Beacon Insurance Company Limited v Maharaj Bookstore Limited [2014] UKPC 21

This case concerns the distinction between a fraudulent insurance policy claim and a fraudulent device used to support a valid claim.

The Facts

Maharaj Bookstore Limited (‘MBL’) operated a bookstore located in Trinidad and Tobago. A fire at MBL’s premises destroyed all its stock, consequently MBL made a claim pursuant to its insurance policy with Beacon Insurance Company Limited (‘BICL’). The insurance policy included a condition that the benefit under the policy would be forfeited if any false declaration were made or fraudulent devices used in support of the claim. BICL repudiated liability on the basis that MBL had made false declarations and submitted false invoices.

MBL acknowledged that there were errors in some of the invoices challenged, but submitted that the remaining invoices were genuine. BICL, unsatisfied with this explanation, maintained its repudiation of liability. Subsequently, MBL commenced legal proceedings.

The Decision – First Instance

Moosai J found for MBL, stating that the evidence showed that MBL had not made a fraudulent claim or used fraudulent devices and so BICL could not avoid liability.

Whilst it was acknowledged that some of the invoices had been altered, Moosai J found that there was no fraudulent purpose. Assessment of the evidence showed that there was a standard practice of book retailers assisting each other to obtain books from wholesalers to obtain a commercial advantage. The invoices had been altered to reflect that MBL had in fact purchased the books, albeit through other retailers.

BICL appealed, submitting that Moosai J had ‘wrongly assessed the evidence and had come to conclusions of fact which the evidence did not support or conclusions which no reasonable tribunal could have arrived at if properly directed.’

The Decision – Court of Appeal

The Court of Appeal overturned Moosai J’s findings in relation to the disputed invoices, stating that Moosai J had erred in law on the following grounds:

  1. By ‘failing to distinguish between a fraudulent claim and a fraudulent device to support a valid claim and failing to address the latter allegation;’
  2. In treating MBL’s concessions, after BICL had repudiated liability, as relevant to the question as to whether there was a fraud; and
  3. In failing to draw proper inferences from the evidence.

MBL appealed the Court of Appeal’s decision which was heard before the Privy Council in July 2014.

The Decision – Privy Council

The Privy Council assessed the role of an appellate Court in an appeal against findings of fact by a trial judge by reference to established case law principles. The Privy Council emphasised the advantage of a trial judge in being able to fully assess the witnesses and actually hear and consider their evidence. Quoting the decision in In re B (A Child) (Care Proceedings: Threshold Criteria), the Privy Council stated that it is only in rare cases where findings of fact should be revised, such as where the conclusion was one (i) which there was no evidence to support, (ii) which was based on a misunderstanding of the evidence, or (iii) which no reasonable judge could have reached.

The Privy Council assessed the decision at first instance, noting in particular Moosai J’s assessment of the applicable law and the credibility of the various witnesses and found the Moosai J was correct in the decision of fact that ‘[BICL] could not reasonably argue…that [MBL] has deployed fraudulent devices to improve or embellish the facts surrounding the claim in order to derive some benefit.’

The Privy Council referred to the decision in Agapitos v Agnew, which held  that ‘a fraudulent device is used if the insured believes that he has suffered the loss claimed but seeks to improve or embellish the facts surrounding the claim by some lie.’ It was acknowledged that MBL’s ‘tampering’ with the documents in dispute could support a prima facie case of fraud against MBL. However, the Privy Council supported Moosai J’s assessment of the facts, concluding that, ‘whilst foolish, such tampering was far from conclusive evidence of dishonesty.’ The documents were altered to explain the facts as MBL understood them and were not altered with dishonest intent.

The Privy Council concluded that the Court of Appeal had no proper basis for concluding that Moosai J had gone plainly wrong in his assessment of the evidence and therefore set aside the decision of the Court of Appeal.

Commentary

The decision may be seen as a generous interpretation of the principles laid down in Agapitos v Agnew. Whilst the Privy Council was satisfied that the invoices had only been altered to record genuine purchases of books by MBL they were in fact altered and therefore could be interpreted as ‘some lie’ in relation to the insurance claim designed to improve MBL’s prospects of achieving settlement. This case demonstrates the Courts’ willingness in such circumstances to look to the intent of a party who has altered information in respect of an insurance claim. This decision can be contrasted to the previous decision in Sharon’s Bakers v Axa. Nevertheless, insurers will also need to assess the motivation of the insured when faced with documentation which on its face could represent a false declaration or fraudulent device in support of an insurance claim.