Defining Fraud: An Argument in Favour of a General Offence of Fraud
| DOI | https://doi.org/10.1108/eb025796 |
| Pages | 287-308 |
| Published date | 01 February 1997 |
| Date | 01 February 1997 |
| Author | Flora Page |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 4 No. 4 — Defining Fraud
ANALYSIS
Defining Fraud: An Argument in Favour of a
General Offence of Fraud
Flora Page
A BRIEF HISTORY OF FRAUD IN
ENGLAND
Introduction
Fraud is not yet universally recognised or under-
stood as a crime, in the way that theft is. All sec-
tors of our society recognise shoplifting as a crime,
whereas an exaggerated insurance claim tends to be
seen more as a matter of personal morality than
public law and order.
This is partly because fraud is immature as a
crime. For many centuries it was purely a civil
matter in this jurisdiction. From the mid-19th
century it has been in a transitional stage, strad-
dling both the civil and criminal courts. The trend
towards criminalisation has gathered momentum
recently, so that there is now a welter of crimes
which come under the heading of fraud. However,
some of them are precocious entrants to the crimi-
nal statute book. Unlike burglars or bank-robbers,
the perpetrators of insider dealing or financial
assistance do not consider their behaviour to be
truly criminal, and a substantial sector of the
public would probably agree with them. To bring
this transitional era to a close, fraud will need to be
consolidated and clearly defined for the criminal
courts.
In this first part I shall analyse the historical
development of fraud, in both its civil and criminal
guises, and how it has interacted with the crime of
theft. My intention is to reveal its fundamental
characteristics, and put them forward as the basic
tenets of
a
general crime of fraud.
Frauds and thefts 1400-1600
At the beginning of the 15th century, there were
three frauds recognised in the Royal Courts: (1) an
express deceit entered into for the purpose of win-
ning a favourable judgment in court; (2) an express
or implied deceit by a seller, to induce a sale of
goods which he or she has no right to sell (breach
of warranty of title); and (3) an express deceit,
formulated as a warranty, regarding any other
aspect of a sale of goods.1 There was no question
of criminal fraud at this stage.
Larceny, however, was a felony, punishable by
death and forfeiture of property to the Crown.
Like other crimes, it was nearly always brought as
a private prosecution by someone who had
suf-
fered as a result of the crime. It is curious, then,
that one of the earliest forms of fraud to develop
in the civil courts was breach of warranty of title.
When a person sells goods which he or she docs
not have title to, it is probable that he or she has
obtained them by theft. The buyer of the stolen
goods is unlikely to bring an action against the
seller, unless the legitimate owner emerges to
claim them. Thus it would be open to the buyer or
the legitimate owner of the goods to prosecute the
seller for larceny, and thereby obtain 'blood
money' from the Crown. Why then did breach of
warranty of title arise so early as a distinct matter?
A possible reason is that there were huge gaps in
the law of
larceny.
It required a taking and carrying
away of property with vi et
armis,
which meant that
the appropriation must have been effected by force
or stealth. It did not cover taking away by false
pretences, trickery, or any other form of deception
which obtained the temporary consent of the
owner. The only possible remedy for these wrongs
lay in the civil torts of conversion, breach of trust,
or, for any subsequent purchaser, breach of war-
ranty of title.2 An important consequence of this
restrictive definition of larceny was that bailees,
agents, factors or trustees could not be prosecuted
for appropriating property entrusted to them. The
historian J. H. Baker suggests, as a justification,
that because those entrusted with property were
easier to trace than those who took by force or
stealth, it was easier for the victim to pursue them
for conversion or breach of trust in the civil
courts.3 But in an age when criminal prosecutions
were brought privately, those who took by force or
stealth would also need to be traced by the victim,
so that distinction is meaningless.
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Journal of Financial Crime — Vol. 4 No. 4 — Defining Fraud
Perhaps the simple explanation is that there was
one law for those with a modicum of power and
respectability, and then a harsher law for footpads,
robbers and the like. The first class of people were
charged with fraud, and risked nothing but the
chance of having to return misappropriated prop-
erty; whereas the second class were charged with
theft, and risked death and forfeiture of all their
property.
In terms of mens rea, there was no distinction
between the felony and the torts. None of the
thefts or frauds defined at that time could be com-
mitted unknowingly, or without the intent to gain
at another's expense (the only exception being
breach of warranty of title, which could theoret-
ically be committed unknowingly, although it
would be unlikely in practice). It was
actus
reus
that
made them distinct. They all involved an actual or
intended appropriation of property, but only those
effected by force or stealth were felonious. Those
effected by trickery or abuse of position were
merely torts.
However, later in the 15th century, frauds effec-
ted by abuse of a position of trust, were analysed
in the criminal context. In 1473 The
Carrier's
Case4
involved a carrier who had appropriated some of
his freight. His counsel made the traditional argu-
ment that, as a bailee, he had not taken the prop-
erty with vi et armis. The King's counsel argued
that his intent to claim wrongfully the property,
and thereby defraud the rightful owner, made his
conduct felonious. The chancellor agreed that his
intent was felonious, regardless of how he gained
possession of the goods. He nonetheless remained
adamant that he could not be convicted of larceny,
effectively because while the court could recognise
that the mens
rea
for bailee fraud and theft was the
same, the law still required a prescribed
actus
reus
for the taking to be criminal.
As a result of this decision, a statute was passed
shortly afterwards which made bale-breaking a
felonious act,5 and so the complex law of bailment
began. So also began a long-term trend for specific
types of appropriation, not covered by common
law larceny, to be made criminal on an incremen-
tal basis.
Meanwhile, the civil law of fraud was develop-
ing, by further extending the scope of the writ of
deceit.
Somerton's
Case6 in 1433 paved the way for
greater flexibility. The defendant had agreed to act
for the plaintiff in a purchase of land. At that time,
a warranty to perform an act of service was a con-
tract of guarantee. If the act was not performed as
agreed, the aggrieved party could only take action
for breach of covenant if the contract was in the
form of
a
deed. In this case there was no deed, but
the defendant had gone beyond merely failing to
perform on his agreement. He had subsequently
taken instructions from a rival purchaser, for
whom he had successfully completed the purchase
by revealing the plaintiffs affairs and intentions.
The writ stated that the defendant, 'scheming
wickedly to defraud Somerton, maliciously
revealed all his counsel'.7 Cotesmore J reasoned as
follows:
'if
I
undertake to pay you £20 without deed, and
do not do so, you will have no cause of action,
for the undertaking sounds in covenant ... yet
when a man who is counsel to one man
becomes counsel to another, this is a deceit, and
changes what was before merely a covenant
between the parties into a deceit, for the which
deceit he shall have an action on his case.'8
It seems it was irrelevant whether the defendant
always intended to make the second agreement,
therefore performing the deceit at the time of
making the first agreement, or whether the first
agreement became deceitful retrospectively on
making the second agreement. The focus is on the
consequences of the defendant's action, rather than
on his or her intent.
The Doige's Case9 in 1442 built on Somerton's
Case. It involved a fraudulent seller of land, who
accepted the purchase price but failed to convey
the land. The writ stated that the defendant was
'craftily scheming to defraud the
plaintiff,
and was
'false and fraudulent'.10 During the next century,
those words became standard on writs of deceit
alleging breach of
a
contract of
guarantee.
The law
of 'actionable promise', or
assumpsit
took off.
At the same time the writ of deceit broadened so
that false representations to induce a contract
became more easily actionable. Fermor's Case11
from 1602 shows that by then it was established
doctrine that false representation was actionable,
not only when the defendant made an express war-
ranty as to the truth of the statement, but also
when the plaintiff could prove he or she had been
intentionally deceitful.
This also marks what was a new willingness to
tackle questions of thought and intent. The medi-
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