Guide to civil fraud

This guide explains some of the rules surrounding Civil Fraud under English Law in general terms. The intention of the guide is not, however, to advise you on your position in bringing or defending a civil fraud claim (which depends on the facts of your case). The subject of civil fraud is a complex area and no guide can ever set out all the factors relating to a particular case. This guide is not, therefore, a substitute for detailed advice on your case. If you would like further explanation on any of the points raised in this guide, or advice on your particular case, please contact us.

What is civil fraud?

Civil fraud is a civil action that can be brought by a defrauded person (the ‘claimant’) to recover losses caused by the fraudulent conduct of others. The remedy sought by the claimant is usually compensation – a payment of money – from the alleged fraudster(s) (the ‘defendant(s)’).

Civil fraud is a complex area of law that can be perplexing to those who find themselves involved in it. That is why it is important that such matters are handled by solicitors who are well versed in all aspects of civil fraud in assembling a case and responding to all the challenges that may be posed by it.

Any civil fraud case involves taking the most appropriate steps at the right time. Specialist advice is required to ensure the right tactics and strategy are employed so that decisions that are acted on are the right ones to protect a claimant’s or defendant’s position and prospects of success.

Civil or criminal action?

If somebody believes they have had fraud perpetrated against them, they can report the matter to the police and have it treated as a criminal matter, and/or they can instruct a solicitor and use civil law to seek to recover their losses. It is possible for criminal and civil fraud cases to be run at the same time, although careful consideration should be given to the timing of commencing each action. Depending on the desired outcome, often it is better to pursue the defendant via a civil claim first. This is because:

1. A criminal prosecution – even a successful one – may not result in the person who reported the fraud regaining their assets. This is because the purpose of a criminal action is to punish the offender, whereas the purpose of a civil action is to compensate the victim.

2. The standard of proof in civil law cases is the “balance of probabilities” which is a lower threshold than in criminal proceedings, when an accusation must be proved “beyond reasonable doubt”.

3. You maintain control. The police have their own methods of obtaining evidence which includes arrests, searches and interviews under caution. You can have no influence over those. Also, once a criminal investigation has been commenced, you may find it difficult to bring a civil claim against the defendant until the criminal proceedings are over. This is because there may be a problem with access to evidence.

4. A criminal investigation will typically take much longer than civil proceedings.

5. Claims concerning civil fraud are generally subject to certain limitation periods. Limitation periods impose time limits within which a party may bring a claim or give notice of a claim to the other party. If a limitation period is missed, the civil claim may be “time barred” and it will be possible for a defendant to raise this as a complete defence to the claim and, therefore, to escape liability.

Types of claim

So, you have decided that you may have grounds to pursue a civil fraud action. Which civil fraud claim(s) will you bring?

Civil fraud is an umbrella term that covers many different types of claims (‘causes of action’), including

• Misrepresentation
• Deceit
• Unlawful means conspiracy
• Unjust enrichment
• Dishonest assistance
• Knowing receipt
• Breach of trust
• Breach of contract
• Breach of fiduciary duty
• Misappropriation of funds

All civil fraud claims usually involve an element of breach of trust, such as a false statement, a misrepresentation, or withholding the truth where there is a duty to disclose the truth, which results in reliance and loss to the claimant.

We will be able to advise you on which claim(s) are most appropriate to your situation.

Who can bring a civil fraud claim?

Civil proceedings can be brought by individuals, companies and other organisations including partnerships and LLPs. Sometimes claimants will band together when their allegations of fraud are against the same defendant(s) and have similar facts, to collectively bring what is known as a group or multi-party action. Sometimes there will be more than one defendant and the claim(s) will involve an allegation of unlawful means conspiracy.

Making a claim

Investigation and evidence collection

One of the first (and the most important) steps to making a claim is to collect evidence that can be used in any court proceedings to show that a fraud has occurred. Evidence about the claim may include: communications between the defendant and the claimant before loss has occurred (for example emails or text messages); contracts or other ‘official’ documents such as share certificates provided to a claimant by the defendant; and contemporaneous notes of conversations or meetings. If you are a potential defendant with allegations of civil fraud being made against you, you will want to collect evidence that can be used in any court proceedings to show that the claimant has not been defrauded.

There are various tools that can be used to assist with the evidence gathering and investigation process: -

• Disclosure orders: Sometimes a claimant needs more information to help identify who the defendant should be or to confirm that a fraud has occurred when the claimant has grounds for suspicion. Disclosure orders, such as a Norwich Pharmacal, Bankers Trust and Bankers Book Orders, can assist in this regard. Claimants can also consider the benefits of making an application for pre-action disclosure.
• Freezing orders: A freezing order freezes a defendant’s assets (or a particular asset) so that nothing can be done with them until the court process has finished. Freezing orders are usually only appropriate in claims involving fairly large sums of money and are often served on the asset holder, such as a bank. There are strict legal requirements governing their use.
• Chabra orders: In addition to obtaining a freezing order over a defendant’s assets, it is also possible to obtain a type of freezing order over a third party’s assets. This is known as a Chabra order. Anyone involved in a fraud will usually make use of third parties to hold (or hide) assets for them. A Chabra order is an interim relief that can be used in circumstances where third parties hold the defendant’s assets that are the subject of the fraud accusations. The third party is not alleged to be liable for the fraud, or directly accountable to the claimant.
• Search orders: A search order may be obtained to allow the claimant’s representative to search the defendant’s home or business to secure evidence relating to the fraud, or which may lead to the location of assets.
• Other injunctions: Injunctions can be obtained to help stop any transactions planned by the defendant from happening.

As part of the evidence gathering and investigation process by any potential claimant, it is sensible to also take investigatory steps to assess whether the defendant is ‘good for the money’. This will also help to decide whether it is financially worthwhile pursuing the claim and, if it is, against whom it should be pursued. Evidence about the defendant’s assets may include: where the potential defendant is located; whether they have (or had) substantial assets or have transferred them to another party; where those assets are located; and in the case of a company or other incorporated entity, the identity of its beneficial owners or those who are really behind the affairs of the company (which may not necessarily be the directors listed at Companies House).

Pre-Action Protocol Letter of Claim

Once evidence has been collected and the case has been assembled, the next stage is to send the defendant(s) a formal Letter of Claim. This is an important letter and obtaining the advice and representation from a solicitor is strongly recommended. If the defendant fails to resolve the claim after receiving a Letter of Claim, court action can be commenced.

Civil court proceedings

Civil court action involves delivering a Claim Form to the appropriate court, usually with a document called the Particulars of Claim which sets out the allegations, the legal grounds for the claim(s) and what remedy the claimant is seeking from the defendant(s) and why. Claims of less than £100,000 are generally dealt with by the local County Court. Higher-value claims may be dealt with by the High Court or one of the various regional district High Court registries.

Once a civil court claim has been issued by the Court, the parties will need to comply with directions given by the court leading up to Trial, which will include dealing with disclosure of documents and the preparation and exchange of witness statements. There are strict rules surrounding how the court procedural matters should be dealt with and the timings that must be followed. We can help to ensure mistakes (which can be catastrophic) are not made, and to maximise the prospects of success of your case.

Alternative Dispute Resolution

At all times, the parties should consider whether their dispute is one which is capable of resolution outside of the Court. It is common for parties in civil fraud actions to engage in alternative dispute resolution such as mediation. There are many benefits to doing this, including the retention of control, the ability to agree on a creative remedy, privacy, and also, potentially, confidentiality of any commercial settlement, which is likely to be important given the serious nature of any allegations concerning civil fraud.

We are here to help

Fraud has grown hugely in recent years and is now the most commonly experienced crime in the UK.

At Ashfords, we have acted on behalf of claimants and defendants on a catalogue of civil fraud claims.

For specialist legal advice about bringing or defending a civil fraud claim, please contact Cara White.