The Law Commission

PART II

OUTLINE OF THE PRESENT LAW

Conspiracy to defraud

2.1      Conspiracy to defraud is a common law crime, which has been specifically preserved by statute.^[1] It requires proof that two or more conspirators dishonestly intended to defraud another or others.

Conspiracy

2.2      There must be proof that an agreement has taken place. If negotiations do not culminate in an agreement, there is no conspiracy.^[2] The conspirators need not all have met each other, nor need each conspirator agree to every element of the overall agreement; but in these circumstances, each conspirator must be aware that there is a larger scheme to which he or she is agreeing to become attached.^[3] Unlike statutory conspiracies, the agreement need not involve the commission of a substantive crime,^[4] but if it does it can still be charged as conspiracy to defraud rather than a statutory conspiracy.^[5] The conspirators need not envisage that they themselves will commit the fraud.^[6]

Dishonest intent to defraud

2.3      The conspirators must be acting dishonestly,^[7] and they must intend to defraud the proposed victim or victims. Defrauding V need not be the conspirators' primary purpose, so long as they are aware that the successful implementation of the agreement will necessarily result in V being defrauded.^[8]

The meaning of "defraud"

2.4      There is no offence of "fraud" in English criminal law. Hence it is possible for two people to commit conspiracy to defraud, even when they would not have committed any crime if they had acted separately.
2.5      The House of Lords has considered the words "to defraud", and provided the following definitions:

… "to defraud" ordinarily means … to deprive a person dishonestly of something which is his or of something to which he is or would or might but for the perpetration of the fraud be entitled.^[9]

Put shortly, "with intent to defraud" means "with intent to practise a fraud" on someone or other … If anyone may be prejudiced in any way by the fraud, that is enough.^[10]

2.6      Attempts to limit these broad definitions have been largely rejected. It is now clear that conspiracy to defraud need not involve deception;^[11] nor an intent to cause financial loss;^[12] nor even an intent to prejudice someone's financial interests.^[13] Nonetheless, if two people agreed to make a dishonest gain without intending to inflict some form of loss, prejudice or detriment on another, it would probably not amount to a conspiracy to defraud. "Defraud" is a transitive verb. There cannot logically be a conspiracy to defraud if there is no victim, because there would be no-one who could be defrauded.^[14]

Implied statutory restrictions

2.7      In Zemmel^[15] the defendants dishonestly induced a company not to press for immediate payment on previous orders, and to continue shipping goods to them in the meantime, but there was no intention to make permanent default. This conduct would, at one time, have amounted to a statutory crime,^[16] but Parliament had subsequently restricted the offence, so that it would only apply if there was intent to make permanent default.^[17] The prosecution therefore decided to proceed on charges of conspiracy to defraud. On appeal, the Court refused to accept that "by a side wind the common law has suddenly re-emerged to reinstate or create as a crime that which Parliament thought it right to take off the statute book as a crime".^[18] The defendant's conviction was quashed. This reasoning may apply more broadly, although it would probably need to be clear that Parliament had consciously decided that the conduct in question should not be criminal, rather than merely failing to make provision for it.

The statutory offences

2.8      The most general statutory crimes of fraud are those created by the Theft Acts 1968 and 1978, as amended by the Theft (Amendment) Act 1996. They include:

(1) theft, defined as the dishonest appropriation of property belonging to another with the intention of permanently depriving the other of it;^[19] and

(2) eight offences of deception, committed by a person who dishonestly and by deception

(a) obtains property belonging to another, with the intention of permanently depriving the other of it,^[20]

(b) obtains a money transfer,^[21]

(c) obtains services,^[22]

(d) secures the remission of an existing liability to make a payment,^[23]

(e) induces a creditor to wait for payment or to forgo payment with intent to permanently default on the debt,^[24]

(f) obtains an exemption from or abatement of liability to make a payment,^[25]

(g) obtains a pecuniary advantage,^[26] or

(h) procures the execution of a valuable security.^[27]

2.9      All the above offences require evidence of dishonesty. This key element is analysed in Part V below.

Theft

2.10      This report is not concerned with theft as such, but some of the deception offences have elements in common with theft. It is therefore impossible to consider crimes of fraud and deception without some reference to the crime of theft.

Appropriation

2.11      The crucial concept in the definition of theft is that of "appropriation", which is defined by section 3(1) of the Theft Act 1968 as "any assumption … of the rights of an owner". The House of Lords held in Gomez^[28] that even an act authorised by the owner of the property can be an appropriation, and, if dishonest, can therefore amount to theft. In Gomez the owner's consent was in fact obtained by deception, and the transaction was therefore voidable as a matter of civil law, but the House attached no importance to this fact. In Hinks^[29] the House confirmed that even the acceptance of a gift is an appropriation, and it is no defence that the gift is valid and unimpeachable as a matter of civil law. The result is that theft is now an offence of dishonestly receiving property belonging to another by any means, lawful or unlawful.

Property belonging to another

2.12      "Property" is defined broadly in section 4(1) of the Theft Act 1968 as including "money and all other property, real or personal, including things in action and other intangible property". Section 4 goes on to define property further so that land, wild flora and untamed creatures cannot be stolen, except in certain circumstances.
2.13      "Belonging to another" means that at the time when the defendant dishonestly appropriates the property, the victim must have some kind of proprietary right over it, or beneficial interest in it.^[30] In Hall,^[31] clients of a travel agent provided him with money, and in return they expected him to provide them with flight tickets. There was no evidence that Hall acted dishonestly at the time when the agreements were struck, so there was no dishonest appropriation at this stage. Once the money changed hands, the clients ceased to have any proprietary rights or beneficial interests in relation to it. They merely had a contractual right to be provided with the tickets. Hall failed to provide the tickets, and was unable to reimburse the clients because he had spent the money. His theft convictions were quashed, because at the time he had dishonestly appropriated the money by spending it elsewhere, it had not belonged to another.

With the intention of permanently depriving the other

2.14      This requirement is a principle of long standing. It applied to the law of larceny because English law did not recognise furtum usus, or the theft of use. Thus in earlier cases it was held that the taking of someone's horse in order to ride with it into town, subsequently abandoning it after riding many miles, was not theft.^[32] The Theft Acts incorporated this principle, by providing that taking an article for a temporary period will not amount to theft.^[33]
2.15      Section 6(1) of the Theft Act 1968 provides a partial definition of the phrase "with the intention of permanently depriving the other of it".^[34] It provides:

A person appropriating property belonging to another without meaning the other permanently to lose the thing itself is nevertheless to be regarded as having the intention of permanently depriving the other of it if his intention is to treat the thing as his own to dispose of regardless of the other's rights; and a borrowing or lending of it may amount to so treating it if, but only if, the borrowing or lending is for a period and in circumstances making it equivalent to an outright taking or disposal.

2.16      In Downes^[35] the defendant received Inland Revenue vouchers made out in his name. He sold them on to others. Those who bought them would eventually have cashed them in with the Revenue, so the defendant did not intend the Revenue to be permanently deprived of them, but the Court of Appeal upheld his conviction for theft: he had intended to treat the vouchers as his own to dispose of regardless of the Revenue's rights.

The deception offences

Deception

2.17      Where the thing dishonestly obtained is property, and it "belongs to another" within the meaning of the Act until the defendant obtains it, and the defendant intends to deprive the other of it permanently, the defendant can be charged with theft. Where those requirements are not all satisfied, liability will usually hinge on whether the thing in question was obtained by deception.
2.18      This means that the defendant's deception must have been the reason, or one of the reasons, why the dupe relinquished control over the thing in question. Otherwise, the thing was not gained by the deception.^[36] It also means that there must be evidence that the defendant induced a false belief in the mind of the dupe. This requirement has caused difficulties in cases involving guaranteed payment cards and automated payment methods. We discuss these cases in detail in Part III below.^[37]
2.19      "Deception" means "any deception … by words or conduct as to fact or as to law …"^[38] This provision was intended to allow courts "to decide whether any case of omission or concealment which may arise should be regarded as deception".^[39] In DPP v Ray,^[40] the defendant ate a meal in a restaurant, decided not to pay the bill, remained at his table until the waiter went into the kitchen, and then made off without paying.^[41] The House of Lords held, by a bare majority, that he had evaded a debt by deception,^[42] on the grounds that by remaining at the table he gave the false impression that he intended to pay.
2.20      In Williams (Jean-Jacques)^[43] the defendant, a schoolboy, had bought obsolete Jugoslavian banknotes which were worthless except as collectors' items. He took them to a bureau de change and said to the cashier either "Will you change these notes?" or "Can I cash these in?" The cashier paid him over £100 for notes which had cost him £7. The Court of Appeal not only upheld a conviction of theft but also criticised the recorder's ruling that there was no evidence of a false representation. In the court's view, the defendant had impliedly represented that he believed the notes to be valid currency in Jugoslavia. It is arguable, however, that his conduct was no more than a failure to disclose material facts.
2.21      In Firth^[44] the defendant was a consultant gynaecologist who omitted to inform a hospital that certain patients referred by him for treatment were private patients. Had the hospital known this, either he or the patients would have been charged for the services provided. It was held that he had evaded a liability by deception. It seems that the deception lay in the act of referring private patients plus the failure to correct the hospital's natural assumption that they were NHS patients.
2.22      It seems from the above cases that the courts will usually find that a deception has taken place if the defendant has formed a dishonest intent, and then subsequently entered into or continued his dealings with the victim in an apparently honest manner. However, each case involving silence or non-disclosure must be judged on its merits. In Rai^[45] the Court of Appeal pointed out that Firth should not be taken as general authority for the proposition that mere silence can constitute deception.

Actus reus elements

2.23      The eight deception offences make it criminal for a person dishonestly to bring about a number of specified consequences by deception. Despite the number and variety of consequences specified, most of them are quite narrowly defined.^[46] By far the broadest are the obtaining of property, and the obtaining of services.
2.24      Generally when obtaining property by deception D will obtain ownership, possession and control of the property. As section 15(2) of the Theft Act 1968 makes clear, however, any one of these will suffice for liability. "Property" bears the same meaning as it does in the context of theft;^[47] and the property must "belong to another" at the time of the obtaining, just as, for the purposes of theft, it must belong to another at the time of the appropriation.
2.25      In the Theft Act 1978, section 1(2), "services" is defined more widely than its ordinary sense would suggest:

It is an obtaining of services where the other is induced to confer a benefit by doing some act, or causing or permitting some act to be done, on the understanding that the benefit has been or will be paid for.

Other offences involving fraud

2.26      There are many other offences which could be described as frauds. Perhaps the most important are:

(1) forgery and counterfeiting offences,^[48] and other documentary frauds such as false accounting;^[49]

(2) tax evasion offences;^[50]

(3) fraudulent trading;^[51]

(4) insider dealing;^[52]

(5) misleading market practices;^[53] and

(6) the intellectual property offences.^[54]

2.27      These crimes are usually seen as specialist branches of fraud, which require separate consideration. For example, the Forgery and Counterfeiting Act 1981 followed a Law Commission report^[55] on the subject. Similarly, the crime of employing misleading market practices is now absorbed into the new statutory framework for regulating the financial services industry,^[56] following a long consultation period between the regulator and the regulated. The aim of the consultation was to produce detailed guidance to help draw the dividing line between sharp practice and criminal practice. Given the specialist setting of these crimes, this seems to be the most appropriate way to ensure that they are fair and comprehensive. This report is not concerned with the specialist forms of fraud, except in as much as they impinge on the more general fraud offences.

Note 1    Criminal Law Act 1977, s 5(2).    [Back]

Note 2    Walker [1962] Crim LR 458.    [Back]

Note 3    Meyrick (1930) 21 Cr App R 94; Chrastny [1991] 1 WLR 1381; Barratt [1996] Crim LR 495.    [Back]

Note 4    Scott v Metropolitan Police Commissioner [1975] AC 819.    [Back]

Note 5    Criminal Justice Act 1987, s 12.    [Back]

Note 6    Hollinshead [1985] AC 975.    [Back]

Note 7    This element is explained in full in Part 5.    [Back]

Note 8    A-G’s Ref (No 1 of 1982) [1983] QB 751 decided that defrauding V must be D’s primary purpose, but it has not been followed, and it is now widely thought to be wrong.    [Back]

Note 9    Scott v Metropolitan Police Commissioner [1975] AC 819, 839, per Viscount Dilhorne.    [Back]

Note 10    Welham v DPP [1961] AC 103, 133, per Lord Denning.    [Back]

Note 11    Scott v Metropolitan Police Commissioner [1975] AC 819, 836, per Viscount Dilhorne.    [Back]

Note 12    Allsop (1976) 64 Cr App R 29; Wai-Yu Tsang [1992] 1 AC 269, 279 – 280.    [Back]

Note 13    Welham v DPP [1961] AC 103; DPP v Withers [1975] AC 842; Moses [1975] AC 842.    [Back]

Note 14    This argument is supported by Lord Denning’s analysis of the word “defraud” in Welham v DPP [1961] AC 103, 133-134. See paras 4.26 – 4.31 for further discussion.    [Back]

Note 15    (1985) 81 Cr App R 279.    [Back]

Note 16    Theft Act 1968, s 16(2)(a), as applied in Turner [1974] AC 357.    [Back]

Note 17    Theft Act 1978, s 2(1)(b).    [Back]

Note 18    (1985) 81 Cr App R 279, 284.    [Back]

Note 19    Theft Act 1968, s 1.    [Back]

Note 20    Theft Act 1968, s 15. Broadly speaking, a “money transfer” is a transfer of funds from one bank account to another.    [Back]

Note 21    Theft Act 1968, s 15A, inserted by the Theft (Amendment) Act 1996 as recommended in Offences of Dishonesty: Money Transfers (1996) Law Com No 243.    [Back]

Note 22    Theft Act 1978, s 1. “Obtaining services” is widely defined as inducing another to confer a benefit by doing some act, or causing or permitting some act to be done, on the understanding that the benefit has been or will be paid for: s 1(2).    [Back]

Note 23    Theft Act 1978, s 2(1)(a).    [Back]

Note 24    Theft Act 1978, s 2(1)(b).    [Back]

Note 25    Theft Act 1978, s 2(1)(c).    [Back]

Note 26    Theft Act 1968, s 16. A person obtains a “pecuniary advantage” only if he is allowed to borrow by way of overdraft, or to take out any policy of insurance or annuity contract, or obtains an improvement of the terms on which he is allowed to do so, or is given the opportunity to earn remuneration or greater remuneration in an office or employment, or to win money by betting.    [Back]

Note 27    Theft Act 1968, s 20(2).    [Back]

Note 28    [1993] AC 442.    [Back]

Note 29    [2001] 2 AC 241.    [Back]

Note 30    “Property shall be regarded as belonging to any person having possession or control of it, or having in it any proprietary right or interest…” Theft Act 1968, s 5(1).    [Back]

Note 31    [1973] QB 126.    [Back]

Note 32    G Williams, “Temporary Appropriation Should Be Theft” [1981] Crim LR 129, 134.    [Back]

Note 33    Theft Act 1968, s 1(1).    [Back]

Note 34    For the parliamentary history of this section see JR Spencer, “The Metamorphosis of section 6 of the Theft Act” [1977] Crim LR 653.    [Back]

Note 35    (1983) 77 Cr App R 260.    [Back]

Note 36    See, for example, Roebuck (1856) D & B 24.    [Back]

Note 37    See paras 3.29 – 3.35.    [Back]

Note 38    Theft Act 1968, s 15(4).    [Back]

Note 39    CLRC Eighth Report, para 101(iv).    [Back]

Note 40    [1974] AC 370.    [Back]

Note 41    He would now be guilty of making off without payment, contrary to Theft Act 1978, s. 3(1).    [Back]

Note 42    Theft Act 1968, s 16(2)(a). The relevant offence would now be one of those created by section 1 of the Theft Act 1978.    [Back]

Note 43    [1980] Crim L R 589.    [Back]

Note 44    (1990) 91 Cr App R 217.    [Back]

Note 45    [2000] 1 Cr App R 242.    [Back]

Note 46    This includes the obtaining of a “pecuniary advantage”, despite the apparent width of that expression.    [Back]

Note 47    See para 2.12 above.    [Back]

Note 48    Forgery and Counterfeiting Act 1981, ss 1 – 5 and ss 14 – 19.    [Back]

Note 49    Theft Act 1968, s 17.    [Back]

Note 50    Eg, the offences set out in the Value Added Tax Act, s 72; and the common law offence of cheating the revenue, which was expressly saved from the general abolition of common law dishonesty offences by the Theft Act 1968, s 32(1)(a).    [Back]

Note 51    Companies Act 1985, s 458.    [Back]

Note 52    Criminal Justice Act 1993, s 52.    [Back]

Note 53    Financial Services and Markets Act 2000, s 397.    [Back]

Note 54    Copyright, Designs and Patents Act 1988, s 107; and Trade Marks Act 1994, s 92.    [Back]

Note 55    Criminal Law: Report on Forgery and Counterfeit Currency (1973) Law Com No 55.    [Back]

Note 56    Financial Services and Markets Act 2000, s 397.    [Back]