The Court of Appeal has revisited the meaning of “fraudulent purpose” within the fraudulent trading offence under s.993(1) of the Companies Act 2006 in the recent case of R v John Beckett.
The case centred around the use of dishonest commercial practices by two companies and examined the circumstances in which the offence may be charged. The case clarifies that fraudulent trading can be established without proof of a specific completed fraud: in this instance dishonest trading practises were held to satisfy the test.
Facts
The defendant, Mr Beckett, appealed his conviction and sentence for the offence fraudulent trading contrary to s.993(1) of the Companies Act 2006.
The defendant was the sole director of NRG Installs Limited (“NRG”) and The Insulate Group (“TIG”). Both NRG and TIG sold foam loft insulation and associated products and services, using telemarketers to identify customers, sales staff to attend and close deals with prospective clients, and installers to supply the products. Both companies had a significant turnover.
The prosecution case was that both companies engaged in a pattern of dishonest and unfair commercial practices directed primarily at vulnerable, older customers. These practices included:
- misleading customers about their existing insulation;
- misrepresenting product quality and performance;
- applying high-pressure sales tactics; and
- pressuring prospective customers to quickly complete sales so as to avoid a statutory cooling-off period.
Although customers generally received the products they purchased, the manner in which sales were obtained was said to be dishonest and contrary to industry standards. The defendant directed and controlled these practices. It was the prosecution case that these business practices went “well beyond the bounds of what ordinary decent people engaged in business would regard as honest” and therefore amounted to fraudulent trading.
While the conduct could have fallen within offences under the Consumer Protection from Unfair Trading Regulations 2008, the prosecution instead chose to charge fraudulent trading on the basis that the defendant’s culpability and the seriousness of the conduct was not adequately reflected by the regulatory offences alone.
As such, the prosecution charged two counts of fraudulent trading, despite the fact that it was not a case in which the business was carried on with the intention to defraud creditors or to defraud investors. Rather, customers of the businesses were provided with the advertised services, but in a way that was dishonest and involved the use of unfair commercial practices.
The defendant was sentenced to six and a half years’ imprisonment on one count and a concurrent three-year term on another.
The Court of Appeal clarifies “Fraudulent Purpose”
The appeal raised five grounds (as examined below), but the central issue concerned the trial judge’s directions to the jury on the meaning of “fraudulent purpose”.
Ground 1 – fraudulent purpose
In his summing up, the Crown Court Judge had said to the jury:
“18. Fraudulent purpose implies an intention to behave in a way which goes beyond the bounds of what ordinary decent people engaged in business would regard as honest.
19. Whether a fraudulent purpose has been proved in this case is for you the jury to decide.
20. The offence does not require the proof of deception or an intention to deceive, though in many cases such evidence may be present.
21. Similarly, the offence does not require proof of unfair trading practices, but if such breaches are established, they may, depending on your findings, along with any other evidence, assist, but are not the sole determinants, in deciding whether a company was acting fraudulently (i.e. beyond the bounds of what ordinary decent people engaged in business would regard as honest). Whether they do is entirely a matter for you.
22. In this case there were many cancelled sales and some which did not even get off the ground. Trading fraudulently does not require a completed sale and the receipt of cash. So, for example a customer who is the victim of fraud who may cancel in time, is still the victim of fraud. A company trading fraudulently which approaches a customer unsuccessfully is still trading fraudulently.”
The defendant argued that the jury had been misdirected on the meaning of “for any fraudulent purpose”. Counsel for the defendant submitted that the jury should have been directed that they needed to identify specific fraudulent acts or misconduct, rather than relying on a generalised standard of dishonesty. It was submitted that the judge’s directions were inconsistent with the principles in R v Hunter[2].
The role of dishonesty in Fraudulent Trading cases
In R v Hunter the Court was clear that “fraudulent purpose” must be given its ordinary and natural meaning. Having considered other authorities, R v Hunter confirmed at [118] that dishonesty involves conduct falling outside “ordinary decent commercial standards”, and at [131] that an intention to deceive is not essential. Thus, ultimately, the Court of Appeal in R v Beckett considered the Crown Court Judge’s summing up to be impeccable and consistent with case law.
The central issue was whether the business was acting fraudulently in the sense that it was acting beyond the bounds of what ordinary and decent people engaged in business regarded as honest. This was made clear to the jury.
The Court of Appeal held that the trial judge’s direction accurately reflected the law. The concept of “fraudulent purpose” did not require identification of a specific fraudulent act, but rather whether the business was conducted in a way that was generally dishonest.
Ground 1 was therefore dismissed.
Consumer Protection breaches and Fraudulent Trading
Ground 2
The defendant argued that the judge wrongly allowed the jury to take account of breaches of the Consumer Protection from Unfair Trading Regulations 2008, and that this risked conflating regulatory breaches with the fraudulent trading offence.
Counsel for the defendant argued that the judge ought to have directed the jury that they should be sure the breaches were made out prior to taking them into account, and argued that the judge had conflated the 2008 Regulations with the offence of fraudulent trading.
The Court of Appeal rejected this submission. The judge had clearly directed the jury that:
- the case was not about proving breaches of the Regulations; and
- such breaches were only relevant as background evidence of trading practices.
The 2008 Regulations were put before the jury as the relevant regulatory background against which the business activities took place.
Ground two therefore failed.
Mens Rea and knowledge of Fraudulent Conduct
Ground 3
Ground 3 related to the manner in which the judge responded to a jury question about mens rea and whether liability could arise where the defendant believed his actions were within the law but knew that what he was doing was “on the border of legality”.
The judge directed the jury that:
- they must decide whether the defendant acted with knowledge of the fraudulent purpose, namely the sale of products using unfair commercial practices;
- negligence (which was raised in the jury note) was not the same as knowledge – they had to address the defendant’s state of mind and how he may have arrived at it; and
- they had to be sure he was acting dishonesty and any evidence about his knowledge of the regulations was relevant to this question and it was for them to consider.
The defendant contended that the judge failed to direct the jury that it had to be sure that he knew that the business of the companies was being carried out for some specific form of misconduct. He said it was never suggested to the jury that it had to be sure that the fraudulent purpose was the use of unfair commercial practices.
Ground 3 was largely dealt with in ground 1 and was also rejected. The indictment itself defined the fraudulent purpose as the dishonest sale of insulation using unfair commercial practices. The judge’s direction was consistent with that framing.
The Court of Appeal reaffirmed Ivey v Genting[3] that:
- the defendant’s actual knowledge or belief as to facts is first established; and
- dishonesty is then assessed objectively by reference to ordinary decent people.
There is no requirement that the defendant must recognise that his conduct is dishonest by those standards. Ground three also failed.
Industry Standards are relevant – but not determinative
Ground 4
Ground 4 was not granted leave by the single judge and so an application to renew this ground was made. Ground 4 argued that the judge had misdirected the jury on dishonesty by telling the jury that they may take into account industry standards and what he knew about them, but that those industry standards were not the test of dishonesty, the test being the standard of ordinary decent people.
The Court of Appeal rejected this argument. The judge had clearly set out the test for dishonesty and that industry standards may be relevant but not determinative.
Leave was not granted and ground 4 failed.
Ignorance of the Law is no defence
Ground 5
Ground 5 related to the same jury note as in ground 3. The jury, had, asked “does the mens rea allow for negligence/ignorance of the law?” The judge replied “… ignorance of the law cannot provide a defence. If the ingredients of the offence are proved, then a defendant is guilty…”. The defendant considered this may have left the jury with the impression that he could be guilty even if he harboured a doubt as to whether the businesses were being carried out for a fraudulent purpose. This was rejected and ground 5 also failed.
What does R v John Beckett mean for Businesses and Prosecutors?
The case reinforces the broad scope of s.993 Companies Act 2006, confirming that fraudulent trading can capture sustained dishonest commercial behaviour even where no single completed fraud is identified.
[2] R v Hunter and Another [2021] EWCA Crim 1785; [2023] QB 1
[3] Ivey v Genting Casinos [2017] UKSC 67
