UK Law and Practice Contributed by: Simon Bushell and Gareth Keillor, Seladore Legal
1. Fraud Claims 1.1 General Characteristics of Fraud Claims The law of England and Wales does not provide a specific, single cause of action of civil or commer - cial fraud, and has developed a flexible and creative approach to assisting victims of fraudulent behaviour. The typical claims utilised by a victim of fraud are: • fraudulent misrepresentation (under the tort of deceit); and • breach of trust or fiduciary duty (which are claims in equity). Fraudulent Misrepresentation (Deceit) Fraudulent misrepresentation (or deceit) is a cause of action available where Party A makes a false represen - tation to Party B either by words or conduct, knowing it to be untrue (or being reckless as to whether or not it is true) and intending Party B to rely on that repre - sentation. If Party B does so, and suffers a loss as a consequence, Party A will be liable to Party B in tort. Importantly, there is also a statutory action for misrep - resentation under the Misrepresentation Act 1967. A claim under the Act is often preferable to bringing an action in fraud because: • it reverses the burden of proof by requiring Party A to show they had an honest belief in the truth of the representation at the time it was made; • it does not require Party B to prove fraudulent con - duct (which is a high hurdle in English law); and • it still allows for a measure of damages commen - surate with a claim in fraud (ie, Party B is allowed to recover all losses flowing from the affected transaction, as opposed to, for example, a claim in negligent misstatement, where Party B is only allowed to recover losses that are the direct conse - quence of the misstatement). Breach of Trust/Breach of Fiduciary Duty A “trustee” or “fiduciary” relationship often plays an important part in fraud claims. It exists where one person (the “fiduciary”) has undertaken to act for or on behalf of another person (the “principal”) in cir - cumstances that give rise to a special relationship of
trust and confidence. Common examples may be the relationship between: • a trustee and beneficiary in an express trust; • a solicitor and their client; • a company director (including shadow director) and the company; • a financial adviser and the investors they are advis - ing; • an agent and their principal; or • a business partner and their co-partner(s). Where such a relationship exists, the fiduciary must act with outright loyalty towards their principal. In broad terms, this means that they: • must act in good faith; • must not make a profit out of the relationship of trust; and • must not put themselves in a position where their duty may conflict with their own interests. Unsurprisingly, fraudulent behaviour (such as misap - propriation of assets) in the context of one of these relationships will amount to a breach of trust/breach of fiduciary duty. There are a number of remedies available for a claim of breach of trust or breach of fiduciary duty. Most com - monly, the fiduciary will be required to compensate the principal for losses suffered, or to “account” for any losses and (potentially) profits made as a result of the breach. The principal may also be able to “follow” or “trace” specific trust property or proceeds and assert an equitable interest over them (see 1.5 Proprietary
Claims Against Property ). Other Causes of Action Third-party involvement
English law also provides separate causes of action against third parties who assist or facilitate fraudu - lent acts (eg, unlawful means conspiracy and dis - honest assistance). These are discussed in detail in 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts .
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