Clause 3

Fraud Bill [Lords] – in a Public Bill Committee at 10:45 am on 20th June 2006.

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Fraud by failing to disclose information

Question proposed, That the clause stand part ofthe Bill.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

Clause 3 will make it an offence to commit fraud by failing to disclose information. The Law Commission’s initial consultation paper proposed that mere non-disclosure of information should not suffice for an offence of deception. However, during its consultations, a substantial minority of respondents argued that from the victim’s point of view, a failure to reveal material facts can be just as devastating and tantamount to deception by conduct.

The Law Commission, in revising its proposals and moving away from the overriding concept of deception, concluded that the ordinary concept of fraud is wide enough to embrace at least some dishonest non-disclosure. It noted that it is arguable though by no means clear that that is the effect of existing law, at least where there is a legal duty to disclose. In its final report, it therefore recommended creating such an offence, and the Government sought views on that in their 2004 consultation paper.

Reactions to the paper showed that a majority welcomed this second limb of the general offence. The only point of controversy was the issue of going beyond legal duties. A suggestion was made in consultation that failure to disclose information could amount in some cases to a false representation and that such cases were therefore already covered implicitly by the first limb. However, it was also recognised that it might be helpful, particularly for juries, if the point were made clear in law. The Government agreed with that view.

The Government also considered the argument that if the offence is restricted to situations where there is already a legal duty to provide information, it will add little to existing law, as failure to meet the legal obligation will carry its own sanctions. We do not agree. Even though the offence will be limited in that way, it will add to the law, as the existing sanctions for such failures might be of a civil nature, difficult to pursue and unlikely to lead to sufficient sanctions. The clause clearly sets out our position.

There will be difficulties relating to how failure to disclose information arises, and it must be for the prosecutors, the courts and in due course the jury to determine whether the person who failed to disclose the information did so with the intention to act dishonestly. Clause 3 clearly sets out the terms, and I hope that we will have general agreement on it as well.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

I think that the Solicitor-General will get agreement on the clause, although it and clause 4 are closely linked, so we need to consider both to understand what they will achieve.

As far as the element of offence in clause 3 is concerned, the key issue is what it places a legal duty on individuals to disclose. It might be helpful if the Solicitor-General gave the Committee some examples of individuals under a legal duty to make a disclosure. If I have understood correctly what the Government are seeking to achieve, the clause will place a considerable restriction on who will be caught by the provisions.

Clearly, there are numerous instances in which individuals might elect not to tell somebody something because they think that it is to their financial advantage. The classic example is the person being offered an object for sale at £50 who knows very well from his greater expertise that the item is worth £50,000 and chooses not to tell the vendor. He is under no legal duty to give him that information and, therefore, he would not be caught by the provisions of clause 3.

Those circumstances seem to encapsulate what clause 3 is trying to do. I am broadly supportive of that, but we need to be clear. What might be helpful during the course of the debate is if the Solicitor-General confirmed whether my understanding of clause 3 is correct and amplified examples of what he regards as a legal duty. I take a legal duty to be a duty prescribed by law—no more and no less—and not a duty prescribed by morality. Perhaps a more interesting and difficult area is whether that covers duties that could be thought to be equitably placed upon his shoulders. Having a certain amount of clarification would be helpful before we rush in headlong and—which I would want to do—approve clause 3.

Photo of David Heath David Heath Shadow Leader of the House of Commons, Shadow Spokesperson (Cabinet Office)

I look forward to the explanations, which will be extremely helpful. My brief comment is in similar form to my comment on the previous clause. I simply point out that clause 3(a) says that he

“dishonestly fails to disclose to another person the information which he is under a legal duty to disclose” and not information that he is expected to disclose. That has relevance when we come to consider the next clause.

Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department

I am grateful to the hon. Gentlemen for the way in which they set out their views on the clause. Probably the best place to start is with the concept of legal duty, as explained in the Law Commission report on fraud, in paragraphs 7.28 and 7.29.

Looking at the duty, with such duties there is an overlap between clauses 3 and 4. There is also a view that a legal duty can arise in a number of ways, primarily by operation of law, but not necessarily prescribed by law in the sense that a duty can arise by the nature of a relationship that has been formed.

I will come back to the Law Commission report in a moment, but let me make that clear. When people are engaged in commercial relationships, there is the principle of caveat emptor, which has been restricted by various pieces of legislation over the years by Parliament. Let the buyer beware. That will still be the case. When people engage in normal commercial relationships, the buyer will need to be beware, to be aware of what the person who is selling the product says.

The clause will do for situations where a legal duty has been created prior to or during the course of a relationship between the alleged victim and the defendant. There is therefore a duty on the defendant to disclose to the potential victim various information. An example would be where a solicitor fails to tell a client relevant information about the law or case that would result in the solicitor gaining financial benefit personally and the client losing. There is a clear relationship between the solicitor and the client. There is a duty to disclose that information. He has failed to disclose that information. He has done so knowing that he has the duty and, therefore, he has acted dishonestly. The result of that should be that he has failed to disclose information and therefore committed an act of fraud.

Another question might arise in a more difficult case, when a person is applying for insurance and has a heart condition, which they failed to disclose. That is a civil matter; to some extent, it involves a breach of an uberrima fides duty to disclose information in particular types of contract. Obviously, insurance companies may well take the view that they would deal with that through the civil procedures and that would be the normal way. However it is possible for someone who was deliberately intending to obtain insurance coverage and, in due course, to make a claim on it to be in a position where they were failing to disclose relevant information where they had a legal duty to do so, with the intention of benefiting, either by insurance coverage or by undertaking a medical procedure using that insurance. The result might be that they are in breach of the clause.

Those are a couple of examples of examples of where there is a clear duty and where failure to disclose information may well put someone in breach of the clause. I hope that those comments deal with hon. Members’ concerns and that the Committee will allow the clause to stand part of the Bill.

Question put and agreed to.

Clause 3 ordered to stand part of the Bill.