Under Belgian law a defendant cannot be ordered to pay full compensation for damage caused by the concurrent default of the plaintiff and defendant. However, the Supreme Court recently held that the principle of fraus omnia corrumpit ('fraud corrupts everything') prevents fraudsters from being able to request an apportionment of civil liability due to the victim's own negligence. A financial institution, as the victim of fraud, was held entitled to full compensation for the damage it had suffered, even though it was partially responsible for the damage due to its own negligence.
Facts
A fraudster succeeded in embezzling over €4.5 million from a bank over seven months. A bank employee helped to perpetrate the fraud and the bank omitted to perform the proper internal control checks.
After the defendant's conviction in the Court of Appeal for forgery and swindling, the bank and another party filed a civil action to recover the money. The defendant was ordered to pay the plaintiffs two-thirds of that amount, leaving one-third of the loss to be borne by the plaintiffs.
The reason for this apportionment of liability was that the plaintiffs themselves had contributed to the loss. If the bank's internal control mechanisms had operated properly and if the bank's employee had not assisted with the fraud, the defendant would not have been able to conduct criminal activities over such a long period.
The plaintiffs took the case to the Supreme Court.(1)
First, they argued that the principle of fraus omnia corrumpit prevents the author of a fraudulent act which triggers liability in tort from requesting the apportionment of liability with the negligent victim of that act.
Second, they argued that an intentional act of fraud breaks the chain of causation between the damage resulting from that act and any other contributing factor resulting from mere carelessness.
The Supreme Court began by stating the general legal principle. According to Articles 1382 and 1383 of the Civil Code, the defendant cannot be ordered to compensate the victim fully for the damage suffered if damage results from the concurrent fault of both the plaintiff and defendant.
However, the general principle of fraus omnia corrumpit aims to remove fraudulently obtained profit or punish dishonesty resulting in damage. It prevents the author of an intentional default from claiming a reduction in the victim's compensation due to the victim's irresponsibility or negligence.
The Supreme Court concluded that the Court of Appeal had wrongly decided the case by only ordering the defendant to pay two-thirds of the amount it had fraudulently obtained. Thus, the first argument against the decision of the Court of Appeal succeeded.
This is the first time that the Supreme Court has decided that a defendant who intentionally causes damage is fully liable to compensate for that damage, even if the damage is partially due to the negligence of the victim.
The Supreme Court also confirmed the legal principle that intentionally caused damage breaks the chain of causation between the damage caused and a second act or omission that also formed an essential part of the total damage suffered.
The Supreme Court has decided in favour of victims of fraud. Fraudsters are prevented from relying on the irresponsibility or negligence of their victims to avoid paying full compensation for the damage caused. This decision must be seen as a serious warning to potential fraudsters, because in addition to criminal penalties, there may also be civil liability for the total damage caused.
For further information on this topic please contact Luc Demeyere at Allen & Overy by telephone (+32 3 287 7222) or by fax (+32 3 287 7244) or by email ([email protected]).
Endnotes
(1) Supreme Court November 6 2002, NjW, 16, 17.