Fraud and Obtaining Services Dishonestly

Notes:Fraudfalserepnotes2016fraudfalserepnotes2016.doc Obtaining Services Dishonestly notes Obtaining Services Dishonestly notes

 

Fraud by False Representation

 

 

 

 

This offence is part of a suite of three offences that come under the general offence of fraud found in s1 of the Fraud Act 2006; the others are failure to disclose information when there is a legal duty to do so (s3) and abuse of position (s4). We only need to consider s2, fraud by false representation.

 

Key Facts

 

  1. Involves a factual statement gesture which is untrue or misleading made to induce the to other party to suffer a loss.
  2. Indictable only offence
  3. Max sentence is 10yrs

 

 

The definition of Fraud by false representation

 

The Act itself helps clarify the definition:

 

1 A person is in breach of this section if he –

 

a dishonestly makes a false representation, and

b intends, by making the representation –

 

i to make a gain for himself or another, or

ii to cause loss to another or to expose another to a risk of loss.

 

2 A representation is false if –

 

a it is untrue or misleading,

and

b the person making it knows that it is, or might be, untrue or misleading.

 

3 ‘Representation’ means any representation as to fact or law, including a representation as to the state of mind of –

a the person making the representation, or

b any other person.

 

4 A representation may be express or implied.

 

5 For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).

 

There are four elements to consider:

 

1 makes a false representation

2 dishonestly

3 knowing that the representation was or might be untrue or misleading

4 with intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss.

 

1 Makes a false representation (the actus reus).

 

This is explained in subsections (2)–(5) of s2 of the Act, set out earlier. A number of aspects of this definition need to be considered. The first point is that fraud is a conduct crime. This means that no particular end result has to be proved. Therefore, no one has to believe the false representation that has been made. Just making the false representation is enough. It is complete as soon as the defendant makes the false representation provided that it is made with the necessary dishonest intent (the mens rea). It differs from the old deception offences in that it does not matter whether or not any one knows of the representation, is deceived, or any property is actually gained or lost.

 

The Act, in s2(2) makes it clear that false means untrue or misleading, but the word ‘representation’ is not defined. The Act does, however, explain what the representation must be about and how it may arise.

In the law of contract the word ‘misrepresentation’ is defined; the ‘mis-’ merely means it is false. We may therefore explain the word ‘representation’ as a factual statement made by one party in order to induce another party to do something.

 

Section 2(3) helps by stating that a ‘representation’ means any representation as to fact or law. This means that the argument as to whether something is a statement of fact or law is irrelevant; both suffice for fraud. A statement of fact is straightforward. It could be something such as the statement that a piece of jewelry is silver when it is in fact silver plated only. A statement of law may be a statement about the effect of a legal document such as a loan agreement that is in fact a mortgage and not an unsecured loan.

 

A difficulty arises where the representation is a statement of opinion. If the statement is not the genuine opinion of the person making it, it can amount to fraud, but often the victim will prefer to take civil action to recover his money, only resorting to criminal law when there is little prospect of succeeding. Thus, a statement that a car is in good condition is often made by car sales persons. This will only give rise to legal rights when the seller knows that is not the case or could not possibly have held that view. In such cases, the victim will have rights under the law of contract, but there may also be the offence of fraud by false representation.

 

However, it should be noted that where the representation was true when made, but later becomes false, the offence can be committed by not telling of the change. Thus, in the example of selling the car which is stated to be in good condition, the potential purchaser who returns later must be told of any change that would make the car no longer in ‘good condition’. This can be seen in the cases of DPP v Ray (1974) and Rai (2000).

 

In DPP v Ray (1974), 30 September 1971, the defendant was a student. He and his friends went to the Wing Wah Restaurant in Gainsborough, Lincolnshire, and ordered a meal. At the time he entered the restaurant the defendant had only 10p on him but one of his friends had agreed to lend him some money to pay. He ate the meal and they then decided not to pay and to run out of the restaurant. They did so some 10 minutes later. No payment was offered or made, and no money was left, for the meals served. The court decided that there was an implied representation that payment would be made when the meal was ordered and that, so far as the waiter was concerned, the original implied representation made to him must have been a continuing representation so long as the defendant remained in the restaurant. (Note this case is also one of making off without payment).

 

In the case of Rai (2000), the defendant was the owner of a property, 20 Sandwell Road, Handsworth, Birmingham. On about 7 June 1996, he applied to Birmingham City Council for a grant towards providing a downstairs bathroom at his room for the use of his elderly and infirm mother. The council approved a grant and on 29 July 1997, the defendant was told of this. Two days later, on 31 July, his mother died. He did not tell the council of the changed circumstances, and used the grant of £9,500 for the agreed modifications to his house. Here the representation that was true when made, became false and was a continuing representation, so could be the basis of an offence which, today, would be fraud by false representation.

 

The representation as to the state of mind of a person can also be sufficient for criminal liability. Section 2(3) states ‘…including are presentation as to the state of mind of the person making the representation or any other person.’ If you were to go to your father to ask for £10 to help buy this textbook, but you really want the £10 to go the pub, you would be falsely representing your state of mind. If you were to go to your father to ask for £10 to help your brother buy this textbook, but you really want the £10 to go the pub, you would be falsely representing the state of mind of ‘any other person’.

 

Under s2(4), a representation may be express or implied. It can be expressly made in many ways; the Act puts no limit on this. It could, for example, be written or texted, spoken directly or by phone or radio, posted on a website, put on a podcast or sent by e-mail. A representation can be implied by conduct. This could occur when a person uses a credit card or purports to make a payment from his bank account, for example, by cheque or debit card. By using the card, a person represents that he has the authority to use it for that transaction. He would not do so if it was stolen or over its credit limit.  This can be seen from the cases of MPC v Charles (1976) and Lambie (1982).

 

In MPC v Charles, on 2 January 1973, the defendant went to the Golden Nugget club, a gaming club, and in the course of the night he used all the cheques in his new cheque book for the purchase of chips for gaming. He used his cheque card in relation to each cheque. The bank had consequently to honour all the cheques with the result that he went hugely over his overdraft limit. This was sufficient for him to be convicted under an offence equivalent to fraud by false representation. In the House of Lords, Viscount Dilhorne said:

 

‘The reality is in my view that a man who gives a cheque represents that it will be met on presentment, and if a cheque is accepted by the payee, it is in the belief that it will be met … His use of a cheque card to secure acceptance of his cheque can in my opinion amount to a representation that he has the authority of the bank to use it in relation to that cheque for that purpose, and as a matter of fact will ordinarily do so. He is authorised by the bank to give its undertaking to pay … a cheque if the stipulated conditions are fulfilled. But the authority given to him is not unlimited. … He is not authorised to use it to secure the acceptance of a cheque which he knows would not be met by the bank if the cheque card had not been used.’

 

This principle was extended to cover credit cards in Lambie (1982). In that case, the defendant had a Barclaycard (a credit card) which was issued subject to the Barclaycard current conditions of use. It was an express condition of its issue that it should be used only within the given credit limit. She knew her credit limit was £200. As it had been notified to her in writing when the card was issued and appears on each statement. Between 18 November 1977 and 5 December 1977 she used the card for at least 24 separate transactions amounting to £533. The bank became aware of this debt and requested the card be returned. On 6 December 1977 she agreed to return the card on 7 December 1977, but she did not do so. By 15 December 1977 she had used the card for at least 43 further transactions, incurring a total debt to the bank of over £1,000. The House of Lords decided that the representation arising from the presentation of a credit card is a representation of actual authority to make the contract with the shop or to whom the payment is to be made.

 

A representation can be made through a gesture such as a nod of the head or by presence in a restricted area which implies the right to be there. This would include presence within a secure computer system or being dressed or wearing an identification badge that implies a certain status or right to be present. A representation can also be about a person’s identity and will be relevant for identity fraud. All these become possible because of the meaning of false being untrue or misleading. This is all confirmed in the explanatory notes to the Act, which state:

 

15. A representation may also be implied by conduct. An example of a representation by conduct is where a person dishonestly misuses a credit card to pay for items. By tendering the card, he is falsely representing that he has the authority to use it for that transaction. It is immaterial whether the merchant accepting the card for payment is deceived by the representation.

 

16. This offence would also be committed by someone who engages in ‘phishing’: i.e. where a person disseminates an e-mail to large groups of people falsely representing that the e-mail has been sent by a legitimate financial institution. The e-mail prompts the reader to provide information such as credit card and bank account numbers so that the ‘phisher’ can gain access to others’ assets.

 

Finally, s2(5) makes it clear that the offence can be committed by making a representation to a machine such as an ATM (automated ticket machine).

 

2 Dishonestly (first part of the mens rea)

 

This is the crucial element of the offence. Throughout the passage of the Fraud Act 2006, it has been considered that the Ghosh test applies.

 

This test came from the case of Ghosh (1982) and is a two-part test, known as the Ghosh test, and can be stated as follows:

 

1 Would the defendant’s behaviour be regarded as dishonest by the standards of reasonable and honest people?

(If the answer is ‘no’, the defendant is not guilty of theft as he has not been dishonest.)

If the answer is ‘yes’ the second question is:

 

2 Was the defendant aware that his conduct would be regarded as dishonest by reasonable and honest people?

 

It can be seen that the first part of the test is objective and the second part of the test is subjective. If both parts of the test are satisfied, the defendant fulfils the criteria for being dishonest.

 

It should be noted that the examples of things that are not dishonest in s2 of the Theft Act 1968 do not apply to fraud offences.

 

 

 

 

 

 

 

3 Knowing that the representation was or might be untrue or misleading (second part of the mens rea)

 

As we have seen, a representation is defined as ‘false’ if it is untrue or misleading. The person making the false representation must know that it is, or might be, untrue or misleading, but makes a decision to make it anyway. The words ‘might be’ do not mean recklessness. Actual knowledge that the representation might be untrue is required rather than an awareness of a risk that it might be untrue. The first point is that the statement must, in fact, be untrue or misleading. The defendant cannot be convicted if the statement is, in fact, true. If it is the case that the statement is untrue or misleading, then the defendant must know that is the case.

 

The Crown Prosecution Service make the point in their commentary on the Fraud Act 2006 that the same type of evidence as was used to prove the nature of the deception in cases of obtaining by deception will be sufficient for fraud by false representation. They then give the example of the situation where, for example, a debit or credit card has been used fraudulently, evidence of the rightful owner and that he or she did not carry out the transaction in question will suffice as the illicit user must know that any statement he makes about his authority to use the card is (or might be) untrue. You can consider this in the light of exceeding authority in use of a company credit card or authority to place an order on behalf of a business.

 

4 With intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss (third part of the mens rea)

 

This part of the mens rea has the key words ‘with intent to’. This means that there is no need for anyone to have suffered any actual loss or be exposed to any loss or even that the defendant makes a gain. This is all about what the defendant intends by carrying out his act. It is very similar to the definition of ‘blackmail’.

 

In the case of Parkes (1973), a blackmail case, the defendant was using the threats to get money that was lawfully owing to him. The court decided he was making a gain because he was getting the money owed now rather than merely having the legal right to claim for money owed through the courts.

 

 

Obtaining Services Dishonestly

 

 

 

 

 

The offence of obtaining services dishonestly is a direct replacement for the offence under the Theft Act 1978, s1 of obtaining services by deception. Examples include: someone who climbs over the wall of a football ground to watch the match without paying, or someone who seeks free NHS treatment to which they are not entitled. Elements of the offence under the Fraud Act 2006, s2 are that the defendant: obtains for himself or another services dishonestly knowing the services are made available on the basis that payment has been, is being or will be made for or in respect of them or that they might be and avoids or intends to avoid payment in full or in part.

 

Key Facts

 

  1. Involves intending to avoid full/part payment for a service that would have incurred a cost.
  2. Triable either way offence
  3. Max sentence is 5yrs

 

 

The definition of obtaining services by deception

 

Section 11 of the Act itself helps clarify the definition:

 

1 A person is guilty of an offence under this section if he obtains services for himself or another –

a by a dishonest act, and

b in breach of subsection (2).

 

2 A person obtains services in breach of this subsection if –

a they are made available on the basis that payment has been, is being or will be made for or in respect of them,

b he obtains them without any payment having been made for or in respect of them or without payment having been made in full, and

c when he obtains them, he knows –

 

i that they are being made available on the basis described in paragraph (a), or

ii that they might be, but intends that payment will not be made, or will not be made in full.

 

 

It should be noted that, in many cases, the defendant will also have committed an offence under s2 of fraud by making a false representation, the false representation being that payment will be made or, where only part payment has been made, will be made in full.

 

1 Obtains for himself or another

 

Unlike the offence under s2, this offence is a result crime, as there must be proof that the services have actually been obtained. No act of deception is needed, and there is no need to prove that the service provider has been deceived. This is why climbing the wall to see the football match can form the offence. He is accessing a service (the football match, entertainment) that is normally provided only on payment of a fee (the ticket price).

 

It should also be noted that the offence can be committed where the person performing the act does not do so for his own benefit. This could, therefore, possibly include lifting someone over a fence to get into a music festival.

 

2 Services

 

The offence applies to services that are ‘made available on the basis that payment has been, is being or will be made for or in respect of them’. This means that where a service is being provided without charge, there cannot be an offence under this section. The word ‘services’ is not defined within the Act, but the Crown Prosecution Service give a number of examples of services that would fall within this section:

 

1. Obtains chargeable data or software over the internet without paying.

2.  Orders a meal in a restaurant knowing he has no means to pay.

3.Attaches a decoder to his TV to enable him to access chargeable satellite services without paying.

4.Uses the services of a members’ club without paying and without being a member.

 

These examples raise some interesting points. Chargeable data would include music or video downloads; ordering the meal without the means to pay would also suggest an offence under s2; accessing the chargeable satellite services would presumably mean there was a separate offence each time a service was accessed; if a person got access to the club, but did not use the services (for example a gym), would there still be an offence if the sole purpose of access was to get warm on a cold day?

 

There is one case that helps with respect to banking services – Sofroniou (2004). This is a case of identity theft. The defendant falsely pretended to be Andrew Cole, John Groves or Andrew Narramore to deceive or attempt to deceive banks into providing him with banking services, credit card companies into providing him with credit cards, and retailers into providing him with goods. The Court of Appeal decided that for there to be a service within the meaning there had to be ‘an agreement or sufficient understanding that an identifiable payment or payments have been or will be made by or on behalf of the person receiving the services to the person providing them’. This understanding would not automatically exist between a bank and its account holders. It would not apply to free banking. On the actual facts the court found that there was a sufficient understanding as to payment, as interest would be payable on the loans and credit card balances that went beyond any interest free period. This seems a rather artificial distinction in terms of the reality of what has gone on. In any event, since the whole purpose of identity fraud is to leave interest accruing on loans and credit cards, etc, it seems likely that identity fraudsters could be prosecuted under s11.It should, therefore, be noted that if the banking services obtained are free, s11 cannot be the appropriate offence. However, the same restriction does not apply to s2.

 

 

 

3 Dishonestly

 

This is exactly the same use of the Ghosh test as there was for s2. It is worth repeating that the examples of things that are not dishonest in s2 of the Theft Act 1968 do not apply here.

 

4 Knowing the services are made available on the basis that payment …

 

In most cases, this will not be a problem as it is self-evident that the service is one for which payment is normally made either in advance of the service, at the time of the service or afterwards. The defendant must get the service either by not paying for it or not paying in full if there is to be a conviction under s11.

 

5 Avoids or intends to avoid payment in full or in part

 

The key aspect here is that whilst avoiding payment is the gist of the offence, it is sufficient that the defendant intends to avoid payment. This means that the defendant must intend to avoid payment for the service provided in full or in part and have that intention at the time that the service is obtained. Presumably, with banking services, this is a continuing act and so a later intention, whilst the service continues, will be sufficient. It would appear that the intent must be never to pay the sum involved. This means that an honest belief that credit is being given will mean the offence is not being committed. This would be consistent with the existing law with respect to making off without payment and the case of Allen (1985) .

 

In that case, Allen, booked a room at a hotel and finally left on 11 February 1983 without that he was in financial difficulties because of some business transactions and arranged to return to the hotel on 18 February 1983 to remove his belongings and leave his Australian passport as security for the debt. He was arrested on his return and said that he genuinely hoped to be able to pay the bill and denied he was acting dishonestly. On 3 March 1983, he was still unable to pay the bill. He said he had acted honestly and had genuinely expected to pay the bill from the proceeds of various business ventures. The House of Lords agreed, and stated:

 

‘Anyone who knows that payment on the spot is expected or required of him and who then dishonestly makes off without paying as required or expected must have at least the intention to delay or defer payment. It follows, therefore, that the conjoined phrase ‘and with intent to avoid payment of the amount due’ adds a further ingredient – an intention to do more than delay or defer – an intention to evade payment altogether.’

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