Striking out exaggerated claims

A claimant who has grossly exaggerated an otherwise valid claim should nevertheless be allowed to keep the damages he has been awarded for the genuine element of his claim, the Supreme Court ruled earlier this summer in Fairclough Homes Ltd v Summers [2012] UKSC 26.

The outcome will be a disappointment to the insurance industry, which had hoped the justices would take a tougher stance by depriving fraudulent claimants of the entirety of their claim. In addition, this was a particularly egregious case; the dishonest claimant was claiming £833,000 in damages for his “life-changing injuries”, whereas in fact he was able to work, walk and drive virtually unhindered. But despite his blatant fraud, he was allowed to keep nearly £90,000 in damages, which insurers will doubtless consider sends the wrong message to other claimants who are tempted to inflate their claims.

The insurance industry can take some solace from the court’s recommendation that prosecutions be brought to stem the tide of fraudulent claims. After all, the judge had held that there was a strong prima facie case for believing that Fairclough would be able to show that Mr Summers had been guilty of contempt and of the criminal offences of attempting to pervert the course of justice or to obtain property or a pecuniary advantage by deception. Nevertheless, given that the Crown Prosecution Service declined to prosecute Mr Summers (on the ground that it would not be in the public interest to do so) insurers will have to pick a particularly egregious example of a fraudulently exaggerated claim to persuade the CPS to prosecute.

While there may well be further debate and litigation about the “very exceptional cases” proviso, for the time being it seems likely that in similar situations to those in Fairclough, insurers will be limited to their current armoury of making settlement offers or having the dishonest claimant penalised in costs. Also, even though the judge had refused permission to bring proceedings for contempt, it would have been open to Fairclough – and other defendants in similar future cases – to take their case to the Attorney-General, who can also give permission for contempt proceedings.
The claimant, Shaun Summers, had fallen from a stacker truck while at work and had injured his hand and foot. He sued his employer, Fairclough, for negligence. Fairclough admitted liability and, at trial in the county court, this liability was confirmed. The trial judge, His Honour Judge Tetlow, ordered a separate hearing to assess damages. Before that hearing, Fairclough’s insurers (Zurich) and the Department of Work and Pensions began covertly to observe Mr Summers going about his daily life. The results of both surveillance operations showed clearly that he had massively and deliberately exaggerated the extent of his injuries and incapacity and was in fact holding down a job without difficulty.

Fairclough (backed by Zurich) sought to have the claim struck out in its entirety as an abuse of process or under the court’s inherent jurisdiction. However, it faced a significant obstacle in the shape of two earlier Court of Appeal decisions, Shah v Ul-Haq [2009] EWCA Civ 542 and Widlake v BBA Ltd [2009] EWCA Civ 1256, where, when faced with similarly dishonest claims, the court had held that it had no jurisdiction to strike out the claims completely.
 

Very exceptional cases

T

he judge held that Mr Summers had behaved dishonestly but he held that he was bound by the two Court of Appeal decisions. He therefore went on to award damages of over £88,000 to Mr Summers, being the true, rather than exaggerated, value of the claim. The Court of Appeal said its hands were similarly tied and dismissed the appeal. Fairclough appealed to the Supreme Court, which heard the appeal in April this year.
The Supreme Court dismissed the appeal. The justices held unanimously that the court did have jurisdiction to strike out a statement of case as an abuse of process after a trial at which the court had found the defendant liable in damages to the claimant in an ascertained sum. However, such a power should only be exercised in very exceptional cases, of which the present claim was not one.

Lord Clarke gave the lead judgment, ruling that under CPR 3.4(2)(b) and under the court’s inherent jurisdiction, the court had the power to strike out a statement of case, on the ground that it was an abuse of the court’s process. It was common ground that it was an abuse of process deliberately to make a false claim and to adduce false evidence. It followed that the court had the power to strike out a statement of case for abuse of process. This was the case even after trial where the strike out would defeat a substantive claim.

However, Lord Clarke continued, the court could only do so if satisfied that the party’s abuse of process was so serious that he had thereby forfeited the right to have his claim determined. This was largely a theoretical possibility because it would be a very rare case in which, at the end of a trial, it would be appropriate for a judge to strike out a case rather than dismiss it in a judgment on the merits in the usual way.

In addition, the right to a fair and public hearing in the determination of civil rights in article 6 of the European Convention on Human Rights came into play here. This right was not absolute but ECHR contracting states could only limit the right in order to pursue a legitimate aim, and then only if they used proportionate means employed to achieve that aim.

Lord Clarke stressed that the draconian step of striking a claim out was always a last resort, particularly where it would deprive the claimant of a substantive right to which the court had held that he was entitled after a fair trial. It was, he added, very difficult indeed to think of circumstances in which such a step would be proportionate. Such circumstances might, however, include a case where there had been a massive attempt to deceive the court but the award of damages would be very small.
Lord Clarke accepted that the courts should take all reasonable steps to deter the “epidemic” of fraudulent claims. However, there was a balance to be struck, which to date had been struck by assessing both liability and quantum and, provided that those assessments could be carried out fairly, to give judgment in the ordinary way. This approach would be correct in the vast majority of cases.

The court rejected Fairclough’s argument that, unless this kind of fraudulent claim was struck out, dishonest claimants would not be deterred from bringing similar dishonest actions in the future. There were many other ways of deterrence, for example making orders for costs (including indemnity costs), reducing interest, and bringing proceedings for contempt and criminal proceedings.

Practical alternatives

Furthermore, a party who fraudulently or dishonestly invented or exaggerated a claim would have considerable difficulties in persuading the trial judge to accept any of his evidence on liability or quantum. This had been the case with Mr Summers, whose fraud and dishonesty had led the judge to reject his evidence except where supported by other evidence. He had shot himself in the foot in that, if he had told the truth throughout, his damages would probably have been assessed at a higher figure than they had been.

Lord Clarke suggested that a defendant in such a case could make a Calderbank offer, offering to settle the genuine claim, but at the same time offering to settle the issues of costs on the basis that the claimant would pay on an indemnity basis the costs that the defendant had incurred in respect of the fraudulent or dishonest aspects of the case. The offer should be made “without prejudice save as to costs”, so if it was not accepted, the defendant would be free to show it to the judge at the end of trial when it came to assessing who should pay the costs of the action.

Finally there was the option of bringing proceedings for contempt. Even though the judge in this case had refused permission for Fairclough to bring proceedings for ?contempt, there were similar cases where deceitful claimants had been jailed for contempt. Lord Clarke went on to warn that if people who made false claims, either in ?relation to liability or in relation to comp-ensation, were found out, the consequences for them and their families would be disastrous and would almost inevitably involve a sentence of imprisonment. The court noted in passing that, in the event, Mr Summers was unlikely to see much of his award of damages, given that state benefits – possibly in the region of £63,000 – would have to be deducted, as he had been working while claiming those benefits.