Civil Fraud – Conspiracy

There are two different types of conspiracy: lawful means conspiracy and unlawful means conspiracy. This note considers the elements of both, as well as the advantages and disadvantages of bringing a conspiracy claim.

What is conspiracy?

Conspiracy arises where there is an agreement between two or more parties (including corporate bodies) to take action that results in financial loss or damage being caused to another person.

There are two different types of civil conspiracy:

1. Lawful means conspiracy; and
2. Unlawful means conspiracy.

There are certain elements that are common to both:

There must be an agreement between two or more persons to injure another: given the nature of conspiracy, it is not necessary for there to be an agreement in the contractual sense. This limb can be satisfied by something far less formal, including a tacit understanding between the conspirators.

Concerted action: unlike criminal conspiracy, the agreement to injure is not enough on its own to establish liability. There must be concerted action, i.e. the conspirators must act on their plan and carry out some deliberate act(s) and / or omission(s) to further it. The action may be active or passive.

For example: a director and minority shareholder (“A”) uses the company’s name to carry out money laundering. The co-director and majority shareholder (“B”) was aware of this, but chose not to act to prevent it. B will be liable for conspiracy, for failing to stop the activity.

Compensation for financial loss: the concerted action of the conspirators must have caused loss or damage to the Claimant, otherwise there can be no claim for conspiracy.

Lawful means conspiracy

Lawful means conspiracy exists where:

1. The Claimant has suffered loss or damage;
2. The loss or damage was a result of action taken pursuant to an agreement between the Defendant and another person to injure the Claimant; and
3. The predominant purpose of the Defendant was to injure the Claimant.

There is no requirement for a use of unlawful means. The agreement to act in concert itself creates the unlawfulness.

However, in practice, claims for lawful means conspiracy are rare. It will only amount to lawful means conspiracy where the predominant purpose was to injure the Claimant, which can often be difficult to prove. Given the very nature of civil fraud, a Claimant will often be able to rely on some sort of unlawful means instead.

Unlawful means conspiracy

Unlawful means conspiracy is much more common. It occurs where two or more people act together unlawfully, intending to damage a third party, and do so.

The essential elements are:

1. The Claimant has suffered loss or damage;
2. The loss or damage was a result of unlawful action;
3. The unlawful action was taken pursuant to an agreement between the Defendant and another person to injure the Claimant by unlawful means;
4. Irrespective of whether it was the predominant purpose of the Defendant to do so.

Unlike lawful means conspiracy, a Claimant does not need to show that the conspirators’ predominant purpose was to injure another person. It is sufficient to show that they had an intention to do so.

This means that intention can still be established in situations where the injury to a Claimant is as a means to an end. For example, it has been held that an agreement to facilitate a company’s liquidation in order to procure its breach of contract and avoid claims, established the necessary intention to injure.

Further, a Claimant does not need to prove that the conspirators who engaged in an unlawful means conspiracy, knew that their actions were unlawful in order to establish a claim (The Racing Partnership Ltd and others v Sports Information Services Ltd [2020] EWCA Civ 1300).

Making a conspiracy claim

Pre-action

The first step in a conspiracy claim will often be preparing a formal Letter of Claim. This can be used as a strategic tool for a Claimant, to gather as much information about the case and to support any inferences that might later be drawn. The response that a Claimant receives might also be telling. If there is an element of evasiveness, this could point towards evidence of wrongdoing and could later be drawn to the attention of the Court.

In some circumstances, it might not be appropriate to prepare a Letter of Claim, particularly if the matter is urgent and there is a need to act quickly. In these circumstances, there might be other forms of interim relief available including:

• Interim injunctions: preventing a party from, or compelling a party to, do something;
• Freezing injunctions: if there is a risk of dissipation of assets;
• Proprietary injunctions: preventing a Defendant from dealing with a Claimant’s assets;
• Search orders: allowing a Claimant’s representative to enter the Defendant’s premises to search for, copy and remove documents or material. This is often referred to as the most draconian order that the Court can make.

Issuing a claim

There are a number of advantages of pursuing a claim for conspiracy:

• It allows a Claimant to bring proceedings against a greater number of Defendants than other causes of action would allow. This is a useful litigation strategy, as it enables a Claimant to target their claim more broadly and to potentially bring in parties with deeper pockets.
• It may allow claims against those who are not otherwise individually liable for any underlying wrongful act.
• Evidence in respect of the actions of the Defendants in the alleged conspiracy will be admissible against their alleged co-conspirators.
• It is helpful to overcome jurisdiction issues as it allows a Claimant to bring a claim against a Defendant residing in the jurisdiction, where others might not.

However, there are also disadvantages of pursuing a claim for conspiracy:

• A Claimant has the burden of proving the conspiracy claim.
• There is a risk of casting the net too wide. A Claimant might be unsuccessful against some of the Defendants and be subject to potential adverse costs orders.
• As it will involve multiple Defendants, the burden of preparing the claim and presenting it will be increased. This means that it can be a more expensive claim.
• It is unlikely that, at the stage of bringing a claim, a Claimant will have any direct evidence of conspiracy. A Claimant will therefore be basing the claim on inference.
• Cogent evidence is essential in order to be successful in a conspiracy claim. However, this is often difficult to come by as Defendants are unlikely to have entered into a conspiracy in an open and documented manner (Lakatamia Shipping Co Ltd v Su and others [2021] EWHC 1907 (Comm)). Instead, the case is likely to be one based on circumstantial evidence.

Conclusion

Conspiracy claims are very hard to prove, largely due to the need for cogent evidence. For this reason, they are often used in combination with other types of civil fraud claims.  

At Ashfords LLP, our commercial disputes team have experience in advising both companies and individuals in all types of civil fraud claims, including conspiracy. We have acted for Claimants and Defendants in various complex and often multi-party disputes, and are therefore best placed to advise you.

If you would like to discuss any of the points that have been raised in this article, please contact Cara White at c.white@ashfords.co.uk.