Fraud is when dishonesty to gain an advantage, often financial, over another individual or business. While fraud can be prosecuted in a criminal court, victims of fraud also have the option to pursue civil claims to recover their losses.

Civil fraud refers to various legal claims that can be made by a party to recover losses incurred owing to fraudulent activities. Where there is evidence of dishonesty, these claims often accompany other legal actions such as breach of contract, misrepresentation, or negligent misstatement.

In this blog, we explore the different types of civil fraud claims that can be pursued and the legal remedies available.

1. Tort of Deceit or Fraudulent Misrepresentation

This is the most commonly recognised form of civil fraud. Unlike negligent and innocent misrepresentation, which are covered under the Misrepresentation Act 1967, civil claims for fraudulent misrepresentation are under the common law, namely the tort of deceit.

For a successful claim the claimant must prove:

• A false statement or representation was made by the defendant.
• The defendant knew the statement or representation was false or was reckless as to whether it was false.
• The defendant intended for the claimant to rely on the false statement.
• The claimant did rely on it.
• The claimant suffered loss as a result.

Remedies:

The claimant may seek damages to be restored to their original financial position before the fraudulent misrepresentation occurred. If the case involves a contract, the claimant may also seek to rescind the contract, this means it will be treated it as if it never existed.

2. Unlawful Means Conspiracy

For a successful claim, the claimant must establish:

• A combination or agreement between two or more persons with the intent to cause damage to the claimant.
• The use of unlawful means as part of a concerted action pursuant to the agreement.
• Damage to the claimant resulting from the conspiracy.

Remedies

If found liable, defendants are responsible for the losses incurred by the claimant.

3. Breach of Fiduciary Duty

A fiduciary duty can arise when one party is expected to act in the best interest of another as a result of their position. A classic example of this is the relationship between a company director and their company.

Under the Companies Act 2006, directors must:

• Act within their powers for the purposes they were conferred.
• Promote the company’s success.
• Exercise independent judgement.
• Exercise reasonable care, skill and diligence.
• Account for unauthorised profits.
• Avoid situations which might give rise to a conflict of interest.

Potential legal actions where a director has breached their duty include:

• Seeking injunctions to stop ongoing breaches.
• Removal of the offending director.
• Applying to the court to have any misappropriated company property restored.
• Applying to the court to have an unauthorised or inappropriate transaction set aside.
• Seeking compensation from the director personally for any financial losses or damages sustained.

4. Breach of Trust

This occurs when a trustee fails to uphold the responsibilities imposed upon them by the trust. The trustee’s civil liability is the loss that their act or omission caused the trust. This has a narrower ambit than a breach of fiduciary duty, which can be committed not only by the trustees, but by anyone acting for the benefit of the trust.

Remedies

• Restoration of misused trust funds.
• Compensation for losses due to the trustee’s actions.

5. Dishonest Assistance

To be liable for dishonest assistance, there must be a breach of trust or fiduciary duty by someone other than the defendant, the defendant must have helped that person in the breach, and the defendant must have a dishonest state of mind. 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.

Remedies

• Equitable compensation for losses resulting from the dishonest assistance.
• An order requiring the defendant to account for profits obtained through the dishonest assistance.

6. Knowing Receipt

This claim can be brought against someone who improperly receives trust property, or where a fiduciary misapplies property belonging to a principle.

Where a third-party has received trust property, they may be personally liable in equity where:

• The property has been misapplied by the trustee in breach of trust;
• The recipient received the property beneficially;
• The recipient is not a bona fide purchaser of the legal title or otherwise cannot claim to take free of the legal title; and
• The recipient knows that the property has been transferred to them in breach of trust.

Remedies

• Restoration of the trust property.
• Payment of its equivalent value if no longer in possession.
• Compensation for losses.

7. Unjust Enrichment

A defendant may be required to return benefits received unfairly at the claimant’s expense.
To make a successful claim 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 unjust factors recognised by the court include:

• Mistake.
• Failure to provide consideration.
• Duress or undue influence.
• Wrongdoing.

Remedies

The usual remedy is restitution, requiring the defendant to return or pay the value of the unjust gain.

8. Tort of Conversion

This is the civil equivalent of theft and involves deliberately interfering with another person’s property in a way that is intended to deny and denies them its use or possession.

Remedies

• Return of the property.
• Compensation equal to the market value of the property lost.

Conclusion

Civil fraud claims are multifaceted and require careful legal navigation. Understanding your rights and the available legal remedies can make a significant difference in recovering losses or defending against allegations. Seeking professional legal guidance early on can help you achieve the best possible outcome in your case.

How We Can Help

If you or your business has been a victim of fraud, or you are facing allegations of fraud, it is crucial to seek expert legal advice immediately. Civil fraud litigation is often highly complex, requiring experienced legal representation to build a robust case strategy and minimise risks.

At TV Edwards Solicitors, we represent both claimants and defendants in civil fraud cases, working with corporate and individual clients. If you wish to discuss a potential civil fraud matter, contact our Dispute Resolution/Commercial Litigation team at 020 3440 8000 or disputeresolution@tvedwards.com.