The
Solicitor-General: The clause makes it an offence to
commit fraud by false representation. The offence was recommended by
the Law Commission and widely welcomed in responses to the
Government’s consultation paper. A representation is defined as
false if it is “untrue or misleading”, and if
“the person making it knows that
it is, or might be, untrue or
misleading.” The types of
representation covered by the clause may be of fact or law, including a
representation as to a person’s state of mind. They can be
stated in written or spoken words, or in non-verbal
communication. Clause
2 goes wider than the existing Theft Act 1968 offences, which rely on
the deception of a victim. Under clause 2, it will be immaterial
whether the person subject to the false representation believes it to
be true. The fact that the representation was made will be sufficient
evidence to prove the
crime.
Mr.
Grieve: I do not wish to repeat what I said earlier, and
clauses 1 and 2 have a clear linkage. The major change in the law that
the clause brings about is that it will no longer be necessary to show
that the dishonest representation acted upon the mind of another
person. There will therefore be a great simplification in the
presentation of cases.
As I highlighted in my earlier
example, there will be a grey area in such cases because of the extent
to which there is sometimes collusion between the person being
“deceived” and the person doing the deceiving. The matter
is not always as clear cut as one might think. Certainly, from my
experience of criminal practice, the turning of a blind eye to a
deception that may be of mutual advantage occurs quite frequently in
the fraudster’s canon. Prosecutors and judges will have to
exercise a measure of discretion in such cases, particularly when it
comes to sentencing, and that may prove quite complex. That having been
said, I think it right, as a basic principle, that Parliament should
insist that individuals do not make dishonest representations for the
purpose of obtaining gain for themselves. I do not see anything wrong
with the philosophical principle behind clause 2. For that reason, it
commands my
support.
Mr.
Heath: I would take a similar view. I just want to make a
couple of observations about the framing of the clause, for reference
when we discuss later clauses. First, there is a clear mens rea in this
clause, which I think is right. Secondly, the term is
“dishonestly makes a false
representation”,
not “makes a
dishonest representation.” That is an important distinction.
There are two factors in play: first, there is the issue of whether the
representation is false; secondly, making that false representation is
a dishonest act in itself, and there is the issue of whether the person
is aware that they are dishonestly making a false representation. That
has relevance to debates that we will have on later clauses, but it
would be wrong of me to explore that area further at this stage. I
simply point out, for the benefit of the Committee, that that is the
case.
The
Solicitor-General: I am grateful for the way in which
Opposition Members have raised their views on the clause, and for the
general support for it. I have one point to make to the hon. Member for
Somerton and Frome (Mr. Heath): the current definition of dishonesty
was established, as the explanatory notes say, in the case of Ghosh in
1982. The judgment sets out a two-stage test. To respond to the hon.
Gentleman’s point about dishonesty, the first question is
whether the defendant’s behaviour would be regarded as dishonest
by the ordinary standards of reasonable and honest people. If the
answer is positive, the second question is whether the defendant was
aware that his conduct was dishonest and would be regarded as dishonest
by reasonable and honest people. That is the approach to dishonesty
that we want to see the Bill
take. Question put
and agreed
to. Clause 2
ordered to stand part of the
Bill.
Clause
3Fraud
by failing to disclose
information Question
proposed, That the clause stand part ofthe
Bill.
The
Solicitor-General: Clause 3 will make it an offence to
commit fraud by failing to disclose information. The Law
Commission’s initial consultation paper proposed that mere
non-disclosure of information should not suffice for an offence of
deception. However, during its consultations, a substantial minority of
respondents argued that from the victim’s point of view, a
failure to reveal material facts can be just as devastating and
tantamount to deception by conduct.
The Law Commission, in revising
its proposals and moving away from the overriding concept of deception,
concluded that the ordinary concept of fraud is wide enough to embrace
at least some dishonest non-disclosure. It noted that it is arguable
though by no means clear that that is the effect of existing law, at
least where there is a legal duty to disclose. In its final report, it
therefore recommended creating such an offence, and the Government
sought views on that in their 2004 consultation
paper. Reactions
to the paper showed that a majority welcomed this second limb of the
general offence. The only point of controversy was the issue of going
beyond legal duties. A suggestion was made in consultation that failure
to disclose information could amount in some cases to a false
representation and that such cases were therefore already covered
implicitly by the first limb. However, it was also recognised that it
might be helpful, particularly for juries, if the point were made clear
in law. The Government agreed with that
view. The Government
also considered the argument that if the offence is restricted to
situations where there is already a legal duty to provide information,
it will add little to existing law, as failure to meet the legal
obligation will carry its own sanctions. We do not agree. Even though
the offence will be limited in that way, it will add to the law, as the
existing sanctions for such failures might be of a civil nature,
difficult to pursue and unlikely to lead to sufficient sanctions. The
clause clearly sets out our position.
There will be
difficulties relating to how failure to disclose information arises,
and it must be for the prosecutors, the courts and in due course the
jury to determine whether the person who failed to disclose the
information did so with the intention to act dishonestly. Clause 3
clearly sets out the terms, and I hope that we will have general
agreement on it as
well.
Mr.
Grieve: I think that the Solicitor-General will get
agreement on the clause, although it and clause 4 are closely linked,
so we need to consider both to understand what they will
achieve.
As far as the
element of offence in clause 3 is concerned, the key issue is what it
places a legal duty on individuals to disclose. It might be helpful if
the Solicitor-General gave the Committee some examples of individuals
under a legal duty to make a disclosure. If I have understood correctly
what the Government are seeking to achieve, the clause will place a
considerable restriction on who will be caught by the
provisions. Clearly,
there are numerous instances in which individuals might elect not to
tell somebody something because they think that it is to their
financial advantage. The classic example is the person being offered an
object for sale at £50 who knows very well from his greater
expertise that the item is worth £50,000 and chooses not to tell
the vendor. He is under no legal duty to give him that information and,
therefore, he would not be caught by the provisions of clause
3. Those
circumstances seem to encapsulate what clause 3 is trying to do. I am
broadly supportive of that, but we need to be clear. What might be
helpful during the course of the debate is if the Solicitor-General
confirmed whether my understanding of clause 3 is correct and amplified
examples of what he regards as a legal duty. I take a legal duty to be
a duty prescribed by law—no more and no less—and not a
duty prescribed by morality. Perhaps a more interesting and difficult
area is whether that covers duties that could be thought to be
equitably placed upon his shoulders. Having a certain amount of
clarification would be helpful before we rush in headlong
and—which I would want to do—approve clause
3.
Mr.
Heath: I look forward to the explanations, which will be
extremely helpful. My brief comment is in similar form to my comment on
the previous clause. I simply point out that clause 3(a) says that
he “dishonestly fails to
disclose to another person the information which he is under a legal
duty to disclose” and not
information that he is expected to disclose. That has relevance when we
come to consider the next
clause.
The
Solicitor-General: I am grateful to the hon. Gentlemen for
the way in which they set out their views on the clause. Probably the
best place to start is with the concept of legal duty, as explained in
the Law Commission report on fraud, in paragraphs 7.28 and
7.29. Looking
at the duty, with such duties there is an overlap between clauses 3 and
4. There is also a view that a legal duty can arise in a number of
ways, primarily by operation of law, but not necessarily prescribed by
law in the sense that a duty can arise by the nature of a relationship
that has been formed.
I will come
back to the Law Commission report in a moment, but let me make that
clear. When people are engaged in commercial relationships, there is
the principle of caveat emptor, which has been restricted by various
pieces of legislation over the years by Parliament. Let the buyer
beware. That will still be the case. When people engage in normal
commercial relationships, the buyer will need to be beware, to be aware
of what the person who is selling the product
says. The
clause will do for situations where a legal duty has been created prior
to or during the course of a relationship between the alleged victim
and the defendant. There is therefore a duty on the defendant to
disclose to the potential victim various information. An example would
be where a solicitor fails to tell a client relevant information about
the law or case that would result in the solicitor gaining financial
benefit personally and the client losing. There is a clear relationship
between the solicitor and the client. There is a duty to disclose that
information. He has failed to disclose that information. He has done so
knowing that he has the duty and, therefore, he has acted dishonestly.
The result of that should be that he has failed to disclose information
and therefore committed an act of
fraud. Another
question might arise in a more difficult case, when a person is
applying for insurance and has a heart condition, which they failed to
disclose. That is a civil matter; to some extent, it involves a breach
of an uberrima fides duty to disclose information in particular types
of contract. Obviously, insurance companies may well take the view that
they would deal with that through the civil procedures and that would
be the normal way. However it is possible for someone who was
deliberately intending to obtain insurance coverage and, in due course,
to make a claim on it to be in a position where they were failing to
disclose relevant information where they had a legal duty to do so,
with the intention of benefiting, either by insurance coverage or by
undertaking a medical procedure using that insurance. The result might
be that they are in breach of the
clause.
11
am Those are a
couple of examples of examples of where there is a clear duty and where
failure to disclose information may well put someone in breach of the
clause. I hope that those comments deal with hon. Members’
concerns and that the Committee will allow the clause to stand part of
the Bill. Question
put and agreed to.
Clause 3 ordered to stand
part of the Bill.
Clause
4Fraud
by abuse of
position
Mr.
Grieve: I beg to move amendment No. 2, in clause 4, page
2, line 22, leave out ‘expected' and insert ‘under a
fiduciary
duty'.
The
Chairman: With this it will be convenient to discuss
amendment No. 7, in clause 4, page 2, line 24, leave out ‘is
expected' and insert ‘has a duty'.
Mr.
Grieve: As I indicated to the Solicitor-General earlier,
the clause has caused me and, I suspect, some of my hon. Friends and
others in the House, a little more trouble than previous clauses. I
should make it clear to the hon. and learned Gentleman that the problem
does not lie in the principle behind the clause: it is generally agreed
that if a person is in a position of trust he owes a duty to the person
who has entrusted his or her affairs to him not to abuse that position.
That includes not abusing the position
“to make a gain for himself or
another, or...to cause loss to another or to expose another to a
risk of loss.” That is a
well established principle. Barristers, solicitors, accountants know
well the underlying principles behind it, and if people have been
abused, civil remedies lie against those who have abused their position
in that way. Translating that into the criminal law is, on the face of
it, perfectly reasonable.
The greater problem comes in
defining who is in a position in which he
is “expected to
safeguard, or not to act against, the financial interests of another
person”. Who
are we talking about? Historically, we have, I think, been talking
about people who, in the old-fashioned parlance—that is the
nature of the amendment that I tabled—are “under a
fiduciary duty” to another person to act in their best
interests. The Government have chosen—the Solicitor-General made
that clear on Second Reading—quite deliberately to move away
from that description to one that, on the face of it, is much looser.
Such a person is defined as one who
“occupies a position in which he
is expected to safeguard, or not to act against, the financial
interests of another
person”. Who is to make
the judgment on who occupies a position in which they are
“expected to safeguard, or not to
act against, the financial interests of another
person”? The
law should, as far as is possible, contain a degree of certainty. The
way in which clause 4 is worded gives me cause for concern, because it
is by no means clear to me who is the person referred to in clause
4(1)(a). If it is an accountant or a solicitor, it presents no problem.
I suppose that if we were to move and say somebody who has been
entrusted with the affairs of a near relative by a power of attorney or
a continuing power of attorney, we would not think there was any
difficulty, either. But what happens in those myriad informal
relationships that arise and on which human relations depend? Where is
the dividing line to be drawn in respect of a person occupying a
position in which he is expected to safeguard another’s
interests? There is
no list. It is not as if Parliament is being asked to be prescriptive.
There is an underlying suggestion that the definition will be left to
develop on a case-by-case basis and will gradually be evolved over time
by the courts and, presumably, by juries in their verdicts and by
judges on submissions. I am slightly anxious about that. It ought to be
possible for us to define things more
tightly. My amendment
would insert the notion of fiduciary duty, which is well understood,
but I should like to make it clear to the Solicitor-General that it is
in the nature a probing amendment to provoke debate. I appreciate that
there may be other ways to approach the
matter.
Ian
Lucas (Wrexham) (Lab): Of course the hon. Gentleman
understands the concept of fiduciary duty, and I hope that I, as a
solicitor, understand it, but is not the point that most of the general
population would not understand the phrase “a fiduciary
duty” and what it
means?
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