Learning Outcomes
This article examines the offence of fraud by abuse of position under s 4 of the Fraud Act 2006. Upon completion, you should understand the components of this offence, including the required position of trust, the nature of the abuse, and the necessary mental elements (dishonesty and intention to make a gain or cause loss). You will be able to distinguish this form of fraud from others and apply the legal principles to scenario-based questions typical of the SQE1 assessment. This knowledge will improve your ability to identify and analyse potential instances of fraud by abuse of position in practice.
SQE1 Syllabus
The SQE1 syllabus requires candidates to demonstrate knowledge of fraud offences, including fraud by abuse of position under the Fraud Act 2006. For the SQE1 assessment, you will need a practical understanding of this offence to apply the relevant legal rules and principles effectively.
Pay particular attention to the following aspects:
- The definition and elements of fraud by abuse of position (s 4 Fraud Act 2006).
- What constitutes a ‘position’ in which a person is expected to safeguard financial interests.
- The meaning of ‘abuse’ of that position, covering both acts and omissions.
- The mens rea requirements: dishonesty (applying the Ivey test) and intention to make a gain or cause loss.
- Distinguishing fraud by abuse of position from fraud by false representation (s 2) and fraud by failing to disclose information (s 3).
- Applying the law to factual scenarios to determine potential liability.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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Which section of the Fraud Act 2006 deals with fraud by abuse of position?
- Section 1
- Section 2
- Section 3
- Section 4
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For fraud by abuse of position, must the defendant be in a formal fiduciary relationship with the victim?
- Yes, a formal fiduciary relationship is always required.
- No, the position can arise from informal relationships where trust is placed.
- Yes, but only if the position involves managing finances directly.
- No, the position relates only to employment contexts.
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Which case established the current test for dishonesty in fraud offences?
- R v Ghosh
- Ivey v Genting Casinos (UK) Ltd
- R v Valujevs
- DPP v Ray
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True or False: For fraud by abuse of position, the defendant must actually make a gain or cause a loss for the offence to be committed.
Introduction
Section 4 of the Fraud Act 2006 creates the offence of fraud by abuse of position. This targets individuals who misuse a position of trust, in which they are expected to look after another person's financial interests, for personal gain or to cause loss to that other person. Unlike fraud by false representation (s 2) or failure to disclose (s 3), this offence focuses specifically on the betrayal of trust present in certain relationships. Understanding the scope of 'position', what constitutes 'abuse', and the required mental elements is essential for advising clients and succeeding in the SQE1 exam.
The Offence: Section 4 Fraud Act 2006
Section 4(1) states that a person is guilty of fraud if they: (a) occupy a position in which they are expected to safeguard, or not to act against, the financial interests of another person, (b) dishonestly abuse that position, and (c) intend, by means of the abuse of that position— (i) to make a gain for themself or another, or (ii) to cause loss to another or to expose another to a risk of loss.
The offence can be committed by an act or an omission (s 4(2)).
Actus Reus
The actus reus consists of three elements: occupying a relevant position, abusing that position, and the position being one where the defendant is expected to safeguard (or not act against) another's financial interests.
Position of Trust
The defendant must occupy a position where they are expected to safeguard, or not act against, the financial interests of another.
Key Term: Position of Trust A relationship where one person (D) is reasonably expected by another (V) or by the public to act in V's financial interests, or at least not act against them. This includes formal fiduciary relationships (e.g., trustee-beneficiary, director-company, agent-principal, employee-employer) but can also arise from informal arrangements based on trust and confidence.
The existence of such a position is a question of law for the judge. Case law suggests a broad interpretation, encompassing situations beyond traditional fiduciary roles where one party has significant influence or control over another's finances.
Worked Example 1.1
Anika is employed as a personal assistant to Brian, an elderly man. Her duties include managing his household bills and accessing his bank account for this purpose. Anika uses Brian's bank card without his permission to pay for her personal shopping. Does Anika occupy a relevant position under s 4?
Answer: Yes. As Brian's personal assistant entrusted with managing his finances and accessing his bank account, Anika occupies a position where she is expected to safeguard his financial interests. This employment relationship involves trust and confidence regarding financial matters.
Abuse of Position
The defendant must abuse the position they occupy. 'Abuse' is not defined in the Act but is assessed objectively based on the standards of ordinary people. It means using the position improperly or wrongfully.
Key Term: Abuse of Position Acting (or omitting to act) in a way that is contrary to the expectation that the person will safeguard the financial interests of another, or at least not act against them. This involves a misuse of the trust placed in the defendant.
Abuse can be committed by an act (e.g., misappropriating funds) or by an omission (e.g., failing to prevent a loss when under a duty to do so).
Worked Example 1.2
David is a company director. He learns of a profitable contract opportunity that would benefit his company. Instead of presenting the opportunity to the company, he diverts it to another business owned by his friend, intending his friend to gain. Has David abused his position?
Answer: Yes. As a director, David owes fiduciary duties to the company, including the duty to act in its best interests and avoid conflicts of interest. By diverting a corporate opportunity for the benefit of his friend (and potentially himself indirectly), he has acted against the company's financial interests, thereby abusing his position.
Mens Rea
The mens rea for fraud by abuse of position requires two elements: dishonesty and intention to make a gain or cause loss.
Dishonesty
The defendant must have abused their position dishonestly. The test for dishonesty is objective, following the Supreme Court's decision in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67.
Key Term: Dishonesty (Ivey Test) The test involves two stages:
- Ascertain the actual state of the individual's knowledge or belief as to the facts (subjective element).
- Determine whether their conduct was dishonest by the objective standards of ordinary decent people (objective element). It is not necessary for the defendant to appreciate that their conduct was dishonest by those standards.
The defendant's own belief about whether their actions were honest is irrelevant if ordinary decent people would consider the conduct dishonest given the defendant's knowledge or belief about the facts.
Intention to Make a Gain or Cause Loss
The defendant must intend, by abusing their position, to make a gain for themselves or another, or to cause loss to another or expose another to a risk of loss.
Key Term: Gain / Loss (s 5 Fraud Act 2006) 'Gain' and 'loss' extend only to gain or loss in money or other property (real or personal, including things in action). 'Gain' includes keeping what one has, as well as getting what one does not have. 'Loss' includes not getting what one might get, as well as parting with what one has. The gain or loss can be temporary or permanent.
It is the defendant's intention that matters, not whether a gain or loss actually occurred. The intention must be linked to the abuse of position; the gain or loss must be intended by means of the abuse.
Worked Example 1.3
Chen is a trustee managing a trust fund for young beneficiaries. He invests trust money in a high-risk scheme owned by his brother, hoping his brother's scheme will succeed, even though he knows this type of investment is unsuitable for the trust and exposes the fund to significant risk. He does not personally gain, but intends his brother to gain financially. Is Chen potentially liable under s 4?
Answer: Yes. Chen occupies a position of trust as a trustee. Investing trust funds in an unsuitable high-risk scheme for the benefit of his brother constitutes an abuse of that position. If this conduct is deemed dishonest under the Ivey test, and he intended, by this abuse, to make a gain for his brother (another person), he satisfies the mens rea elements. It is irrelevant that he did not intend personal gain or that no actual loss occurred (or even if the investment unexpectedly succeeded). The exposure to risk of loss is also sufficient.
Exam Warning
Remember that the Ivey test for dishonesty is now the authoritative test, replacing the previous Ghosh test. Focus on the objective assessment of the defendant's conduct based on their subjective knowledge or belief of the facts. Do not consider whether the defendant themselves believed their actions were dishonest.
Revision Tip
Focus on the relationship between the defendant and the victim. Does it involve an expectation of trust regarding financial interests? This is the core difference between s 4 fraud and other fraud types. Consider both formal roles (trustee, director) and informal positions (carer, friend managing finances).
Key Point Checklist
This article has covered the following key knowledge points:
- Fraud by abuse of position is defined in s 4 Fraud Act 2006.
- The actus reus requires the defendant to occupy a position where they are expected to safeguard another's financial interests, and to abuse that position.
- The 'position' includes formal fiduciary roles and informal positions of trust.
- 'Abuse' means using the position improperly or wrongfully, assessed objectively. It can be by act or omission.
- The mens rea requires dishonesty (tested objectively using Ivey) and an intention to make a gain or cause loss (or risk of loss) by means of the abuse.
- Actual gain or loss is not required; the defendant's intent is sufficient.
- Gain or loss relates to money or other property and can be temporary or permanent.
Key Terms and Concepts
- Position of Trust
- Abuse of Position
- Dishonesty (Ivey Test)
- Gain / Loss (s 5 Fraud Act 2006)
