Fraud — SQE1 FLK2 Criminal Liability

A woman's home is burgled. A television that cost her £400 is taken, and she still has the receipt. On the insurance claim form she puts that television down at £2,000, adds several items which were never in the house at all, and claims £8,000. The burglary was genuine. She was entitled to claim for what was actually taken. Is she guilty of fraud? Yes. Completely.

And here is the part that catches people out. The offence was complete the moment she submitted that form, whether or not the insurer ever paid a penny. This is Fraud, and the whole Act turns on that idea. Keep her claim form in mind.

Here is the route. Why the Fraud Act 2006 exists, and the single offence it creates. Then the two mens rea elements, which run through all three routes. Then section 2, false representation, the one you will meet most. Then section 3, failing to disclose. Then section 4, abuse of position. Then the smaller offences around them. And finally, what changed from the old law.

Start with why the Act exists. Before 2006 the deception offences were scattered across the Theft Act 1968 and the Theft Act 1978, overlapping, technical and hopeless against internet fraud. The Fraud Act 2006 swept the lot away. Royal Assent on 8 November 2006, in force on 15 January 2007.

What went with it. Section 15 and s.16 of the Theft Act 1968, obtaining property by deception and obtaining a pecuniary advantage by deception, and the offences under the Theft Act 1978. All abolished. If the facts are after 15 January 2007, you are in the Fraud Act.

Now the structure, and get this right, because it is a favourite. Section 1 creates one offence of fraud. Sections 2, 3 and 4 are not three offences. They are three ways of committing the same one. An indictment charges fraud, and specifies the route.

The sentence follows that single offence. Ten years' imprisonment on indictment, a fine, or both. Twelve months on summary conviction. Ten years is the number to carry, because it also tells you where fraud sits against the lesser offences we will come to.

All three routes share the same two mens rea elements. Dishonesty. And an intention to make a gain, or to cause loss, or to expose another to a risk of loss. What differs between them is only the actus reus, only what the defendant actually did.

Dishonesty first, and there has been a change you must know. The test comes from Ivey v Genting Casinos, and it replaced the two-stage Ghosh test. R v Barton and Booth confirmed that Ivey is the test in criminal cases too, in a five-judge Court of Appeal.

Ivey has two stages, and only the first is subjective. The court establishes the defendant's actual state of knowledge or belief as to the facts. Then it asks whether, on the facts as he believed them to be, his conduct was dishonest by the standards of ordinary decent people.

What Ivey removed was the second limb of R v Ghosh. Under Ghosh the jury also had to ask whether the defendant himself realised that ordinary people would call his conduct dishonest. That question is gone. His own view of his own honesty does not enter the second stage at all.

So cite Ivey, not Ghosh. And notice where a defendant's beliefs still matter. What he thought the facts were, including what he believed was normal practice in his trade, belongs to stage one. What he thought about his own honesty belongs nowhere.

The second element is the intention to gain or cause loss, and s.5 defines it more widely than you would guess. Gain and loss must relate to money or other property. But gain includes keeping what you already have, not only getting what you have not.

Loss works the same way. It includes not getting what you might have got, not only parting with what you own. A risk of loss is enough. The gain or loss can be temporary, and it can be for the defendant or for somebody else.

And it need never happen. The intention is the whole of it. So in an exam, name the gain and name the loss. Inflated insurance claim? The gain is the payout, and the loss falls on the insurer. Stolen card? The gain is the goods, and the loss falls on the cardholder or the bank.

Section 2 now, false representation, and the route you will meet most. Dishonestly make a false representation, intending by making it to make a gain or cause loss. A representation is false if it is untrue or misleading, and the maker knows that it is, or might be.

Read that knowledge requirement again. Not knows that it is false. Knows that it is, or might be, untrue or misleading. Certainty is not required, and that is a markedly lower threshold than the old law demanded.

Back to the claim form. The inflated figure and the invented items are express false statements of fact. She kept the receipt, so she knew they were false. She was dishonest, and she intended a payout she was not entitled to. Every element, present on submission.

So what counts as a representation? Any statement as to fact or law. It can be express, in spoken or written words, or implied by conduct. That is R v Silverman. Nodding your head, handing over a fake banknote, putting goods on the counter with a stolen card.

And s.2(3) extends it to state of mind, yours or anyone else's. So a promise made with no intention of keeping it is a false representation, because you represent an intention you do not hold. Order a meal you never mean to pay for, and the representation is made when you order.

But be careful with the mirror image. Breaking a promise is not fraud. Take a deposit genuinely meaning to do the work, then fail to do it, and there is no false representation. At the moment it was made, the intention was real.

Opinion is the other boundary. Saying this car is in great condition, knowing it has a hidden fault, is a representation of fact about the car. Saying I think this car is worth £5,000 is an opinion, and by itself founds nothing. Puffery too vague to be true or false is outside s.2 as well.

There is a qualification worth holding on to. Even an opinion can carry an implied representation of fact where the speaker has special knowledge the other party lacks. That is Silverman again. And a representation can be a continuing one, so that letting it stand once it has become false is itself the offence.

Now the provision that modernised the law. Under s.2(5), a representation may be regarded as made if it, or anything implying it, is submitted to any system or device designed to receive, convey or respond to communications. Human intervention is not required.

Which means the cashpoint, the online checkout and the phone banking system all count. Use stolen card details and you impliedly represent that you are the cardholder, or are authorised to use the card. That no human mind was deceived is irrelevant, and it is complete whether or not the transaction is approved.

That closes the gap which wrecked the old law, where a human being had to be deceived. And it points at the deeper change. Fraud by false representation is a conduct crime. It is complete when the representation is made, dishonestly, with the intent to gain.

Try one. A man posts letters to two hundred pensioners, claiming to be a solicitor administering an unclaimed estate, promising a legacy of £8,000 on payment of a £95 release fee. One of them is a retired fraud investigator who sees through it instantly and pays nothing. Attempt, or the full offence?

The full offence, and against her too. Nothing need be obtained. Nobody need be deceived. No loss need occur. Her instant disbelief has nothing to do with it, because the representation was made when the letter was sent.

Section 3 next, and here silence is the conduct. Dishonestly fail to disclose to another person information which you are under a legal duty to disclose, intending by that failure to gain or to cause loss. The section turns on three words. A legal duty.

Because there is no general duty of disclosure in English law. A moral expectation will not do, and neither will a commercial one. The duty must come from a recognised legal source, and there are four to know.

Statute, where legislation expressly requires disclosure. Fiduciary relationships, where trustees, directors and agents must disclose material facts. Contract, express or implied, and the custom of a particular trade. And special relationships at common law, above all the duty of utmost good faith in insurance.

Add a fifth which is easy to miss. A duty can arise from your own previous representations, where staying silent would leave an earlier statement misleading.

So: a man sells his own car privately for £5,000, knowing the gearbox is failing. The buyer asks nothing and has no inspection done. He says nothing. Fraud? No. No statute, no term of the contract, no trade custom, no fiduciary relationship. Caveat emptor, and mere silence sits outside s.3.

Now the dividing line between s.2 and s.3, which examiners love. If the form asks the question and the answer given is untrue, that is a false representation, so charge s.2. Section 3 is for the defendant who says nothing at all about something they were legally bound to reveal.

Which is our claim form again. She filled in false figures, so she sits squarely in s.2. Had she instead stayed silent about a material matter she was bound to disclose, the charge would have moved to s.3.

Section 4, abuse of position, and this is the one candidates find slipperiest. You occupy a position in which you are expected to safeguard, or not to act against, the financial interests of another. You dishonestly abuse it. And you intend, by that abuse, to gain or to cause loss.

Position is deliberately broad. Employment, especially where you handle money. Fiduciary relationships, so trustees, directors and agents. Professional relationships, so solicitors, accountants and financial advisers. And family relationships where one person manages another's finances.

But whether a position qualifies is not a matter of impression. In R v Valujevs, unlicensed gangmasters controlling migrant workers' wages made unwarranted deductions, charged excessive rent and imposed invented fines. The Court of Appeal held the question to be objective, and one for the judge.

It does not turn on what the defendant thought his position was, or on what the victim thought it was. And the section is not confined to fiduciaries. But the court warned against stretching it to arm's-length commercial dealings. A mechanic who lies about a fault commits s.2 fraud, not s.4.

Abuse itself is left undefined and bears its ordinary meaning, that the position is used incorrectly or improperly. By s.4(2) the abuse may be by act or by omission. So a defendant who fails to act where the position demanded action offends just as squarely as one who acts.

The Explanatory Notes to the Act give the classic example. Someone employed to care for an elderly or disabled person, who has access to that person's accounts and transfers the funds away. Employees, trustees, solicitors holding client money, attorneys under a lasting power and company directors all qualify.

And when both s.2 and s.4 fit, which do you pick? If the position of trust is central to the fraud, s.4. A solicitor who forges a client's signature on a cheque makes a false representation and abuses her position, but the position is what makes the conduct what it is.

Three smaller offences to finish. Section 11, obtaining services dishonestly, is a separate and lesser offence. No representation, no failure to disclose, no abuse of position required. You obtain services by a dishonest act, without paying in full and without any agreement to pay.

But the services must actually be obtained. Skipping a taxi fare, sneaking into a cinema, using someone else's wifi. Try and fail, and s.11 is not committed, though there may be an attempt under the Criminal Attempts Act 1981. Fraud is different, because it needs no result at all.

Then the article offences. Section 6 catches possession or control of an article for use in a fraud. It needs an intention that the article be used in some future fraud, so keeping a relic of past offending is not enough. Article includes electronic data.

Section 7 goes wider and catches the supplier. Making, adapting, supplying or offering to supply an article, knowing or believing it is designed or adapted for use in fraud, or intending it to be so used. Section 6 targets the user. Section 7 targets the maker.

Which leaves what changed. Deception is gone, replaced by three routes. The victim no longer needs to be deceived, because a machine will do. And gain or loss no longer needs to happen, because the intention carries the offence. Simpler, wider, and built for fraud committed online.

A word on how SQE1 tests this. You will not be asked to recall a case name or a section number. You get a scenario, five answers, and one instruction: pick the best. Learn the rules. The names are memory pegs, nothing more.

If you keep only three pegs. Ivey v Genting Casinos, where dishonesty stopped depending on what the defendant thought of his own honesty. R v Valujevs, where whether a position qualifies under s.4 became an objective question for the judge. And s.2(5), which made a representation to a machine as good as one made to a person.

Four traps. One: cite Ivey, not Ghosh. The second Ghosh question, whether the defendant realised ordinary people would think him dishonest, is not the law any more. A defendant who sincerely believes his trade works that way does not escape on that ground.

Two: opinion is not fact. This car is in great condition, said by someone who knows about the hidden fault, is a representation of fact. I think this car is worth £5,000 is an opinion, and by itself founds nothing.

Three: no legal duty, no s.3. There is no general duty of disclosure in English law, and knowing that the other side would want the information changes nothing. Find the statute, the contract, the trade custom or the fiduciary relationship, or there is no offence.

Four: for s.11 the services must actually be obtained. Fraud can be complete with nothing obtained at all, but obtaining services dishonestly cannot, and a failed attempt is not that offence.

Quick check. A man advertises football season tickets online, takes payment from three buyers and supplies nothing. He had no tickets and no arrangement to obtain any. Interviewed, he says that in his corner of the resale trade it is normal to sell first and source afterwards. He expected to find tickets in time, and he did not regard this as dishonest at all. The prosecution accepts that view was genuinely held.

By what approach should the court decide whether he acted dishonestly? Three candidates. One: by asking whether he himself regarded it as dishonest at the time. Two: by establishing what he actually believed, then applying the standards of ordinary decent people. Three: by acquitting him if he did not appreciate that ordinary people would think him dishonest. Pause here if you want a moment.

The answer is two. That is Ivey, confirmed for the criminal law by a five-judge Court of Appeal in R v Barton and Booth. His belief about what is normal in the trade belongs to the first stage, as part of the facts as he saw them. His own opinion that this was not dishonest does not enter the second stage at all.

Why the others fail. Option one is a purely subjective test, which has never been the law. Option three is the second limb of R v Ghosh, and Barton and Booth confirmed that it no longer represents the law.

Five things to take away. One: one offence, three routes, ten years on indictment. Two: both mens rea elements run through all three. Dishonesty on the Ivey test, and an intention to gain or to cause loss, including a risk of loss, and including a gain by keeping what you already have.

Three: our claimant committed the full s.2 offence the moment the form went in. She would have done so even if the insurer had paid nothing, because nobody need be deceived and nothing need be obtained. Four: s.3 needs a legal duty from a real legal source, and silence alone is never enough.

Five: for s.4, whether the position qualified is an objective question, and abuse can be by omission. Next time, Criminal Damage.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.