Clause 5

Fraud Bill [Lords] – in a Public Bill Committee at 12:15 pm on 20th June 2006.

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“Gain” and “loss”

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

I beg to move amendment No. 3, in clause 5, page 2, line 38, leave out subsection (3).

Photo of Sir David Amess Sir David Amess Conservative, Southend West

With this it will be convenient to discuss the following amendments: No. 4, in clause 5, page 2, line 40, leave out subsection (4).

No. 8, in clause 5, page 2, line 40, after ‘might’, insert ‘reasonably and lawfully’.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

The first two amendments in the group are probing amendments, but through them we seek to engage in debate on the definition of gain and loss.The Solicitor-General may well be able to reassure me, but my concern is that the definition of gain in subsection (3) specifically includes

“a gain by keeping what one has, as well as a gain by getting what one does not have.”

In ordinary parlance, a gain is normally obtaining something to add to what one already has. Saying that it actually means keeping what one already has raises a number of issues on which I would like further clarification from the Solicitor-General.

I understand that it is possible by dishonesty to avoid paying something to somebody else, thereby retaining it for oneself, but if one is doing that, one is causing the other person a loss. In what circumstances does the Solicitor-General envisage that a gain by keeping what one already has would not include causing a loss to someone else by not paying them what is their due? I simply ask whether subsections (3) and (4) are not in fact otiose and unnecessary.

Subsection (4) does the reverse of subsection (3). It states:

“‘Loss’ includes a loss by not getting what one might get, as well as a loss by parting with what one has.”

That fits precisely with my earlier point: if one prevents someone from getting something that they are entitled to, that is clearly a loss to that person; but what are the Government trying to cover by referring to a person not getting something that they might get? It refers, I  suppose, to the chance of getting something. Perhaps that is what the Solicitor-General is aiming at. Iam slightly happier with the definition of loss in subsection (4) than with the need to particularise gain in the manner specified in subsection (3). The central issue is the circumstances in which one might gain by keeping something that one already has when that does not cause a loss to another person.

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

My amendment in the group is No. 8, and it probes a point similar to that raised by the hon. Member for Beaconsfield. The definitions of gain and loss are imported from the Theft Act 1968, but when we deal with fraud we deal with slightly more mutable subject matter.

My concern is about the phrase

“not getting what one might get”.

One “might get” all sorts of things. One might get things illegally, through serendipity or in a number of ways that should not be encompassed by the definition in the clause. My amendment would insert the words “reasonably and lawfully”, which would at least provide a concept of entitlement—the word used by the hon. Gentleman. It would provide the concept of someone having a reasonable and lawful expectation to receive something. That would narrow the scope a little, without in any way destroying the essential element in the definition or what the Government are trying to achieve.

Photo of Jeremy Wright Jeremy Wright Conservative, Rugby and Kenilworth

Does the hon. Gentleman agree that the part-definition of loss as

“not getting what one might get” is exactly the same as being exposed to “a risk of loss”, which is already explicitly covered in clauses 2, 3 and 4, which deal with the types of fraud that may be committed?

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

The hon. Gentleman makes a perfectly valid point, and I would welcome the Solicitor-General’s comments on it.

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

The Bill is based on the Law Commission’s thorough review, which started way back in 1998, of the deception offences in the Theft Acts. It recommended that the Theft Act definitions of gain and loss should be applied to the new offences because they are well understood in the courts and have caused no great difficulty.

Clause 5(3) fulfils the policy that gain should include keeping what one has. That means that the avoidance of payment may, in certain circumstances, amount to fraud. Section 2 of the Theft Act 1978 has a special offence of evading by deception a liability to make a payment. An example would be when a man borrows money from a neighbour and, when a payment is due, tells a false story about a family bereavement or tragedy, which persuades the neighbour to cancel the debt. That may be the example that the hon. Member for Beaconsfield asked for.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

But that would cause loss to the neighbour, would it not?

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

It would, in the sense that the neighbour would not receive the payment back in a particular way. The payment might not involve the exact same sum as was lent, or there might a different arrangement whereby something else was to be paid back. That might mean that the neighbour had lost not what he had given, but something else that he might have hoped to get. A person may wish to receive payment of a debt in a number of ways; we need to ensure that the law does not create a gap or lacuna that would result in our not taking proper account of all such circumstances.

Insider training is an example of a situation in which there is a gain but no loss or it is difficult to show loss and any loss may be indirect or diffuse. That would include trading to keep what one has. Let me turn to subsection (4) because it is the obverse of this. It derives from paragraph 7.45 of the Law Commission’s 2002 report in which it said that loss in the sense of:

“not getting what one might get should be sufficient for the new fraud offence.”

They added:

“thus, it could be fraud to prevent another person from receiving money or other property, which that person might otherwise have received.”

An example might be where an employee is entitled to some special payment from his employer. The employer wrongly informs him that he is not so entitled. Such cases may also involve gain to the defendant, but the gain may not always be so easy to prove as the loss.

In our 2004 consultations, we asked stakeholders specifically if they agreed with the commission that gain and loss should be defined equally under the Theft Act. More than 70 stakeholders took the trouble to reply and the vast majority agreed with the proposal. In so far as there was any disagreement, it was on the question of whether the definition should go wider. A few respondents did not believe that fraud should be tied to gains or losses in property.

However, we agreed with the majority and with the Law Commission that fraud must be defined as an economic crime, if it is not to become too unhelpfully wide a concept. The vast majority of stakeholders thought that the Bill definitions should be aligned with those of the Theft Act 1968, which apply, for example, to the offence of false accounting. Changes, under both the Theft Act and the Bill, may appear in the same indictment. We therefore consider that it is important that the definitions in the Bill should be consistent with those that apply to the Theft Act offences. If we amend it, we are going to create a real problem of confusion in court with judges having to explain different definitions.

I am aware that Justice, which sadly failed to reply to our invitation to comment in 2004, has provided a briefing argument against the policy, to which the vast majority of stakeholders have agreed. We do not agree with the points in its briefing. It gives an example of a case, which someone raised in the course—

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

Ah yes, it was. The hon. Gentleman reminds me that it was the hon. Member for Meirionnydd Nant Conwy who raised that example, but I will not go into it because it was more than a little confusing and more algebraic than legal. We will avoid that. However, I had assumed that the Liberal Democrats had used the Justice amendment.

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

I, too, found that example more confusing than illuminating. My reading of the provision is that the loss of a gain which might be expected by an illegal act, would still be a loss which the offence could apply to. For example, if someone was intending to supply cocaine and, by fraud, a person substituted flour for the cocaine, so that person would no longer be able to occasion the gain that he would otherwise have done by selling that cocaine, that would be a fraud under this definition, would it not? I ask the Solicitor-General whether that is a reasonable interpretation or one that we should avoid?

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

I suspect that anyone engaging in such a report to the police would find themselves quickly arrested themselves. There are all types of circumstances in which criminals can claim that some confederate had breached the criminal law. Nonetheless, I do not find them regularly going to the police to complain. I suspect that I they did, the police would welcome them with open arms and open cell doors as well.

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

But the supplier who had been defrauded would not be guilty of any criminal offence in that he had not supplied a controlled substance; he would have supplied flour.

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

He may well have committed a different kind of offence, unless he was acting as an agent provocateur for the police or something, in which case he may have committed no offence at all. That people would start to report such things to the police is unlikely. He need not worry that those are the sorts of things we are intending to catch. If we do catch them, that would be entirely accidental and fortuitous perhaps, because it would expose other crimes.

The hon. Gentleman also referred to amendmentNo. 8. The amendment seeks to clarify what constitutes “loss” for the purpose of the new offences. As discussed, the offences apply only if there was an intention to make a gain or loss. The amendment seeks to provide that to be a loss the property that the victim might have received had he not been defrauded should be limited to that that he might have reasonably and lawfully received.

If the intention is to provide greater clarity to the definition of “loss”, I do not consider the amendment necessary. As I have made clear, the clause as it stands follows the definitions in section 34 of the TheftAct 1968. The Government’s view is that implicit in the reading of the section 34 definition is that the property lost should be the type that the person ought to have had. Cases are difficult to imagine, but perhaps the hon. Member for Somerton and Frome has described one where we could get ourselves into a position where we need to be sure of the lawfulness of a particular relationship. However, in the real world we need to make sure that we have circumstances that the courts can understand and which the police can deal with straightforwardly. The definitions put into clause 5 of the legislation enable the  courts and police to know what they are dealing with, because they have dealt with them over a long period of time in the Theft Act. The Act has not caused a great deal of difficulty, but amending it in any way might produce a lot of difficulty for the courts. I hope, if on no other basis than that and to avoid such difficulties, that the hon. Gentlemen feel they can withdraw their amendment.

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

May I raise a possibility with the Solicitor-General? Section 34 of the Theft Act 1968 defines gain and loss, but defines them against a specific set of statutory-defined offences—theft. He described them as over-particularised, although I do not accept the characterisation of all of the Theft Act as over-particularised.

What troubles me is in subsection (4)—

“‘Loss’ includes a loss by not getting what one might get”.

If that is a definition as in the Theft Act, one can steal something that “one might get”—I suppose one understands that—meaning the loss of a benefit to which one is entitled but has not yet come into possession of. My worry is that that seems to incorporate the loss of chance. That seems to suggest that one can be convicted if all one deprived somebody of is a chance, something I might get. It is not necessarily something I would get and not necessarily something to which I am entitled, which is maybe what the hon. Member for Somerton and Frome has been getting at; not necessarily something to which I am entitled, but something I might have come into.

For example, what if I fail to place a bet? Let us suppose that the Solicitor-General asked me to pop down the road and make a bet on the next election. I do not know which side he would bet on, but let us suppose that he asked me to make such a bet and I decided, because I did not think that he would make a gain in that way, not to place the bet. I could be guilty under the measures if I fulfilled the other criteria. I was expected to safeguard his interests, I ought to have placed the bet and I dishonestly did not do so because I did not want him to gain. All that I have deprived the Solicitor-General of is the chance that he might be right; a rather remote chance, depending on whom he put his money on.

Is that what is intended—that the loss of a chance, perhaps a fairly fragile and implausible chance, should be sufficient? I raise the point in the hope that the Solicitor-General can answer, although I realise that it is rather difficult to answer some questions on the hoof.

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

I am looking at a copy of the Theft Act 1968 and of the Fraud Bill. The definitions have not produced such technical problems up to now. The hon. Gentleman’s example is perhaps not a good one, although I realise that he is doing it on the hoof, as am I, because we are discussing a wager. There is no obligation to pay, only a relationship.

Certain circumstances might arise in which a chance of getting something was frustrated. The courts, police and prosecutors would have to consider whether the other circumstances under the clauses had produced sufficient dishonesty and other elements to lead to a charge. The other elements would be key in those circumstances.

Paragraph 4.6 of the Law Commission report points out that conspiracy to defraud can apply to cases that put another’s financial interests at risk, and considers that a new fraud offence should apply to exposing another to a risk of loss. One of the key questions that Opposition Members raised on Second Reading was whether conspiracy to defraud should be removed from the Bill or should be included in the Bill so as to remove it from law. Their view has strong arguments, and indeed our view does too.

Conspiracy to defraud is a common law development that has quite a broad ambit and is very youthful. We feel that we ought to maintain it for the time being, but we hope that at some point in the future we will be able to remove it. To do so, we will have to create new legislation in the Bill to ensure that we cover the circumstances previously covered by conspiracy to defraud.

Section 34 of the Theft Act 1968 and clause 5 of the Fraud Bill will produce the coverage that will enable that. We hope to be able to consider the Fraud Bill’s effects once it has been passed and the way that it is being used in the context of the guidance that the Attorney General will issue shortly—I have distributed the drafts to Committee members—and decide whether we can remove conspiracy to defraud. If we removed the wording in question, we would restrict the clause’s ambit, knowingly failing to cover some of the area now covered by conspiracy to defraud.

Photo of Geoffrey Cox Geoffrey Cox Conservative, Torridge and West Devon

I understand the Solicitor-General, but it has long seemed to me that there is a serious terminological inexactitude used when talking about the risk of loss. Fraud law discusses risk of loss—the loss of the chance that one might get something, or the remote prospect when betting on a horse that it might come home—but if one examines the case law behind it, one finds that when it talks about exposure to the risk of loss, it always means that a director or somebody in a fiduciary position has taken a risk with a specific, identifiable and tangible asset.

Let me give the Committee a classic example. A director takes money from the company that he is director of, invests it in the overnight market in Tokyo but returns it to the company bank account the following morning. He says that he had no intention of causing loss, because he was going to return the money and he wanted to make a profit for the company whose money it was He was just going to cream off part of the profit that was made over the 24-hour period. The danger is that in moving it in that 24 hours and putting it on the market in Tokyo he exposed that sum of money—that identified asset—to loss. That is the meaning that the law of fraud attributes to the phrase “risk of loss”.

I fully accept that there has been a confusion for many years, but clause 5 adopts the loss of a chance as being sufficient. It will be enough if the betting ticket is not submitted and the horse comes home first or third. That is so remote in terms of causation—there is such a lack of proximity between the act done and the potential loss—that there is a real risk that people will be indicted for forms of losses of a chance or risk that are remote. That is a genuine concern and we must not get foxed in respect of the idea of the risk of loss; it really means exposing something to a risk that depreciates its value.

Let me give the Solicitor-General another example. Often the case law on risk of loss refers to a deception in a mortgage case. The mortgage company will have advanced a loan based on a detail that is false; someone will have exaggerated their net worth or some such thing. That loan is an asset and it is less valuable because, on any credit analysis of it, it is a less secure loan. Thus, the risk of loss that is created by the deception—someone has failed to produce honest details about their net worth—impacts on the value of the asset. If the truth were known, its value as an asset would be less than it would otherwise have been. That is the context in which the law refers to risk of loss.

The danger of this phraseology is simply that one can expose somebody to the chance that he might, if happenstance had happened in a particular way, have gained something. That is very vague and has an attendant danger. I invite the Minister at least to reflect on that.

Photo of Sir David Amess Sir David Amess Conservative, Southend West 12:45 pm, 20th June 2006

Order. I simply make the point to the Committee that there is traditionally a difference between speeches and interventions, but I did not want to spoil the hon. Gentleman’s flow.

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

I was so lost in the example that I also thought it was a speech.

Our objective is to deal with circumstances in which there is an exposure to risk of financial loss. It is also the case that any prosecutor, and, in due course, any court, would have to examine the remoteness of any chance in determining whether there had been an element of dishonesty and the other elements necessary to prove the case. I am not sufficiently aware of the case law to say whether this has produced a lot of difficulty in terms of definition.

We are not proposing to rewrite the whole of the Theft Act 1968. As I pointed out on Second Reading, when it was originally drafted it was regarded as a model of clarity and of showing the particular circumstances in which the criminal law applied. In some, but not all, of its sections, we have had to deal with the problem of over-particularity because society has changed. That is what we are trying to deal with in the clause.

Any court and prosecutor will have to consider the element of remoteness in deciding whether the other elements of the case are proved, and whether the provisions of clause 5(4) are sufficiently met. I suspect that, if it is too remote, it will not be prosecuted. We cannot here deal with all the details of the various cases; we have to do our best to set out the intentions of Parliament in the wording of a clause, in a way that does not produce unnecessary confusion in the courts. That is what we have tried to arrive at in the clause. In view of the fact that we use the definition in the clause in other clauses, I hope that we can stick to it. It may well be that the Law Commission later decides to change it and to deal with some of the points raised, but I do not think that this is the point at which to change it.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

This has been a fascinating debate, and I am particularly grateful to my hon. Friend the Member for Torridge and West Devon for his contribution on the issue of loss. Our two amendments sought to delete subsections (3) and (4). The Minister has persuaded me that we should leave in subsection (3). It may be a  belt-and-braces job, but I certainly do not think that there is any mischief in it. It may be otiose, but let it remain.

I certainly will not press our amendment to delete subsection (4), and I shall ask to withdraw it, but I shall think about the matter a little further, because as I listened to the interesting exchanges between the Solicitor-General and my hon. Friend, it became apparent to me that there was an issue at stake that I had perhaps not originally looked into or fully understood when I drafted the amendment. Could one not re-word subsection (4) so that it said “‘loss’ includes the risk of loss, as well as a loss by parting with what one has”? If one did that, it would entirely cover the important point of the risk of being put at a disadvantage because one has not been given the full facts, and it is quite right that that should be criminalised. The example that my hon. Friend gave was not being given the full facts on which one is lending for a mortgage. That wording would also remove the thing that caused me slight anxiety, and that originally led me to table my amendment—it clearly causes my hon. Friend a great deal of anxiety, too—namely the matter of the loss of chance, which I think is a separate issue. I remain unpersuaded that it needs to be covered by the definition of loss. My wording would separate the two out.

I say that to the Solicitor-General because he may like to reflect on the matter before Report. He might even wish to write to us, when he has taken that opportunity to reflect, and tell us whether there is another way of approaching the matter. We could then potentially return to the subject on Report. I simply highlight it because the rewording that I put forward meets the Government’s objectives in defining loss, whereas there is something unhappy about the expression,

“includes a loss by not getting what one might get”.

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

I am happy to look into that, and to write to the hon. Gentleman on the point, but how does he deal with the issue of section 34 of the Theft Act? We might end up with a situation in which there were two charges with two different definitions on the indictment, which the judge would then have to explain to a jury. The assumption is that if Parliament changes the wording, it intends to make a change in the substance. What change in substance is he making? It seems that he is not seeking to make any such change, in which case it is a recipe for confusion in court.

Photo of Dominic Grieve Dominic Grieve Shadow Attorney General

Perhaps I should say that I shall go away and reflect on that. Perhaps we may have come up with a better definition than the draftsmen of the Theft Act did. However, the Solicitor-General makes a perfectly good point and I shall think about it as well. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.