Please note that since this book was last published in 1997 some of the laws that have been referenced may have changed. We
are doing our best to update the articles, however, it is advisable that you to consult an attorney before relying on any information contained herein.
Fraud is the deliberate misrepresentation or perversion of the
truth, resulting in either actual or potential prejudice being
suffered by another person.
For example, a man who pays for a motorcar with a cheque he
knows will not be honoured commits fraud. However, if he takes
the car from a garage without permission, with the intention of
depriving the owner of possession, he is guilty of theft. Fraud
can lead to both criminal and civil action.
It is not necessary for misrepresentation to be verbal: for
instance, dressing up as a college student in order to obtain
credit or tendering a cheque (knowing that it will not be
honoured) for payment before booking into a hotel have been held
to be misrepresentations.
In some circumstances, failure to say something may constitute
misrepresentation: thus, a director must disclose any dealings
with his or her company, and if the truth makes a false
impression, it is his or her duty to correct that opinion. For
example, a man who claims that his borehole has given water for
three years would be guilty of fraud if he did not add that the
three years had ended 14 years before. Likewise, a woman who sold
goods would be guilty of fraud if she concealed hidden defects
she knew of.
Misrepresentation must relate to an existing state of affairs.
A mere promise to do something in the future is not a perversion
of the truth - unless you imply that it is your present intention
to carry out that promise. It is one thing to make a promise and
then to break it; it is quite another to make a promise without
any intention of keeping it. The law punishes only the latter,
although the former could, in some circumstances, amount to
breach of contract.
If you pay an account by cheque, you are implying that your
cheque is good and will be met when presented. This is a
representation relating to an existing fact. Even if there are no
funds in your account your representation will not be false if
you honestly believe that funds will be available by the time the
cheque is presented. Indeed, even if you have no account at the
bank on which the cheque is drawn, your representation is not
false if it is your intention to open an account in time.
However, if you have no intention of meeting the cheque, you are
guilty of fraud.
Although misrepresentation may be false, it is a crime only
when prejudice or potential prejudice is caused (and note, the
prejudice need not only be monetary). 'The false statement must
... involve some risk of harm, which need not be financial or
proprietary, though it must not be too remote or fanciful, to
some person, not necessarily the person to whom it is addressed.'
(Rex v Heyne Appellate Division, 1956.)
Potential prejudice exists wherever there is a reasonable risk
that prejudice may result. For example, even if a cheque to a
bank is so clumsily forged that no teller would be misled by it,
potential pre-judice can still be deemed to exist.
However, the potential prejudice must not be too remote: for
example, in a case in which a woman asked a friend to write out a
cheque so that she could pay her rent and the cheque turned out
to be worthless, it was held that the prejudice she could have
suffered to her reputation was too remote. (Rex v Lipschitz,
The crime of attempted fraud can be committed even if, for
example, the misrepresentation is contained in a letter that is
lost in the post.
Fraud is closely related to theft
by false pretences, forgery
and uttering, and may overlap with them. For example, where
property obtained as a result of fraud is handed over to an
accused, it is usually charged as theft by false pretences (which
always involves fraud, though fraud does not necessarily involve
theft by false pretences). In the same way, writing out a false
cheque and cashing it is both fraud and forgery.
Fraud can also be an element in buying
and selling. For example, an estate agent who claims that a
roof does not leak while fully aware that it does, is guilty of
deliberate misrepresentation, despite any voetstoots clause in the deed of sale. Similarly, a
motorcar sales representative who says that a car has done only
40000km, while well aware that it has done 140000km, is guilty of
deliberate misrepresentation. Should these statements, known as
warranties, be false, the buyer will be able to sue the seller
for breach of contract.
The onus of guilt
Whenever the prosecution proves that a statement by an accused
constitutes misrepresentation, the courts will make a presumption
of guilty knowledge and shift the onus of proving lack of guilty
knowledge to the accused.
In other words, a man charged with fraud must show that he did
not intend misrepresentation rather than the state showing that
he did intend it. This might change, however, in the light of the
presumption of innocence included in the South African bill of
Fraud is a serious crime and where it involves financial loss
prison sentences are often imposed, but generally the severity of
the punishment will depend on the circumstances and the amounts
Recouping money lost through fraud
You have two legal remedies available to you if you have been
the victim of fraud:
- A criminal prosecution, in which you can take steps
against those you believe to be responsible;
- A civil action in which you can try to recover lost money
by suing for damages.
PROSECUTION Many types of deception
constitute either theft or fraud. If you believe that you have
been defrauded, report the matter to the police immediately. If
you buy something on the basis of false statements made by the
seller, you can institute a prosecution under the Harmful
Business Practices Act, 1988. Report suspected offences to the
Department of Trade and Industry.
SUING FOR DAMAGES A successful prosecution
does not always mean you will be able to recover money lost
through fraud. However, if the offence and the amount lost are
clear and ascertainable, you may ask the court that tried the
offender to help you gain compensation.
The criminal case
A criminal court can help you gain compensation in two
- It may impose a suspended sentence on the offender. This
means the offender will not be imprisoned or have to pay
a fine or suffer some other penalty for a specified
period, provided he or she pays you compensation. (See damages) The amount lost
would have to be easily ascertainable for the court to
make such an order.
- The court can make an order in terms of the Criminal
Procedure Act, 1977, whereby the defendant must
compensate you. However, the amount lost must be easily
ascertainable because a criminal court will not
investigate the nature and extent of the loss which is
the function of a civil case. You will have to ask the
court directly, or through the prosecutor, to make an
order for compensation.
The magistrates' and regional courts will not make an order if
the compensation applied for exceeds R100000. No limits are set
on the Supreme Court.
The court will never make an order unasked. If you ask for the
order, the court will require evidence from both sides before
reaching a decision.
The court may make such an order where the offender can pay,
or has assets that may be attached. It may also order that money
in the possession of the offender at the time of the arrest be
forfeited to you.
However, a word of warning: the amount you get in terms of an
order made by a criminal court may be much less than you could
expect to recover through a civil case. For this reason, you have
60 days in which to give notice in writing to the clerk of the
court that you do not intend to take advantage of the order.
Obviously, if you have already received the money in terms of the
court order, you will have to refund it. If you do not give
notice within the specified time, the case will be regarded as
closed and you will not be able to bring a civil case against the
The civil case
Recovering money through a civil case is more complex - and
more expensive as you will have to pay the legal costs in the
hope that you will be able to recover them later from the
defendant. To succeed in a civil case, you must be able to show
- The defendant made a false statement or
- The defendant knew the representation was false. A
defendant who did not know that the representation was
false, but did not exercise the duty of necessary care,
may still be liable to pay compensation on the grounds of
- The defendant intended the statement to be acted
- You did, in fact, act upon the representation, and
suffered harm as a result.
If the action arises out of a contract between you and the
defendant - for example, if the defendant pretended to sell you
something, you would generally succeed in your claim if you
proved these four points, and that the representation in question
induced you to enter into the contract.
Do you have a case?
The elements that give rise to a successful action are:
FALSE STATEMENT A wide variety of statements,
or even gestures and conduct, can amount to misrepresentation,
which must be proved for an action. Normally, the representation
is written or oral. But, for example, if in prospecting for a
gold mine a core sample was 'salted' by adding extra gold to it,
this would amount to a misrepresentation. The story of the man
who wanted to sell a seaside villa and hired fishermen to pretend
to net fish is another good example. It must, however, be
misrepresentation of a fact.
SILENCE This can also amount to a
misrepresentation, if there is an implicit obligation to clarify
the situation by speaking up. The most important factor in
deciding whether silence is an actionable misrepresentation is
whether the relationship of the parties is one that is ordinarily
regarded as imposing a duty to disclose. A company might be
guilty, for example, if it sold plots without telling investors
that new buildings had been banned in the area.
KNOWINGLY MADE The misrepresentation must be
made with the knowledge of its falsity or without an honest
belief in its truth. If, say, a man says in a reference that an
applicant for a job can be trusted with large sums of money, he
lays himself open to an action if he knows that the applicant has
been in prison for dishonesty.
NEGLIGENTLY MADE In a contract, such as
buying and selling, if a misrepresentation is made negligently or
even innocently with an honest belief in its truth, without
negligence you may still have an action if you can show that the
misrepresentation was material and would have induced any
reasonable person to contract.
In non-contractual matters, there is no legal remedy for
innocent misrepresentation. But a person who owes a duty to speak
carefully will be liable for damages if he or she does not.
DEFENDANT'S INTENTION A false statement does
not give grounds for an action, unless it is made with the
intention that the person concerned should act on it. For
example, you can sue a motor vehicle dealer who tells you that a
car is mechanically sound while fully aware that it has defective
steering. In this case, the dealer intends you to act on the
statement to buy the car.
The same statement about the vehicle made at an exhibition
where the car is not for sale, would not be actionable because it
would not be possible for a potential buyer to act on the
PLAINTIFF'S ACTION You must also show that
you relied on the statement and acted on it. If you know that a
statement is false - for example, if you can clearly see that the
car's steering is defective but still accept the vehicle - you
have no grounds for an action.
Similarly, a coin collector who is offered what is claimed to
be a rare coin for R100 has no ground for action if he or she
recognises it as counterfeit and agrees to pay only R1.
INDUCEMENT This is an element required only
when dealing with a contract. The misrepresentation at least must
have been an important element in inducing you to enter into the
contract. If a misrepresentation was made, but had no effect on
you, this element will not be satisfied.
Civil remedies for misrepresentation
Where the fraudulent misrepresentation was related to a
contractual matter (such as buying and selling) - that is, it was
a deliberate falsification and was at least a major cause of your
entering the contract - you will generally be able to withdraw
from the contract and claim damages if you have suffered loss as
a result of the misrepresentation. The property or goods acquired
will have to be tendered back.
If the misrepresentation did not cause you to enter a contract
(which you would have contracted anyway), but caused you to enter
it on different terms, you will not be able to withdraw from the
contract, but will be able to claim damages. These damages are
calculated according to the extra amount you were induced to pay
by the misrepresentation.
You may decide to continue with the contract even though the
misrepresentation caused you to contract, and in this case you
may sue for the difference in value of what you gave and what you
received. However, the measure of damages is a matter that has
not yet been cleared up by the courts. The following appears to
be the present state of the law:
- Where the fraud was 'incidental', that is, you would
still have contracted had you known the truth, but on
better terms, for instance as to the price to be paid,
you will be awarded the loss caused by the fraud;
- With 'causal' fraud, you can claim your actual financial
loss as damages. Normally this would be the difference in
value between what you gave and received, but there could
also be consequential damages; for instance, a farmer's
cows could be infected by new cows bought from a dealer
who fraudulently stated that the animals were