The commission of a fraud involves something which, or someone who, deceives people in a manner  that is illegal or dishonest.

In this Article, Tim Thompson and John Veale, discuss the considerations for parties to litigation, whether for civil or criminal fraud.

Kangs Solicitors has specialist Civil and Criminal Litigation teams, both having a wealth of experience in representing companies, directors and individuals in respect of a vast array of civil and criminal matters.

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Civil Fraud

Nature

Civil Fraud incorporates a variety of civil torts and applies to businesses and individuals.

A tort is a civil wrong which causes loss or harm to a person who is entitled to seek redress against the person responsible for the tortious act. By way of example, tortious acts, in the civil fraud sense, encompasses, inter alia, such activity as:

  • Fraudulent misrepresentation
  • Deceit
  • Breach of fiduciary duties
  • Unlawful means conspiracy
  • Dishonest Assistance / Knowing Receipt
  • Unjust enrichment
  • Wrongful and Fraudulent Trading,
  • Breach of contract involving bribery and/or corruption.

In Barclays Bank v Cole [1966] 3 All ER 948, Lord Denning MR, giving judgment for the Court of Appeal, summarised civil fraud in the following terms:

‘In law “fraud” is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false.’

All levels of the Court system in England and Wales are designed to deal with actions relating to civil fraud. The correct court (i.e. whether County or High Court), will often depend on the complexities and value of the remedies being sought. The greater the value and/or the more complex the fraud, the matter is likely to be dealt with by the High Court.

To assist Claimants in recovering losses arising from fraud, they have at their disposal several interim remedies. By way of example, Claimants may apply to the Courts for:

The Burden of Proof

A party, known as ‘the Claimant’, pursuing a claim through a court is obliged to prove to that court that the claim is justified and should attract the remedy being sought.

In order to establish that claim in a Civil Court, the ‘Burden of Proof’ with which the court must be satisfied is that ‘on the balance of probabilities’ that the Defendant(s) committed the alleged fraud or was a knowing party to the same.

In Three Rivers District Council v Bank of England [2001] UKH: 16, [2001] 2 All ER 513, Lord Millet said:

‘It is well established that fraud or dishonesty…..must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence….

This means that a plaintiff [now Claimant] who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.’

Criminal Fraud

Nature

Criminal fraud is a criminal offence generally prosecuted against a defendant(s) on behalf of a victim(s) of fraud by Prosecuting Authorities such as the Crown Prosecution Service, HMRC, National Crime Agency and the Serious Fraud Office. 

In the event that such an agency decides not to conduct a prosecution, in certain circumstances a Private Prosecution may be pursued by an individual or corporation in the criminal courts against a defendant(s).

Examples

Fraud Act 2006

In view of the numerous offences that constituted criminal fraud, the Fraud Act 2006 was introduced to simplify matters. For example, eight deception offences contained within the Theft Acts of 1968 and 1978 were replaced.

Section 1 of the Fraud Act 2006 provides for one offence of fraud to be committed in three ways:

  1. Fraud by false representation by a person:
    • who dishonestly makes a false representation and intending, by making that representation,
    • to make a gain for themselves or another or
    • cause a loss to another or expose another to risk of loss.
  2.  Fraud by failing to disclose information by a person:
    • who dishonestly fails to disclose to another person information which they are under a legal duty to disclose and
    • intends, by failing to disclose the information,
    • to make a gain for themselves or another, or
    • to cause loss to another or expose another to a risk of loss.
  3. Fraud by abuse of position, by a person:
    • who occupies a position in which they are expected to safeguard, or not to act against the financial interests of another person,
    • dishonestly abuses that position and intends to
    • make a gain for themselves or another or
    • cause loss to another or expose another to a risk of loss.

Penalties for Breach

Upon conviction, a defendant may:  

  • in the Magistrates’ Court, receive a fine not exceeding the statutory maximum, a maximum prison sentence of six months or both.
  •  in the Crown Court a fine, a maximum prison sentence of ten years or both.

VAT Fraud

Deliberately filing an incorrect VAT Return is a criminal offence.

Section 72 of the Value Added Tax Act 1994 states that a person is liable who:

  • with intent to deceive, produces, furnishes or sends for the purposes of this Act or otherwise makes use for those purposes of any document which is false in a material particular; or
  • in furnishing any information for the purposes of this Act makes any statement which he knows to be false in a material particular or recklessly makes a statement which is false in a material particular,’

Penalties for Breach

Upon conviction, a defendant may:

  • in the Magistrates’ Court, receive a fine to the statutory maximum of £20,000 or three times the VAT evaded, whichever is the greater and/or a maximum of six months imprisonment,  
  • in the Crown Court, an unlimited fine and/or a maximum prison sentence of seven years.

Cheating the Public Revenue

Can be prosecuted as a common law offence which can be committed without any positive steps having been undertaken. A failure to act can amount to cheating the Public Revenue, such as failure to submit a VAT return or pay VAT due.

The common law offence is prosecuted along-side offences created by statute and, whilst there is an overlap between the common law offence and the statutory offences, the common law offence is often used for the most serious of tax offences such as carousel fraud or substantial tax fraud not specifically covered by statute.

Cheating the Public Revenue is a ‘conduct offence’ in which no actual loss to the Public Revenue needs to be proved by the Prosecution and it can only be tried in the Crown Court. Upon conviction a defendant may face life imprisonment, and hence the reason for the charge being generally prosecuted in only the most serious offences.

Income Tax Evasion

Section 106A (1) of the Taxes Management Act 1970

This Act provides that a person commits an offence if that person is knowingly concerned in the fraudulent evasion of income tax by that person or any other person.

The offence can be heard in either the Magistrates’ Court or the Crown Court and conviction can result in similar sentences to those handed down for VAT evasion, as outlined above.

New Frauds

Nature

With the onset of the Covid Pandemic and new forms of Government financial assistance, new forms of fraudulent activity have emerged arising from ‘Bounce Back Loans’, the Coronavirus Job Retention Scheme (CJRS), Self- Employment Income Support Scheme (SEISS) and Eat Out to Help Out Scheme.

HMRC figures suggest that in relation to the CJRS, SEISS and the Eat Out to Help Out schemes, there are estimated losses to fraud or error exceeding £5.8 billion.

Sanctions

Criminal Offences

As well as the criminal offences that may be charged in relation to such offences, there are other consequences that may follow for directors and managers of the businesses that are making any fraudulent claims on the Government schemes. 

Proceedings commenced by The Insolvency Service could result in company directors being disqualified for up to fifteen years for fraudulently receiving ‘Bounce Back’ loans and receiving extended bankruptcy restrictions.

Civil Actions

Actions for Fraud are aimed at recovering any losses suffered in addition to seeking compensation / damages for those losses and a Civil Court will provide remedies such as:

  1. repayment of funds;
  2. recission of any contract;
  3. recovery of Assets; and
  4. damage/compensation.

How Can Kangs Solicitors Help? | Kangs HMRC Defence Solicitors               

It is most likely that there will undoubtedly be an increase in both investigations and/or Court proceedings against current and historic directors of companies.

Please visit our website , which provides  information covering Disqualification of Directors Proceedings and how we can assist you.

Who to Contact | Kangs Tax Solicitors

We welcome enquiries by telephone or email.

We provide an initial no obligation consultation from our offices in London, Birmingham and Manchester.

Alternatively, we provide initial consultations by telephone or video conferencing.

Contact:

Hamraj Kang
hkang@kangssolicitors.co.uk
07976 258171 | 020 7936 6396 | 0121 449 9888

Tim Thompson
tthompson@kangssolicitors.co.uk
020 7936 6396 0121 449 9888

John Veale
jveale@kangssolicitors.co.uk
0161 817 5020  | 020 7936 6396 07989 521 210