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Recovering losses from fraud: Civil or criminal law?

  • United Kingdom
  • Fraud and financial crime
  • Litigation and dispute management

13-09-2021

Victims of fraud may assume that what has happened is a crime, and that it is the criminal law that will help them to seek retribution. That may sometimes be the case, and in almost all fraud cases consideration should be given to whether a report should be made to a relevant law enforcement body. However, it is the civil law that provides the most direct and well-trodden route towards a Court judgment that can be used to secure the return of misappropriated funds. In Asif v Ditta and another [2021] EWCA Crim 1091, the Court of Appeal decision has confirmed that commercial fraud claims are to be determined in the civil courts, and the use of criminal proceedings as a tactic to apply pressure can be abusive and improper.

The Court of Appeal has recently decided a case which provides an interesting perspective on the options available to the victim of fraud. The case concerns a private criminal prosecution that Mr Muhammed Asif had sought to bring against Mr Adil Ditta and Mrs Noreen Riaz in respect of Mr Asif’s allegations that the defendants had defrauded him of more than £1 million. Mr Asif alleged that he had been the victim of two separate frauds constituting various offences under the Fraud Act 2006.

The background to the alleged frauds depending largely on heavily contested documentary and witness evidence in relation to the operation of the commercial relationships between the parties. In other words, it immediately felt like a case that would normally be pursued in the civil courts and not the criminal courts.

Victims of fraud can seek to pursue parallel proceedings in both the criminal court (to seek criminal sanction) and the civil court (to seek financial recompense), but it was notable in this case that Mr Asif had not commenced civil proceedings, nor taken many of the other steps that might sensibly be taken by a victim of fraud (for example reporting the matter to the SFO).

The judge at first instance expressed concerns that the criminal law was being used as a “rather heavy-handed business tactic” in relation to “what is at the end of the day a contractual or a business dispute”. Mr Asif maintained that the evidence was sufficient such that the indictment could lead to a guilty verdict before a jury. The Court concluded that Mr Asif’s primary motivation was to obtain financial recompense in his own private interests, and that it was improbable that such a prosecution could be thought to be in the public interest. The Court stayed the criminal proceedings.

The Court of Appeal upheld the first instance decision, noting that “the whole flavour of the proceedings is civil in nature” and that it was a case of the “private prosecution being used for a collateral purpose and for an improper motive”. In particular, the Court of Appeal found that the proceedings were not being used as a means to obtain punishment for criminality, but rather that they were being used as leverage “to achieve recovery of money from the defendants said to be due to him…that is an abuse of the Crown Court”.

It is interesting that the Court of Appeal thought that Mr Asif might also have been motivated to pursue criminal proceedings rather than a civil claim, because the upfront costs of a criminal claim are less, and there was a much lower risk in the criminal court that if the claim were unsuccessful, he would need to pay the costs incurred by the defendants.

Accordingly, the Court of Appeal has made abundantly clear that in commercial fraud cases, the criminal law cannot be used for “private tactical and oppressive reasons”. The case is a stark reminder that proceedings seeking the recovery of funds are best pursued through the civil law. The civil jurisdiction is well equipped to deal with such claims and has an array of interim tools (including for example freezing injunctions and disclosure orders) to help support the efforts of victims of fraud in recovering their losses.

Eversheds Sutherland (International) LLP have teams of both civil and criminal lawyers. Our civil fraud litigators have global experience in recovering assets misappropriate by fraud. Our Corporate Crime & Investigations team contains experience criminal lawyers, including a former senior SFO prosecutor.

 

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