Civil fraud claims can arise when one party acts dishonestly or deceitfully against another party for personal gain. There are overlapping criminal and civil aspects of fraud. In civil cases, the burden of proof is on a balance of probabilities, making fraud easier to prove than in criminal cases where it must be proven beyond reasonable doubt. Common civil fraud claims include deceit, unjust enrichment, breach of fiduciary duty, and dishonest or knowing assistance. Key considerations in civil fraud claims include identifying assets, preserving assets through freezing orders, being aware of potential interactions with criminal proceedings, and notifications to authorities regarding potential criminal conduct.

2. Civil Fraud Claims
12 February 2013

3. Civil Fraud Claims
Presented by
Chris Greenwell
Claire Herbert
Natalie Howes

4. Crimes
• Fraud is a crime
• This is an intentional deception made for
personal gain or to damage another
• Crimes are about offences against the
public and regulation of people and entities
by the state
• The primary penalty in crime is conviction
and subsequent sentence

5. The overlap
• As well as being a criminal wrong fraud
may be a civil wrong
• Civil law in relation to fraud is about the
regulation of matters between entities or
individuals rather than the state
• The criminal law has overlapping power. It
can take precedence if a fair trial might be
prejudiced. It can freeze fraudulently
obtained assets and it can confiscate and
recover assets deriving from fraud

6. The overlap
• The objective of the civil law is to preserve
and recover lost assets and broadly
speaking not to punish (NB
aggravated/exemplary punitive damages)
• So civil fraud is about A acting against B to
get money back that A claims B has
wrongfully taken
• Civil remedies are often preferable to the
party that has been defrauded

7. The burden of proof
• In criminal cases to ‘win’ a case must be
proved beyond reasonable doubt
• In civil cases to ‘win’ a case must be
proved on the balance of probability
• Therefore easier to win in a civil case

8. The burden of proof
• There are very strict rules on the stating of Civil
Fraud cases to the court
‘In order to be sustainable an allegation of fraud
in a pleading must be clearly expressed. If the
facts pleaded are consistent with innocence, it is
not open to the court to find fraud unless an
allegation of fraud or dishonesty is expressly
made. Thus an allegation that a Defendant ‘knew
or ought to have known’ is not a clear an
unequivocal allegation of actual knowledge and
will not without more support a finding of fraud’.
(Armitage -v- Nurse 1998. Millet J)

9. Species of fraud – criminal
• Hugely wide ranging but broadly prosecuted
under either:
1. The Theft Act 1968
• Obtaining property by deception
• Obtaining pecuniary advantage by
deception
• False accounting
• There are many other offences under the
Theft Act

10. Species of fraud – criminal
2. Or Fraud Act 2006
• Principally fraud
• Fraud by false representation
• Failing to disclose information
• Or abuse of position.
• There are also many other offences under
the Fraud Act

11. Species of fraud – civil
• Civil fraud is far less codified but broadly
all criminal offences are also actionable
fraud falling within the general common
law definition or other civil wrongs

12. Deceit
‘A false representation by the Defendant of
an existing fact made knowingly or without
belief in its truth or recklessly, careless
whether it be true or false with the intention
that the Claimant should act on it and
which results in damage to the Claimant’

13. Deceit
• Some examples of deceit:-
• C is a high street store. Its director of
property colludes with my client to
siphon money out of the high street
store.
• Though my client (a former international
cricketer) knows nothing of property, he
raises invoices to the store apparently
for sophisticated property services
supplied

14. Deceit
• There are no services. It is a scam
• The director of property pays invoices from
the store to my client.
• He receives the money and they divide it
up. It is deceit. It is dishonest assistance,
and it comprises a secret profit

15. Deceit
• The assets of the deceivers are frozen. No
one is prosecuted until the civil claim is
over.
• The money is recovered.
• My client is ruined.
• Another example (Vahey -v- Kenyon
reported this month)

16. Deceit
• The Claimant buys a property from the
Defendant. Before he buys it, he asked if it
has been the victim of flooding. The
Defendant says no. That’s a lie.
• Even though the purchaser might have
bought the property anyway (so D claimed
there was no loss), this comprised a deceit
and the purchaser was able to claim
against the seller for the very considerable
reduction in value caused by the
purchaser being saddled with a property
which flooded.

17. Deceit
• Another example, D colludes with a valuer,
V (acting behind his employer’s back), to lie
about the true value of properties by
inflating values in order to obtain mortgages
far in excess of the true value of properties.
This happens many times to create a small
empire.
• In 2007 the world changes. The mortgages
are already far higher than the properties’
true worth and they are now standing the
lenders a substantial paper loss (£6 million).

18. Deceit
• In fact the claim is brought by the valuation
company worried that they will in turn face
claims by the lenders and they act to
freeze the assets of D and V.
• A deal is done, and the valuation company
take over management of the properties in
an effort to ensure that the value is
enhanced and the lenders suffer no loss.
• D lost her interest in all the properties; a
claim is brought against her in respect of
conspiracy to deceive and common law
fraud

19. Unjust enrichment
• The Defendant is enriched
• At the expense of the Claimant
• It must be unjust
• There is no defence for the Defendant

20. Unjust enrichment
• What is unjust?
• A mistake is made
• Ignorance
• Duress
• Undue influence
• Failure of consideration
• Illegality

21. Unjust enrichment
• Defending allegations of unjust enrichment
• Change of position
• Bona fide purchaser
• Ministerial receipt
• Limitation

22. Unjust enrichment
• Examples
• ‘Employer’ pays PAYE for an ‘employee’
who has received all the money gross.
The employer has misunderstood the
tax treatment of the income. The
employer sues the employee, claiming
he is unjustly enriched to the extent of
the tax paid. The employee has to repay
the employer.

23. Unjust enrichment
• Examples
• A retiring partner allows his remaining
partner to keep capital not realising
there is £100,000 too much having been
misadvised by his accountant. The
allegation is that the £100,000 is a
‘windfall’ entitling the retiring partner to
have all the money back.

24. Breach of fiduciary duty
‘A fiduciary is someone who has undertaken to act
for or on behalf of another in a particular matter in
circumstances which give rise to a relationship with
trust and confidence. The distinguishing obligation
is the obligation of loyalty. The principal is entitled
to the single minded loyalty of his fiduciary. The
core liability has several facets. The fiduciary must
act in good faith; he must not make a profit out of
his trust; he must not place himself in a position
where his duty and his interest may conflict; he
may not act for his own benefit or the benefit of a
third person without the informed consent of his
principal…they are the defining characteristics of
the fiduciary…’

25. Breach of fiduciary duty
• This arises as between
• Trustee and beneficiary
• Solicitor and client
• Agent and principal
• Director and company
• Partner and partnership
• Parties to a joint venture

26. Breach of fiduciary duty
• For example
• A financial adviser advises a client to
invest in a speculative instrument
without paying adequate regard to either
the client’s appetite for risk or the
inherent high risk in the instrument.
• The world changes, the value falls, the
financial adviser may be in breach of
fiduciary duty.

27. Breach of fiduciary duty
• Another example
• A solicitor acts for seller, buyer and lender.
The solicitor has to investigate title for the
lender and report on it so the lender lends
the money to the purchaser.
• The solicitor has information about the
purchaser which he ought to disclose to his
client the lender but does not.
• A potential breach of fiduciary duty arises for
failing to disclose this information and acting
in conflict.

28. Breach of fiduciary duty
• It will be evident that in relation to unjust
enrichment, and in relation to breach of
fiduciary duty, ‘fraud’ or ‘dishonesty’ have
very wide applications in civil law
encompassing recklessness or
carelessness rather than what might
conventionally be thought of as out and
out dishonesty.

29. Dishonest or knowing assistance
• The constituent elements of the claim for
dishonest assistance
• The existence of a trust or fiduciary
relationship
• A breach of that trust or fiduciary relationship
• No requirement in fact for the trustee or
fiduciary to be dishonest
• The Defendant must have induced or
assisted in the breach of trust or fiduciary
relationship

30. Dishonest or knowing assistance
• The Defendant must have acted dishonestly
in providing the assistance
• In the example of the retail store defrauded
by its property director and the cricketer, the
cricketer would be guilty of dishonestly or
knowingly assisting the director breach the
fiduciary duties owed to the store. (NB in this
example, the director was as dishonest as the
cricketer, although there is no requirement for
the fiduciary to be dishonest).

31. Knowing receipt
• The constituent parts of a claim for
knowing receipt:
1. Assets are held under a trust or
fiduciary duty
2. Disposal of those assets is made in
breach of trust or fiduciary duty

32. Knowing receipt
3. There is beneficial receipt of those
assets or traceable proceeds by the
Defendant
4. The knowledge of the Defendant is
sufficient so as to render it
unconscionable for him to retain the
assets

33. Knowing receipt
• So for example husband is guarantor of
lendings in relation to a property transaction.
• He knows the personal guarantee is going to
be called on for £260,000.
• The family home is in the husband’s name
only. He creates a false ‘loan’ from wife and
enters a restriction on his property to
endeavour to distance the beneficial interest
in the property to the extent of the loan from
his creditors.

34. Knowing receipt
• The wife knowingly receives a beneficial
interest that she knows she does not have.
• The wife also knowingly assists in the
attempt to facilitate the transaction entered
into to defraud creditors.

35. Key considerations
• The fraud
• The assets
• The Crown

36. Key considerations
• Fill the document and information deficit
• Preserve the assets and funds
• Be aware of making elections
• Consider the interface with the Crown

37. Key considerations
• Identifying and locating assets and the
fraudsters
• Pre-action disclosure
• Search orders
• Third parties:
• equitable jurisdiction
• discovery jurisdiction

38. Key considerations
• Protecting the assets
• Freezing injunctions:
• Good arguable case/risk of dissipation
• Evidence obtained illegally
• Standard freezing/proprietary injunction
• Information

39. Key considerations
The Crown
• Staying the civil claim until the criminal
case is concluded
• privilege only applies where there is
compulsion;
• a stay is discretionary and the burden is
on the Defendant;
• a lesser order may be appropriate

40. Key considerations
Confiscation proceedings
• Restraint Order
• Confiscation for the Crown
• Compensation for the victim ‘the Super
Order’
• Interim Judgment in civil proceedings
-beware!
• Notification to the Crown

41. Questions