Privy Council’s Ivanishvili ruling removes obstacle in civil fraud claims

The Board’s ruling, overturning a previous understanding, removes a possible barrier in claims where a party alleges that they have suffered loss as a result of being deceived by another party.

The ruling formed part of the Privy Council’s decision on a wide-ranging appeal by Credit Suisse over a $600 million damages award to the sanctioned former Georgian prime minister, Bidzina Ivanishvili, following the conviction of fraudulent private banker Patrice Lescaudron.

As part of its appeal, Credit Suisse had argued that because Ivanishvilli had not shown that he was aware of and had understood the representations upon which the claim was made, he could not succeed in a claim of deceit.

“This decision will have an important impact on civil fraud cases, and particularly those less traditional cases where a representation has been made as part of a computerised process” said Jacob Hay, a financial services litigation expert with Pinsent Masons.

“The Privy Council has made clear that just because a claimant cannot evidence that they were consciously aware of the representation and that they understood it to have been made, this is not necessarily a bar to a claim in deceit. Indeed, the Privy Council notes that if it had held to the contrary, it would effectively lead to a ‘charter for fraudsters’.”

He added: “One can quite readily see that, within a highly automated process, insisting that a claimant consciously considered a representation given by a fraudster imposes a heavy burden.”

Reaching its unanimous view, the Board held that the opposing view was based on three key misconceptions.

First, the Board held that a party could still rely on a representation even if they were not consciously aware of it at the time of acting upon it, noting that people commonly form and act on beliefs without any conscious awareness or thought.

Secondly, it rejected the suggestion the law drew a rigid distinction between cases where a claimant had made an assumption and cases where the claimant had acted based on a representation.

Finally, the Board held that it was not necessary to insist on a requirement for awareness in order to preserve the distinction in law between misrepresentation and non-disclosure.

Since the law in Bermuda, where the case had originally been brought, is the same as England and Wales, the Board said "under the law of England and Wales and of Bermuda it is not a legal requirement of a claim for deceit that the claimant was aware of the representation or understood it to have been made".