Author: Syedur Rahman
21 June 2022
7 min read
Syed Rahman of Rahman Ravelli outlines the procedures and the issues in civil fraud cases.
Bringing a civil fraud case involves identifying the right steps to take and taking them at the most appropriate time. It is an area of law where strategy, tactics and timing can all be important.
The issues and the stakes involved make it necessary for anyone contemplating bringing such a case to be fully aware of the need to proceed carefully and intelligently. Any civil fraud case will require coordinated, carefully-planned action and in-depth examination of all the relevant factors.
One of the first matters that has to be considered by someone who has lost assets through fraud is whether to go down the criminal route or the civil route: should they report the matter to the police and let them investigate or should they use the civil law to try and recover their losses?
Leaving it to the police to investigate may be the most obvious option. But this hands all control of the matter to the police. As the police often lack the resources to conduct in-depth and swift fraud investigations, it could take a long time for any prosecution to be brought. Such a prosecution is no guarantee that the assets taken in the fraud will be recovered – and any civil case to attempt to recover those assets may, in some situations, not be able to proceed until the criminal proceedings are over.
In such circumstances, bringing a civil fraud claim may be a quicker way for someone to regain the assets that were lost to fraud. It should also be remembered that in civil law cases the standard of proof is the “balance of probabilities”, which is a lower threshold than in criminal proceedings, where the case against the accused has to be proved “beyond reasonable doubt”.
There are, therefore, a number of possible advantages to going down the civil rather than criminal route in order to regain assets lost to fraud.
When bringing a civil fraud claim, the person bringing the claim (the claimant) can use a number of tools to try and recover their losses. These are known as interim reliefs and need to be used quickly.
If they are not used swiftly there is the risk that the assets the claimant is seeking to recover could be dissipated - spent, squandered or otherwise placed out of reach of the legitimate owner – before they can be recovered.
These are put in place so that the person accused of the fraud (the defendant) cannot reduce the value of the assets or dissipate them before any judgement on their ownership is made. They are granted by the High Court to freeze the assets so that the person in possession of them can do nothing with them until the matter is resolved. Failure to comply with the freezing order will result in separate contempt of court proceedings; where the court has the power to impose a sentence of imprisonment.
To succeed in an application for a freezing order, the claimant must show there was a fraud and that there is a real risk of dissipation. To successfully apply for a worldwide freezing order – also known as a Mareva Injunction, following a 1975 case – a claimant has to persuade the court that factors exist which make it necessary to impose an order that covers assets outside of the UK.
In large-scale fraud claims, disclosure applications can be important ways of gathering evidence. This can then make it very difficult for the defendant to mislead the court. Disclosures can help establish where the assets in question (or the proceeds from them) are located, the value of those assets, the identity of possible defendants and the basis of claims against individuals.
A search order compels the defendant to allow the claimant’s solicitor and/or others to enter premises owned or controlled by the defendant in order to search for and remove any documents and material described by the order. Search orders are used to preserve evidence relevant to a claimant’s case. They can prevent a defendant destroying or hiding evidence that may support the claimant’s case.
When an application is made for a freezing order, disclosure order or search order, it is made ex-parte. This means that the claimant is in court for the application but the defendant is not. The defendant is not made aware of the application – known as a without notice application – to prevent them doing anything to “cover their tracks’’.
Chabra Orders - which allow assets to be frozen that are in the possession of a third party, such as a defendant’s wife, friend or business partner.
Norwich Pharmacal Orders - that can be used to compel banks to provide details of a defendant’s accounts (without telling the defendant).
Receivership Orders - which are usually applied for after a freezing order has been granted, so a receiver can be appointed to control the assets to ensure they are preserved until a judgement is made about them.
Tort of deceit can be described as fraudulent misrepresentation. It is the closest that the civil law has to the criminal law concept of fraud.
For a tort of deceit claim to succeed, a claimant must be able to establish that:
While tort of deceit is the main and most common type of fraud claim, there are others:
Cross-border Fraud: This can lead to investigations being conducted in a number of countries and/or proceedings being brought in more than one jurisdiction.
Unjust Enrichment: This is where a defendant is enriched at the expense of the claimant, such as if A gives B money to invest in an agreed venture but B keeps the money for himself.
Unlawful Means Conspiracy: A conspiracy claim allows a claimant to recover damages for harm caused by the acts of a number of people. A claimant will have to show there was an agreement between the defendant and others, that the defendant’s intention was to injure, that unlawful acts were carried out as a result of that agreement as a means of injuring the claimant and that the claimant suffered a loss.
Breach of Fiduciary Duty: Such a breach occurs where one person has agreed to act for, or on behalf of, another in a situation where there is a relationship of trust and confidence - but that person then acts in a way that is not in the interests of the other person, while either knowing this or being recklessly indifferent to it.
Fraud allegations may also form part of legal action relating to offshore and cross-border trust disputes and even accusations of sham trusts (where the requirements for the creation of a valid trust have not been satisfied and there has been some form of deception).
There are practical difficulties that victims of fraud need to be aware of when deciding how and when to bring a civil fraud claim. In some instances, the process is not straightforward.
One of the most important issues for any victim of fraud to recognise is - as I mentioned earlier - the need to take urgent action. Swift and decisive moves are required in order to prevent a fraudster from disposing of stolen assets. Whilst it is true that a typical civil claim can take a year or more to come to trial, one of the advantages of civil proceedings is that action can be taken quickly. Courts have powers to grant orders (discussed previously) in the interim. In some cases, it is possible to obtain such orders at very short notice - within a day or even sooner, if there is sufficient evidence of a risk that the defendant will dissipate the assets. Furthermore, permission can also be granted for the claimant to seek to have such orders recognised and enforced abroad, which might be a key step in cases where the fraudster flees the country.
It should also be noted that special care and consideration should be taken when pleading fraud. Solicitors and barristers are both under professional obligation to justify fraud to the court. In practice, this means that unless a claimant’s legal team is satisfied there is sufficient material to advance fraud before a judge, such a claim must not be put forward. Moreover, any unsubstantiated proceedings could be considered to be an act of professional misconduct, which may entail disciplinary action for lawyers and/or a wasted costs order for the party in the proceedings.
This principle was reiterated in the recent case of King and others v Stiefel and others  EWHC 1045 (Comm), in which the judge concluded that several of the allegations that had been put forward, did not have credible material to justify them. The Honourable Mrs Justice Cockerill DBE described some of the claims as ‘manifestly flawed’ and ‘lacking in pleadable substance’.
It is rarely the case that defendants will admit to fraud allegations. This presents particular difficulty for claimants who need to prove the subjective state of mind of the defendant. Very often, claimants are not even aware of the full scale of fraud that a defendant may have committed. In practice this means that in court the claimant will rely on some facts and ask the judge to infer other facts from the evidence they rely upon. Therefore, it is extremely important for a claimant to be able to produce credible material in support of any civil fraud claim. Each case is unique and there is no universal list of evidence that will be sufficient to succeed in every claim. However, explaining the series of events that led to the fraudulent incident in question and providing background to the nature of the relationship and interactions between the parties can play a crucial part in presenting the case.
There is no sector of business that has been unaffected by the coronavirus pandemic. Covid-19 has made businesses, as well as individuals, more susceptible to fraud. As a result, we can already see a dramatic increase in instances of fraud.
Victims of fraud need to act quickly to stop fraudsters from disposing of their ill-gotten gains. However, every civil fraud claim will require bespoke preparation. Early engagement with a specialist business crime solicitor will allow the right course of action to be determined and will significantly increase the chances of a successful outcome.
Syedur Rahman is known for his in-depth experience of serious fraud, white-collar crime and serious crime cases, as well as his expertise in worldwide asset tracing and recovery, international arbitration, civil recovery, cryptocurrency and high-stakes commercial disputes.