A recent UK Home Office consultation paper seeks views on reform of the law of fraud. The Law Commission updated its proposals in 2002 to deal with what it described as two competing objectives. There was a need to secure convictions of the guilty without vagueness or undue restriction in the law, and also to eliminate the widely and vaguely defined current offence of conspiracy to defraud. As a common law offence, it has been created by the decisions of judges, rather than by parliament.
The vagueness of the current situation has some odd effects. Currently, it can be an offence for two people to agree to do something which is not an offence if done by one person alone. Further, a lone mind planning a future offence commits no offence, whilst an agreement between two or more persons to commit an offence becomes a criminal conspiracy. Indeed, like all conspiracies, conspiracy to defraud is complete as an offence, once that agreement is formed, long before any steps are taken to carry out the offence.
This offence has proved very useful to the Crown, allowing it to prosecute novel situations where statute has left a gap. I recall dealing with a case a number of years ago where my client and others were alleged to have fixed the result of a race by drugging the horses. If it were not for conspiracy to defraud, which survives only as a relic of legal history, no prosecution could have been possible at all. On one view, its very vagueness and flexibility is its strength, allowing the law to evolve with the changing face of criminal behaviour.
The proposals seek to draw a balance between the precision of statutory offences and the wide catch-all nature of conspiracy to defraud. The Government proposes to create a new statutory offence of fraud in a way which catches all fraudulent behaviour not otherwise caught by statute, with additional proposals including a new offence of obtaining services dishonestly.
A general crime of fraud
Currently, the offence of conspiracy to defraud takes place as soon as two or more people form an agreement to dishonestly defraud someone else in the future. A single person, however, cannot commit fraud, though there are several specific offences under the Theft Acts and other statutes, for example tax evasion and fraudulent trading, which deal with specific dishonest conduct. As a result, technical legal arguments have allowed defendants to argue that their conduct falls outside the specific conduct defined in those offences and so avoid punishment.
The Law Commission published a first report in 1999 leading to debate as to whether there should be a 'single all encompassing offence' of dishonesty, or defined circumstances when conduct should be criminal. In the event, the Government has decided against a single offence of dishonesty, but proposes a new offence of fraud that can be committed in three different ways:
- by a false representation
- by wrongfully failing to disclose information
- by abuse of office
in each case the behaviour being dishonest and aimed at securing a gain for the defendant or at securing a loss to another.
The paper suggests that the existing conspiracy to defraud offence could then be abolished. However, the proposals, in particular under one heading, give some cause for concern. Under the second heading, there would be a duty to disclose, "if the defendant knows the other person is trusting him to disclose information or is aware that he might be; and a reasonable person would expect the defendant to disclose the information". What if a vendor sold a house and did not disclose that there was subsidence?
Would it be right to prosecute him in the criminal courts? Or what if a car was sold, with the private seller knowing that there was a major oil leak? Would 'have a good look around mate' suffice? Where exactly would the obligation to disclose information end?
This duty of disclosure would certainly remove the line between sharp business practice and criminality. The pursuit of maximum profit may well involve not mentioning the negative. While the nature of the relationship will define the extent to which the defendant would realise the expectation of the other party to disclose information to him, there is discomfort that the proposals might criminalise less serious behaviour.
In the absence of any legal duty to disclose information, a great deal of discretion would be left in the hands of the jury to decide what information ought to be disclosed. This would, in my view, extend the existing law, in that a seller can often rely on 'caveat emptor', failing which his liability is only in civil law. The Government proposes that he should now be subject to punishment under the criminal law.
While the conspiracy offence is undeniably widely defined, it is a serious charge and can only be tried in the Crown Court, resulting in its use in only the most serious cases. The new proposals if enacted could result in less serious conduct becoming actionable in the lower courts while allowing the most serious to escape conviction, because their conduct does not quite fall within the wording of the new offence. The first objection could of course be dealt with by fraud being an indictable offence only, so there would be a natural sieve with only the most serious offences being prosecuted. We wait to see what will actually be contained in the Bill...
Tan Ikram is partner, business investigations and governance, IBB solicitors, Tel: 01895 230941, www.ibblaw.co.uk
