What is civil fraud?
The word ‘fraud’ is used in both criminal and civil legal matters, and has a different definition depending on the context. This blog explains the types of civil fraud that exist and summarises what can be done to recover losses or defend against a claim.
Criminal vs Civil
In the criminal context, fraud is an offence which is capable of being prosecuted in a criminal court, and which leads to a criminal conviction and imprisonment or a fine. All elements of fraud must be proven ‘beyond reasonable doubt’.
In the civil context (which this blog deals with in summary), fraud is usually a case of someone misrepresenting or withholding information or the truth where in a position with a duty to disclose the truth; and by so doing gaining a benefit for themselves or others. Claims brought in a civil context must be proven ‘on the balance of probabilities’ (i.e. more likely than not).
Types of ‘civil fraud’: everyday, real life examples
- Investment fraud
- Dishonest directors
- Forged documentation
- Charity fraud
- Breaches of fiduciary duties
- Cryptocurrency and NFT scams
Types of ‘civil fraud’: the technical terms
Common heads of claims that are pursued are:-
Where a false statement is made, which the statement maker knew was false or was reckless as to whether it was true or false, and the innocent party is induced into a contract and as a result suffers loss.
Breaches of Fiduciary Duty
This can arise in relationships of trust. Company directors owe fiduciary duties to the company. Other fiduciary relationships exist between:-
- Principal and agent
- Trustee and beneficiary
- Solicitor and client
- Mortgagor and mortgagee
Breaches of this nature are typically where a fiduciary:-
- puts themselves in a position of actual or potential conflict with the interest of the person to whom they are a fiduciary (without consent);
- derives a personal benefit of profit from their position; and / or
- fails to treat certain information as confidential (received during the fiduciary relationship).
Where a party has a dishonest state of mind and provides assistance to another in breaching a fiduciary duty.
Where a party knowingly receives money or other assets which have been disposed of by another in breach of fiduciary duty or in breach of trust, and where it is unconscionable for them to retain that money or those assets.
Tort of Deceit
Where a false is made, which the statement maker knew to be untrue or was reckless as to its truth, with the intention of the other party relying on it and as a result that party suffers loss.
Unlike Fraudulent Misrepresentation, to succeed in a claim in the Tort of Deceit:-
- the innocent party has the burden of proving the other party’s state of mind (i.e. knowledge of or recklessness as to falsity); and
- the misrepresentation does not have to lead to the entering into of a contract.
Unlawful Means Conspiracy
Where there is concerted action between two or more people using unlawful means, and where they have knowledge of the unlawfulness and an intention to injure and they participate in an overt act in pursuance of the agreed action causing actual damage to the innocent party.
Inducing or Procuring Breach of Contract
Where a party (A) interferes with another party’s (B) contract with another (C), and there is then a breach of the contract between B and C, where A has knowledge of the contract between B and C, and A’s interference causes damage to B and/or C.
Wrongful Trading or Fraudulent Trading
Where a director of a company either:-
- continues to trade where there is no (or they ought to have known that there is no) reasonable prospect that the company would avoid insolvency; or
- deliberately continues to trade e.g. accepting credit from suppliers, accepting orders from customers, where they know that they cannot pay the company’s creditors or service the customers’ orders.
The aim of an innocent party bringing civil proceedings would usually be to pursue the recovery of losses suffered by the innocent part.
The remedies that are available depend on the specific context and factual matrix of individual claims, and include:-
- Recovery of assets
- Rescission of a contract
- Damages (i.e. compensation)
- Repayment of money
What else can be done?
Defendants seek to escape liability under a contract by proving that:-
- they were under (economic) duress; or
- they entered into the contract under undue influence.
Where a Defendant was intimidated into the position it found itself in in relation to the fraudulent act, rather than raise a defence to a claim brought by the innocent party, the Defendant can bring its own claim for damages under the tort of intimidation.
How we can help
At Saunders Law, we are adept at advising and acting for innocent parties to fraudulent activity and as well as advising on the law, provide pragmatic and commercial advice in respect of recovery.
We can also act for parties that are caught up in a fraudulent scheme and find that they are being sued, and can advise on potential defences.