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Lawyers and litigants warned on fraud claims

The Court of Appeal has warned litigants and legal practitioners about the dangers of alleging fraud without proof.

The court was ruling in two linked cases in which taxpayers sought to resist proceedings by Revenue by alleging that the arrangement between the tax authority and its solicitors for the provision of legal services was champertous.

The taxpayers also alleged fraud against Revenue, claiming that it would misrepresent its legal costs by presenting a bill of costs higher than what was actually owed.

The Court of Appeal did not accept that the arrangement between Revenue and its solicitors was champertous.

It also concluded that the taxpayers were fully aware of the arrangements between Revenue and its solicitors, and that the taxpayers could not demonstrate any fraud or fraudulent misrepresentation.

‘Hopeless’ claim

In his judgment, Mr Justice O’Moore described the claim of fraud in the cases as “hopeless”, and stated that it should never have been made.

“Far too frequently over the last number of years litigants, either acting by themselves or represented by lawyers, have resorted to the making of vitriolic but groundless allegations in defending or advancing their position,” the judge stated.

“Where possible, pertinent and proportionate steps should be taken to address and deter such activities,” he added.

Potential sanctions

The judge identified potential sanctions or consequences for a party or lawyer who failed to substantiate a claim of fraud:

• Referring the papers to the lawyer's relevant professional body if the court feels there has been a breach of the rules of that body,
• Awarding costs on a full-indemnity basis (or some higher basis than the norm) against parties making groundless allegations of fraud, and
• In certain circumstances, the court may consider whether the lawyers who pursue such groundless claims could be responsible for ‘holding harmless’ the persons against whom such allegations are made.

Noting the judgments, lawyers at Fieldfisher said that they “underscore the importance of careful and responsible conduct by legal professionals when alleging fraud”.