Civil/commercial fraud, fraudulent misrepresentation and the tort of deceit

Civil or commercial fraud commonly means a fraudulent misrepresentation, which can lead to a claim under the Misrepresentation Act 1967 or the common law tort of deceit.

Fraudulent misrepresentation is where a false statement is dishonestly made to a person upon which that person relies and, as a consequence of relying on that statement, suffers some damage.

The tort of deceit provides a civil remedy for an individual who has relied on a false representation to their detriment and requires the following elements to be proven:

• an individual has made a representation to another party which is false;
• the individual knows it to be false or was reckless as to the truth of the statement;
• there is an intention to deceive and it is acted upon;
• loss is suffered as a consequence.

An example of when the tort of deceit will come into play is where an individual has made a false insurance claim to their insurer in the case of a motoring accident. If, for example, they claim that another party has damaged their vehicle in a collision, but it in fact was their own fault and the original statement has caused the insurance company to pay out, then that individual would be liable to the insurance company under the tort of deceit.

There must be a statement (written or oral) or conduct amounting to a representation which is false. A statement would obviously involve something being said or written, whereas conduct consisting of wearing a uniform or dress of some kind would be included.

Mere silence would not be considered a false representation.

The misrepresentation must be in relation to a specific fact, ie, the facts of the motoring case. Statements of opinion or intention therefore do not fall within the definition of a false misrepresentation.

For the tort of deceit to be actionable it is not enough that the defendant was negligent as to whether the statement was false (that there was a lack of reasonable grounds to believe the statement was true). The defendant has to know the statement was untrue or be reckless as to the truthfulness. Anything less than this is not enough.

This is a subjective test as it is relating to the defendant’s actual knowledge and state of mind.

The representation does not need to have been the sole reason for the subsequent actions leading to loss – it need only to have been material in that it was one of the factors which together led to the course of action.

Damage or loss must have been suffered because of the deceit.

As most claims for deceit is for monetary loss, the most appropriate remedy to be provided will be that of damages.

If we return to the previous example of a false insurance claim made from a motoring accident we can see the following damages which could be claimed for:

• damages in relation to the time taken by the insurer’s claims department and investigators to deal with and investigate the claims;
• disbursements incurred by the insurer;
• repair costs to the vehicle of the policy holder who has made the fraudulent claim;
• payments which have already been made to the individual through their policy;
• exemplary damages.

If someone is induced to enter into a contract on the basis of a false misrepresentation, they may be able to rescind the contract or claim damages for any loss suffered. Rescission would be ruled out where: a third party acquires rights; where the representee affirms the contract; through lapse of time; or where restitution in integrum (ie, restoring the parties to their pre-contractual position) would be impossible.