Civil Fraud: What Is it, Common Types & More.
Civil Fraud Explained
Civil fraud is a growing concern. In 2023, the overall reported value of fraud in the UK more than doubled compared to the previous year, reaching approximately £2.3 billion. A few high-value cases drove this sharp increase, but the number of reported fraud incidents increased by 18% to a three-year high.
In criminal cases, the police and other authorities will use their powers to pursue justice and get a prosecution. However, the process isn’t as straightforward in civil fraud cases, and the injured party must initiate a lawsuit to seek justice and compensation.
In this guide, we’ll examine the differences between criminal and civil fraud, and explain what you must do to pursue or defend a civil claim.
What is civil fraud?
Civil fraud involves a wrongful act or misrepresentation that causes loss or harm to another party. In such cases, the victim must take legal action against the wrongdoer if they want to pursue justice.
The main goal of civil fraud proceedings is to compensate the victim for their losses and restore them to the financial position they were in before the fraud occurred.
In one high-profile case, Donald Trump was convicted for civil fraud in February 2024. A New York court ruled against Trump following allegations that the former US president and his organisation fraudulently inflated the value of their assets to secure favourable loans and other financial benefits. Lawyers alleged that Trump exaggerated his wealth by as much as $3.6 billion in one year.
10 common types of civil fraud
Civil fraud encompasses a variety of deceptive practices where one party uses misrepresentation, deception, or dishonesty to obtain an advantage over another.
Here are 10 of the main types of civil fraud:
- Breach of contract
A breach of contract is not the same as civil fraud, although both are civil wrongs that can lead to legal action in civil courts. However, inducing or procuring a breach of contract could be considered fraudulent.
Inducing or procuring a breach of contract happens when someone intentionally persuades or influences someone else to violate or break a contractual obligation they have with another party.This can involve encouraging them to terminate their contractual relationship, fail to perform their contractual duties, or otherwise act in a way that breaches their contractual obligations.
- Breach of fiduciary duty
A breach of fiduciary duty occurs when a person in a position of trust and responsibility (such as a trustee, agent, or company director) acts in their own best interest rather than in the interests of those they are duty-bound to protect. - Concealment or nondisclosure
This occurs when one party fails to disclose important information they have a duty to reveal, leading the other party to suffer a loss. Concealment or nondisclosure can happen in various contexts, such as property transactions or other financial dealings. - Dishonest assistance
Dishonest assistance occurs when a third party helps the primary wrongdoer commit fraud.
The person being accused of dishonest assistance must have known that they were helping someone else commit fraud. - Misrepresentation
Misrepresentation occurs when someone makes a false statement intending to persuade another party into a contract. The misrepresentation causes the innocent party to suffer a loss because of the false statement.
There are three types of misrepresentation:- Fraudulent: When someone knowingly or recklessly makes a false statement without believing in its truth or caring whether the statement is true or false.
- Negligent: When someone makes a false statement without reasonable grounds for believing it to be true.
- Innocent: When someone makes a false statement, but they had reasonable grounds to believe it to be true.
- Deceit
Deceit is similar to fraudulent misrepresentation in that a false statement is knowingly made. However, unlike fraudulent misrepresentation, the falsification does not have to lead to a contract. - Knowing receipt
Knowing receipt happens when a person receives money, property, or other assets that have been misappropriated, and is aware, or should reasonably be aware, that they were transferred to them improperly. In such cases, this person can be forced to return the assets or compensate for their value. - Unlawful means conspiracy
Unlawful means conspiracy occurs when two or more people knowingly agree to pursue an illegal course of action (e.g., fraud, theft, coercion, etc.) with the intention of injuring another person.In civil cases, an agreement to conspire isn’t enough and the conspirators must act on their plan. The victim must also have suffered a loss or damage due to the unlawful action.
- Unjust enrichment
Unjust enrichment claims address the unfair improvement of the defendant’s situation at the claimant’s expense following fraudulent activity.So, rather than looking at whether the claimant has suffered a loss because of the fraud, the court will look at whether the defendant has become better off at the claimant’s expense.
The primary remedy for unjust enrichment is restitution. This means restoring the claimant to the position they were in before the unjust enrichment occurred.
- Wrongful or fraudulent trading
Wrongful trading occurs when a company director continues to trade and incur debts when they know, or ought to have known, there was no reasonable prospect of avoiding insolvency – thus defrauding creditors or other persons.
Difference between civil fraud and criminal fraud
Criminal and civil fraud are two distinct legal concepts, each with different purposes, procedures, and consequences.
Here’s an overview of the main differences between civil fraud and criminal fraud:
| Criminal Fraud | Civil Fraud | |
| Definition | A deliberate deception to secure an unfair or unlawful gain, or to deprive a victim of a legal right. | A wrongful act or misrepresentation that causes damage to another party, leading to loss or harm. |
| Examples | Identity theft, insurance fraud, tax evasion, and credit card fraud. | Fraudulent misrepresentation in a contract, wrongful trading and dishonest assistance. |
| Procedure | Cases are initiated by law enforcement agencies such as the police or specialised units. Allegations are investigated and evidence is presented to the CPS or SFO for prosecution. | The injured party initiates the lawsuit to seek compensation. The case is tried in civil court. |
| Consequences | If found guilty, the defendant can face severe penalties, including imprisonment, fines, restitution, probation, and a criminal record. | If the defendant is found liable, they may be ordered to pay monetary damages to the claimant. |
| Purpose | To punish the wrongdoer and deter others from committing similar offenses. To uphold public justice and safety. | To compensate the victim for the losses suffered due to the fraudulent act. |
How to pursue a civil fraud claim
Individuals, companies and other organisations can initiate civil fraud proceedings. Often, when a group of people have experienced harm or loss due to the same fraud, they will join together to make a multi-party claim against the wrongdoer.
As pursuing a civil fraud claim involves careful preparation, adherence to legal procedures, and potentially significant costs, seeking professional legal advice early in the process is crucial to maximise your chances of success.
Pursuing a civil fraud claim involves several steps, including:
- Appointing a civil fraud solicitor
Consulting a solicitor experienced in civil fraud should be done sooner rather than later. They can:- Assess the strength of your case.
- Advise on the potential remedies and likely outcome
- Help gather and organise evidence
- Draft and file the necessary legal documents
- Advise you on alternative dispute resolution (ADR) methods like mediation or arbitration.
- Gathering evidence
To succeed in a civil fraud claim, claimants must gather substantial evidence to prove a fraud has occurred and the loss or damage that incurred as a result.The type of evidence used in civil fraud cases includes:
- Communication records: Emails, text messages, and recorded conversations.
- Financial records: Bank statements, transaction records, and financial documents to trace the flow of money.
- Legal documentation: Contracts or any other official documents.
- Witness statements: Statements from witnesses testifying about the alleged fraud.
To obtain such evidence, claimants may seek to use disclosure orders, freezing orders, and other legal remedies.
- Sending a letter of claim
Before starting court proceedings, you will need to follow a pre-action protocol. This involves sending a formal letter of claim to the defendant outlining the details of the fraud, the evidence, and the remedies sought. The defendant has a specified response period (usually 14-28 days). - Issuing civil court proceedings
If the dispute isn’t resolved through the pre-action protocol, you can issue proceedings in court by:- Filing a Claim Form (Form N1) and Particulars of Claim with the appropriate court
- Paying the required court fee, which varies based on the amount of the claim
The defendant will have the opportunity to respond by:
- Filing a defence, disputing the allegations
- Possibly filing a counterclaim if they believe they have a claim against you
At this stage, both parties must disclose relevant documents to each other. - Trial
Both parties present their evidence and arguments during the trial, and witnesses may be called and cross-examined. Expert testimony may also be provided.
After considering all the evidence, the judge will deliver a judgment, and the court may award damages to compensate for your loss. Enforcement action may be necessary if the defendant fails to comply with the judgment.
Defending a civil fraud claim
Facing a civil fraud claim can be a daunting experience, but understanding the defence process can help you navigate the legal complexities effectively.
- Understand the allegations
The first step in defending a civil fraud claim is to thoroughly understand the allegations against you.Your solicitor will review the particulars of the claim to identify the specific false representations alleged and the context in which they were made. This understanding will guide your defence strategy.
- Challenging the claim
Your defence will focus on dismantling the key elements of the fraud claim. They will also look to collect the evidence needed to disprove the allegations made against you. As part of your defence, they might argue that fraud did not occur or demonstrate that there was no intent to deceive,Your solicitor may also seek to highlight any due diligence the claimant conducted independently or advice they received from third parties.
They may also challenge the causation and extent of the claimed damages, and show that the alleged fraud did not directly cause the losses or that they resulted from other factors. If possible, they will argue that the claimant failed to mitigate their losses.
A robust understanding of legal procedures will help strengthen your defence. For example, your lawyer will check whether the claimant followed the pre-action protocol. If they did not, this can be a basis for challenging the claim.
- Going to trial
If the case goes to trial, thorough preparation is key. Your solicitors will:
- Ensure all the required documents are filed correctly and on time. This includes your defence, witness statements, and any expert reports.
- Prepare your witnesses for examination and cross-examination. Practicing with them to ensure their testimony is clear and consistent.
You should also consider alternative dispute resolution (ADR) methods such as mediation or arbitration to resolve the dispute without going to trial. Settlement can be a cost-effective and less stressful way to handle the claim.
Civil fraud claims - FAQs
Civil fraud focuses on compensating the victim for their losses, while criminal fraud aims to punish wrongdoers and deter future offences. The injured party initiates civil fraud cases, whereas the state prosecutes criminal fraud cases.
Evidence may include communication records, financial documents, legal contracts, and witness statements. This evidence must demonstrate that a fraud occurred and that the claimant suffered a loss as a result.
The primary remedies in civil fraud cases are compensatory damages to cover actual losses. Restitution may also be sought to restore the claimant to their original position before the fraud occurred.
If the court finds the defendant liable for civil fraud and determines that assets were obtained through fraudulent means, it can order the defendant to return those assets to the claimant.
In civil fraud cases, the court can impose various sanctions on the defendant, including monetary damages, injunctions to prevent further fraudulent activities, and legal costs. These sanctions are designed to compensate the victim, punish the wrongdoer, and deter future fraudulent behaviour.
Defending against a civil fraud claim involves understanding the allegations, gathering evidence to disprove the fraud elements, and challenging the claimant’s reliance on the misrepresentation, causation of damages, and the extent of the claimed losses.
Yes, in civil fraud cases, the court may issue a freezing order (also known as a Mareva injunction) to prevent the defendant from disposing of or hiding assets. This is done to ensure that assets remain available to satisfy a potential judgment.
No, in some cases a defendant will face civil and criminal proceedings for the same act.
Contact our civil fraud lawyers
Our civil fraud lawyers are backed with extensive experience acting for both claimants and defendants in complex, high value civil fraud proceedings. Our areas of expertise also include conspiracy claims and conspiracy to defraud.
For your free consultation with our specialist fraud defence team, please call us on 020 7467 3980, or complete the online enquiry form.