The Fraud Act will come into force this month, but it lacks clarity in certain areas, warn Peter Binning and Tim Welch


Following calls for reform of the deception offences in the Theft Acts of 1968 and 1978, and Law Commission consultation papers between 1999 and 2004, the Fraud Bill was introduced to Parliament in 2005, receiving Royal Assent in November 2006. The Fraud Act 2006 will come into force on 15 January 2007.



The Act is relatively small, containing just 16 sections and three schedules. It abolishes all the deception offences in the Theft Acts, which are replaced with three new fraud offences: fraud by false representation; fraud by failing to disclose information; and fraud by abuse of position.



The Act introduces preliminary offences of possessing, making or adapting articles for use in fraud, as well as new offences of fraudulent trading by sole traders. There is an increased sentence for fraudulent trading under the Companies Act 1985. Obtaining services by deception is replaced with obtaining services dishonestly. The common law offence of conspiracy to defraud has been retained.



Fraud in section 1

A person is guilty of fraud if he is in breach of any of the offences in sections 2, 3 or 4. The maximum sentence on summary conviction is 12 months' imprisonment or a fine within the statutory limits, or ten years' imprisonment or a fine on indictment.



Fraud by false representation

Under section 2, the representation must be made dishonestly, which is established under the two-stage test in R v Ghosh [1982] QB 1053, 75 Cr App R 154: the defendant was dishonest by the ordinary standards of reasonable and honest people and realised what he was doing was dishonest by such standards. The dishonesty requirement is the same for all offences in sections 2, 3 and 4.



Subsection (1)(b) requires that the representation is made with the intention of making a gain for himself or causing the loss or risk of loss to another. Loss and gain are defined in section 5 as being money or property.



This definition is far too wide. For example, if the defendant refused a loan to the victim, but did so on a false basis, the victim would have arguably suffered a loss or at least a chance of gain, due to a false and dishonest representation by the defendant. This could potentially criminalise a mere lie. However, it could also be argued that it was not the representation, even though it was false and dishonest, which caused the chance of loss, but merely the refusal to make the loan.



As this is a crime of dishonesty, rather than deception, in contrast to the old law (section 15 of the Theft Act 1968), there is no need to show that the misrepresentation operated on the mind of the victim. Thus, the offence can be committed without the victim acting on, believing or even being aware of the misrepresentation. There need not even be an identified victim.



The Crown must show that a representation is untrue or misleading. Whether it is misleading will partly depend on how it is understood. This could result in, for example, incriminating a passing comment by an over enthusiastic salesman.



In a Home Office research paper, section 2 was said to be aimed at Internet 'phishing', but it would seem the net has been cast much wider than that, and its catch is potentially far greater.



False representation and machines

Aimed in part at preventing 'chip and pin' fraud, section 2(5) is a new provision not previously seen in any of the Theft Acts: 'A representation may be made at the point it is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).'



This means it is irrelevant how, or even if, the representation is responded to. It is the representation itself which creates the offence, providing it is made dishonestly. The offence is thus committed remarkably early. A person who made a false or misleading representation in an email, but saved and did not send it, would have already committed the offence. It would not matter to whom, if anyone, the representation was addressed, nor its eventual effect, if any.



Fraud by failing to disclose information

Section 3 provides that where a person dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and intends to make a gain or cause loss or the risk of loss to another, an offence has been committed.



There is no guidance as to what creates a 'duty' giving rise to liability. In practice the scope may be quite wide. For example, the Law Commission pointed to the custom of a particular trade or market. This offence, although narrower, can overlap with section 2, as a failure to disclose a duty will also be a misrepresentation.



Fraud by abuse of position

Section 4 makes it an offence for a person who occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person, to abuse that position dishonestly and intend, by means of the abuse, to make a gain or cause a loss or risk of loss to another.



This causes several difficulties. First, it is not clear whether it applies to the victim's or the defendant's expectation of a 'position' which is to be safeguarded. Either way, it is still unclear as to whether this is a subjective test, as to what the defendant's financial duties are, or whether this has an objective basis. The 'position' in section 4 can also apply within the family setting, which is worrying. Finally, the abuse is left undefined. Although intended this way to cover a wide range of conduct, it creates an extremely broad offence.



A secrecy element to this offence was originally proposed, meaning that the victim was unaware of what was happening. This is not in the Act. Where the victim is aware of the conduct, it is questionable whether this can properly be called a fraud at all.



As with all the above offences, section 4 is heavily reliant on the dishonesty aspect. Given the vagueness or undefined nature of the conduct in the fraud offences, it is arguable that the Act has created a general dishonesty offence, lacking in sufficient legal certainty. This would possibly render the Act as falling short of the requirements of legal certainly both at common law and under articles 5 and 7 of the European Convention on Human Rights - right to liberty and security, and no punishment without law respectively.



However, this was not accepted by the parliamentary Joint Committee on Human Rights, which concluded that the Bill 'embeds as an element in the definition of the offence some identifiable morally dubious conduct to which the test of dishonesty may be applied'. The government has made a statement of compatibility with the convention rights.



Other provisions

Section 9 replaces the offence of obtaining services by deception with obtaining services dishonestly. This is not an inchoate offence and services need actually be obtained. The offence carries a maximum sentence of five years' imprisonment.



Sections 6 to 8 create new offences of possessing, making, adapting articles for use in fraud, and section 9 is a new offence of fraudulent trading by sole trader. Under section 10, there is an increased maximum sentence of ten years for fraudulent trading involving a company.



The Act means that conduct previously not criminalised may now be treated as such. Regulators, for example, may hold a greater threat of prosecution over regulated persons. Whether the new offences will make conspiracy to defraud redundant depends on how quickly prosecutors move to exploit these new wide-ranging substantive fraud offences.



Peter Binning is a partner at London fraud law firm Corker Binning and Tim Welch is now an intern with the United Nations in Sarajevo prior to bar school