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Supreme Court rules on striking out fraudulent claims

Aside from the rule in insurance law under which an insuredcannot recover in respect of any part of a claim in a case where the claim hasbeen fraudulently exaggerated or where a genuine claim has been supported bydishonest devices, the general rule of law is that a person cannot be deprivedof a judgment for damages to which he is otherwise entitled on the ground ofabuse of process. The Supreme Court has, however, made a decision contrary tothis principle, citing that the court has power under the CPR and under itsinherent jurisdiction to strike out a statement of case at any stage of theproceedings, provided that it is “just and proportionate” to do so.

Background

The claimant, Mr Summers, was accidentally injured whilstworking for the defendant, Fairclough Homes Limited. Mr Summers claimed damagesof £838,000 from his employer. In 2010 the claim was found by Manchester CountyCourt to be grossly exaggerated; £88,716 was awarded for the genuine part of MrSummers’ claim.

The defendant appealed the claim to the Court of Appeal,seeking to strike out the claim in its entirety, citing an abuse of processunder the CPR and/or the court’s inherent jurisdiction. The defendant’sliability insurers, Zurich, were the driving force behind the appeal, stressingthe prevalence of fraudulent claims of this kind, which ought to be struck outas an abuse of process. The Court of Appeal dismissed the appeal and refusedpermission to appeal the decision to the Supreme Court. Permission to appealwas later obtained from the Supreme Court.

Supreme Court’s Decision

The issue to be decided by the Supreme Court was whether acivil court has the power to strike out a statement of case as an abuse ofprocess after a trial at which the court has held that the defendant is liablein damages to the claimant for an ascertained sum, and, if so, in whatcircumstances such a power should be exercised.

The Supreme Court found that the court does havejurisdiction to strike out a statement of case under CPR 3.4(2) for abuse ofprocess even after trial where the court has been able to make a properassessment of both liability and quantum, but this should only be done in “veryexceptional circumstances”. Whilst the Supreme Court thought this decision tobe in the public interest, it stressed that in deciding whether to exercise theright, the court must examine the circumstances of the case “scrupulously” inorder to ensure that the strike out is “a proportionate means of achieving theaim of controlling the process of the court” and “deciding cases justly”, andought always to be seen as a last resort.

What does “just and proportionate” mean?

The Supreme Court did not give examples of when a decisionto strike out of a statement of case would be reasonable, and said that it mayinclude a case where there has been “a massive attempt to deceive the court butthe award of damages would be very small”. The test in every case is to be“just and proportionate”, and only in a “very exceptional case” would a strikeout be appropriate. The Supreme Court found that the case in hand was not anappropriate case to warrant a strike out, referring to the fact that theclaimant had suffered “significant injury” as a result of the defendant’sbreach of duty.

Deterring Dishonest Claims

The Supreme Court felt that there already exist ways inwhich dishonest claims can be deterred; that all proper inferences can be drawagainst the claimant, the claimant may be faced with a substantial order forindemnity costs, interest may be reduced and proceedings issued for contemptand criminal proceedings. Attention was also drawn to the use of Calderbankoffers made by a defendant to settle genuine parts of a claim.

Considerations

Defendants the subject of what they consider to befraudulent claims ought now to review these cases in light of this judgment.Whilst the Court has not been prescriptive as to examples of what types ofcases may be struck out, it seems that cases where there has been a largedegree of fraudulent activity, accompanied by little if any actual damage, mayfall within such a category.

Defendants ought to consider putting claimants’ solicitorson notice that they are of the view that fraud exists, citing this case, anddrawing attention to the risk of pursuing the action if the claim is laterfound to be fraudulent; early Calderbank offers ought also to be considered.What remains to be seen is whether the number of claims in which quantum soughtby claimants is grossly inflated now reduces following this decision.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here http://www.law-now.com/law-now/

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