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Fairclough Homes Ltd v Summers, Supreme Court, 27 June 2012

12 July 2012
The issues

Fraud – striking out – abuse of process – dishonest claim – Ul-Haq v Shah – Woodlake v BBA Ltd

The facts

The claimant brought a claim for personal injuries. He was injured in an accident at work when he fell from a truck. Liability was admitted through insurers but thereafter the defendant applied for permission to withdraw the admission after seeing medical records which appeared to case doubt on the claimant’s account. In March 2007, the defendant served an amended defence on liability. The matter went to trial where the judge found for the claimant on liability with damages to be assessed. Subsequently the defendant made a voluntarily interim payment of £10,000.00 on account of damages. In October 2007, The defendant obtained surveillance evidence. After the claimant served the first schedule of loss in the sum of £838,616.00. Thereafter, the defendant disclosed the surveillance evidence and served a re-amended defence alleging that the claim was grossly and dishonestly exaggerated and asserting that it should be struck out. Detailed particulars of dishonesty were given. In January the claimant made a Part 36 offer to settle for £190,200.00. In June a further schedule of losses were served valuing the claim at £250,923.00 and a Part 36 offer in the sum of £150,000.00. The claim was maintained at trial. The judge found that the claimant had suffered a sufficiently serious ankle injury. He found that the evidence was sufficiently cogent to sustain a claim of fraud, not only on the balance of probabilities but on the criminal standard of being satisfied beyond reasonable doubt. He found that the claimant had deliberately lied to the doctors and to the DWP. He had worked for a ward at a time when he had claimed he was unable to do so. He had falsely claimed to require crutches. Nonetheless, the judge awarded the claimant £88,716.76.

The defendant wished to argue that the court had the power to strike out the claim on the ground that it was tainted by fraud and was an abuse of process. The judge regarded himself as bound by the decision in Ul-Haq v Shah and Woodlake v BBA Ltd but granted permission to appeal.

He ‘stayed the order’ in favour of the claimant pending appeal. Subsequently he heard arguments on interest and costs and an application for permission to commence contempt of proceedings. He ordered the defendant to pay the claimant’s costs up to February 2008, save that the claimant was to pay the defendant’s costs of obtaining the surveillance evidence and may no order for costs after March 2008. He further decided that the claimant should have interest on the damages to which the court held he was entitled over the whole period.

With regard to the application in respect of proceedings of contempt, the judge found that there was a strong prima facie case for believing that the defendant will be able to show that the claimant was guilty of contempt to the criminal standard, but it was not in the public interest to allow the proceedings to continue for that purpose noting that the claimant’s wrong doing had been publically recognised by the judgment in the action and if the defendant was dissatisfied it or insurers could try to persuade the Attorney General ‘to take up the baton’. The matter came before the Court of Appeal as did the strike out point.

The Court of Appeal found that they were bound by Ul-Haq v Shah and Widlake v BBA Ltd and refused permission to appeal to the Supreme Court which subsequently granted it.

The decision

Notwithstanding the decision and reasoning of the Court of Appeal in Ul-Haq the court had jurisdiction to strike out a statement of case under CPR 3.4(2) for abuse of process even after the trial of an action in circumstances where the court had been able to make a proper assessment of liability and quantum. For many of the reasons given by the Court of Appeal, that as a matter of principle should be done only in very exceptional circumstances.

The language of the CPR supports the existence of a jurisdiction to strike a claim out for abuse of process even where to do so would defeat a substantive claim. CPR 3.4(2)(b) gives the court power to strike out a statement of case on the ground that it is an abuse of the courts process. It is common ground that deliberately to make a false claim and to adduce false evidence is an abuse of process. It follows that in such case the court has power to strike out, there was no rule to qualify the power. It does not limit the time when an application for such an order should be made nor does it restrict the circumstances in which it can be made.

Under the CPR the court has a wide discretion as to how its powers should be exercised. The position would be same under the inherent jurisdiction of the court so that in the future it was sufficient for applications to be made under the CPR. Following the Court of Appeals decision in Masood v Zahoor the approach of which was referred to that in Ul-Haq, it was right that the court should only strike out a claim at the end of the trial, if it was satisfied that the parties abuse of process was such that he had thereby forfeited the right to have his claim determined. The Court of Appeal said this was largely theoretically possible because it had been a very rare case in which at the end of a trial it would be appropriate for a judge to strike out rather than to dismiss it in a judgment on the merits. The Supreme Court agreed. Was it so theoretical that it should be rejected as beyond the powers of the court? Bearing in mind Lord Diplock’s warning in Hunter v Chief Constable of the West Midlands Police, that it would be unwise to limit and advance the kind of circumstances in which abuse might be found, “one should never say never”. As to Article 6, the court had to act compatibly with the right of access to a court. Contracting states enjoyed a margin of appreciation, the essence of the right of access however must not be impaired and any limitation had to pursue a legitimate aim and the means employed must be proportionate. It was in the public interest that there should be a power to strike out a statement of case for abuse of process, but the court accepted that in deciding whether or not to exercise the power, the court had to examine the circumstances of the case scrupulously in order to ensure that to strike out the claim was a proportionate means of achieving the aim of controlling the process of the court and deciding cases justly.

As to how the power should be exercised, striking out was a draconian step and the more so where to do so would deprive the claimant of a substantial right to which the held court he was entitled after a fair trial. It was difficult to think of circumstances where such a conclusion would be proportionate but it might include a case where there had been a massive attempt to deceive the court but the award of damages would be very small. It was accepted that all reasonable steps should be taken to deter fraudulent claims. There was a balance to be struck however. To date the balance has been struck by assessing both liability and quantum and giving judgment in the ordinary way the reasoning in Masood and Ul-Haq. Such an approach would be correct in the vast majority of cases. Moreover, striking out was not the only way to deter the dishonest claimant’s who could be deterred in many other wise including reducing the award for damages, making order for costs, reducing interest and proceedings for contempt and criminal proceedings. A party who fraudulently or dishonestly invented or exaggerated a claim would have considerable difficulties in persuading a trial judge that any of his evidence should be accepted. As to costs, the judge would be expected to penalise the dishonest and fraudulent claimant in costs. It was entirely appropriate in a case of this kind to order the claimant to pay the costs of any part of the process which had been caused by his fraud or dishonesty and to do so by making orders on an indemnity basis.

There had been discussion as to whether a defendant could protect their position by making a Part 36 offer. The defendant had argued that a Part 36 offer was of no real assistance because if accepted the defendant would have had to pay the claimant’s costs under CPR 36.10. The Supreme Court saw the force of that argument but saw no reason why the defendant should not make a form of Calderbank offer in which it offered to settle the genuine claim but at the same time to settle the issue of costs on the basis that the claimant would pay the defendant’s costs incurred in respect of the fraudulent or dishonest aspects of the case on a indemnity basis.

As to contempt the Supreme Court approved the approach taken in South Wales Fire and Rescue Service v Smith. In that case the Divisional Court had noted the extent to which fraudulent claims undermined the administration of justice and imposed justified burdens upon honest claimant’s with honest claims and upon those liable for such claims. An adversarial system depended upon transparency and honesty and was seriously damaged by such claims. The Divisional Court had commented that those who made such claims should expect to go to prison. This approach had been followed by the Divisional Court in Neild v Loveday, Lane and Shar. In respect of this case, the Supreme Court took the view that it would not be proportionate or just to strike out. It was a serious case of abuse of process, but as a matter of substantive law the claimant had suffered significant injury as a result of the defendant’s breach of duty. The judge had made order’s for costs and interest which had not challenged on appeal. He had refused the defendant permission to bring contempt proceedings and again the defendant had not appealed. But for the peculiar circumstances of this case which the insurer had determined to bring as a test case it seemed likely that permission would have been granted to bring proceedings for contempt which would have had every prospect of success.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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