The National Fraud Initiative – what is it?

Origins

The National Fraud Initiative (NFI)  started in 1996 and was originally managed by the Audit Commission. It is a data-matching exercise now conducted by the Cabinet Office under powers set out in the Local Accountability and Audit Act 2014 (which also abolished the Audit Commission). Under this legislation (section 33, Schedule 9) the Cabinet Office:

  • may carry out data matching exercises for the purpose of assisting in the prevention and detection of fraud;
  • may require certain bodies to provide data for data matching exercises;
  • may accept data submissions on a voluntary basis;
  • must prescribe a scale or scales of fees for mandatory data matching exercises;
  • may charge a fee for voluntary data matching exercises; and
  • must consult mandatory participants and relevant stakeholders before prescribing the mandatory scale or scales of fees.

In broad terms, it is a bi-annual exercise that matches electronic data within and between public (e.g. local and police authorities) and private sector (e.g. housing associations) bodies with the purpose of identifying possible fraud.

Data-matching is merely the first stop however. The information obtained will be provided to the relevant participating body via the secure NFI software and it will be for them to decide what to do with it. 2018/19 matches were due to become available to participants from 31 January 2019.

Participants

Public sector bodies are required to submit data to National Fraud Initiative on a regular basis, and should follow the requirements of the Code of Data Matching Practice 2018. For example, local authorities will provide information relating to:

  • payroll
  • pensions
  • trade creditors’ payment history and trade creditors’ standing data
  • housing (current tenants) and right to buy
  • housing waiting lists
  • housing benefits (provided by the DWP)
  • council tax reduction scheme
  • council tax (required annually)
  • electoral register (required annually)
  • students eligible for a loan (provided by the SLC)
  • private supported care home residents
  • transport passes and permits (including residents’ parking, blue badges and concessionary travel)
  • licences – market trader/operator, taxi driver and personal licences to supply alcohol
  • personal budget (direct payments)

The NFI also provides additional services for the public sector and there are in all approximately 1200 participating organisations.

As for those private sector bodies choosing to participate in the NFI, and supplying certain information as a result, the Cabinet Office says this about housing associations:

Our data screening in this area can help identify tenants who:

  • have no right to reside in the UK
  • are illegally subletting houses
  • are illegally claiming benefits
  • are abusing the ‘Right to buy’ scheme
  • are making invalid applications for housing

By identifying this type of fraud, we make sure that social houses can be recovered by social landlords and given to individuals who need them.

An example of the fees chargeable to a participating private sector body, such as a housing association, can be seen in the Private Sector Fees report (July 2018).

An example of the benefits to NFI participants can be seen from one example given in the 2018 report:

Portsmouth City Council
A housing tenants to housing benefit match identified a tenant
in a property owned by Portsmouth City Council. The tenant
had however been claiming housing benefit in excess of £150
per week for a different property in a nearby authority area since January 2016. The match revealed the tenant had let the property from Portsmouth City Council in February 2013, but investigations found the tenant’s partner had been subletting the Portsmouth property for up to two years. The council sought a prosecution in October 2017 and the property was successfully recovered.

Data Protection

Data protection legislation requires NFI participants to tell individuals at the very least that their data will be processed, usually by means of privacy notices.

For example, Northampton Borough Council’s corporate privacy statement says:

This authority is required by law to protect the public funds it administers. We may share information provided to us with other bodies responsible for auditing or administering public funds, in order to prevent and detect fraud, such as national data matching exercises like the National Fraud Initiative (NFI).

Hyde Housing Association Ltd’s privacy notice can be seen here. The NFI’s privacy notice is here.

The Code of Data Matching Practice referred to above says this about data protection:

1.6. Relationship to data protection legislation and other information sharing codes
1.6.1. In addition to this Code, when participating in data matching exercises, bodies should have regard to any other relevant data or information sharing codes and guidance, including any statutory guidance from the Information Commissioner, which is available on the Information Commissioner’s website at https://ico.org.uk/
1.6.2. References to compliance with, or in accordance with, data protection legislation should be construed as compliance with current data protection legislation applicable in the UK, as defined in the Data Protection Act 2018, which includes the General Data Protection Regulation (EU) 2016/679 (GDPR).
1.6.3. The Cabinet Office will review this Code in light of changes in the law and consider, at that point, whether the Code requires further amendment and if so, the appropriate time to do so.

Housing context

In a housing context, and as seen from the Portsmouth City Council example above, the NFI can help identify possible housing fraud for local authorities and housing associations.

In previous exercises, this has led to tenancies being terminated and properties re-allocated to genuine applicants on the housing waiting list who might otherwise have stayed in expensive temporary accommodation. The NFI Report 2016-18 showed during 2016/17:

  • 58 social housing properties were recovered, assisted by using the combined Council Tax and Electoral Register data to help identify an individual’s current residence.
  • 7601 false applications which were removed from housing waiting lists (over half of which came from one authority alone). In its 2018 report there was an estimate of £3,240 per case for future losses prevented as a result of removing an applicant from council housing waiting list.
  • Over £1 million was saved in 2016/18 by rejecting right to buy applications from tenants found not to be entitled.

The Housing tenant screening can:

  • identify individuals who potentially have more than one property in their name
  • highlight individuals with no right to reside in the UK
  • ensure that tenants are only resident at one address, and aren’t claiming housing benefit for a different property
  • make sure that right-to-buy claimants qualify for the scheme

For the 2018/19 NFI exercise the housing information required can be seen here re waiting lists and here re tenants. Other data can be found here.

Tools

FRAUDHUB

FraudHub has been devised to enable public and private sector organisations to share information. The annual subscription for a housing association of 10,000 or more properties which wishes to use this service is presently £4240.

There are “local” versions of such schemes. For example, the East Sussex Counter Fraud Hub:

“…was created to use new and innovative methods to tackle fraud against local authorities throughout the rural, urban and metropolitan areas of the county. The hub is made up of representatives from Brighton and Hove City Council, Eastbourne Borough Council, East Sussex County Council, Hastings Borough Council, Lewes District Council, Rother District Council and Wealden District Council.”

The London Counter Fraud Hub, which is managed by CIPFA, is a counter fraud service, which has been developed to supply data analytics, investigations and recoveries service for London local authorities and the City of London Corporation. 

APPCHECK

 AppCheck is a service that helps a participant identify any fraud, clerical errors or inconsistencies at the point of an application (rather than wait for the NFI bi-annual exercise), with over 300 million records available to this end (including access to the Home Office’s immigration database).

The 2018 NFI report gave this example of AppCheck’s use:

City of London

The City Corporation Anti-Fraud Investigation Team, along with the Housing Allocations Team, are tasked with working across London to detect, prevent, and deter people from attempting to obtain social housing under false pretences.

As part of its commitment to supporting the NFI, and to help evolve its approach to fraud prevention, the City Corporation decided to deploy AppCheck on a trial basis to see if it could help to improve its ability to identify those applying, or who have obtained, social housing under false pretences.

The AppCheck system was easily assimilated into the teams’ existing procedures and was able to provide an additional layer of intelligence to the verification process.

Following its successful trial in combating social housing tenancy application fraud, AppCheck has been rolled out across the City Corporation in areas such as HR, housing benefits and blue badge applications.

Chris Keesing, Anti-Fraud Manager within the City of London Corporation commented on the AppCheck trial:

“The AppCheck solution was a great success and proved itself early on by allowing us to identify social housing application fraud that would have otherwise potentially not been detected. We are pleased that, owing to the success in this area, we have now been able to roll out AppCheck to other departments across the City Corporation to help us identify fraud in more front-line service areas.”

RECHECK

This is designed to enable the matching of social care payments to deceased person data in order to identify payments that are continuing in error.

Conclusion

This blog has previously reported on the NFI’s 2018 report mentioned above, and the service provides just one means for local authorities and housing associations in their detection and understanding of housing fraud and it’s extent (in global terms the Annual Fraud Indicator 2017 found that housing tenancy fraud costs local government £1.83 billion).



Confiscation Orders – an overview


Introduction

I recently wrote a blog on compensation orders and indicated that there would be follow-on articles on two further topics – confiscation orders and social housing fraud in the context of shared ownership properties. It is the former topic I now seek to address in this article.

The modern manifestation of confiscation powers are to be found in the Proceeds of Crime Act 2002 (“POCA”), which came into force on 24 March 2003. Typically, Lord Bingham was able to explain POCA’s purpose succinctly when he said in R v May [2008] 1 AC 1028:

” The legislation is intended to deprive defendants of the benefit they have gained from relevant criminal conduct, whether or not they have retained such benefit, within the limits of their available means. It does not provide for confiscation in the sense understood by schoolchildren and others, nor does it operate by way of fine. “

Confiscation orders can only be made by the Crown Court at first instance.

POCA

Section 6

As noted in the introduction, the relevant legislation for confiscation orders is Part 2 of the Proceeds of Crime Act 2002. This provides, at section 6, that:

(a) when a defendant has been convicted of an offence in the Crown Court, or is committed there from the magistrates’ court for sentence in respect of certain specified offences (or for POCA purposes – see section 70); and

(b) the Prosecutor asks the court to proceed under section 6, or the Court “believes it appropriate for it to do so

then the court on the balance of probabilities:-

First, must decide whether the defendant has a criminal lifestyle;

Second, if it decides that the defendant has a criminal lifestyle, it must decide whether they have benefited from their general criminal conduct. If it decides that the defendant does not have a criminal lifestyle it must then decide whether they have benefited from their particular criminal conduct.

Criminal Lifestyle

‘Criminal lifestyle’ is defined at section 75:

Criminal Lifestyle – section 75(1)A defendant has a criminal lifestyle if (and only if) the following condition is satisfied.

(2)The condition is that the offence (or any of the offences) concerned satisfies any of these tests –

(a)it is specified in Schedule 2; or

(b)it constitutes conduct forming part of a course of criminal activity; or

(c)it is an offence committed over a period of at least six months and the defendant has benefited from the conduct which constitutes the offence.

(3)Conduct forms part of a course of criminal activity if the defendant has benefited from the conduct and—

(a)in the proceedings in which he was convicted he was convicted of three or more other offences, each of three or more of them constituting conduct from which he has benefited, or

(b)in the period of six years ending with the day when those proceedings were started (or, if there is more than one such day, the earliest day) he was convicted on at least two separate occasions of an offence constituting conduct from which he has benefited.

(4)But an offence does not satisfy the test in subsection (2)(b) or (c) unless the defendant obtains relevant benefit of not less than £5000.

(5)Relevant benefit for the purposes of subsection (2)(b) is—

(a)benefit from conduct which constitutes the offence;

(b)benefit from any other conduct which forms part of the course of criminal activity and which constitutes an offence of which the defendant has been convicted;

(c)benefit from conduct which constitutes an offence which has been or will be taken into consideration by the court in sentencing the defendant for an offence mentioned in paragraph (a) or (b).

(6)Relevant benefit for the purposes of subsection (2)(c) is—

(a)benefit from conduct which constitutes the offence;

(b)benefit from conduct which constitutes an offence which has been or will be taken into consideration by the court in sentencing the defendant for the offence mentioned in paragraph (a).

Statutory assumptions

If a Defendant is found to have a criminal lifestyle the court will make certain statutory assumptions, unless the assumption is shown to be incorrect, or there would be a serious risk of injustice if it were to be made (see section 10).

The assumptions are broadly to the effect that any property received or held by the defendant from certain times prior to the criminal proceedings commencing (6 years) was obtained from or met by their general criminal conduct.

Making the order

If the court decides there has been such a (criminal) benefit then they generally must (again, on the balance of probabilities and if it is proportionate to do so) make a confiscation order and decide the recoverable amount: see section 6(5).

The word ‘generally’ is used because of the court believes that the victim has or will seek to recover their losses through the civil route, or an unlawful profit order has been or may be made, then a confiscation order is discretionary: section 6(6)(6A).

The amount a defendant will be ordered to pay will be the same as the amount of the benefit figure unless they show, and the burden is on them, that the assets available to them are less than this: section 7

Other Matters

  1. A defendant can be given up to 6 months (exceptionally 12 months): see section 11.
  2. Interest will be charged on unpaid confiscation orders: see section 12.
  3. The court may imprison a defendant for default of a compensation order (the court will have set such a default provision): see section 38.

Conclusion

Last year saw a good example of a confiscation order in respect of a sub-letting offence. Jeremy Matuba pleaded guilty to three criminal offences under the Fraud Act 2006 related to the subletting of his local authority home, and providing false information on two right to buy applications. A confiscation order under POCA was made against Mr Matuba last September for £147,998.97.

Finally, the Home Office has asked the Law Commission to review the confiscation regime in the POCA, and the Commission aim to publish a consultation by September 2019.

Only or Principal Home – Trial Lessons Learnt

Judgment has been handed down this week in the County Court at Clerkenwell & Shoreditch in a possession claim brought by a private registered provider of social housing and based on the allegation that the defendant was no longer living in her demised premises at the expiry of a notice to quit served by her (erstwhile) landlord.

There is nothing unusual in such a scenario of course and it is of depressingly common concern to social landlords that a minority of their tenants are not using their properties in the manner they should – abandonment, sub-letting, parting with possession or not using the property as their only or principal home.

The details of the case are not important for the purposes of this article, but the question of why the landlord succeeded in its case is. Seven points are of special note:

  1. Most of the Landlord’s evidence was hearsay and the Judge was very careful to assess its weight set against the factors provided for at section 4 of the Civil Evidence Act 1995. She particularly looked for corroborative documentary evidence, and treated neighbour “views” with particular caution in their absence from the trial.
  2. One of the key issues was the performance of the defendant (and indeed her witnesses) under cross examination. This is generally difficult to anticipate and pre-judge when considering in advance the strengths of any case.
  3. How a witness gives evidence can be as important as what they say. Here the defendant was found to be evasive at times and lacking in credibility in some of her explanations.
  4. There were further a number of inconsistencies in the defendant’s evidence (and, again, that of her mother and friend) brought out under cross examination, and a lack of documentary proof of residence (a lack of ‘footprint’ at odds with 11 years’ residence).
  5. The defendant’s witnesses were kept out of the court room until the time for them to give evidence arrived. This highlighted some stark differences between the defendant and her friend which though not in themselves especially significant or determinative did demonstrate a serious credibility issue.
  6. Evidence of low/no usage of utilities at the subject premises was especially helpful to the landlord’s case.
  7. A ‘trigger’ had been placed in the front door at one stage to check on access, and was still in place some 4 months later.

Though this article is not intended to explain the legal arguments for only or principal home cases, reference to and use of Dove v London Borough of Havering [2017] PTSR 1233 will also often be helpful, not least at paragraphs 31 and 33 of Lewison LJ’s judgment, where the defendant still “uses” the demised premises to a degree:

31. At [39] the judge said that he understood why they wished “to be in a position to have their own place – their own space – somewhere to which they can return in order either to be alone or if the worst happens and their relationship breaks down a place to live.” But there was no evidence that either Ms Evelyn or Ms Elaine Dove had any actual intention to change the settled pattern of life which they were living. He held therefore that he “would have had to have” reached the same conclusion as the FTT.

33. The issue before the judge was not of course whether either Ms Dove was occupying the flat at Highfield Tower as a home. On the basis of the judge’s findings of fact one or other of them may or may not have been. It was whether either of them was occupying that flat as her principal home. The judge’s findings of fact are, in my judgment, clear to the effect that neither of them was. As I have said each of them had a settled way of life and there was no suggestion that it would change in the future. This is not, therefore, a case which turns on any intention to return or revert to a previous pattern of life. The question in cases which turn on an intention to return, as explained by Thorpe LJ in Goldenberg at 733, is whether a period of absence breaks the continuity of residence. In a case such as the present where the pattern of residence has been the same throughout the period under consideration there has been no break in continuity. So the question is a different one: is the pattern of residence such that either Ms Dove is occupying the flat at Highfield Tower as her principal home?

These claims are especially difficult because the defendant may well still have access to and be using at times their social rented property, but “simply” not as their only or principal home. Sometimes their use of a 2nd property is particularly clear to show the reality of the situation. Where that is not the case, as in the case here, the focus will centre more on the demised premises.

Inconsistencies need to be identified in full, the explanation for them assessed and positive evidence of residence considered.

Housing Fraud on Twitter

Compensation Orders – an introduction

We have reported on a number of social housing fraud convictions in this blog, and along with unlawful profit and costs orders the court may consider making a compensation order . For example, a £45,000 compensation order was made in a sub-letting case reported in the Islington Gazette (and here) in April 2018.

In the same month,  a former housing officer was ordered to pay £20,000 to his erstwhile employers, after receiving a 3-year sentence in 2016 “after admitting fraud offences relating to social housing applications and job references”.

When it comes to profits from a housing fraud, if a person is convicted of an offence under either sections 1 or 2 of the Prevention of Social Fraud Act 2013 the court must decide whether to make an unlawful profit order. An unlawful profit order can be made instead of or in addition to an order under the court’s sentencing powers (see section 4(1) and (2) of the 2013 Act).

If a court decides not to make an unlawful profit order, section 4(4) of the 2013 Act states that it must give reasons for that decision when passing sentence.  

As for questions of loss and compensation orders, the criminal court must consider this in any case where personal injury, loss or damage has resulted from the offence, and the court must also (as with the unlawful profit order) give reasons if it decides not to order compensation.

And so section 130 of the Powers of Criminal Courts (Sentencing) Act 2000 provides:

“(1) A court by or before which a person is convicted of an offence, instead of or in addition to dealing with him in any other way, may, on application or otherwise, make an order (in this Act referred to as a “compensation order”) requiring him—
(a) to pay compensation for any personal injury, loss or damage resulting from that offence or any other offence which is taken into consideration by the court in determining sentence; or
(b) to make payments for funeral expenses or bereavement in respect of a death resulting from any such offence, other than a death due to an accident arising out of the presence of a motor vehicle on a road;
but this is subject to the following provisions of this section and to section 131 below.”

There are some salient points to remember about such orders:

1. They are ordered by the criminal courts following a conviction, and in a housing fraud case may be made, for example, where the local authority ‘victim’ has been put to the expense of putting a household in temporary  accommodation because the defendant has wrongly been allocated housing due to their misrepresentation.

2. No upper limit applies to those aged 18 or over (see s. 131 of the 2000 Act, which limits the amount to no more than £5000) though the amount of loss to the victim, such as the social landlord, is the matter being compensated. Continue reading “Compensation Orders – an introduction”

Fraud cases in the courts

The last few months have seen a number of reported cases which, though not directly concerning matters concerning housing on their facts, do explain some important cause of action, evidential and procedural issues that are referable to this blog’s focus on social housing fraud. 4 of those cases are described below.

Use of evidence in civil proceedings for criminal prosecution

In Gilani v Saddiq & Ors [2018] EWHC 3084 (Ch) the claimant applied for permission to use documents disclosed by the defendants in that civil claim as evidence for a private prosecution he had brought against the first and second defendants on charges of fraud arising out of the same matters that had given rise to the civil claim (though that claim had not pleaded fraud).

CPR r. 31.22 provides:

(1) A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where –

(a) the document has been read to or by the court, or referred to, at a hearing which has been held in public;

(b) the court gives permission; or

(c) the party who disclosed the document and the person to whom the document belongs agree.

(2) The court may make an order restricting or prohibiting the use of a document which has been disclosed, even where the document has been read to or by the court, or referred to, at a hearing which has been held in public.

(3) An application for such an order may be made –

(a) by a party; or

(b) by any person to whom the document belongs.

(4) For the purpose of this rule, an Electronic Documents Questionnaire which has been completed and served by another party pursuant to Practice Direction 31B is to be treated as if it is a document which has been disclosed.

Lord Justice Aldous declared in Smithkline Beecham Plc v Generics (UK) Ltd [2003] EWCA Civ 1109 at [37]:

“The most important consideration must be the interest of justice which involves considering the interest of the party seeking to use the documents and that of the party protected by the CPR 31.22 order. As Lord Oliver said each case will depend upon its own facts.”

In the Gilani case itself HHJ Cooke considered the relevant authorities and explained the judicial discretion thus at [21]:

“The discretion is thus a general one, to be exercised in the interests of justice in all the circumstances of the case, having particular regard to the fact that documents are disclosed under compulsion and are prima facie to be kept confidential and used only for the purpose of the proceedings so that some good reason has to be shown for permitting any other use, but this does not mean that the grant of permission is rare or exceptional if a proper purpose is shown, and use in other proceedings such as criminal proceedings brought in the public interest may be such a purpose. The court must be satisfied there is no injustice to the party compelled to give disclosure.”

before concluding that [31]

“In the circumstances, in my judgment the grant of permission would not cause any injustice whatever to any of the defendants. Even if it could be maintained that it was in some way unjust to the Saddiq brothers that the prosecution case against them is strengthened by production of documents disclosed by them, that is a result which they brought upon themselves by opposing the application to stay the civil proceedings, and indeed expressly assented to in the course of that opposition. The grant of permission would not prevent them from pursuing an argument to similar effect before the criminal court; if they do so that will be a matter for the criminal court to determine.”

This decision was largely based on 5 factors:

  1. The considerable public importance in facilitating the effective prosecution of serious crimes such as fraud” – paragraph 22.
  2. The prosecutor “has the duty to lay before the criminal court all the evidence relevant to the offences charged, and would be hindered in doing so if evidence that would otherwise be relevant has to be withheld because this court refused permission.” – paragraph 23.
  3. There were no issues concerning the privilege against self-incrimination – paragraph 24.
  4. There was no injustice to the defendants in granting permission, indeed they had opposed the claimant’s application for a stay of the civil proceedings pending the outcome of the criminal prosecution – paragraphs 25 to 29.
  5. It cannot be said that use of the documents in criminal proceedings is in any respect an “improper” purpose – paragraph 30.

 

Pleading dishonesty/fraud

In Canary Riverside Estate Management Ltd v Circus Apartments Ltd [2018] EWHC 1376 (Ch) Master Shuman was faced with a CPR r. 3.4(2) application by the defendant in a breach of Lease claim to strike out paragraph 9 of the Reply in which the claimant had made an allegation of dishonesty against the defendant.

The Master referred to the said paragraph 9 in this way:

“In the claimant’s reply it is also alleged that contrary to the defendant’s case that it has granted 45 separate underleases to Bridgestreet each for a term of 3 years and each containing a landlord “put option” only the defendant has entered into an unconditional agreement with Bridgestreet to underlet the Property for a term of 10 years. This is squarely an allegation of dishonesty.”

and in considering the law at paragraphs 10 to 19 of the judgment the Master established:

  1. There was no factual basis alleged to plead the dishonesty – paragraph 11.
  2. You cannot plead a fresh cause of action in a Reply – paragraph 11, 16PD para. 9.2.
  3. A strike out application should be made as soon as possible – paragraph 13.
  4. Where it is intended that there be an allegation that a fraud or dishonesty has been committed, you must allege it and you must prove it with sufficient particulars – paragraphs 15, 17; Three Rivers District Council v Bank of England [2001] UKHL 16; [2001] 2 All ER 513 at [55, 184-6]
  5. The pleading party must have a proper basis for making an allegation of dishonesty in their pleading – paragraph 16; Three Rivers District Council v Bank of England [2001] UKHL 16; [2001] 2 All ER 513 at [160].
  6. Mr Justice Flaux said in Jsc Bank of Moscow v Vladimir Abramovich Kekhman & ors [2015] EWHC 3073 at [20]:

“The correct test is whether or not, on the basis of the primary facts pleaded, an inference of dishonesty is more likely than one of innocence or negligence. As Lord Millett put it, there must be some fact “which tilts the balance and justifies an inference of dishonesty”. At the interlocutory stage, when the court is considering whether the plea of fraud is a proper one or whether to strike it out, the court is not concerned with whether the evidence at trial will or will not establish fraud but only with whether facts are pleaded which would justify the plea of fraud. If the plea is justified, then the case must go forward to trial and assessment of whether the evidence justifies the inference is a matter for the trial judge.”

Counsel for the (ultimately successful) defendant set out the relevant principles thus (paragraph 19 of the judgment):

(1) The hope that something may turn up during cross-examination of a witness at trial does not suffice.

(2) The allegation of fraud must not be equivocal.

(3) There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.

(4) At an interim stage the court is only considering whether the facts as pleaded would justify the plea of fraud.

The Master ultimate found in favour of the application on the following primary grounds:

“34. I accept Mr Rainey QC’s submissions at paragraph 34 of his skeleton argument that, against the background of the 9 July 2015 agreement and the 45 under lettings, the fact that a junior employee of Bridge Street who was in sales said that he understood that position to be that Bridgestreet have the building for another 10 years is wholly insufficient to tilt the balance and to justify an inference that the defendant is dishonestly concealing an unconditional agreement to grant a lease of the whole of the Property to Bridgestreet for a term of 10 years. It does not come close. I accept that the statement by the employee is equivocal and equally consistent with an honest belief that Bridgestreet could remain in the Property for 10 years.

35. As to the other evidence relied on by the claimant in the witness statements put before me, this is not pleaded. However for completeness I have considered that evidence. I note that in relation to Mr Wallace he has refused to provide a witness statement to the claimant. In relation to the attendance note I consider that when Mr Wallace said that he had been told by either Mr Beck or Mr Rands that Bridgestreet had the property for 10 years that is explicable on the same basis as the email of 29 July 2015, that Bridgestreet were confident that they would be in the Property for the next 10 years. It was certainly in the defendant’s commercial interests for the underleases to be renewed. In relation to the email about the term “3+3+3+ 1 =10” I fail to see how this is evidence supporting the claimant’s contention that the defendant is dishonest. It demonstrates the mechanics of the agreement between the defendant and Bridgestreet and specifically refers to the fact that the defendant is awaiting the consent of the claimant which would alter these mechanics and therefore provide a single term of 10 years rather than a multiple of different terms adding up to 10 years.

36. So again I go back to paragraph 9 of the reply and that the claimant’s pleaded case hinges on the one email from Mr Wallace, a junior employee in sales writing an informal email to a potential client. I do not see how this email can be said to tilt the balance and justify an inference of dishonesty. I accept Mr Rainey QC’s submissions that this email is wholly insufficient to tilt the balance and wholly insufficient to mount a case that the defendant is dishonestly concealing a 10 year agreement for lease.”

 

Vicarious liability for fraudulent misrepresentation

In Winter v Hockley Mint Ltd [2018] EWCA Civ 2480 the Court of Appeal was faced with an appeal against a damages award of £531,803.98 made for vicarious liability for fraudulent misrepresentations made to the respondent company.

The Court only had to consider the first of four grounds – the Judge applied the wrong legal test in determining that Mr Winter was vicariously liable for the deceit of Mr Ramsden, and should have applied the test that a principal is only liable for the fraudulent misrepresentations of his or her agent where those misrepresentations were made within the scope of the agent’s actual or apparent authority – because they found in the appellant’s favour and remitted for re-hearing and determination the issue of Mr Winter’s vicarious liability on the grounds of Mr Ramsden’s ostensible authority.

In particular, the Judge did not apply the correct legal test in reaching his conclusion that Mr Winter was vicariously liable for Mr Ramsden’s deception of Hockley Mint, the test being:

“36. Lloyd v Grace, Smith & Co [1912] AC 716 concerned the liability of the defendant firm of solicitors for the conveyancing fraud of their managing clerk, who conducted the conveyancing business of the firm without supervision. One of the issues was whether it was a defence that the fraud was committed, not for the benefit of the firm, but for the benefit of the managing clerk. The firm contended that Barwick v English Joint Stock Bank (1867) LR 2 EX 259 was authority for the proposition that a principal was not liable for the fraud of his agent unless the fraud was committed for the benefit of the principal.

37. Lord Macnaghten, with whose speech Earl Loreburn and Lord Atkinson agreed, said (at 735-6) that the true principle to be derived from Barwick was that an innocent principal was civilly responsible for the fraud of his authorised agent, acting within his authority, to the same extent as if it was his own fraud. Lord Macnaghten did not consider separately actual authority, on the one hand, and apparent or ostensible authority, on the other hand. He said (at 736), for example, that the expressions “acting within his authority”, “acting in the course of his employment”, and “acting within the scope of his agency” meant one and the same thing, and that it was not easy to define with exactitude what was meant by those expressions. This reflects the fact that the case was decided at an early stage in the development of the jurisprudence on ostensible authority and on the difference between actual authority, on the one hand, and ostensible authority, on the other hand, as was described much later in Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, esp at 502-3 (Diplock LJ).”

Armagas Ltd v Mundogas Ltd [1986] AC 717 “is binding authority of the House of Lords that, where a claimant has suffered loss in reliance on the deceit of an agent, the principal is vicariously liable if, but only if, the deceitful conduct of the agent was within his or her actual or ostensible authority” (paragraph 48).

More particularly, the Judge went wrong as follows:

“63. The analysis of the Judge did not identify or address the essential ingredients of vicarious liability of a principal for the deceit of his agent as required by Armagas: a holding out or representation by the principal to the claimant, intended to be and in fact acted upon by the claimant, that the agent had authority to do what he or she did, including acts falling within the usual scope of the agent’s ostensible authority. Instead, he applied a broad principle of fairness and a test of “sufficiently close connection” derived from Lister and Dubai Aluminium. Those cases, however, did not concern a reliance based tort, and were not about the ostensible authority of an agent or employee as a result of a holding out by the principal or employer. They concerned the ordinary course of employment (in Lister) and the ordinary course of a firm’s business (in Dubai Aluminium). That is why Armagas was not mentioned in any of the speeches in either case, and why Lord Nicholls in Lister said (at [30]) that in that case and in the other cases he cited there was no question of reliance or holding out, and why Lord Nicholls in Dubai Aluminium said (at [28]) that he left aside cases where the wronged party was defrauded by an employee acting within the scope of his apparent authority. In short, the first ground of appeal is correct in stating that the Judge applied the wrong test.”

 

Judgments obtained by fraud

This issue was recently considered by the Court of Appeal in Terry v BCS Corporate Acceptances Ltd & Ors [2018] EWCA Civ 2422, where the defendant failed in his appeal, having unsuccessfully applied to strike out the claimant’s claims post default judgment.

The Court of Appeal set out the correct procedures that should have been followed at paragraphs 25 to 40 of Hamblen LJ’s judgment:

  1. The primary means of doing so was by bringing a fresh action seeking the equitable relief of setting aside the judgment – paragraph 26; see Flower v Lloyd [1877] 6 Ch D 297; Hip Foong Hong v H Neotia & Company [1918] AC 888.
  2. In order to succeed in setting aside the judgment it will be necessary not only to prove the alleged fraud but also that it involved “conscious and deliberate dishonesty” and that it was “material” to the decision reached – paragraph 35; Royal Bank of Scotland Plc v Highland Financial Partners LP & Others [2013] EWCA Civ 328 at [106].
  3. The Court preferred the test of materiality set out in in Hamilton v Al Fayed (No 2) [2001] EMLR 14 at [34]:

    “Where it is clearly established by fresh evidence that the court was deliberately deceived in relation to the credibility of a witness, a fresh trial will be ordered where there is a real danger that this affected the outcome of the trial.”

  4. There might be special reasons for departing from this “established practice” in certain cases, but, if so, “the necessity for stating the particulars of the fraud and the burden of proof are no whit abated and all the strict rules of evidence apply”: paragraphs 27, 29;  Jonesco v Beard [1930] AC 298 at [201].
  5. The other established means of challenging a judgment obtained by fraud is by appealing and seeking to adduce fresh evidence in accordance with the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489, that is the evidence (1) could not have been obtained with reasonable diligence for use at the trial; (2) is such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) is apparently credible, though it need not be incontrovertible – paragraph 31.
  6. The tensions between the appeal/set aside approaches was explained by Lord Justice Hamblen in this way:

’32. In Noble v Owens the Court of Appeal considered the tension between the Ladd v Marshall line of cases, which involve an appeal and a retrial without proof of fraud, and the Jonesco line of cases, which involve a fresh action being brought to prove the fraud.  This tension was described by Smith LJ in the following terms at [16]:

“16. It appears to me that there is an inconsistency between the two lines of authority upon which the opposing parties to this appeal rely. On the one hand there is Ladd v Marshall [1954] 1 WLR 1489 which suggests that, where fresh evidence is properly admitted and it appears to the court that it might, if admitted, have had an important effect on the trial, the right course is to send the case back for retrial. That should be done, apparently even if the new evidence suggests that a deceit was practised on the court below: see Hamilton v Al Fayed [2001] EMLR 394. On the other hand, Jonesco v Beard [1930] AC 298 suggests that, where it is alleged that there was deceit in the court below, the proper course is to leave the aggrieved party to commence a new action, save where the Court of Appeal either determines the issue of fraud itself—in effect where it is admitted—or the evidence is incontrovertible. How are these two lines of authority to be reconciled?”

33. Smith LJ, with whom Elias LJ agreed, answered this question as follows at [27]:

“In my judgment, the true principle of law is derived from Jonesco v Beard and is that, where fresh evidence is adduced in the Court of Appeal tending to show that the judge at first instance was deliberately misled, the court will only allow the appeal and order a retrial where the fraud is either admitted or the evidence of it is incontrovertible. In any other case, the issue of fraud must be determined before the judgment of the court below can be set aside.””

 

Unless the fraud is admitted or the evidence of it is incontrovertible, the issue of fraud should therefore be both properly particularised and proved.  This would usually require a fresh action, although if the appeal route is adopted the trial of the fraud issue could be referred to a High Court judge pursuant to CPR 52.20(2)(b) (see Noble v Owens [2010] EWCA Civ 224, [2010] 1 WLR 2491):

(2) The appeal court has power to—

(b) refer any claim or issue for determination by the lower court

It will also be necessary to establish that the evidence which is relied upon to establish the fraud could not with reasonable diligence have been obtained for the trial (the “reasonable diligence condition”) – paragraph 39; Takhar v Gracefield Developments Ltd [2017] EWCA Civ 147, [2018] Ch 1.  It is to be noted, however, that an appeal against this decision has recently been heard in the Supreme Court.

The wrong procedure was therefore followed by the defendant and the court had no jurisdiction to strike out a claim post-judgment.

The Court also found that there were no grounds to support any application to set aside judgment under CPR r. 3.1(7)  (insofar as the actual application could be treated as such):

75. In summary, the circumstances in which CPR 3.1(7) can be relied upon to vary or revoke an interim order are limited.  Normally, it will require a material change of circumstances since the order was made, or the facts on which the original decision was made being misstated.  General considerations such as these will not, however, justify varying or revoking a final order.  The circumstances in which that will be done are likely to be very rare given the importance of finality.  An example is provided by cases involving possession orders made when the defendant did not attend the hearing where CPR 39.3 may be relied upon by analogy – see Hackney London Borough Council v  Findlay [2011] EWCA Civ 8, [2011] HLR 15.  Another example is the use of powers akin to CPR 3.1(7) to vary or revoke financial orders made in family proceedings in relation to which there is a duty of full and frank disclosure and the court retains jurisdiction – see, for example, Sharland v Sharland [2015] UKSC 60, [2016] AC 871 and Gohil v Gohil (No 2) [2015] UKSC 61, [2016] AC 849.

Local authorities detect or prevent frauds worth £302 million in 2017/18

The CIPFA “Fraud and corruption tracker” summary report, based on responses from 144 local authorities, estimates that approximately 80,000 frauds have been detected by local authorities in 2017/18 with a value of £302 million.

71.4% of that figure is under the heading of ‘housing fraud’ (though the number of cases represents only 5.7% of the total, the largest number of cases being with regard to council tax):

– 1518 Right to buy cases at a value of £92m

– 1051 unlawful sub-letting cases at a value of £55.8m

– 2164 other cases (e.g. wrongful assignments and tenancy successions, false applications) at a value of £68.3m

CIPFA recommends:

1. Public sector organisations need to remain vigilant and determined in identifying and preventing fraud in their procurement processes. Our survey showed this to be one of the prime risk areas and practitioners believe this fraud to be widely underreported.

2. Effective practices on detecting and preventing adult social care fraud should be shared and adopted across the sector. Data matching is being used by some authorities with positive results.

3. All organisations should ensure that they have a strong counter-fraud leadership at the heart of the senior decision-making teams. Fraud teams and practitioners should be supported in presenting business cases to resource their work effectively.

4. Public sector organisations should continue to maximise opportunities to share data and to explore innovative use of data, including sharing with law enforcement.

5. The importance of the work of the fraud team should be built into both internal and external communication plans. Councils can improve their budget position and reputations by having a zero- tolerance approach.

CIPFA’s chief executive, Rob Whiteman, said in a recent article for “Public Finance”:

“…the number of serious and organised crimes detected and prevented by councils has doubled this year to 56, highlighting the seriousness of the issues faced – and the effectiveness of councils’ efforts. Overall, 636 prosecutions were completed in 2017-18, up from 614 the previous year.

However, these successes were owing not to increased resources but increased capability and collaboration. The number of in-house qualified financial investigators appears to have dipped slightly, but shared services structures have risen from 9% to 14% of authorities. Fraud is a crime that crosses organisational and geographic boundaries. By collaborating, sharing data and jointly investing in new technologies, councils can improve resilience and cost-effectiveness.

The London Counter Fraud Hub, a data-sharing and analytics solution led by Ealing Council and London Councils and run by CIPFA and other partners, is an example. About to go live, it forms a part of CIPFA’s enhanced counter fraud services, which seek to drive a collective change in councils’ approach to fraud.

It’s important to maximise opportunities to share and explore innovative use of data, including working with law enforcement. Fraud is not a victimless crime. It inevitably diverts resources away from those who need it most. With local government running on empty, councils must preserve every drop.”

 

Postcript:

See the earlier blog article on the National Fraud Initiative Report 2018

 

Private prosecutions – a cautionary tale

The right of private prosecution is expressly preserved by section 6 of the Prosecution of Offences Act 1985.

On 23 May 2018 Lord Justice Gross and Mr Justice Sweeney handed down judgment in R (on the application of Martin Kay and Scan-Thors (UK) Limited) v Leeds Magistrates’ Court (Defendant) and Marek Karwan (Interested Party) [2018] 4 WLR 91, allowing a judicial review challenge to 2 decisions of a district judge at the Magistrates’ Court in Leeds:

1. Her refusal to dismiss summonses for offences of fraud between 2007 and 2012, which had been issued against the Claimants on the basis of an information laid at the behest of the Interested Party.

2. Her refusal to stay proceedings as an abuse of process, having decided that this issue should be determined in the Crown Court.

The District Judge’s decision and the summonses were quashed because of breaches of the duty of candour on the part of the private prosecutor, Mr Justice Sweeney concluding:

38. As this case demonstrates, the grant of summonses, typically conducted ex parte, can have far reaching consequences. Compliance with the duty of candour is the foundation stone upon which such decisions are taken. In my view, its importance cannot be overstated.

39, The DJ undoubtedly had the power to deal with the breach of the duty of candour in this case by quashing the summonses. Logically, that was the first issue that she should have engaged with, but she failed to engage with it at all.

40. Whether breach of the duty of candour comes under the broad umbrella of abuse of process, or falls to be dealt with in its own right, applying the test most favourable to Mr Karwan (see [27] above), namely whether the inaccurate and/or non-disclosure would have made a difference to the judge’s decision, my answer is, unhesitatingly, “yes”, Even if the application had not been refused without more, it would inevitably have resulted in more focussed enquiries, the notification of the Claimants, and (in my view) the Claimants being heard.

Costs were determined on 26 October 2018, they being awarded against the Interested Party on an indemnity basis, Mr Justice Sweeney explaining:

“21. In our view there is no merit in either the Interested Party’s principal or alternative submissions under this heading. He was the driving force in obtaining the summonses in significant breach of his duty of candour, and in persuading the District Judge to act as she did (whilst still failing to disclose the content of the Polish Regional Prosecutor’s second written justification). In all the circumstances we conclude that it is not appropriate to make an order for costs out of central funds in relation to the proceedings in the Magistrates’ Court or in this Court, nor to order that the Interested Party should only be liable for a portion of the costs. Put bluntly, these submissions are misconceived….

28. The Claimants underline that, for Orders on an indemnity basis, proportionality is irrelevant. They submit that Mr Kay is a man of 71 of impeccable good character who, when faced with serious charges of fraud, was entitled to instruct lawyers with the necessary skill and experience to deal with such a case, and that the amount of work that was carried out by his lawyers was entirely reasonable – including proper delegation with the majority of his solicitors’ work being done at associate rather than partner level. The Claimants draw attention to R (Haigh) v City of Westminster Magistrates’ Court [2017] EWHC 232 in which the Court made an Order for costs of £190,000 against a private prosecutor for the Magistrates’ court proceedings alone (albeit that two sets of defence lawyers were involved). The Claimants went on to rebut each of Interested Party’s submissions in relation to particular items of expenditure.

29. We have considered these submissions and the Amended Costs Schedules, having regard to s.51 of the Senior Courts Act, CPR 44.2 and s.19 of the Prosecution of Offences Act 1985. In the result we have decided, in the exercise of our discretion, to assess costs summarily in the total amount of £250,000. We are satisfied that, looked at robustly and in the round, this figure does justice to both parties. Accordingly, we propose to make an Order in favour of the Claimants, here and below, in that total sum – payable within 28 days. The Claimants must draw up a draft Order accordingly.”

This case not only serves as a warning to would-be prosecutors that their duty of candour must be taken seriously but also, in the substantive judgment, provides a helpful update on the procedure applicable to bringing such a prosecution.

 

Tenancy Fraud Forum 2018

 

The Tenancy Fraud Forum (TFF) held its annual conference at the BMA in London on Wednesday, 3 October 2018:

The TFF was launched in April 2012 and arose out of a recognition that there was an increasing need for a fraud forum that focused solely on tenancy fraud issues because of the complex law that surrounds such matters, and the requirement for niche investigations. The Executive Committee of TFF is made up of fraud specialists from local authorities and housing associations.

The annual event was as ever well attended and I was privileged to be asked to give the keynote speech, and focused on the need for greater understanding of the extent of fraud ‘in the system’, the litigation tools at the disposal of landlords and the need to consider widening the local authority investigation powers to be found in the Prevention of Social Housing Fraud (Power to Require Information) (England) Regulations 2014/899 and the Prevention of Social Housing Fraud (Detection of Fraud) (Wales) 2014/826 beyond the suspected fraud and their family.

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The lasting impression I got from listening to some excellent speakers on topics such as money laundering, surveillance and right to buy fraud – and speaking to many delegates – was that there was some tremendous work going on in the social housing sector to detect fraud and an increasing cross-working practice in the sector, alongside an acknowledgement that there is a long way to go:

The TFF is a an important organisation led by the brilliant and indefatigable Katrina Robinson MBE…I’m already looking forward to the 2019 Conference!

National Fraud Initiative Report 2018

The Cabinet Office has produced the National Fraud Initiative Report 2018, the headline figure of which is that the National Fraud Initiative (NFI), the Cabinet Office’s data matching service, has enabled participating organisations to prevent and detect over £300 million UK fraud and error in the period April 2016 to March 2018, a rise from £222 million in 2014/15.

The NFI compares sets of data, such as the payroll of a company with benefit records, allowing fraudulent claims and payments to be identified. Between April 2016 and March 2018, the NFI worked with over 1,200 public and private sector organisations.

The report highlights 4 NFI products:

  1. National – Data is collected from organisations across the UK for national fraud detection batch matching. Matches are accessed through a secure web application.
  2. AppCheck – Fraud prevention tool that helps organisations to stop fraud at the point of application, thereby reducing administrative and future investigation costs.
  3. ReCheck – Flexible batch matching tool that allows an organisation to repeat national batch matching at a time to suit them.
  4. FraudHub – this enables groups of organisations to regularly screen more than one dataset with the aim of detecting errors in processing payments, or benefits and services.

Looking at the figures in a housing context for England (£275.3 million of the £300 million figure) the report shows:

  • £5.5 million related to tenancy fraud, £25.5 million to waiting lists, and £1 million to right to buy (RTB – 4 cases);
  • 58 social housing properties were recovered, a small increase from the 54 properties in 2014/15. The NFI use an estimate of £93,000 per property recovered based on average four year fraudulent tenancy – this includes temporary accommodation for genuine applicants; legal costs to recover property; re-let cost; and rent foregone during the void period between tenancies;
  • 7601 false applications were removed from local authority allocation schemes during 2016/17 – over half of these applications were cancelled by one council.  The NFI works on an estimate of £3,240 per case for future losses prevented as a result of removing an applicant from a list;
  • The NFI estimate a saving of £65,000 per RTB application withdrawn based on average house prices and the minimum right to buy discount available (this has some regional variations such as with London it is £104,000 per application withdrawn to reflect the maximum value of RTB discount available for London properties);
  • The Annual Fraud Indicator 2017 highlights that housing tenancy fraud costs local government £1.83 billion. This has increased from the £1.76 billion quoted in 2016;
  • Whilst there are 400 local authority participants in the NFI, there are just 7 Housing Associations.

The report gives 2 examples of local authority use of NFI initiatives:

  1. Royal Borough of Greenwich – an NFI housing tenancy to housing tenancy match showed two matching tenancies between two London boroughs. Investigations in the Royal Borough of Greenwich showed their tenant had used false identity documents to gain a one bedroom flat in May 2013; claimed housing benefit; used the same documents to gain employment as a waste operative in the borough four years earlier, in October 2009 (he was no longer in that employment at the time of the investigation). The Royal Borough of Greenwich evicted the tenant from the property in February 2017 and he was prosecuted and sentenced at Woolwich Crown Court on 4th October 2017 to 33 months imprisonment. In total the man had received in excess of £60,000 in employment and housing benefit payments.
  2. Portsmouth City Council – a housing tenants to housing benefit match identified a tenant in a property owned by Portsmouth City Council. The tenant had however been claiming housing benefit in excess of £150 per week for a different property in a nearby authority area since January 2016. The match revealed the tenant had let the property from Portsmouth City Council in February 2013, but investigations found the tenant’s partner had been subletting the Portsmouth property for up to two years. The council sought a prosecution in October 2017 and the property was successfully recovered.