How can the offence of fraudulent misrepresentation (technically referred to as fraud by misrepresentation) under section 2 Fraud Act 2006 affect people going about their normal business? The answer lies in the fact that in business and in life, statements are made every day that enable deals to be done and agreements to be made. In the rough and tumble of business, statements and undertakings can be made with the best of intentions. Later down the line, a deal can go sour, a relationship can deteriorate, or a business can collapse, often leaving innocent parties facing a fraud investigation. Fraudulent misrepresentation is an offence which can encompass any kind of statement or assurance made in the context of negotiation or other communication.
People involved in fraud allegations are rarely criminals, and can suffer fear and stress during these proceedings. It is important to find a fraud solicitor who has the expertise to handle an effective defence, and who will be sensitive to the stressful nature of the case for the client.
At Mary Monson Solicitors we have experience of dealing with this type of allegation, from a misstatement on a mortgage or loan application, to statements made by sales representatives of a company whose directors alone know that the product or service will not be delivered. We have been acting in fraud cases since the 1980s, and have experience of showing the alternative narrative to a jury. Mistakes can be made in business dealings and negotiations which are only really obvious in hindsight. It does not always follow that this is fraud. Sometimes an innocent employee or associate can end up as the fall guy and face Serious Fraud Office or Police investigation as a result of the actions of another person who doesn’t even appear in the prosecution’s case. It is a fraud lawyer’s job to know the difference between a jury being shown either dishonest misrepresentations or honest statements which turned out to be mistakes, and also recognising who is really responsible for the criminality where the client is an innocent, if sometimes naive individual.
We have included below a basic guide to the offence of fraudulent misrepresentation under section 2 Fraud Act 2006 and some basic strategic and practical points that a good fraud defence lawyer or experienced criminal solicitor should account for in the course of a fraud prosecution or fraud investigation.
Section 2 Fraud Act 2006 sets out the framework of the classic fraud offence. The offence usually consists of some sort of dishonest statement made to gain something or so that someone else makes a loss. This offence is one that will often apply to an offence committed in business. The four necessary elements that must be proved in order to result in a conviction are:
- A representation must be made
- The representation must be known to be false
- The representation must be dishonestly made
- The person making the representation must intend to gain something, or intend that the person receiving it loses something
Section 2 is not a different offence to section 1 but merely one of the 3 ways that the offence of fraud can be committed under the Fraud Act 2006.
What is a Representation?
‘Representation’ means any representation as to fact or law, including a representation as to the state of mind of:
- The person making the representation, or
- Any other person
- A representation may be express or implied
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).
A representation may not necessarily have been made for a fraud to exist. Simply handing over a cheque, for example, is not a promise that there is money in the account at the time of presentation. A stolen credit card, however, is considered a representation of entitlement to use it.
The Representation Must be False
A representation is false if:
- It is untrue or misleading, and
- The person making it knows that it is, or might be, untrue or misleading
- For a person to be guilty of fraudulent misrepresentation, the representation must be false at the time it is made – a promise which is not kept is not a miserepresentation the person who makes the promise must know or intend that the promise is not kept.
Dishonesty of the Maker at the Time of Making It
The law says that the jury must be sure about whether the defendant has been dishonest by satisfying both stages of the legal dishonesty test (sometimes called the Ghosh test).
The first stage of the test is that according to the standards of reasonable and honest people what was done must have been dishonest.
The second stage of the test is that the defendant himself must have realised that what he was doing was by (the standards of reasonable and honest people) dishonest.
The second part of this test means that even if someone does something which they believe to be justified (an example a judge once famously used is that of Robin Hood robbing from the rich to give to the poor), if they must have known that ordinary people would find it dishonest, then dishonesty is proven. In other words, it is the knowledge of the fact that the public view a type of action as dishonest, not agreement with that view, which proves dishonesty.
The Intention to Cause Personal Gain or Loss of Another
The key requirement here is the intention. To give an example, if a former manager of a supermarket believes that the food sold is of a low standard and therefore people should avoid that store for the benefit of their health, so decides to make public allegations of rat infestation at the premises, he cannot be guilty of making a fraudulent misrepresentation. He has made a statement, it is false, and he knows it is so it is probably dishonest, but he appears not to have done it to cause loss to the supermarket or personal gain, rather for some sort of misplaced view of public protection. On the other hand, if he expressly wants that store to lose money and be closed down and that is why he makes the false allegations, he could well be guilty of a fraudulent misrepresentation.
It is also important to note that the intention to expose another to a risk of loss is enough the loss does not have to take place or be a certainty.
What are some common forms of fraudulent activity that are covered by fraudulent misrepresentation?
As stated above, any behaviour involving dishonestly making a false statement or indication in the course of any dealings for personal gain or so that someone else suffers loss falls into this category. This of course covers a very wide range of activities; from allegations of collecting money for non-existent charities at one end of the spectrum to major complex conspiracies at the other. However, some common large scale operations that a criminal solicitor specialising in fraud defence should be aware of are listed below.
- False information about the viability of a company on the balance sheet before a sale
- ‘Boiler room’ frauds
- ‘Ponzi style’ frauds (A notable recent example is the Bernard Madoff case, in which the total loss was estimated to be 18 billion USD.)
- So-called ‘419 scams’ and ‘phishing’, usually internet based
- Any kind of company set up to provide a service that the directors have no intention of carrying out
- Factoring frauds and other business finance related offences
- Mortgage fraud value of property, owner of property, interests in property (for more info click button on the left hand toolbar)
- Cheque frauds
- False accounting (The actual accounts document offences are covered by the Theft Act 1968, but section 2 Fraud Act 2006 covers all the remaining factual background of a false accounting conspiracy)
This list is by no means exhaustive, but could be useful to show the types of case that one should expect a good fraud solicitor to have some experience or knowledge of.
What characterises a well prepared defence case against Fraudulent Misrepresentation under section 2 Fraud Act 2006?
Every fraud case is different as a natural consequence of the complexity of the subject matter. No two cases require an identical strategic approach. There are fundamentals, however, to the preparation of all complex specific industry-based crime.
- Detailed knowledge of all of the prosecution and potential defence evidence by all of the defence team, including the barrister and the client. This requires a well organised and hard working team.
- Expertise in the relevant areas of law
- Experience in similar types of case
- Understanding of practical business and usual industry practices this bit is the common sense that clients sometimes complain their lawyers don’t have
Fraud proceedings are complex, and result in people who have never faced criminal proceedings undergoing the full stress of a state legal prosecution. We always advise getting in contact with an appropriately qualified lawyer if you are called by an investigator or are arrested.