2.2.8 Fraud – s.3 Fraud by Failing to Disclose Information

Statutory Provision

• s.3 Fraud Act 2006:
  • “A person is in breach of this section if he—
    (a) dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
    (b) intends, by failing to disclose the information—
    (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.”
• Maximum penalty: 10 years’ imprisonment (indictable) or 12 months summary.

Actus Reus of s.3

1. Failure to Disclose Information

• AR requires a failure to disclose information to another.
• Unlike s.2 (where something false is actively represented), here liability arises from silence or omission.
• Case: R v Silverman [1988] 88 Cr App R 213
  • D overcharged elderly neighbours, failing to disclose that work was overpriced. Though prosecuted under conspiracy to defraud, similar facts now fall within s.3.

2. Legal Duty to Disclose

• Essential: omission must be underpinned by a legal duty to disclose.
• Not enough that morality or fairness required disclosure — must be legally recognised duty.

Sources of Legal Duty:

• Statute: e.g. duty to disclose material facts in insurance contracts (Consumer Insurance (Disclosure and Representations) Act 2012).
• Contract: where terms create obligation (e.g. financial services).
• Fiduciary relationships: trustees, company directors, solicitors.
• Common law duties of trust/confidence: where silence amounts to breach.

Case examples:

• R v Rai [2000] 1 Cr App R 242 – D applied for grant to adapt house for elderly mother but failed to disclose that she had died. Conviction for deception; today would fall under s.3.
• DPP v Ray [1974] AC 370 – silence after deciding not to pay for meal = false representation; also illustrates omission liability.

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3. Result – No Actual Loss Required

• Offence complete once information deliberately withheld under duty.
• Victim need not suffer actual loss; exposure to risk of loss suffices.

Mens Rea of s.3

1. Dishonesty

• Dishonesty assessed by Ivey v Genting Casinos [2017] UKSC 67:
  • Step 1: What were D’s actual beliefs?
  • Step 2: Would ordinary decent people consider conduct dishonest?
• Case: R v Feely [1973] QB 530 – dishonesty is for jury to decide by ordinary standards.

2. Knowledge of Legal Duty

• D must know he is under a legal duty to disclose.
• Recklessness or ignorance is insufficient; actual awareness required.
• Example: solicitor not disclosing client conflict of interest — clear knowledge of duty.

3. Intention to Gain or Cause Loss

• Defined in s.5 Fraud Act 2006:
  • “Gain” and “loss” include temporary or permanent.
  • Gain = keeping what one has or getting what one doesn’t.
  • Loss = losing what one has or not getting what one might get.
• Case: R v Bevans [1988] 1 WLR 740 – morphine at gunpoint was “property” of value. Demonstrates wide scope of “gain/loss.”
• Case: R v Rai (2000) – failure to disclose death of mother = intent to gain money (grant) and cause loss (to council).

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course

Distinctions Between s.2 and s.3

Evaluation

• Strengths:
  • Closes loophole where silence was not deception unless active misrepresentation.
  • Protects vulnerable parties in contracts (insurance, finance, fiduciary duties).
  • Covers modern fraud contexts like failing to disclose health conditions in insurance applications.
• Weaknesses:
  • Uncertainty: scope of “legal duty” not clearly defined in statute — left to courts.
  • Risk of overlap with civil law — criminalising what may be mere breach of contract.
  • Proving “knowledge of legal duty” may be difficult.

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Law Full Scale Course

Reform Proposals

• Law Commission (2020 Review of Fraud):
  • Recommended clarifying the sources of “legal duty” in statute.
  • Suggested expansion to cover cyber omissions (e.g. failing to disclose malware infections by banks).
  • Highlighted concern over overlap with consumer law — risk of over-criminalisation.

Exam Application Strategy

1. Quote s.3 Fraud Act 2006.
2. Apply AR: failure to disclose + duty to disclose (Rai, Silverman).
3. Apply MR: dishonesty (Ivey), knowledge of duty, intent to gain/cause loss (Bevans).
4. Distinguish from s.2 false representation.
5. Conclude liability.

Conclusion

• Fraud by failing to disclose (s.3 Fraud Act 2006):
  • Actus Reus: Failing to disclose information where legal duty exists.
  • Mens Rea: Dishonesty, knowledge of duty, intent to gain/cause loss.
• Case law (Rai, Silverman, Ray, Bevans) shows wide coverage.
• Powerful tool against fraud by silence, but criticised for vagueness of “legal duty.”