The Court of Appeal has handed down its judgment in the case of AXA Insurance UK Plc v Financial Claims Solutions Limited Mohammed Aurangzaib Hakim Mohammed (MD) Abdul and took the relatively unusual step of awarding exemplary damages.

The Respondents committed serious frauds in relation to two fictitious motor accidents. In both cases, the respondents fabricated accidents, purported to bring proceedings against the driver in question (in each case, an insured of AXA), obtained default judgment and sought to enforce those judgments. They did so via an entity called Coelum Legal, which fraudulently held itself out as a law firm.

AXA, having been faced with enforcement proceedings, managed to unravel the frauds and have the judgments struck out. It also pursued a claim for damages from the respondent. The judge at first instance awarded compensatory damages (the cost of unravelling the fraud and dealing with the judgments) but not exemplary damages finding, among other things that the fraud had been discovered before the Respondents had profited. Thus, they were not left “up on the deal" following the award of compensatory damages.

AXA appealed on the availability of exemplary damages and the leading judgment was given by Lord Justice Flaux. Flaux LJ held this to be a paradigm case of when exemplary damages should be awarded. He found it to be a “a sophisticated and sustained fraud involving deceit and fraudulent misrepresentation from the outset" and one where the “object was to extract large sums from the insurers through fraudulent insurance claims". In the view of the Court, it was not relevant that the fraud was unwound before such money had been extracted, and therefore that the Respondent’s profit was, in fact limited to the cost of unwinding the fraud. The relevant factor was that the aim of the fraudsters was to obtain profit significantly in excess of the compensatory damages available.

The Court also found that the first instance judge had erred in attaching weight to the availability of criminal and contempt proceedings as alternatives to a claim for exemplary damages.

The Court has not rewritten the law on the availability of exemplary damages, but has provided some clarity to a difficult area.