason for his access to the club, and thus causation is established.
- Mens Rea
- Dishonesty
Applying Ghosh, it is likely that Ben’s conduct would be considered dishonest by a reasonably honest person and also that Ben knew what he was doing was dishonest. This is evidenced on the facts buy him keeping his actions secret from his friends.
- Knowing that payment was required
Ben knew that payment was required on the door which was why he did not enter the club that way.
- Intending to avoid payment in whole or in part
By sneaking around the back through the fire exit Ben intended to avoid making payment in whole.
- Therefore, on the facts it is likely that Ben will be found guilty of the s.11 offence.
Free Drink
- Possible offence under s.2 of the Fraud Act 2006 of fraud by making a false representation.
- Actus Reus
- False representation
It can be seen that through showing Sebastian’s ID at the bar, Ben was falsely representing to the bar man that he was the person in the picture, and thus that he had earned the free drink. It could be argued that this representation was express or implied but either way, applying s.2(4) it will constitute a representation for the purposes of the offence.
- Knowing representation was false
Applying s.2(2) Ben knows that he is not Sebastian and that this is untrue so this is easily satisfied on the facts.
Mens Rea
- Dishonesty
Applying Ghosh it is likely that Ben’s actions will be deemed dishonest by a reasonably honest person and that Ben knew they were dishonest.
- Intention to make a gain, cause a loss or risk of loss
By showing the ID Ben is not merely just intending to convince the bar man that his name is Sebastian, he is intending to take advantage of the free drink offer, and thus applying s.5 he is making a gain of the drink and the money that he has already by not parting with it for a drink.
- Applying the law to the facts it is likely than Ben will be guilty for a s.2 offence.
Loan Payments
- This is a possible offence of fraud by failing to disclose under s.3 of the Act if there exists a legal duty to inform the loan provider of the change in circumstance.
- Actus Reus
- Legal duty to disclose information is in existence
If there is a contractual duty under the loan agreement to inform the loan provider of any change in circumstance, then this will satisfy this element of the actus reus. Similarly, the provision of student loans can be likened to social security access and a duty will arise.
- Failure to disclose the information
Ben does not inform his loan provider of that he is no longer studying which assuming that he has a duty to do so satisfies this element of the actus reus.
- Mens Rea
- Dishonesty
Applying Ghosh it is likely that not informing the loan provider would be seen as dishonest by a reasonably honest person and that Ben is aware of that.
- Intention to make a gain or cause a loss or risk of loss
Ben intends by not informing the loan provider of his change in circumstance that he will continue to receive the payments, and thus make a financial gain.
Although this is a loan that Ben will one day have to repay this is irrelevant for the purposes of the offence as applying s.5(2)(b) of the Act there is no requirement of a permanent gain or loss. The temporary gain of the money is sufficient.
- Assuming that Ben is under a legal duty to disclose the information, Ben will be guilty of a s.4 offence. In the unlikely event that there is found to be no such duty then applying the law in R v Rai there may still be an offence of fraud by making a false representation in that Ben’s student status is an on-going representation that becomes false when he ceases to be a student but intends to make a gain of access to the money in order to rent a flat.