My Lords, I beg to move that this Bill be now read a second time.
Far from being a victimless crime, fraud is an indiscriminate crime that wreaks long-term damage to UK business and, wider still, fraud hits the pockets of every member of the population. In 2000, the National Economic Research Associates estimated that fraud cost the UK economy more than £14 billion. That means that every person in the UK lost £230 because of fraud. Moreover, that figure, which has no doubt increased since then, does not reflect the part that fraud plays in facilitating other crime types. There are signs that fraud is becoming a crime of choice for organised crime and terrorist funding. Reforming the law forms part of the Government's overall strategy to combat fraud.
The Bill has had a long gestation period, which reflects its complexity rather than its size. It deals with difficult and important issues which merit careful consideration.
It is a peculiarity of our law that it recognises no offence of fraud as such. Instead we have statutory offences of deception, which are too precise, overlapping and outmoded to give effective coverage over the breadth of frauds committed today.
The Fraud Bill is the culmination of a process of careful consideration. In 1998 the Home Secretary asked the Law Commission to consider the introduction of a general offence of fraud. The Law Commission's report on fraud published in 2002 concluded that the existing law could be improved in several respects.
Over-particularisation of the offence has left the law of fraud vulnerable to technical assaults and can pose operational problems. The specific nature of the offences as they stand means that it is possible for behaviour which we would all recognise as clearly fraudulent to fall none the less outside the jurisdiction of the offences.
One example cited by the Law Commission is the case of Preddy, where the defendants made false representations when applying for mortgages. They were charged with the offence of obtaining property by deception, which requires that they obtained property "belonging to another". But it was held that what they in fact obtained were credit balances to their accounts. These were property—they were choses in action—but they did not belong to another because they were new items which had not previously belonged to anyone at all. In fact, that particular problem has been fixed, but it is illustrative of the kind of problem that can arise in this area in the view of the Law Commission.
A second difficulty that arises from over-particularisation of the offences is that it is not always clear which offence should be charged at the outset. Defendants have successfully argued on a number of occasions that their particular deceptive behaviour did not fit the offence with which they had been charged.
The reliance on deception also restricts the application of the existing offences, particularly where a gain is not clearly made by that deception. So, for example, if a seller accepts a credit, a debit or a cheque guarantee card in payment for goods or services, he may have little interest—he need have very little interest—in whether or not the holder has the authority to use the card because of the nature of the guarantee which is attached to it, but the case for deception may turn on alleging a false representation being made by the presenter of the card in regard to that matter.
There are other problems with machines and computers. For example, can a machine, which has no mind of its own, be "deceived"? The more we use machines to obtain goods and other services, the more this difficulty arises.
The Law Commission also identified limitations in claiming that a defendant who abuses his position—this is an important issue—to make a gain or cause a loss is guilty of an offence of fraud. It can be argued that there is no deception because the defendant was in a position of trust at the time when the gain was made. Equally, a victim who is in complete ignorance of a loss after the event because information has not been disclosed may have some difficulty in proving that a deception had taken place.
These were the kind of issues identified by the Law Commission and it proposed the changes which formed the basis of the Government's consultation paper issued last year. The reactions to that consultation showed a broad consensus and added much to the formulation of the Bill. The Government are extremely grateful to those who responded to the consultation paper. The responses were full, thoughtful and detailed.
Key stakeholders have supported the Bill. The Fraud Advisory Panel, for example, which represents a wide range of fraud specialists, warmly welcomed the Bill, and Commissioner James Hart of the City of London Police, speaking for the Association of Chief Police Officers, said that the Fraud Bill would,
"significantly aid the case preparation and prosecution process and accurately set fraud and economic crime in the context of other criminal activity".
So what does the Bill do? It proposes that in England, Wales and Northern Ireland the existing eight deception offences in the Theft Acts should be replaced with a general offence of fraud. It aims to produce a clear and robust framework which is flexible enough to deal with increasingly sophisticated kinds of fraud.
The three ways in which fraud can be committed are set out in Clauses 2 to 4. A basic requirement of all of them is that the behaviour of the defendant must be dishonest. There is a further requirement that the defendant's intention must be to make a gain or cause a loss to another. But there will no longer be any need to prove in what form he intended that gain to be realised, that a gain or loss had actually been realised, or that any victim was deceived by the defendant's behaviour. The offence carries a maximum of 10 years' imprisonment.
The general offence can be committed in three ways: first, by false representation in any form; secondly, by failing to disclose information to another person where there is a legal duty to disclose the information; and, thirdly and lastly, by the abuse of position—that is, by taking advantage of a position where one is expected to safeguard another's financial interests.
In addition to the general offence of fraud the Law Commission recommended a new offence of "obtaining services dishonestly" to replace the current Theft Act offence of "obtaining services by deception". That is to be found in Clause 11.
Clause 6 represents an addition to the Law Commission proposals which was made following consultation with stakeholders. It introduces a new offence of "possessing articles for use in frauds" to replace, so far as fraud is concerned, the provision in the Theft Act 1968 which makes it an offence for a person to have with him, when not at his place of abode, any article for use in the course of any "cheat", which the Act construes as an offence of obtaining property by deception.
The current restriction to possession of such articles outside the abode of the defendant is unhelpful in relation to modern frauds, which can easily take place, for example, from home computers. The new offence of possessing articles for use in frauds will therefore have no such restriction.
The offence carries a maximum sentence of five years. There will be a greater sentence of 10 years for the additional offence in Clause 7 of making or supplying such articles. We have introduced that offence to tackle the people—some of whom are members of organised criminal gangs—behind sophisticated operations involving the making of such articles.
Clause 9 follows a Law Commission recommendation from its 2002 report on multiple offending by creating an offence parallel to the fraudulent trading offence in Section 458 of the Companies Act 1985, which will cover businesses other than registered companies. This recommendation was supported by the Office of Fair Trading in its position paper on bogus trading published in 2004. This "activity" offence carries procedural and evidential advantages as it is not necessarily limited to specific transactions and there is no logic in limiting its application to companies. That offence and an offence under Section 458 will carry a maximum sentence of 10 years to match the sentence for the general offence of fraud.
As I said, the response to the Government's consultation paper last year showed widespread support for the Bill's proposals. There were some reservations and the Government have amended the Bill to meet the main points raised. The greatest reservation—to which, no doubt, noble Lords will wish to make reference—was caused by the initial proposal to repeal the common law offence of conspiracy to defraud. In the consultation, however, many—indeed, I think the majority—argued that it would be wrong and rash to remove the offence because it provides great flexibility in dealing with a wide variety of frauds. We recognised, in the light of the consultation, that the common law offence has advantages and works well in cases involving multiple offenders and offences, where there can be hundreds of possible counts.
A recent case of conspiracy to defraud, by way of example, involved a large number of individual victims, several banking institutions and the integrity of those banking institutions. The illicit turnover was something like £4.5 million every six weeks. It involved organised crime and international money laundering.
The Government listened to the arguments that it is not practical, or as practical, to prosecute such cases using substantive counts or statutory conspiracy. The indictment could run to several hundred counts or several statutory conspiracies, creating a risk that the full picture would be lost in a morass of detail.
Conspiracy to defraud allows the agreement that is the essence of the conspiracy to be reduced to one short, well drafted count that reflects the totality of the criminal enterprise. In addition, there is some conduct that can be prosecuted only as a conspiracy to defraud; for example, cases in which the defendant is ignorant of the details of the fraud and therefore may not be guilty of statutory conspiracy to commit fraud. So in the light of the points put forward, we accepted the case for retention for the mean time.
The Government have also made changes in the light of the consultation to ensure that the offence in Clause 3 of failure to disclose information will be fraud only when a legal duty is breached. We accepted the arguments of those who said that to include other types of case, where the duty was only moral, would be stretching the criminal law too far and would intrude on the principle of caveat emptor.
We have also removed the requirement for secrecy which initially formed part of the offence in Clause 4 of committing fraud by abuse of position. This was a particularly difficult issue because secrecy, arguably, is a hallmark of fraud. But we accepted that it would be an unnecessary complication for the prosecution and that the dishonest behaviour of the defendant and the abuse of his position with a view to make a gain, or cause a loss, should suffice to constitute the offence.
The Fraud Bill, as presented for debate today, has been developed through an extensive review process, involving consultation and dialogue. Early on in the life of the Bill, the Government engaged stakeholders, practitioners and the judiciary to develop a Bill that is up to date and, we hope, fit for purpose. The rationalisation of offences will assist fraud investigators and improve the prosecution process as clarification of the law of fraud will weaken the scope for technical argument.
Fraud is a common crime. In 2003, 13,881 defendants were proceeded against for the deception offences which will be repealed by the Bill. So the cumulative effect of the improvements we are bringing forward will be considerable.
This legislative reform is only part of the Government's strategy in combating fraud. For their part, the Government have already taken a number of other measures. The Domestic Violence, Crime and Victims Act 2004 contains provisions that will enable multiple offenders to be brought to justice for the totality of their offending.
My Lords, my noble and learned friend has not yet mentioned the length of fraud trials, and I hope he will. Does anything in the Bill touch on this very important point, because jurors currently find the position insufferable?
My Lords, we touched on this issue in yesterday's debate on the Statement, to which my noble friend contributed. The Government intend to implement Section 43 of the Criminal Justice Act 2003, which deals with the mode of trial. I touched also on other methods of seeking to constrain the length of trials. We hope that this Bill will help too, as it simplifies the law. But my noble friend is absolutely right that the length of fraud trials is a very serious issue which we must tackle. While simplifying the law will help, the Bill will not, of itself, deal significantly with that problem. The complexity of the facts, not of the law, creates the length of trials to which my noble friend rightly refers.
My Lords, I wonder whether the noble and learned Lord could assist me. The Government's policy on the reform of criminal law on fraud is largely based on the Law Commission's report; I think he would agree with that. The commission says on page 2 of the report that the proposals,
"should make the law more comprehensible to juries, especially in serious fraud trials. The charges which are currently employed in such trials are numerous and none of them adequately describe or encapsulate the meaning of 'fraud'. The statutory offences are too specific to offer a general description of fraud; while the common law offence of conspiracy to defraud is so wide that it offers little guidance on the difference between fraudulent and lawful conduct. Thus, at present, juries are not given a straightforward definition of fraud. If they were, and if that were the key to the indictment, it should enable them to focus more closely on whether the facts of the case fit the crime as charged".
I take it that the noble and learned Lord agrees with those sentiments. Does not that provide, in addition to other matters raised yesterday, yet another example of the wisdom of a "wait and see" policy, rather than taking the robust measure he proposes and, without waiting to see how this works out in practice, allowing trial by judge alone in the cases to which he referred?
Finally, on conspiracy to defraud, the Law Commission referred to the,
"anomaly represented by the continuing survival of conspiracy to defraud, under which it may be a crime for two people to agree to do something which, in the absence of an agreement, either of them could lawfully do".
How does the noble and learned Lord get over that comment?
My Lords, the answers to those questions are yes and no, and for the reasons I gave in opening this debate. Yes, it is important to simplify the law of fraud. No, it is not enough, for the reason I gave to my noble friend Lord Clinton-Davis. The facts and the evidence are complicated; the law is complicated, but that is not what causes trials to run into months and months. As to conspiracy to defraud, I have explained that as the majority of responses to the consultation were against removal of the offence of conspiracy to defraud, the Government took the view they did. I see that the noble Lord, Lord Kingsland, disagrees with me. I look forward to hearing what he has to say about it; he will put me right, as he always does.
I have referred to the other measures that we have taken, such as the multiple offender provisions in the Domestic Violence, Crime and Victims Act 2004. Additional resources have also been provided for the Serious Fraud Office and the City of London police to tackle fraud. The creation of the Serious Organised Crime Agency will introduce a new force in tackling and defeating serious and organised crime. That will include proposals to ensure effective incentives for criminals who give evidence against their associates. That will help in fraud cases.
As I announced yesterday—I have referred to it again today—the Government plan to invite both Houses to bring into effect Section 43 of the Criminal Justice Act 2003, allowing prosecutors to apply for trials to be conducted without a jury in very long, complex, serious fraud trials.
The Government believe that these measures, along with the overall modernisation of the law, will help to streamline our capacity to tackle fraud and hence make an important contribution to tackling fraud and the crimes facilitated by it. I commend this Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Goldsmith.)
My Lords, we support the principle behind the Bill. It will be useful in simplifying and thereby, one hopes, strengthening the law on fraud. We have always made that position clear throughout our debates on the Criminal Justice Act 2003 and subsequently.
Much can be done to improve the conviction rate of those who commit fraud, without removing the right of the citizen to jury trial in serious cases. The Attorney-General referred to the Statement that he made yesterday. We have already been reminded of that in some of the main points raised in interventions today. That is a matter of detailed debate for another day.
In opening for the Opposition on this Bill, I should say that we have faith in the jury system, where citizens play their role in our criminal justice system in such an exemplary manner. The public, of course, have confidence in decisions made by juries.
It is important to see the proposals in this Bill as one building block in the wall of improvements that can be made. The noble and learned Lord referred to some of the steps that the Government have already been trying to take towards improving the way in which cases may be brought effectively to a conclusion. One can look at better conditions for juries overall. The noble and learned Lord referred yesterday to practice directions. That will mean that, very shortly, if the Lord Chief Justice's directions are followed, fraud trials should not last for three months. There should be further training for judges. There should perhaps be more appropriate allocation of cases. I am aware that it is sometimes the case that a judge may have very appropriately and successfully handled a fraud case, but that he may never have had another case allocated to him in the whole of his career. Perhaps some expertise is being left to wither on the vine.
We need research into the way in which juries function. I know that the Government have been looking at that as well. Above all, far more effective, pre-trial management of the case is needed. The issues should be sorted out more clearly. Very few cases, I understand, require people to look at balance sheets and statements; it is more a matter of issues being sorted out. It is a case of "Who did what when?" and "Was it illegal?" The noble and learned Lord shakes his head, but I am told by those who have experience in these matters that cases need to be managed and presented more clearly.
As I have been made aware by submissions from the police and by their response to the Government, there is a need for sufficient police resources to investigate the offences in the first place. I have much sympathy with the police forces which are tasked with investigating those cases that are not referred to or taken up by the Serious Fraud Office. Police resources for fraud cases have to compete with those needed for violent crime. The Government's introduction of the Violent Crime Reduction Bill this week signals that they accept that violent crime has increased.
I was grateful to the Norwich Union for its helpful briefing this week. In 2004, it identified and prevented 15,000 insurance frauds. Of those, it estimates that 4,000 would have met the criminal level of burden of proof, but it has to be very selective about what it refers on to the police because of police resources. So it submitted 41 fraud complaints to the police. Generally, those involved organised crime or links to other serious crime, where it believed that the evidence that it could submit to the police was overwhelmingly persuasive. Of those 41 cases, 27 were subsequently investigated by the police. Eighteen came to court and all of them resulted in convictions. Those statistics offer an interesting guide to the level of crime in the fraud field. The noble and learned Lord has very properly referred to the importance of having the resources properly to filter and get the cases to court for resolution.
So I was intrigued to note that paragraph 3 of the Government's response to the Law Commission's report stated on the matter of police resources:
"It— the Government—
"is taking measures in partnership with local government and the private sector to bring new resources into play. We were very grateful for the offer from one respondent to provide some additional resources for the police and discussions are under way to see if a suitable project can be found".
Will the noble and learned Lord explain what the Government are planning and what progress has been made since last November on this project? It sounds like the privatisation of some kind of investigation into selected fraud cases. How practical are those plans and what level of development have they reached?
In the debate on the Criminal Justice Act, we gave our commitment that we would work constructively with the Government to find ways in which we could make the jury system in fraud trials work even better than it already does. We are going to support sensible reform of the law on fraud, but we will study carefully this Bill throughout all its stages to ensure that the Government's proposals reduce the opportunity for injustice being done.
As the noble and learned Lord mentioned, fraud in the UK is indeed seriously damaging to the country, to companies and individuals alike. We are all vulnerable to the devious fraudster. Fighting fraud effectively matters. The Fraud Advisory Panel estimated in 2004 that the annual cost of fraud in the UK equated to the value of £240 for every man, woman and child. I notice that the noble and learned Lord referred to £230. I think we can forgive £10 between friends, or perhaps friends on occasions. It is a lot of money. The National Criminal Intelligence Service estimates that fraud contributes as much to UK organised crime as drug-related offences. It is a horrifying figure.
The main focus of this Bill is the creation of a single offence of fraud, which we support and believe should make the law more comprehensible. At present, juries cannot be given a single, straightforward definition of fraud. The current statutory offences are too specific to offer a comprehensive definition, while the common law offence of conspiracy to defraud is so wide that it offers little guidance on the difference between fraudulent and lawful conduct. That observation, to which the noble and learned Lord, Lord Ackner, has referred, was made by the Law Commission.
At present, serious fraud indictments may need to employ a number of different offences before the alleged fraudulent behaviour is fully covered, thus leading to long and potentially confusing trials. So the fraud offence in this Bill, which follows the Law Commission's recommendation, seems to be the right approach. It offers a single, comprehensive definition of criminal fraud, which can be used to make fraud indictments simpler and more self-explanatory. This should enable juries to focus on whether the facts of the case have been proved beyond reasonable doubt and to apply them to a simple, readily understandable definition of the offence.
The second advantage that should flow from a general offence of fraud is that it would be a useful tool for the prosecution of fraud from investigation through to trial. The present clutch of specific offences can result in the wrong one being employed, either at the police station or at court, when the facts of the case actually fit a different offence. A single offence which gives a clear definition of fraudulent behaviour should help to focus investigations and ensure that the right charge is put to the right defendant.
The third major advantage of the single offence is that it should make the law more able to adapt to the changing face of fraud as technology opens up new avenues to fraudsters to practise their crimes across cyberspace. The first limb of the single offence has the advantage of tackling the IT-borne offence of phishing, while also covering the old and detestable crime of the knocker on the doorstep, tricking people—mostly the elderly—out of their valuable possessions for a pittance.
I look forward to examining the drafting of the new offence in Committee and to probing further the objectives and consequences of the new offences in the Bill, which seem at first blush to have much merit. The noble and learned Lord has referred to them, so I shall not cover them in detail. They comprise: the possession of articles for use in frauds or being involved in their manufacture or supply; extending to sole traders the offence of participation in fraudulent trading; and the Clause 11 offence of obtaining services dishonestly.
One of the key recommendations of the Law Commission's report was that the Clause 11 offence of obtaining services dishonestly should sit alongside the new, general crime of fraud. A key advantage of that would be that it would circumvent the existing problem that arises under the offence of obtaining by deception in respect of automated services provision. This is perhaps a gift to Mr Rupert Murdoch, who will no doubt welcome this measure as a weapon against those who try to get access to his digital channels by using illegal decoders to avoid paying a subscription to him. I pay two subscriptions to him. I certainly would never dream of avoiding paying as a customer. I wonder, however, how heavily the investigation of such offences will fall upon police resources.
In the light of the creation of the new single offence of fraud, it is astonishing that the Government have decided to retain the old and flawed offence of conspiracy to defraud. The Law Commission very clearly and firmly called for its repeal. The Government's own report last October noted that:
"It is normally fundamental to a codification exercise such as this, that the common law should be repealed in favour of the new statute".
My noble friend Lord Kingsland, who is leading for us on this Bill, will address the issue of conspiracy to defraud in detail further on. If the Government are determined to retain the conspiracy offence, surely we should at least bring it up to date to ensure that it is fit for purpose in the modern day.
There is one line of inquiry that I would like to examine in Committee, and in a helpful spirit I give notice of it very briefly now. I refer to the exemption given to married and civil partners in Section 2(2)(a) of the Criminal Law Act 1977. The consequence of that section is that if the husband and wife, or civil partners, are the only persons who conspire together to commit a fraud, they cannot be convicted—they get away with it—because the activity is not in itself an offence. They have to conspire with somebody else before it becomes an offence.
The rule causes real problems. If a jury is not satisfied that there was another party to the conspiracy, it has to be directed to acquit the husband and wife—or in future, of course, the civil partners. Can that really be right in the 21st century? It harks back to the days when a wife was considered the chattel of her husband, unable to exercise her own will. As I approach my own 35th wedding anniversary, I can say that I am no chattel.
In conclusion, we shall support the proposals in this Bill if they make the law of fraud clearer and more straightforward. We believe that if we can achieve that improvement, everybody concerned in the process, whether they are jurors, police, victims, defendants or lawyers, will be better placed to understand who has committed a crime and who has not. That can only be of benefit to us all.
My Lords, it is a pleasure to deal with legislation which has had so much considerable thought devoted to it, and a long period of gestation, as the noble and learned Lord said in his opening remarks. It has been considered by the Law Commission and the Government's respondees on consultation, and now, finally, it is being considered in the Bill before the House. It is a Bill that is clear in its terminology and intent. Whether it has all the ingredients quite right is a matter that we shall debate both today and in Committee, but the general thrust of the Bill is in the right direction. In particular, the Bill avoids a tortuous definition of fraud, establishing as it does three basic areas within which the Government hope that the generality of charges will fall.
The Explanatory Notes on Clause 2, which deals with false representation, make a number of interesting and useful points. In the first place, the representation "must be made dishonestly", as in the leading case of R v Ghosh. The Ghosh test is referred to at length in the Law Commission's report. In replay of yesterday's argument, I remind your Lordships that that test is, first, whether the defendant's behaviour would be regarded as dishonest by the ordinary standards of reasonable and honest people and, secondly, whether the defendant was aware that his conduct would be regarded as dishonest by reasonable and honest people. So while emphasising that it is essentially ordinary and reasonable people who decide what honesty and dishonesty is, on the one hand, the Government on the other hand—ironically—propose to alter that test in certain cases so that a judge will ask himself, "Would that conduct be regarded as dishonest by me, a traveller on the Clapham omnibus as I always am?". That is a totally different sort of test from the Ghosh test.
The representation in Clause 2 can occur in written or electronic form. We are pleased to see that the ambit of criminality has been widened quite substantially to bring the charge into line with current forms of deception and fraud. I refer, as previous speakers have, to the misused credit card. It is a good thing also that it is immaterial what the person on whom the fraud is being perpetrated thinks. The person who accepts the credit card has no idea whether it is valid; only the person presenting the card has that information. The fact that the defendant knows that he is misusing the card will be sufficient under this Bill. As the noble and learned Lord the Attorney-General pointed out, that is very important when so many commercial transactions, particularly in the consumer field, are conducted through the use of machines, in one way or the other.
That point touches on the very serious issue of identity theft. I take this opportunity to emphasise the utmost misery that identity theft can bring on its victims. There is no real remedy at present: the banks are unable to address the issue properly, because there is no networking between the banks to ascertain names of victims whose cards or whose details have been stolen. In many cases, police officers at police stations, who may be less than sympathetic, discourage a criminal report. Most of the time a victim cannot prove with immediate ease the fact that he did not consent to what happened, or that he did not incur a specific expenditure.
Banks sometimes issue new debit or credit cards, but that is of little consequence, as the defrauders continue to apply for additional cards—and all too often those applications are granted, without any further confirmation. Another problem with identity theft is that it can be used and furthered abroad. Again, there is no form of protection—there is nothing worse than having an identity stolen by a person getting hold of passport details. I make those comments because it seems to me that one of the excellent intentions behind the Bill is to address that sort of problem.
The emphasis in Clauses 3 and 4 is on dishonesty and intention on the part of the defendant, and not on recklessness. That is a relief for those of us who have had to deal with the concept of recklessness over the years.
Clause 3 deals with failing to disclose information. The wording does not follow that of the Law Commission draft, however, which used the expression "wrongfully", both in the title and in the body of the draft clause. The Law Commission also defined how "wrongfully" was to be interpreted, in paragraph (a), where there is a duty to disclose, and paragraph (b), where he knows that the other party is trusting him to disclose. I wonder what the thinking is behind the Government's decision to drop the word "wrongfully" from the position that it held in the Law Commission's draft Bill.
By contrast, the new clause, which has come into being since consultation, as the noble and learned Lord told us, does not mention dishonesty at all. It seeks to replay Section 25 of the Theft Act 1968, on going equipped. In that Act, the wording was that:
"A person shall be guilty of an offence if when not at his place of abode, he has with him any article for use in the course of or in connection with any burglary, theft or cheat".
There is a presumption that if the article was in his possession, it was evidence that he had it with him for such use.
Clause 6 introduces the concept of the defendant having an article,
"in his possession or under his control".
No statutory defence is suggested in the Bill that he did not know or had no reason to suspect that the article was for use in a fraud, although the Explanatory Notes suggest that knowledge that the article was for such use is an ingredient. They say:
"A general intention to commit fraud will suffice".
"in his possession or under his control", has caused great difficulty, certainly in firearms and drugs legislation.
There is strict liability in both those fields. I am seeking to find out whether that is what is proposed in Clause 6. For example, in the case of Vann and Davis, in 1996, it was decided that since the clear purpose of firearms legislation was to impose a tight and effective control on the use of highly dangerous weapons, Section 5 of the Firearms Act, on its true construction, made it an offence knowingly to possess an article that was in fact a prohibited weapon, and it was not necessary for the prosecution to prove that the defendant had known that it was such a weapon. It would be no defence in firearms legislation for him to prove that he had not known and could not reasonably have been expected to have known.
Similarly, in drugs legislation, in the case of Lambert, in 2001, the Judicial Committee was concerned whether it was an essential element of the offence of possession of a controlled drug under the Misuse of Drugs Act 1971 that the accused knows that he has a controlled drug in his possession. The noble and learned Lord, Lord Slynn of Hadley, pointed out in that case that the prosecution must prove that the accused had a bag with something in it in his custody or control, and that the something in the bag was a controlled drug, but it was not necessary for the prosecution to prove the accused knew that the thing was a controlled drug let alone a particular controlled drug.
Those are in areas of serious crime—really serious crime where drugs and firearms are a danger. However, the wording of Section 6 is such that it seems to be added to that category of cases.
Clause 7 does indeed introduce the concept of "knowledge" in subsection (1)(a). I invite the Minister to include in Clause 6 the words "knowledge" or "knowingly", expressly so that there can be no argument about it. It should not be enough for the prosecution merely to prove that a person has an article in his possession for use in fraud. The prosecution should prove that he knew it was for use in fraud. I think that that is a very important omission. If the omission is intentional, I should be glad to know why.
In Clause 9, the offence is to be,
"knowingly a party to the carrying on of a business to which the section applies", and the Explanatory Notes say specifically that the principles established with regard to fraudulent trading will apply. Looking at Clause 9, I have this question. One of the principles with regard to fraudulent trading is that the offence can be committed only by a person who exercises some kind of controlling or managerial function within the company. Is Clause 9 to be interpreted in the same way? If it is and the person charged must have some kind of controlling or managerial function, can we not sensibly have that on the face of the Bill?
The common law offence of conspiracy to defraud has been maintained. The issue then arises, which I am sure others will address: what areas is the common law offence intended to cover which are not covered by the specific offences? Here we have a broad definition of fraud which is satisfactory, so why do we have to retain the common law offence? The Law Commission was concerned that the common law offence of conspiracy to defraud might cover conduct such as failing to fulfil a contractual obligation or infringing a legal right and that conspiracy to defraud at common law could impose criminal liability for what would otherwise be civil wrong or torts. At paragraph 9.4 of the report, the Law Commission said:
"To retain conspiracy to defraud on the ground that it might occasionally prove useful in such a case would in our view be an excess of caution. Since it is not practicable to identify all such cases in advance, it would mean that we could never be in a position to abolish conspiracy to defraud . . . The advantages of abolishing it, in our view, greatly outweigh any possible advantage that might accrue from retaining it alongside the new offences which we recommend".
I emphasise the words "greatly outweigh". What has happened in the consultation process that has reversed that standard so that it is now advantageous to maintaining what is the most vague concept? A conspiracy to defraud is the vaguest concept, and yet here we are trying to clarify matters for the benefit of a jury, or even for a judge alone, so that people can understand what the ambit of a particular offence is.
The noble and learned Lord said that the Government's intention is to retain conspiracy to defraud at common law "for the mean time". How long is the "mean time"? If he says "for the mean time", why does he envisage that at some unknown future date it will become all right to abolish that offence? Why not do it now?
I hope that I have indicated my general support for the Bill. I hope that I have indicated the areas where I have criticisms, and I hope there will be answers to those criticisms. I end with this. If judges are to be permitted to sit alone in fraud trials, surely it would be useful for that to be a part of the Bill. Then it would clearly ring-fence the type of case which would be tried by judge alone to fraud, and we would not have the fear which we expressed yesterday that trial by judge alone will be extended to all sorts of areas which at the moment we are not told about.
My Lords, it seems to me that this is one of the best Bills to have come out of the Home Office for many a long year. I did not read the Law Commission report when it was published in 2002 but I have read it since. It seems to me that it is a model of what such a report should be. It is very well researched. It is very well argued. It exposes with great clarity the many defects in the existing state of the law. Above all, it contains a draft Bill; so much so that I sometimes think that all we actually need to do is to compare the draft Bill in the Law Commission report with the Bill which is now before the House. That is all that I have done.
That brings me to the government response to the Bill, which again is excellent. I obtained it this morning by a miracle—a miracle for me—on the Home Office website. It seems to me again a model of what a government response to such a report should be. It suggests a number of small changes: improvements in Clauses 2(2) and 3(1) and in the omission of the word "secretly" in Clause 4(1)(b), with all of which I would agree. All that is to the good.
However, as Horace, I think, says—it is usually Horace:
"Nihil est ab omni parte beatum".
There is a flaw, and the flaw is the one which the noble and learned Lord the Attorney-General has already foreseen, and it is one which has been independently foreseen by three previous speakers: the failure to abolish the common law offence of conspiracy to defraud—as strongly recommended by the Law Commission.
I say at once that I have an instinctive dislike, and I think that many judges have, of these catch-all offences such as conspiracy to defraud. Of course, as the noble and learned Lord the Attorney-General has pointed out, it makes it easier for prosecutors, but that surely is the whole danger.
It seems to me that offences of such generality, and so amorphous as conspiracy to defraud, offend against one of the more fundamental principles of our judicial system: the principle of legal certainty. How can anyone know whether they are guilty of a conspiracy to defraud until it is too late as far as they are concerned? So I urge the Government to think again on that point.
There is a practical argument. We now have good new offences which I greatly welcome. Surely it ought to be a working rule for the Government that for every new offence that they create they should repeal at least two old offences. Here they have a chance to repeal the old common law offence of conspiracy to defraud, and I hope that they will think again before the matter comes to Committee.
There is a very strong recommendation in the report on that, but it is the weakest point in the Government's response. It said that there were differing views as to whether there should be a conspiracy to defraud. There was a reference to a case in the House of Lords called Hollinshead, which is not a shining example of English jurisprudence. Indeed, it underlines the danger of having an offence such as that still as part of our system. If no one else does, and I suspect others will, I will certainly wish to table an amendment in Committee to restore the views of the Law Commission on that point. I would be willing to agree to the compromise proposal, as referred to in the Government's response, that we should abolish common law conspiracy now, but perhaps not bring that part of the Bill into force until we have seen how the rest of the Bill works. That seems a sensible compromise.
The only other point that I want to make is on the concept of dishonesty. I am glad that dishonesty has been chosen as the basis of the new offences. I am indeed glad that there has been no attempt to define dishonesty in the Bill, nor should there be. At this point, I declare an interest as the author, or at any rate the part author, of the decision in Ghosh. When Ghosh came before the court, I was being led by the Lord Chief Justice, the noble and learned Lord, Lord Lane. He takes the credit, although I may have done the work. There had been a long-running dispute as to whether the test of dishonesty is subjective or objective. There have been many conflicting decisions in the Court of Appeal, which the lawyers here will recall. In Ghosh, we decided that it was both objective and subjective. That simple approach seems to have silenced everyone from then until now. Some of the academics did not like it to begin with, but it has stood the test of time since 1982, although it has never been formally approved in the House of Lords.
It is referred to with approval in the Law Commission report, and it is referred to in the Explanatory Notes. I hope that the noble and learned Lord the Attorney-General might say when he comes to reply that the Ghosh approach is the basis on which we are being asked to enact the Bill. I hope that is not pushing my pride of authorship too far. I certainly would not support a Bill in which the test of dishonesty was to revert to the old-fashioned objective test. I hope that the noble and learned Lord the Attorney-General will be able to say, "We are enacting this Bill on the basis that Ghosh is the law as we understand it".
My Lords, my noble and learned friend the Attorney-General can be confident of the support of his own Benches for the passage of this Bill. The lawyers here present might be excited by its detail, but at Second Reading it seems to me more important for us to consider some of the policy implications of this important legislation.
First and foremost, it is an important exemplar of the way in which Parliament, by the use of the Law Commission, can step by step reform the criminal law of our country. That is an important task; indeed one that is vital to the proper functioning of our society. By proper legislation that encodes the criminal law we hope to—and I expect usually will—produce clarity of offence and the reasonable certainty of those involved as to how the matter will progress in the course of a criminal investigation and trial.
I hope that this is one step and that my noble and learned friend will bring forward more legislation in the life of this Parliament implementing the Law Commission's proposals to change the criminal law, and that he will do so with the same admirable economy with which this Bill addresses the law of fraud. Whatever 100 or 200 pages it might occupy in a textbook now, to encompass it in five pages and 12 principal sections is to be described as a success, subject to its passage through Committee. As a piece of law reform, it was and is a model.
Now to the policy considerations. The previous director of the Serious Fraud Office, now the chairwoman of the Fraud Advisory Panel, Ros White, said the following:
"Fraud is costing the country billions each year and inflicting enormous harm on individuals and communities".
This Bill is no lawyers' piece of art; it is a practical protection of the public billions, affecting many, many people. It therefore requires two important considerations of policy. First, it should be efficiently implemented at three stages. At the beginning, by ensuring that the investigating police officers in this country who will be tasked with applying the law will be trained to understand it; able to relate its content to the multifarious ways of modern technological crime that they all encounter; and that they will then be assisted by lawyers from the Crown Prosecution Service or the SFO as to the appropriate charges that might arise from an inquiry. Good law becomes best law when it is effective in practice.
The second step of efficient implementation is to ensure that this Bill becomes psychologically connected in the mind of every lawyer, police officer and court with the legislation on the proceeds of crime. We prosecute crime and fraud not just to convict and punish but to recover stolen assets. I said billions, using the quotation from Ros White. The public will expect, as time goes by, a recovery that can reasonably be made from the activities of major fraudsters.
The last point is that any Bill of this kind—momentous as it is in the life of our criminal law—will be met by legal analysis and appeals. I invite my noble and learned friend to invite the Lord Chief Justice and the Court of Appeal Criminal Division to ensure that appeals arising under the Act, when it becomes an Act, are dealt with promptly in groups according to topic or whatever, and certainly within a period of three or four months. The last thing that we want is several years of uncertainty about its proper interpretation by the courts.
So, efficient interpretation is the first policy point. The second general policy point is that the Bill should take its place as an effective part of the framework of combating financial crime. Its terms generally deal with fraud and dishonesty, but two clauses deserve emphasis in the context of major financial crime—Clause 4, which is on the dishonest abuse of position, and Clause 12, which is about the liability of corporate officers for their company should it be found to have committed one of the crimes.
Taking the two together in the realm of high finance, what is an abuse of position? The legal concept—technical, sound, fiduciary—is easy to understand, in that one person should show loyalty to another if it is his responsibility to protect the other's interests. In Committee, Clause 4 deserves especial attention in the context of major financial crime. That is because it goes beyond technical financial offences and the specific offence of insider trading, and produces an area of concern to the public of which the financial world should be astute—and so, I suspect, should we lawyers in applying the Bill.
The Bill should form part of the framework of combating fraud, as I said. We have reached the stage where we have a Financial Services Authority and a Serious Fraud Office with experts assisting them, and an efficient procedure in court in the sense of trial, appeal, recovery of the proceeds of crime and so on. That framework should be used as a composite system of control. We are not talking about disparate and unrelated parts of combating fraud.
When the Bill comes into force, I expect that those involved in chasing convictions for fraud and recovering assets will look at the framework in the following way. The Financial Services Authority will attack through fines or regulation and control the level of financial defalcation appropriate to that kind of penalty. If the Serious Fraud Office recommends that there be criminal proceedings the next stage should be, as I understand the law to be applied in future, a plea-bargaining system in which fraudsters are punished and relieved. They will be punished be being made to pay up, and relieved with the consequence of perhaps getting a lesser sentence or no sentence of imprisonment, if that fits the justice of the case.
After that, if the plea bargain did not work and there was a trial and conviction, there would be long sentences. Ten years is the maximum. I am not recommending draconian reactions, but is that the right level at which to pitch public sentiment about very serious financial crime? The crime may involve hundreds of millions, or be a major pension fraud that damages the lives of many. In America, the test for sentence is, "How much, and how many people were affected?". Then you fix a sentence. The framework is the product of existing legislation plus the Bill, and it is one that we should start applying.
I close by rehearsing the opening remark. The Bill is good, and will benefit from scrutiny in Committee. However, I hope that it comes into force quickly and will be followed by other similar Bills.
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 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,
"business carried on by sole trader etc."
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 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.
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 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,
"in that it catches agreements to do things which are rightly not criminal".
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,
"we take the view that this definition is too broad".
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 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,
"element of dishonesty is left to do all the work", this left,
"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,
"benefit juries by making fraud law easier to understand".
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.
My Lords, I welcome the support given by all noble Lords who have spoken to the Bill. I share with noble Lords the congratulations that they offer to the Law Commission. The value of the work carried out by the Law Commission is often undervalued. It is outstanding. We do not always accept everything it says and we do not always move to legislate for what it puts forward, but I am very glad that in this House we agree that this is a fine example and one that we are proud to put forward.
I also agree with much of what noble Lords said about the policy behind the Bill. I agree wholeheartedly with much of what the noble Baroness, Lady Anelay, said and I am very happy, at least for these purposes, to be counted as a friend. Whether the figure is £230 or £240 per head, it is an enormous sum of money that the country is losing as a result of fraud. As I said in opening, that is why it is important that we act in a number of different ways to protect the country and the economy better against fraud. In that respect my noble friend Lord Brennan made some very important observations about fraud. What he said deserves close attention in the wider debate and consideration of fraud.
I turn to some specific points raised by noble Lords. The noble Baroness, Lady Anelay, mentioned a reference in the Government's response to the consultation paper to resources to deal with fraud. As the paper says, the Government were grateful for a particular offer that was made. I understand that that project is still under discussion. I see no reason why I should not identify by whom it was made: the Finance and Leasing Association. That association is having discussions with the City of London Police. Although that is welcome, it will be a relatively small project and not a major plank of our effort.
Other matters are happening in relation to the resourcing. Overall resourcing for policing has increased. Expenditure on policing supported by government grant or central expenditure on policing has increased by 39 per cent—more than £3 billion since 2000–01. In the context of fraud, I refer to additional resources that have been provided by the Home Office and the Corporation of London, I am glad to say. I was instrumental in negotiating that for work by the City of London fraud squad, together with the Serious Fraud Office.
I accept that there is an issue about the resources that have been applied to the investigation of fraud. There are a number of reasons why much fraud is not prosecuted. The noble Baroness, Lady Anelay, referred to such an instance and I believe that further attention needs to be given to such issues.
The noble Baroness also raised a point about Section 2(2) of the Criminal Law Act 1977. I do not believe that any noble Lord would dare regard the noble Baroness as a chattel or anything close to it. She need not have denied that. Reform of the 1977 Act is not an issue for the Fraud Bill, but—this is relevant to the other big debate that we have had this afternoon—the Law Commission is looking at the law of conspiracy more generally, as part of its codification project. It hopes to issue a consultation paper early next year. At the very least I shall ensure that the point made by the noble Baroness is fed into that consideration. I believe I am right in saying that that is an issue that is already in mind, but I shall need to confirm it. The noble Baroness may still wish to pursue the matter in Committee, as she is entitled to do.
The noble Lord, Lord Thomas of Gresford, made an important point about the misery of identity fraud. He is absolutely right that identity fraud is an increasing and very serious problem. Therefore, he is right to say that it is important that the law is able to deal with the matter by having offences that adequately cover the circumstances.
The noble Lord may not be surprised to hear me say from these Benches that dealing with identity fraud after the event is not the only answer. Preventing identity fraud is very important too. In relation to another Bill, which I shall not be presenting to the House—other colleagues will do that—a reliable form of identification will be under consideration. I say no more about that today, but I thought it opportune to make that observation.
The noble Lord, Lord Thomas, raised important and relevant points about a number of the clauses. We shall refer to them in Committee, but he and the noble Lord, Lord Goodhart, raised a question on Clause 3. The reason for dropping the word "wrongfully" is precisely the reason given by the noble Lord, Lord Goodhart: that the Government accepted in the consultation that they should narrow the offence so that it was restricted to a case where there was a breach of a legal duty. The consequence of that was that the word "wrongful", which was then interpreted to include other things, was not needed. I understand why the noble Lord, Lord Goodhart, wants to consider further whether the Government have gone too far in narrowing the offence. That may be a matter to which we shall return.
On Clause 6, the noble Lord, Lord Goodhart, asked whether it was an offence of strict liability. I believe the answer is no. It is not the intention for Clause 6 to create a strict liability offence, as he said the Explanatory Notes say. The answer to his question may well lie in the fact that the particular words are followed by the words "for use". No doubt that is a matter to which we can return.
The noble Lord also asked in relation to Clause 9 about who would be caught by the offence. It is intended that the existing case law on fraudulent trading under the Companies Act will apply to the fraudulent trading offence in Clause 9. Those include a requirement that the defendant has taken some positive steps in the carrying on of the company's business and that he exercises some kind of controlling or managerial function. The noble Lord may wish to return to that.
On the same clause, the noble Lord, Lord Goodhart, asked what is meant by "sole trader etc.". I am sure he is right to say that it applies to any business and would include partnerships because it applies to any business not covered by the Companies Act 1985, which would include, not only sole traders, but also partnerships and trusts as well.
The noble and learned Lord, Lord Lloyd, in welcoming the Bill, asked me to confirm that the Ghosh test will apply to dishonesty. He rightly noted that the test has had wide support and has been followed—although, as he rightly said, not yet by the Judicial Committee of this House. I can say that that is the current definition of dishonesty; it is referred to in the Explanatory Notes; no other definition is offered in the Bill. I cannot preclude your Lordships from in due course taking a different view and saying that Ghosh was wrong all along, but I have no reason to think that it is. That is the most assurance that I can give to the noble and learned Lord.
My noble friend Lord Brennan, as well as making his observations on policy and implementation issues, which, as I said, were very important and worth noting, asked that we draw to the attention of the Lord Chief Justice the desirability, if there are appeals once the Bill is in force, that they should be dealt with swiftly so that uncertainty in the law is swiftly brought to an end. I am sure that he is right that that is important. It will be for the Lord Chief Justice to determine when and how to do that. If I may presume to say so, I should have thought that that suggestion will be treated as important and correct. My noble friend also asked about sentences for fraud. That is also an observation for the courts to consider.
I have already attempted to deal with the specific points on clauses raised by the noble Lord, Lord Goodhart. He also made observations that it is important for us to take into account and have regard to.
I turn to the issue raised by all noble Lords who spoke, which I had predicted would be a topic on which we would have discussion. I would not want to be so much of a spoilsport as to try to deal with all those important points today. I and the Government have been absolutely open about this. The Government saw the force of the points made in the Law Commission's report. We put the matter out for consultation and received the responses set out.
There is a point—perhaps of detail, perhaps not—between me and the noble Lord, Lord Kingsland. I rely on what the Government said in their response and draw to his attention paragraphs 39 and 40, which state, first in paragraph 39:
"The repeal of Common Law Conspiracy to Defraud was the only proposal to which there was widespread opposition".
Paragraph 40 goes on to say that,
"repeal was opposed by the majority of consultees", which is also the information that I have received directly. I have not counted them myself; I do not know where the noble Lord's information comes from; but we will obviously look into the matter. That is for a future date.
I must say, however, that I—I do not take exception; I never take exception to what the noble Lord says—differ from the noble Lord when he described the Crown Prosecution Service and the Serious Fraud Office as pressure groups. They are in fact bodies charged with the duty of prosecuting in the interests of the public. If they have views on whether putting the law in one way or another will ease or make more difficult the prosecution of crime in this country, those are views to which we must pay full and proper attention.
There are two issues, perhaps three, that we will need to consider when we return to the matter of conspiracy to defraud. The first is the practical value of the offence. We will need to explore that in more detail than is appropriate today, but I mentioned that in my opening speech.
The second is whether there is conduct that would be caught by conspiracy to defraud that would not be caught by present offences. The noble and learned Lord referred to a decision in Hollinshead. That was an example where the conduct involved was a number of people conspiring to manufacture devices that were then used to help people avoid paying for electricity. It was held by the courts that they—that is to say, the manufacturers—could not be found guilty of conspiracy to commit the offence of obtaining the electricity by use of those devices because they were not involved in the actual abstraction of electricity. I do not comment on whether the noble and learned Lord is right to say that the decision was a bad one, but it illustrates the problem that people may be involved in conspiring to do something but not in the substantive offence because that is done by a third party who is outside the conspiracy. That is one aspect that we will need to consider.
My third point, on which I have already touched, is that the Law Commission is publishing a report on participation in crime.
My Lords, I am grateful to the noble and learned Lord for giving way. Would not the Hollinshead example of something manufactured with a view to being used by other people to abstract electricity now be covered by Clause 7, so that that problem would no longer arise?
My Lords, I am absolutely conscious of that. The question, which we will want to debate when we return to this topic, will be whether that is an adequate response in the circumstances where that is the only aspect on which one would be proceeding against those people. That creates difficulties, because we would not necessarily then be able to include in the same proceedings the people who were abstracting the electricity—the severing of indictments and issues of that sort. But I do not want to go further than that; I just want to indicate the sort of areas that we will need to consider.
The point that I wanted to make was that the Law Commission is publishing a report on participation in crime and any reform of the law that flows from that work would inform this area of law as well. Secondly, we do not yet know how effectively the provisions on multiple offending in the Domestic Violence, Crime and Victims Act 2004 will work. Obviously, we hope that they will work. If they are in force, I am not aware that they have yet been operated in any case. Thirdly, in congratulating the Law Commission, noble Lords have assumed that it must have got it right: that these offences cover everything. Again, we do not yet know that that optimism will turn out to be correct.
My Lords, with respect, how will we ever know that? The answer is that we cannot. That is one point made by the commission. Now is the time to do it. If necessary, we could postpone bringing the abolition or repeal into force, but please let us do it now.
My Lords, the difficulty is that we are dealing with an offence—conspiracy to defraud—that is at present quite regularly indicted. Therefore, the question that we must ask ourselves as we legislate responsibly, as I know we will, is whether we can be sufficiently confident that we will not be leaving outside the area of conduct that ought to be prosecuted in the public interest conduct of that sort.
I will come back to this, but we can take the view that it is unnecessary to abolish conspiracy to defraud now in the Bill. We can look to see how the Act operates in practice; we can look to see what the Law Commission has to say about the law of conspiracy and participation more generally; and we can look to see how the multiple offending provisions operate. We can always return to it in future if it appears clear that it is no longer necessary. I know that noble Lords will wish to return to the issue.
I welcome the support for the Bill and look forward to the discussion that we will have. To any noble Lord who would find it helpful, I offer at all stages, before Committee and thereafter, the opportunity informally to discuss these matters or to receive any further information. I will announce an open meeting to provide further information before the Committee stage so that all can participate. In commending the Bill to the House, I invite noble Lords to accept that it should have a Second Reading.
On Question, Bill read a second time.