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fraud remedies following Summers v Fairclough homes

18 July 2013

Shaun Summers brought a claim against his former employers following an accident at work in 2003 when he suffered a fractured ankle and wrist after slipping from the step of a forklift truck.

Mr Summers had originally claimed over £800k in damages but ultimately was awarded £88k. He was held to have lied, having grossly and fraudulently exaggerated his losses and to have made Statements of Truth about his disability, he knew to have been false. The case ultimately went to the Supreme Court which was asked :

“Can a claim be struck out if tainted with fraud and as an abuse of process?”

Historically Defendants had been successful in striking out the whole of a genuine claim where the claim was “tainted with fraud”, if some of the losses claimed were found to be fraudulent.

But in November 2008 in the case of Ul Haq –v- Shah the Court of Appeal ruled that there was no power to strike out the whole of a genuine claim on such grounds. This was a claim where genuine Claimants supported a Bogus Passenger’s claim with evidence fabricated to that end. The Court struck out the Bogus Passenger’s claim but not the genuine claims. It awarded damages to the Claimants for their genuine claims; but, by way of sanction ordered them to pay the Defendant’s costs which outweighed the damages awarded.

This year the Supreme Court in Summers overturned Ul Haq. It ruled that the Court does have the power to strike out at any point in proceedings. However, the Court will only exercise this power having heard all the evidence at the end of the Trial in “exceptional circumstances” under CPR 3.4(2)(b) on the basis that it was an abuse of process. Those circumstances were where the exaggerated (claimed) losses were grossly disproportionate to the genuine losses, and it was fair to do so. In this case despite the weight of evidence of fraud, the Supreme Court declined to exercise the power to strike out Mr Summers’ claim and penalised him in costs.

The Supreme Court offered further guidance to defendants, and examined remedies available to Defendants in detail in the judgement.

Defendants could also ask the Judge to refer the matter to the Divisional Court to make a finding of Contempt of Court. CPR 32.14 provides that proceedings for Contempt of Court may be brought against a person if he makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth. The penalty for Contempt is either a custodial sentence or a fine. There has been a raft of cases dealing with fraudsters in this way. In Summers permission was not sought.

Contempt proceedings can be time consuming – they can be procedurally difficult and may not result in recovery of costs. Browne Jacobson LLP are exploring private prosecutions as a means to achieve this end with a renowned London based criminal set – and  they are more costs effective and have a higher conviction rate.

Another attractive deterrent is for the Trial Judge to refer the matter to the Police. In the recent case of Ramari –v- Ahmed the Judge ordered that a transcript of the Judgment was to be prepared at public expense and referred to the Police to consider a prosecution of the fraudulent Claimant for conspiracy to pervert the Course of Justice and Benefit Fraud.

In the end, where a fraud is uncovered, Claimants will be penalised in costs. However, most CFA Insurers withdraw indemnity when a finding of fraud is made or suspected and most fraudsters are impecunious meaning enforcement proceedings are often fruitless.  In those cases consideration should be given to pursuing Costs Orders against non parties, such hire companies and accident management companies who have effectively managed the litigation for their own ends. In Farrell & Short v Birmingham City Council there was a finding of fraud and the Claimant was ordered to pay the Defendant’s costs. The CFA insurers refused to pay the costs and the Defendant successfully applied for an Order that the Credit Hire company pay 80% of the Defendant’s costs on the basis that they were the instigators and the beneficiaries of the claim.

The remedies for tackling fraud are wide and varied. It is important to select the right weapon of choice. Following Summers HHJ Mitchell in the case of Fari v Homes for Haringey did strike out a similar claim on the grounds of abuse, and this is the first case of its kind leaving the door open for others to follow. Whichever remedy is chosen, it is important to send a message to the perpetrators of insurance fraud – that it does not pay.

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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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