The
Solicitor-General: The amendment is designed to
rationalise the wording of clause 9 by focusing solely on the
fraudulent nature of the offender’s conduct. In my view, it is
unnecessary. The new
fraudulent trading offence originates with a recommendation in a 2002
Law Commission report on multiple offending. It was based on what the
commission concluded was a gap in the law that arises because it is
possible to prosecute UK incorporated companies for fraudulent trading
but not to pursue other fraudulent traders for that
offence. Clause 9
extends the fraudulent trading offence in section 458 of the Companies
Act 1985 by creating a corresponding offence that will apply to all
businesses not already covered by the 1985 Act. Logically, the wording
of clause 9 must follow that found in section 458—hence the
wording in the
Bill. It is important
to bear it in mind that clause 9 creates a parallel offence linked to
the existing fraudulent trading offence. The rationale and structure of
the new offence flow directly from the Companies Act offence, and as
such attract the case law that attaches to it. If we were to start
changing the legislation, the courts would be busy trying to work out
why we changed precise wording in section 458. We must remain
consistent. Initiating a change here would have consequences for the
interpretation of section 458. Therefore, it is sensible and desirable
that the wording of clause 9 should stay as it is.
We used the
phrase to ensure that we got the parallel offence right. The new
offence applies to businesses that obviously are not companies. The
creditors can be creditors of the business, but the business is not of
itself a legal person in the sense that companies or individuals are
legal persons. A partnership, or another business relationship, may not
of itself be a legal person, and the creditors can be creditors of the
business, but the business is not a legal person in its own right;
rather, the creditors will be creditors of the owners of the business,
who may or may not be the defendant.
I hope that that answers the
hon. Gentleman’s concerns, and that he can withdraw the
amendment.
Mr.
Heath: Predictably, it does not. I have always found that
consistency in error bedevils our debates; it seems a pointless view
that just because a thing was done once before, it needs to be done
again, even if it is self-evidently unnecessary or otiose. I cannot
conceive of any circumstances in which
“intent to defraud creditors of
any
person” would
not be encompassed in the phrase “for any fraudulent
purpose”. It is a tautology, and plainly so. The only part of
the Solicitor-General’s argument that commends itself to me is
the need to apply consistency between the two company offences. If we
introduce no error in law by removing a tautology, it is worth doing.
That is my personal opinion, but I give way to the hon. Member for
Beaconsfield, who may tell me why I am
wrong.
Mr.
Grieve: For what it is worth—and the hon. Gentleman
knows the number of times that I have argued over drafting—I
agree entirely with him. That said, the words are completely innocuous
if they remain in the Bill as they are. They are just odd, and no more
than that can be
said.
Mr.
Heath: No more than that might be said, but it undoubtedly
will be. The words are odd, but what nags away at the back of my mind
is the fact that someone at some stage must have had an intention:
someone, in drafting the original Act, must have detected a
circumstance in which
“intent to defraud creditors of
any person” did not fall
within the general compass of a fraudulent purpose. However, we have
not heard yet what that distinction might have
been.
Mr.
Grieve: I think that the hon. Gentleman is over-optimistic
in his view that there was necessarily a rationale behind the drafting.
I have seen too much such legislation. There was the Public Processions
(Northern Ireland) Act 1998, which dealt with the playing of
“musical or other instruments”, and nobody was able to
explain what an “other instrument” might be. We actually
got that deleted as a result of my participation in that debate, but I
leave the hon. Gentleman to speculate on what was in the mind of the
draftsman in that occasion. I suspect that in this case the
legislation, particularly in view of its derivation and origin, belongs
to the classic period of belt-and-braces
drafting.
Mr.
Heath: I say one word to the hon. Gentleman: bagpipes.
That is perhaps unfair; I am actually rather
fond of bagpipes, but they are commonly held not to be the most musical
of instruments, stirring though they are. He is probably right: it is a
belt-and-braces provision. I do not want to make a meal of it, and I do
not think that there is any mischief in the words remaining as they
are; it just irritates me when drafting is tautologous. When I rule
everything, I shall not have laws drafted like that. However, I shall
withdraw the
amendment. Mr.
Geoffrey Cox (Torridge and West Devon) (Con): I do not
know whether this is a speech or an intervention; it was intended to be
the first, but it will be very short.
The answer to this very
interesting and learned debate may lie in the fact that the section was
originally drafted in the Companies Act. For companies, there are
multifarious opportunities to have related
companies—subsidiaries, parent companies and so on—and
one may very well operate a company in order either to defer the debts
or to defraud the creditors of a related parent or subsidiary
company.
Michael
Fabricant:
Enron.
Mr.
Cox: I hear one company appositely named; I could probably
think of quite a few others. The point is that the wording was probably
interpolated from the Companies Act to deal with cases where, although
the creditors were not of the specific limited company, they were
creditors of a related company. The danger was that the defence might
argue that the debts related not to the company but to the subsidiary
or affiliated company. It might therefore be otiose to insert that when
one is charging a sole trader or a partnership.
One suspects that that was the
reasoning behind section 458 of the Companies Act 1985, the wording of
which is not “for any
other fraudulent purpose”,
as it is in clause 9(2)(b), but rather
relates to any fraudulent purpose. The general theory applying to
fraudulent trading is that a person can be charged for continuing to
trade in order to defraud the creditors of the company, or a related
company or person, or for carrying on the company to operate as part of
a wider fraud. I suspect that because the
wording “for any other
fraudulent purpose” has
been translated from companies to sole traders, it might actually not
be necessary. The Government might simply have translated wording
apposite to limited companies to sole traders.
If that was an intervention, it
was very long; if it was a speech, I hope that it was relatively
short.
Mr.
Heath: I am most grateful for that intervention by the
hon. Gentleman, who knows an awful lot more about the matter than I do.
His interpretation suggests that the requirement was supposed to be
inclusive and to expand the scope of the provision, rather than to be
exclusive and to narrow the scope. In that case, it is most likely that
the wording has been translated from one enactment to another, simply
as a matter of course, without anyone thinking about whether it is
necessary. I repeat
what I said earlier: I do not think that any mischief is involved. I
want the clause to be able to be
used for lots of actions on the part of traders—the disposal of
assets prior to liquidation and matters of that kind. I hope that it
will be enforced rigorously for those purposes. I want it to be as wide
as possible in its application. Given that retaining the words does not
reduce the width of the application but simply states it in two
different ways—one partially and the other totally—I can
find no fault with it. So, for the second time, I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
9 ordered to stand part of the
Bill.
Clause
10Participating
in fraudulent business carried on by company etc.:
penalty Question
proposed, That the clause stand part of the
Bill.
The
Solicitor-General: The clause implements a recommendation
by the company law review in 2001 that the penalty for the offence of
fraudulent trading in the Companies Act should be increased from seven
to 10 years in order to align it with the most serious fraud offences
in the Theft Act 1968. We agree that that is a sensible change,
particularly in the context of the Fraud Bill, under which 10 years is
the maximum penalty for the general offence of fraud. Fraudulent
trading can have serious consequences, and although relatively few
cases are prosecuted, average sentences are higher than for other types
of fraud. Question
put and agreed
to. Clause 10
ordered to stand part of the
Bill.
Clause
11Obtaining
services
dishonestly
Mr.
Heath: I beg to move amendment No. 12, in clause 11, page
4, line 33, leave out ‘by a dishonest act’ and insert
‘dishonestly’.
The
Chairman: With this it will be convenient to discuss
amendment No. 13, in clause 11, page 5, line 2, at end
insert— ‘( ) A person shall
not be guilty of an offence under this section
if— (a) the services
obtained comprise only observing a performance, sporting or other
event, and (b) he is not
within, nor has he sought to enter, the premises within which the
performance or event are being
held.'. 4.45
pm
Mr.
Heath: The amendments are quite separate, and I shall deal
with them in
turn. Amendment No. 12
might sound like a very small distinction, but actually it has greater
import than would first appear. First, stylistically, it brings the
text of the clause in line with the clause title: “Obtaining
services dishonestly”. That seems appropriate.
Secondly,
however, there is a difference between a dishonest act and a person who
performs an act dishonestly.
A dishonest act is, or could be, interpreted to be so at a later date,
and the perpetrator may not be party to that interpretation. In other
words, he may not have been behaving dishonestly but may have committed
an act that, on consideration, is seen as dishonest. That puts the act
at one remove from the intent. The distinction is very narrow:
in most cases, a person who commits a dishonest act will know perfectly
well that they are doing so and will have been acting dishonestly.
However, on a limited number of occasions, an act that could be
interpreted as dishonest is committed by a person who believes that he
is acting honestly. Using the adverb rather than the adjective would
remove any possibility of ambiguity or legal argument on that nice
distinction. There could be no distinction: if the person was obtaining
services dishonestly, he would be doing so by a dishonest act, but
would also know that he was doing so by a dishonest act because he was
acting
dishonestly.
Michael
Fabricant: The hon. Gentleman is saying that the person
should have mens rea—a guilty mind—and that there should
be an intent to obtain services dishonestly. However, subsection (1)
also says that the act should be in breach of subsection (2). Does that
not also imply that he must have a guilty
mind?
Mr.
Heath: I do not think that it does. Subsection (2) lists a
number of circumstances in which a person has obtained services, and I
do not think that the two necessarily relate.
The amendment is narrow and I
do not want to labour the point. However, simply using the adverb
improves the clause and makes it say exactly what the Minister would
want it to say. He may feel that the clause will be interpreted in that
way in any case, in which case the amendment becomes
unnecessary. The
second amendment in the group, No. 13, is a probing amendment to enable
the Minister to say what I understood him to have said on Second
Reading. It relates to a particular circumstance in which the service
obtained is watching or taking in an event—a sports match or a
performance perhaps—without paying. There are circumstances in
which that would clearly be a fraudulent and dishonest act. A person
who goes under a fence, knowing perfectly well that he has avoided
going through the turnstile, is trying to obtain a service without
paying. That is not in dispute.
However, there is a further and
greyer area: when a person is watching a match because he has secured a
vantage point from which he can see it, clearly with the intent of not
paying, but nevertheless without potential detriment to the person who
has put on the event. I can give an example of that from
Bath. I regularly
watch Bath play rugby; the experience used to be good, although it is
often unhappy nowadays. People can pay for seats at the Rec, the
recreation ground in Bath. I received my season tickets just today and
am now much less well off than I would otherwise have been. If a person
happens to live in one of the houses on Great Pulteney street that
overlook the ground, he can see the match for free. I do not think that
in any circumstances a person could be deprived of
the right to look out of his window or stand on his balcony and watch
the match for free. He is as entitled to look out of his property in
that direction as any other. That is not the
problem. However, if
one is clever, one can also go down one of the side turnings off Great
Pulteney street, hoick oneself up to look over a wall and see the match
equally free from a public thoroughfare. I do not believe that that
should be a criminal offence. It is merely a happenstance. The simple
fact that one can see the match from there does not mean that Bath
rugby football club—or Bath Rugby plc—would be entitled
to commence proceedings against someone who happened to be able to see
the match from that vantage point outside the ground’s
perimeter.
I hope that
the Minister will make it absolutely clear in his response, so that I
do not need to press the amendment, that in such circumstances an
offence would not be committed, despite the fact that the person was
not on their own property and was partaking of the event—the
spectacle or match—without paying and with the intent of not
paying, as they had no intention of going through a turnstile. Will he
reassure me that just because they have not tried to secure entry to
the ground, arena, theatre or whatever, they are not securing that
service dishonestly and would not be liable to prosecution under the
provision? If he can do so, it is not my intention to press the
amendment.
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