What Is Civil Fraud?

Civil fraud is a complex area of law and it can be a challenging situation to be faced with, both as the Claimant or Defendant. When most think of fraud, it is usually from the criminal perspective, but another option is available via the civil courts to recover lost money. If you are either the victim of fraud, wanting to explore your options for recovery, or you are defending civil fraud proceedings, it is incredibly important to obtain legal advice from the outset due to the complexity of the proceedings.

Civil vs Criminal Fraud

There are several differences between civil and criminal fraud, for instance, in the way proceedings are conducted, the effect and consequences of such proceedings, and the standard of proof needed.

Criminal fraud is a criminal offence which will be prosecuted in the criminal courts by a prosecuting authority, whether that be the Crown Prosecution Service, HMRC, Serious Fraud Office (SFO), or sometimes, via an individual or entity in a private prosecution.

In civil fraud cases, an individual or entity who is a victim of fraud can bring a claim in the civil courts in an attempt to recover their property and / or receive compensation.

The standards of proof in criminal and civil proceedings for fraud differ. The standard of proof is a legal term for what level of proof is needed to prove their case. In the criminal proceedings, the standard of proof is “beyond reasonable doubt” whereas in civil proceedings it is “on the balance of probabilities” (i.e. above 50%). The burden of proof in criminal proceedings reflects a much higher burden to prove.

The consequences of criminal fraud proceedings may result in a conviction and individuals may face penalties such as imprisonment, fines and confiscation of assets.

In civil fraud matters, there won’t be a conviction, but will likely result in money being owed by the defendant to the claimant, if the claimant is successful.

Civil Fraud actions

Fraud itself is not a cause of action and is a generic phrase which covers a range of different actions. For example, the below may be included.

Torts of deceit and misrepresentation: this may include when a known / reckless misrepresentation is made by the defendant to the claimant, intending for the claimant to rely on the false statement which ultimately causes a loss to the claimant.

Economic torts: this includes a group of related causes of action that are based on intentional conduct causing injury to the claimant’s economic interests, such as, inducing or procuring breach of contract, causing loss by unlawful mans, intimidation and conspiracy.

Breach of trust and fiduciary duty: this may include trustees and beneficiaries, solicitor and client, director and company etc. This will include where one party who owes a duty to act in the best interests of the other, fails to do so, which often is done for personal gain.

Dishonest assistance in a breach of fiduciary duty: this may include the defendant, having a dishonest state of mind, helping a third party commit a breach of trust or fiduciary duty.

Knowing receipt: this refers to the personal liability of non-trustees for losses arising to trusts, i.e., where the non-trustee receives trust property (or continues to hold trust property) in the knowledge that it is in breach of trust.

Unjust enrichment: this will occur where the defendant, at the expense of the claimant, has been enriched or has received a benefit, which is unjust. For example, where a payment has been made by mistake, benefits transferred under duress / undue influence

Preserving assets

Under civil fraud, a number of helpful interim orders can be obtained against the defendant, should the claimant be concerned that the defendant will continue to act in bad faith by disposing or destroying assets.

Freezing Injunctions

Where the claimant is seeking damages or some other personal monetary award, it may be possible to seek a freezing order to prevent the defendant from dissipating their assets or dealing with their assets such as moving them out of reach of enforcement. The purpose of a freezing order is to preserve the Defendant’s assets pending a final judgment.

There are two types of freezing orders: domestic and worldwide freezing orders. Domestic freezing orders will only cover assets within the jurisdiction whereas worldwide freezing orders may very well cover assets anywhere in the world and can be granted against persons resident both inside and outside of the jurisdiction, although worldwide freezing orders may be more difficult to obtain.

A freezing order is a very powerful tool and the courts will only exercise its discretion to grant one where it considers it just and convenient to do so.

Notification Orders

This will require the defendant to notify the claimant if they intend to dispose of any property and gives the claimant time to decide whether or not to take further steps to prevent such disposition. This is a less onerous option than a freezing order.

Proprietary injunctions

Where the claimant is asserting a right in relation to a specific asset, instead of a freezing injunction, they may seek an interim proprietary injunction which restrains the defendant from dealing with the asset, i.e. they may be prohibited from selling or moving the asset or order the claimant to be notified if the defendant proposes to dispose of the asset.

Receivers

If there is a risk that a freezing or proprietary injunction will be insufficient, the claimant may seek the appointment of an interim receiver to take control of the defendant’s assets pending trial. Receivership will result in the transfer of direct control of any property from the defendant to the receiver and will offer much greater protection to the claimant. However, this can be a costly and lengthy process and can be more difficult to obtain.

Remedies

Due to the wide range of different actions which can fall under the umbrella of civil fraud, this means there are also a variety of remedies available. However, the most common will be compensatory damages for loss caused. A post-judgment freezing injunction may also be obtained to aid enforcement of such monetary award and lower the risk of the defendant having the opportunity to conceal their assets.

Should you be a victim of fraud or facing civil fraud proceedings against you, it is crucial to seek expert legal advice as soon as possible. Civil fraud litigation can be complex, requiring experienced legal representation. Contact our Dispute Resolution team on 0330 822 3451 or request a callback.