1. FRAUD CLAIMS
1.1 General Characteristics of Fraud Claims
In Switzerland, the concept of fraud carries a predominantly criminal connotation, as an offence punishable under the Swiss Criminal Code (SCC). Beyond this strict definition of fraud, however, a number of other causes of action available under Swiss law also include components of fraudulent and/or injurious conduct. Below we briefly outline the various key avenues available to a victim of such fraudulent behaviour under Swiss law.
Causes of Action Arising out of Criminal Conduct
Criminal fraud and related offences
Fraud is a criminal offence punishable under Article 146 SCC. Fraud requires four key elements:
- astute or malicious conduct;
- intent with the objective of unlawful self-enrichment; and
- a mistake on the victim's part, causing it to make a self-harming disposition of assets.
These conditions require all of the following elements.
- First, the perpetrator must deceive the victim, eg, by making false statements, concealing true facts or reinforcing the victim's mistaken belief.
- Second, the perpetrator must act astutely or maliciously. This is the case where the perpetrator relies on a web of lies, fraudulent manoeuvres or the staging/enacting of falsehoods in order to deceive the victim. Astute or malicious conduct is also involved where the perpetrator prevents the victim from verifying false information or where the victim cannot reasonably be expected to verify the information it is provided with, given, for example, the relationship of trust or express reassurances from the perpetrator. On the other hand, malicious or astute conduct may be denied where the victim could have reasonably undertaken verifications but failed to do so.
- Third, the perpetrator must act wilfully and with the intent of unlawfully securing financial gain for itself or a third party.
- Lastly, the fraud must induce a mistake on the victim's part and cause the victim to act to the detriment of its own financial interests or those of a third party, thereby suffering damage.
The offence of fraud can be committed in the context of international commercial or business transactions, eg, where a party knowingly commits to an agreement with no intention of honouring it or induces its contracting party to contract on false pretences. As a criminal offence, fraud must, however, be distinguished from the mere failure to perform a contract, in which case liability is generally contractual, not tortious.
In addition to the strict notion of fraud, other criminal offences applicable in the business or commercial context may also include a certain degree of fraudulent and/or injurious conduct, such as (among others):
- forgery of documents (Article 251 SCC);
- criminal mismanagement (Article 158 SCC) and misappropriation (Article 138 SCC); and
- maliciously causing financial loss to another (Article 151 SCC).
Under Swiss law, there is no separate charge of conspiracy to defraud, but several co-perpetrators to a fraud offence as well as aiders and abettors ("accomplices" and "instigators" in Swiss legal terms) are, as a rule, prosecuted together and may be held severally and jointly liable for civil compensation (see 1.3 Claims against Parties Who Assist or Facilitate Fraudulent Acts).
Liability in tort
The above criminal offences can give rise to civil compensation under tortious liability (Articles 41 et seq of the Swiss Code of Obligations - SCO). Liability in tort depends on four cumulative requirements, for which the claimant bears the burden of proof:
- unlawful conduct by the perpetrator;
- damage suffered by the victim;
- a causal link between the conduct and the damage caused; and
- the fault of the perpetrator (eg, breach of a duty of care).
The victim of a criminal offence may seek the recovery of assets and/or compensation for damages suffered as a result of the criminal offences listed above, either in the framework of a criminal investigation or by way of an action filed in the civil courts (for the advantages of both options, see 2.5 Criminal Redress).
Causes of Action Arising out of Contractual Fraud
In the contractual context, Swiss law provides the concepts of wilful (or fraudulent) misrepresentation and of pre-contractual liability, which both arise specifically in connection with the conclusion of contracts. Moreover, where fraudulent conduct arises in relation to an existing contract between the parties, it can give rise to contractual liability.
Under Article 28 SCO, wilful (or fraudulent) misrepresentation takes place where a person intentionally creates or exploits a mistake and induces its contracting partner to enter into the contract on the basis of this mistake. Wilful misrepresentation depends on three key requirements, for which the claimant bears the burden of proof.
- An act of intentional or wilful misrepresentation, which includes making false statements, reinforcing the victim's mistaken belief or concealing true facts that the person in question had a duty to reveal.
- A mistake on the part of the victim, which induces the victim to enter into a contract.
- A causal link between the act of misrepresentation and the conclusion of the contract (ie, the victim would not otherwise have concluded the contract or would not have contracted on the same terms).
A victim of wilful misrepresentation may choose from several remedies.
- First, the victim can invalidate the contract as null and void. On this basis, they can claim restitution of any sums paid, based on a claim for unjust enrichment (Article 62 SCO), and claim restitution of any assets/property unduly transferred (see 1.5 Proprietary Claims against Property). The victim can also seek compensation in tort for damages suffered.
- Alternatively, the victim can choose to maintain and honour the contract, but still seek compensation in tort for damages suffered as a result of the misrepresentation.
Similar avenues are available to parties who were induced to enter into a contract on the basis of a material mistake or duress.
Culpa in contrahendo
In addition to wilful misrepresentation, liability can also arise out of precontractual obligations (culpa in contrahendo, based on the principle of good faith). Under Swiss law, parties must negotiate in good faith and in accordance with their true intentions. A party who intentionally gives inaccurate advice or information, fails to disclose facts of reasonably foreseeable importance to the contracting party or otherwise creates certain expectations leading the other party to make subsequent arrangements can, under certain circumstances, be held liable for the resulting damage.
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Originally Published by Chambers Global Practice Guide on 30thof April, 2021.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.