If a commercial fraud claim is established the proceeds have to be returned. And contracts can be terminated. But, a commercial fraud claim is a serious allegation and you need evidence.
Please get in touch for an initial review on prospects of success. We do provide fee estimates for each stage.
Working with us to handle your commercial fraud case
We are a specialist litigation and dispute resolution legal firm. What this means to you is we apply judgement using our years of experience which is the best way to achieve successful outcomes.
- We have the skills to handle commercial fraud claims, court injunctions, asset freezing applications, partnership disputes and shareholder disputes.
- We are specialists for employment litigation where the conduct of an employee or director is in question.
- Many of our clients select us over the larger firms because they know they will receive a dedicated service which is cost proportionate.
- We are often able to resolve litigation disputes out of court which is usually the best outcome.
To help you understand where you could stand as either someone who has suffered commercial fraud or if you are defending allegations we have set out some pointers based on questions we are often asked.
- Does a commercial fraud claim exist?;
- How to bring a commercial fraud claim; and
- Defending a commercial fraud claim.
Does a commercial fraud exist?
There are a myriad of facts that can give rise to a commercial fraud claim at common law.
- A director of a company overstating company profits to procure investment;
- The sellers of a company giving false statements to the buyer as to the target company’s finances and or liabilities;
- False accounting with a view to misleading shareholders;
- Transferring assets amongst various companies within an opaque structure;
- A company or individual passing off the identity of another in the hope of credible status;
- Failing to prevent the facilitation of tax evasion.
Making a gain at the expense of another
A commercial fraud claim is likely to exist if a person (individual or a company) has gained at the expense of another following a negligent or dishonest act, an advantage which is usually money or the means to make money. A claim will not always constitute “fraud”. In the employment context fraud would be grounds for dismissal for gross misconduct.
Our experience enables us to tell you whether the potential commercial fraud claim has prospects of success.
Bringing a commercial fraud claim
Often a commercial fraud claim is urgent enough to warrant an interim injunction pending trial. This can grant the claimant some form of relief or protection if for example the defendant is likely to dispose of an asset subject to the underlying commercial fraud claim.
Out of court settlements are common with commercial fraud claims because they are confidential and can include details of compensation.
Commercial fraud claim action routes
Broadly, commercial fraud claims fall into the following brackets.
The defendant may have breached the terms of a contract. This could be for example one party promising delivery of goods to another which in fact the promising party cannot perform. The promising party may have taken cash in return for a false promise. The innocent party may seek (i) damages (ii) an order requiring the promising party to make good the contract or (iii) termination of the contract.
A commercial fraud claim based on deceit can usually be broken down into the following elements:
- X makes a statement or representation to Y;
- X knows that the statement or representation is false or has no belief in its accuracy or is reckless as to its truth;
- X intends for Y to rely on the statement or representation or is of the understanding that Y is likely to place such reliance;
- Y has suffered loss or damage.
Like any court action, evidence is crucial. A statement may be true when made, but false at a later date. The party giving the statement must inform the party relying on the statement whenever a change of circumstance occurs.
Commercial fraud claims as a result of conspiracy are concerned with an unlawful act such as:
- There is a combination or understanding between two or more people;
- With an intention to injure another;
- With unlawful means at the centre of the action;
- And damages caused to the injured party.
Strong evidence will be required to claim commercial fraud based on conspiracy. This is because of the accusation that the defendant(s) have committed an unlawful act.
Commercial fraud claims as a result of unjust enrichment arises where it is alleged that a defendant is “enriched” at the expense of a claimant. The enrichment has to be unjust. Defendants will often try to show some commercial rationale as to why the enrichment is not unjust.
The burden of proof for misrepresentation is lower than that of deceit for example. Here, the claimant has to show that a negligent statement was made, which the claimant relied on, and in turn suffered loss. The statement can be made recklessly.
Failing to prevent the facilitation of tax evasion
A corporate of partnership can be held liable for a corporate criminal offence if an associated person facilitates or fails to prevent:
- Domestic tax evasion; or
- Overseas tax evasion.
The three elements that need to be satisfied are:
- There has been criminal tax evasion by a tax payer.
- A person acting on behalf of an organisation has facilitated the tax evasion.
- There is a lack of defence.
Businesses will need to conduct more due diligence in relation to their suppliers, contractors and employees.
A business is responsible for the actions of an individual acting on its behalf. If a director of a business turns a blind eye when they know that an individual or organisation connected to the business is evading tax, the organisation can be held liable for tax evasion. This might mean that as an employee you might have to blow the whistle if you know for example that another employee is assisting a customer with tax evasion.
Result of a successful commercial fraud claim
If a commercial fraud claim is successful for any ground, then the claimant can ask the Court to:
- Award damages;
- Enforce the commercial understanding;
- If applicable rescind the contract;
- Order the return of assets or property subject to the commercial fraud claim.
A claimant will often embark on an asset tracing exercise in other jurisdictions. We use our network of professionals to assist with this. Forensic accounting may also be required.
Defending a commercial fraud claim
The strategy of defence to a commercial fraud allegation will depend on the facts claimed. However, some common defences are as follows:
- No reliance: the claimant did not in fact rely on any statement or representation. For example, the claimant may have conducted its own investigations often in the form of due diligence. This will likely defeat any tort of deceit claim.
- No loss: the claimant has not suffered any loss or damage. There may be no loss or damage at all, or if there is loss or damage, the defendant did not cause it. It is not uncommon for a defendant to claim that the claimant contributed to the loss or damage suffered.
- Lack of deceit: the statement made was not deceitful. The statement may have been updated at the time of the claimant’s reliance which negates any argument from the claimant that the defendant is liable.
- Prevention procedure: for tax evasion, an organisation will have to prove that they had in place reasonable prevention procedures. Alternatively they might have to prove that in the circumstances, it was not appropriate for them to have such procedures in place.
It is the claimant’s burden of proof to satisfy the Court that “fraud” is present. A strong defence can open a path to settlement if a hole in the claim is properly attacked.