Introduction
Fraud by failing to disclose information, as defined under Section 3 of the Fraud Act 2006, occurs when an individual dishonestly omits information they are legally obligated to reveal, intending to make a gain or cause a loss to another. This form of fraud involves a breach of a specific legal duty to disclose, rather than a positive misrepresentation of facts. The technical principle behind Section 3 rests on the concept of a legal obligation; its application depends entirely on whether such a duty exists. Key requirements for establishing this offense include: the presence of a legal duty to disclose information, a dishonest failure to fulfill this duty, and an intent to make a gain for oneself or another or to cause a loss or risk of loss to another. The following analysis will provide a detailed discussion of this particular area of law.
Legal Framework of Fraud by Non-Disclosure
The Fraud Act 2006 consolidated various deception offences previously addressed under the Theft Acts of 1968 and 1978, aiming to simplify and modernize the law of fraud [2, 10]. Prior to its enactment, there was substantial criticism of the existing legal framework due to its complexity, overlapping offences, and difficulties of interpretation [1, 2]. Section 1 of the Fraud Act 2006 introduced a single offence of fraud that could be committed in three distinct ways: false representation (Section 2), failure to disclose information (Section 3), and abuse of position (Section 4). Section 3 specifically addresses situations where an individual is under a legal duty to disclose information and dishonestly fails to do so, resulting in a gain or a loss. The maximum sentence for fraud under the Act is 10 years' imprisonment [10]. This represents a significant change from the previous law, where the focus was primarily on deceptive conduct that led to a tangible gain. This change allows for the prosecution of fraud even if a victim is not deceived, provided there was the intention to cause a loss or make a gain.
Establishing a "Legal Duty" to Disclose
One of the most critical aspects of Section 3 is the determination of what constitutes a "legal duty" to disclose information. The Act itself does not provide a specific definition, leading to a reliance on existing civil law principles to identify these obligations [11, 12]. The Law Commission, in its report on fraud, acknowledged this reliance and indicated that the boundaries of this offence would therefore be limited by the scope of civil law [12]. The Attorney General has further confirmed that it should not be criminal to withhold information under civil law, further emphasizing the connection between these two areas of law [13]. Common examples of legal duties to disclose information may arise from contractual arrangements, fiduciary relationships (where one party has a duty of good faith and loyalty to another), or professional obligations. The case of Banks v Cox (No 2) provides a practical example. In this case, a seller failed to disclose a material change in circumstances affecting the business, which the court determined to be a form of fraudulent misrepresentation through non-disclosure. This demonstrates that withholding information, under certain conditions, can be construed as fraudulent. The application of this section is specific to where there is an explicit legal obligation.
Dishonesty and the Intention to Cause Gain or Loss
Beyond establishing the existence of a legal duty, it is also necessary to show that the defendant acted dishonestly and with the intention to make a gain or cause a loss, or expose another to the risk of loss. The test for dishonesty, similar to that applicable to other fraud offences under the Act, typically involves assessing whether a reasonable person would consider the defendant’s conduct dishonest, and whether the defendant himself realized that it was dishonest according to these standards. There are no specific statutory definitions of dishonesty within the Fraud Act 2006, which often leads to reliance on common law interpretations, such as the two-stage test developed in R v Ghosh [reference missing]. The concept of "gain" and "loss" under the Act is interpreted broadly to include monetary benefits, avoidance of financial burdens, or an increase in the value of assets [reference missing]. The prosecution must prove, beyond reasonable doubt, that the defendant's failure to disclose information was directly linked to either a gain for themselves or a loss to another, or at least that the defendant intended either a gain or loss. The intent must be present at the time of non-disclosure.
Case Law and Practical Applications
Several cases illustrate how Section 3 of the Fraud Act 2006 is applied in practice. For instance, while not directly related to Section 3, the case of Banque Keyser Ullman (UK) Insurance Co v Skandia provides important context on duty of care and causation in cases involving failure to disclose information. Although the Court found no direct causal link in this particular case, it assumed a duty to disclose existed, highlighting that failing to disclose can create a basis for litigation. Additionally, consider an example, a financial advisor who is legally obliged to disclose a conflict of interest in an investment recommendation but fails to do so, and consequently gains financially from the investment. This scenario would likely be captured under Section 3 of the Act, assuming it can be shown that they acted dishonestly and intended to profit from the failure to disclose information. This underscores that the key element of this fraud centers not on a misrepresentation but on failing to adhere to a legal disclosure obligation and its associated consequences.
Criticisms and Limitations of Section 3
Despite the advancements made by the Fraud Act 2006, Section 3 has faced criticisms regarding its scope and application. A principal point of concern revolves around the lack of guidance regarding what constitutes a “legal duty" [11]. The reliance on civil law creates uncertainty, as civil obligations vary, and can make it challenging for both prosecutors and defendants to predict which failures to disclose may lead to criminal prosecution [12]. Further, the broad scope of the Act, as highlighted by Professor Green’s assertion that it can make it almost impossible to distinguish between different offences, can lead to confusion about the parameters of criminal behavior [14]. It can also be argued that the focus of this section may also cause issues because the parameters of legal obligations can be a moving target. Also, some concerns are raised by critics who fear an overcriminalization of omissions and that it could catch individuals who fail to disclose information for benign reasons, not just fraudulent ones. The limitations of the Act, particularly in cases where civil remedies are more appropriate, remain an ongoing topic of debate.
Conclusion
Section 3 of the Fraud Act 2006 addresses fraud by failing to disclose information, filling a gap in previous legislation by criminalizing omissions of legally required information when done dishonestly for gain. The technical components consist of a legal duty to disclose, a dishonest failure to disclose, and an intent to cause a gain or loss. This section’s application is heavily influenced by civil law principles, and its enforcement is not without challenges and concerns. While this section allows the prosecution of actions that would have been challenging before the Act, the dependence on existing civil duties, the broad scope, and the absence of statutory guidance have raised questions regarding the scope of its application. Specifically, the connection to civil law, as illustrated by the Banks v Cox (No 2) case, shows how the existing contractual and fiduciary obligations can provide a route to criminal charges. Further clarification in law is required to address the limitations imposed by civil law as identified by the Law Commission [12]. The Act’s overall intent is to offer a modern approach to fraud, and Section 3 is an important element, even if it needs some further adjustments.
