Civil fraud - an overview

read time: 5 mins

27.06.23

Cara White

Most people are familiar with the term “fraud” and know that fraudsters are dishonest beings who break the law to gain an advantage (usually financial) over another. Less people are familiar with the term “civil fraud”.

As well as reporting the matter to the Police, victims of financial fraud have another option available to them which is to seek to recover their lost money through the civil courts. This option is particularly attractive when the criminal justice system and law enforcement agencies are too stretched to meaningfully investigate the fraudulent activity.

If you or your business are the victim of a fraud, one of the first steps from a legal perspective is to identify what your claim is and against whom. 'Civil Fraud' is not a cause of action in itself, however. It is an “umbrella term” which covers a number of heads of claim. Outlined below are the most commonly encountered heads of claim in fraud cases, and a summary of their key features.

Heads of Claim	Legal Test	Remedies
Tort of deceit or fraudulent misrepresentation	This is what most people mean when they refer to civil fraud and fraud is an essential element of the claim. The claimant must establish: a statement or representation made by the defendant that was false. that the defendant knew the statement or representation was false or was reckless as to whether it was false that the defendant intended for the claimant to rely upon that the claimant did in fact rely upon the false statement or representation; and that the claimant suffered loss as a result.	The claimant can recover tortious damages (i.e. compensation for loss sustained so that the claimant is placed in the position it would have been in had the false statement or misrepresentation not been made). There is no remoteness limit, so the claimant is entitled to recover damages equal to the loss suffered by the claimant as a direct result of their reliance on the false statement, even if the loss was not reasonably foreseeable. The claimant is also entitled to rescind the contract. This means that the contract is effectively cancelled from the beginning so that it is treated as never having existed.
Unlawful means conspiracy	The Claimant must establish a combination or agreement between two or more persons with the intention of causing damage to the claimant, who make use of unlawful means (i.e. an action not according to or permitted by the law) as part of a concerted action further to the agreement/combination that causes damage to the claimant.	Conspirators using unlawful means are liable for any damage caused by the unlawful means itself.
Dishonest Assistance	The claimant must establish that the defendant, having a dishonest state of mind, helped a third party commit a breach of trust or fiduciary duty. There is no requirement that the third party trustee/fiduciary was dishonest; it is the person assisting that must be shown to have had a dishonest state of mind.	The claimant may be entitled to equitable compensation (a discretionary monetary remedy) for losses resulting from dishonest assistance. The defendant may, alternatively, be required to account to the claimant for the gain or profit that accrued because of the dishonest assistance regardless of whether the wrongdoing caused the claimant any corresponding loss, though this is also a discretionary remedy.
Knowing receipt	The claimant must establish that the defendant has received assets that have been disposed of by another in breach of trust or fiduciary duty, in circumstances where they knew the assets were received in breach of trust or duty. Dishonesty on part of the defendant is not required, although it is often pleaded in cases involving fraud and dishonesty.	The claimant will have a claim to the property transferred in breach of trust to a third party who is not a bona fide purchaser for value without notice (i.e. an innocent party who purchases property without notice of any other party's claim to the title of that property). The claimant may also have a remedy in the form of equitable compensation or an order for account of profits.
Unjust Enrichment	The claimant must establish that the defendant has been enriched at the claimant's expense and the retention of the enrichment would be unjust. The claim is not dependent on establishing dishonesty on the part of the defendant, although that could be relevant to establishing that the enrichment has been "unjust".	The usual remedy here is that the claimant is entitled to restitution whereby the defendant must pay to the claimant the value of the enrichment.
Tort of conversion	This is the civil version of theft. The claimant must establish that the defendant has deliberately interfered with the personal property of the claimant, so that the claimant is denied the use and possession of it. The claimant must demonstrate possession, or an immediate right to possession, of the property in question. Provided it can be shown that the defendant had the intention to seize or interfere with the property, it is not necessary to show that the defendant intended to commit a wrong. A claim for conversion can occur in many different circumstances, but commonly arises in the context of misappropriation, which often involves fraud.	Return of the goods or damages in the sum of the market value of the goods lost.

There are other causes of action which often feature allegations of fraud including breaches of fiduciary duty and breach of trust. These causes of action are often used in the context of directors acting inappropriately, causing the business to suffer loss.

In cases where fraud is suspected, it is often an available (and more straight-forward) option to plead an alternative cause of action that doesn't involve fraud, such as breach of contract, breach of statutory duty, misrepresentation or negligent misstatement. Heads of loss which involve fraud are often pleaded alongside these other generally more straight-forward causes of action, where the evidence supports a strong indication of dishonesty.

The key point to take away is that if you suspect you or your business has been a victim of fraud, it is essential to immediately seek legal advice. For further information or advice on your civil fraud case, please contact Cara White.