DISPUTE RESOLUTION AND COMMERCIAL LITIGATION

The advantages, and disadvantages, of pleading fraud in civil cases

Companies, as well as people, can be defrauded. More than one Judge has commented on the bewildering complexity of fraudulent schemes. How difficult is it to prove fraud, and what are the chances of success in Court?

My first piece of advice to anyone considering pleading fraud is to think long and hard before doing so. Judges are less willing to make findings of fraud against Defendants than they are to make other adverse findings.

The first question is whether you can frame your claim in a way that gets you success in Court, without pleading fraud, by pleading something else.

Most obviously, we can use:

  1. Breach of Contract
  2. Negligent Mis-statement
  3. Action under the Misrepresentation Act 1967
  4. Conversion
  5. Dishonest Assistance

The advantage of pleading fraud is that a dishonest Director cannot hide behind his or her company. The Court will, if it finds fraud, be more inclined to look behind the corporate veil and find the Director personally liable. But equally, it may be possible to achieve the same result by means of Dishonest Assistance. The key here is that the Director is directing the company in acts of dishonesty.

Fraud also mitigates any exclusion of liability clause.

Furthermore, the pleading of fraud can vitiate the usual six-year limitation period.

But take heed. If you are going to plead fraud as opposed to any of the points I suggest above.

  1. The court will expect a higher degree of precision when pleading fraud. Fraud is a serious allegation, and the court will demand specifics.
  2. Insurers will meet a claim in negligence or breach of contract or director negligence. Most insurers will not cover fraud. So, if you plead fraud, you may end up recovering nothing.
  3. Defendants may well admit a negligence or a breach claim, but they may not admit a fraud claim.
  4. Fraud claims tend to go to trial. Defendants do not make admissions and Judges seldom give summary judgment.
  5. The Burden of Proof is still the normal civil standard: the balance of probabilities. But, the more serious the allegation, the more Judges will need convincing, the reason being that serious misconduct is considered to be less likely.

In summary, there is more than one way to get a successful outcome to a case. Fraud has advantages and disadvantages and, as a Claimant, you need to consider each before you proceed.

About the authors


about the author img

Jonathan Compton

Partner

Specialist in commercial disputes, banking and finance, regulatory and anti-trust/competition law.

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