Civil fraud - a claim for deceit

4 June 2014

The Judge in the recent case of Leni Gas and Oil Investments Ltd and another v Malta Oil Pty Ltd and another [2014] EWHC 893 examined the legal principles applicable to the tort of deceit.

The term civil or commercial fraud has a broad scope and generally means a fraudulent misrepresentation, which is a claim under the Misrepresentation Act 1967, or the common law tort of deceit.

Deceit is a tort (a wrong) arising out of a false statement of fact made by one person/entity, knowingly or recklessly, with the intention that it should be acted upon by another person/entity, who suffers damage as a result.

It is difficult to bring a claim in deceit, as the claimant must show that the defendant has made:

A representation which is false and dishonestly made and intended to be and is relied on and the claimant suffers damage as a result.

  1. Representation:  There must be a statement (written or oral) or conduct amounting to a representation which is false. A representation usually involves something being said, but conduct can also be included.  Silence would not be considered a representation. The misrepresentation must be in relation to a specific fact. Statements of opinion or intention do not fall within the definition of a false misrepresentation.
  2. False: For the tort of deceit to be actionable it is not enough that the defendant was negligent as to whether the representation was false, 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 relates to the defendant’s actual knowledge and state of mind.
  3. Reliance upon the representation: The claimant must be able to prove that he relied on the representation and that the defendant intended him to rely on it.
  4. Damage or loss must have been suffered as a result of the deceit. The representation does not need to have been the sole reason leading to the claimant’s loss, but it must have been one of the factors which together led to the loss.

In the case of Leni Gas and Oil Investments Ltd and another v Malta Oil Pty Ltd and another, it was contended that the deceit had occurred during a telephone conversation between the CEOs of the first claimant and first defendant, with the CEO of the first defendant making fraudulent representations on which the first claimant had relied.  As the alleged representations were made during a telephone conversation the claim hinged on oral evidence given by the parties’ witnesses – 3 in total.  The Judge found in favour of the defendants, preferring the evidence of their witnesses.

The Judge found that:

  • the CEO of the first defendant was driving a hard bargain during commercial negotiations, he had not intended to make false representations;
  • the first claimant had not proved that their CEO had believed the alleged representations; and
  • in any event, the claimants had not proved that they relied upon the alleged representations.

This case shows the difficulties of bringing a claim for deceit/fraudulent misrepresentation, particularly one which relies on oral evidence.

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