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Lord Goodhart: My Lords, 45 years ago as a young barrister, I used to go up to Cambridge at weekends to teach undergraduates. One subject that I taught was criminal law and I had to struggle to keep ahead of my students, because I was not then—or, indeed, later—involved with criminal law as a practitioner. However, I still remember the complications of the law of fraud, as it then was, and especially of what was then called obtaining by false pretences.
I therefore believe that the Bill represents an admirable piece of work by the Law Commission. It broadens the definition of fraud offences. In doing so, it simplifies the law and makes it more understandable to non-lawyers. It gets the balance right between a law that is too detailed so that dishonest actions are not crimes unless they fall within the precise wording of the statutory offence, and making the law too general, which creates uncertainty about what is a crime and leaves too much to interpretation by the courts.
Many speakers have compared the Bill with the Law Commission's original draft Bill. I shall take up and enlarge on some of those points. Clause 3 is about fraud
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by failing to disclose information. In the Bill, that is limited to failure to disclose information that there is a legal duty to disclose. As the noble and learned Lord the Attorney-General explained, the Law Commission's Bill provided that it should also be a criminal offence to fail to disclose information where there was a relationship of trust that the defendant had abused by failing to disclose relevant information. The noble and learned Lord gave reasons of some force for not going as far as the Law Commission. He said that to do so would convert what is at present a moral obligation alone into a legal obligation, which might be a step too far.
The standard scenario, or one of them, is that of someone who has a collection of pictures that they want to sell. The owner has a personal friend who is a dealer and says to him, "I know that I can trust you. Make me an offer for my pictures". The dealer recognises that one picture is far more valuable than the owner realises and makes an offer that ignores its true value, and that offer is accepted. That is plainly a breach of a moral obligation. Whether it should also be treated as a criminal fraud should be probed further in Committee.
A supplementary question that follows from that was raised by the noble Lord, Lord Brennan. Is the scenario an example of an offence anyway under Clause 4? Is the dealer someone who occupies a position and, if so, is he in a position in which he is expected not to act against the financial interests of the owner of the pictures? As the noble Lord said, it is important to decide what is meant by "position", a word with which the courts are not generally familiar in this context.
Clause 9 extends the crime of fraudulent trading to unincorporated businesses. Of course, fraudulent trading was originally an offence under the Companies Act. That was because the offence was originally meant to cover the abuse by companies of limited liability. The directors of a loss-making business with no hope of recovery continued to run the business, and pay themselves substantial salaries for doing so, until the balloon finally went up. That originally left the creditors with no personal claim against the directors and no funds in the company. That was less of a problem in unincorporated businesses, where owners faced the risk of personal bankruptcy. Therefore, are the Government satisfied that the new offence is needed? What is the evidence of existence of a problem in relation to unincorporated businesses? The clause heading refers to,
Does the "etc." mean partnerships? I assume that it does, but can that be confirmed?
I turn to the point that has been strongly made by the noble Baroness, Lady Anelay, my noble friend Lord Thomas of Gresford and by the noble and learned Lord, Lord Lloyd of Berwick, regarding the recommendation by the Law Commission of the abolition of the common law offence of conspiracy to defraud and the rejection of that recommendation by the Government. Conspiracy to defraud is a strange
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offence. People can be charged and convicted of conspiracy to defraud, even when the contemplated action would not have been an offence if it had been carried out by one person on their own. The Law Commission makes a strong case for abolition of the common law offence.
The new provisions in the Bill will be broad enough to catch some conduct which previously could be prosecuted only as a conspiracy to defraud. But where such conduct is not caught by the new provisions, it probably does not deserve to be treated as a crime. The common law offence should either be repealed, or, at least, restricted by excluding cases where the acts envisaged by the members of the conspiracy would not in themselves be offences. To say that the common law offence of conspiracy to defraud must be retained because otherwise multiple counts would be needed in fraud prosecutions would have the tail of procedure wagging the dog of substantive law. That is the wrong way round.
I shall finish by repeating that, overall, the Bill is a fine example of the value of the Law Commission and a tribute to its creator, Lord Gardiner.
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Lord Kingsland: My Lords, I join all noble Lords who have complimented the Law Commission on its remarkable report and, particularly, on the proposed Bill that they published at the end of it. We, as my noble friend Lady Anelay has said, support this Bill and congratulate the Government on bringing it forward.
However, it contains one major flaw; that is, the continuation of the offence of conspiracy to defraud. The noble and learned Lord the Attorney-General said, in his opening speech, that if he got something wrong, he knew that I would put it right. Fortunately, I rarely have to utilise that corrective mechanism; and it may be that on this occasion I shall be in error in attempting to do so.
However, the noble and learned Lord did indicate that a majority of those who were consulted supported the continuation of the offence of conspiracy to defraud. But that conflicts with the information that I received from his department. I may have misread or misunderstood the information, but my belief is that Liberty, the Criminal Law Solicitors' Association, the Institute of Counter Fraud Specialists, the International Underwriting Association, the London Criminal Court Solicitors Association, HM Customs and Excise, the Audit Commission and the Institute of Legal Executives all supported the abolition of the offence of conspiracy to defraud.
The two main supporters of its continuation were, not surprisingly, the CPS and the Serious Fraud Office. One would expect those organisations to want the continuation of that offence. It makes writing indictments much easier. But it is astonishing that the Government have given in so easily to these pressure groups. One of the main themes of the Government's support for the Bill is that they produced a new
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comprehensive definition of fraud. At no stage during the opening speech of the noble and learned Lord the Attorney-General did he indicate any chink in the armour of that new definition. Nor is there any indication of such a gap in the Law Commission's report. Indeed, were there to be such a gap, I am sure that the noble and learned Lord would have sent both the Bill and the report back to the Law Commission and asked it to redefine the general offence.
It is sad, after all the work done by the Law Commission, that the Government have not had sufficient confidence in the intellectual quality of its work to back its conclusions. The result will be exactly what the noble and learned Lord, Lord Mayhew, said recently in a different context. The disease of overloaded indictments that confuse both juries and defendants—and sometimes the prosecution, too, to say nothing of the judge—will continue due to this unnecessary and confusing retention.
It is important that the case that the Law Commission makes for abolishing the conspiracy to defraud offence is well understood. The Law Commission describes conspiracy to defraud as one of the two principle defects of the current law. The concept of fraud, encapsulated in the definition of conspiracy to defraud, is wider than the range of conduct caught by any of the individual statutory offences involving dishonest behaviour. This means that it can be criminal for two people to agree to do something which it would not be unlawful for one person to do.
The Law Commission concluded that conspiracy to defraud was far too wide in its scope,
Its report states that the cases on the meaning of "to defraud" have given it an extensive meaning, so that any dishonest agreement to make a gain at another person's expense could form the basis of a conspiracy to defraud. The Law Commission states,
That is because we live in a capitalist society which, by its nature, revolves around the pursuit of gain at the expense of competitors. Such behaviour is perfectly legitimate; it is only the element of dishonesty that renders it a criminal fraud. In other words, dishonesty, as the noble Lord, Lord Thomas of Gresford, reminded us, does all the work in assessing whether particular facts fall within the definition of the crime.
Moreover, there is no statutory definition of dishonesty. The case of Ghosh, in which the noble and learned Lord, Lord Lloyd, participated so memorably, provides that the jury must be satisfied both that the defendant's conduct was dishonest according to the ordinary standards of reasonable and honest people; and that the defendant must have realised that it was dishonest according to those standards. Therefore, activities that might otherwise be legitimate can become fraudulent if a jury is prepared to characterise them as dishonest. That delegates to the jury the responsibility for defining what conduct is to be regarded as
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fraudulent; and it leaves prosecutors with an excessively broad discretion when they are deciding whether to pursue a conspiracy to defraud case.
The Government's consultation document stated that the common law crime of conspiracy to defraud was defined "very broadly" and that as the,
"the range of the offence . . . unfairly uncertain and wide enough potentially to encompass sharp business practice".
In their consultation document, the Government propose to repeal that law and replace it with a general offence of fraud, which would,
But as a result of the objections of the CPS and the Serious Fraud Office, the Government have simply caved in and agreed to keep the offence of conspiracy.
In paragraph 5.28 of the Law Commission's report we have, in my submission, the complete answer to the Government. The Law Commission states:
"We continue to believe that a general dishonesty offence, by not requiring as an element some identifiable morally dubious conduct to which the test of dishonesty may be applied, would fail to provide any meaningful guidance on the scope of the criminal law and the conduct which may be lawfully pursued. We do not accept the argument that inherent uncertainty is satisfactorily cured by the promise of prosecutorial discretion. This cannot make a vague offence clear and, while it might ameliorate some of the risks, it does not excuse a law reform agency from formulating a justifiable and properly defined offence. We do not believe it is for the police and prosecutors to decide the ambit of the criminal law. As the Supreme Court of the United States has said: 'A statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law'.".
I believe that that paragraph is unanswerable. I invite the Government to think again about their decision to include conspiracy to defraud on the face of the Bill. If they continue to persist in doing so, they can be certain to meet amendments from the Opposition in the course of the passage of the Bill.
4.42 pm
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