Supreme Court holds that court has power under CPR and under its inherent jurisdiction to strike out a statement of case at any stage of the proceedings but power only to be exercised in very exceptional circumstances.
For those not familiar with the case the facts are these: C, an employee of D, sustained an accident at work and suffered a fracture to his right hand and heel bone. He made a claim for losses resulting from his injuries amounting to around £838,000. C succeeded at trial in 2007 but subsequent surveillance evidence established that he had fraudulently exaggerated his claim.
In 2010 the trial judge assessed total damages at £88,000 (finding that C was fit to work at the end of June 2007). The judge noted that D wished to argue that the court had power to strike out the claim on the ground that it was tainted by fraud and was an abuse of process but found himself bound by the decision in Ul-Haq v Shah, which was decided on the basis that it was established law that a claimant cannot be deprived of a judgment for damages to which he is otherwise entitled on the ground of abuse of process. D’s insurers were granted permission to appeal first to the Court of Appeal, which dismissed the appeal. D’s insurers subsequently obtained permission to appeal direct from the Supreme Court where the hearing took place on 18-19 April 2012.
The Supreme Court’s judgment handed down on 27 June 2012
The Supreme Court refused D’s appeal. In a move away from previous case law, the Supreme Court has found that the court has the power to strike out a statement of case for abuse of process under its inherent jurisdiction (and under the CPR) even after the court has been able to make a proper assessment of liability and quantum and it has been established that the claimant is entitled to damages. But this power may only be exercised in “very exceptional circumstances” and when it is proportionate to do so. To the disappointment of D’s insurers, in the unanimous view of the Supreme Court the circumstances of the Summers’ case did not warrant the exercise of the court’s power to strike out his claim in its entirety.
What will constitute “very exceptional circumstances” will remain a matter for the courts. The Supreme Court gave limited guidance saying that exercising the power to strike out might be justified where “there had been a massive attempt to deceive the court but the award of damages would be very small”. However, the court added that it is difficult to envisage circumstances where taking this step will be proportionate.
In the judgment the Supreme Court recognised that many claims are dishonestly exaggerated or fraudulently invented and it saw the force of arguments that strong deterrents are needed. However, it felt that existing measures, such as penalising fraudulent claimants in interest and costs and bringing contempt and criminal proceedings in appropriate cases, were enough of a deterrent without moving to strike out genuine parts of dishonest claims.
So for the time being the law remains as outlined in our fraud seminar in May. A first party guilty of fraudulent exaggeration of a claim will forfeit the whole claim, including the genuine parts. For third party claimants the genuine parts of the claim will be upheld unless there are very exceptional circumstances. With an ever increasing number of fraudulently exaggerated third party claims, insurers need to continue to be vigilant to detect fraud and to pay only genuine claims. Insurers and their solicitors will need to approach the merits of pursuing an application to strike out the whole of a fraudulently exaggerated third party claim on a case by case basis. However, to maximise deterrence insurers should ensure that they are alive to, and pursue, the measures that are currently available to them in relation to fraudulent first and third party claims.