Power to strike out fraudulent claims

Supreme Court

Published July 18, 2012

Summers v Fairclough Homes Ltd

Before Lord Hope of Craighead, Lord Kerr of Tonaghmore, Lord Clarke of Stone-cum-Ebony, Lord Dyson and Lord Reed

Judgment June 27, 2012

A court had power to strike out a statement of claim at any stage, even after the trial of the action and after liability had been established, on the ground that the case was tainted with fraud and therefore an abuse of process of the court, but it should do so at the end of a trial only in exceptional circumstances.

The Supreme Court so held in dismissing an appeal by the defendant, Fairclough Homes Ltd, from the dismissal by the Court of Appeal (Lord Justice Ward and Lady Justice Smith) ([2010] EWCA Civ 1300) of its appeal against the award of damages for personal injury to the claimant, Shaun Summers, by Judge Tetlow, at Manchester County Court on February 23, 2010.

Mr William Norris, QC, Mr James Todd and Ms Sadie Crapper for Fairclough; Mr Craig Sephton, QC and Mr Hugh Davies for Mr Summers.

LORD CLARKE, delivering the judgment of the court, said that the claimant had been injured in an accident at work. After a three-day trial the judge had given judgment in his favour with damages to be assessed.

The claimant’s case was that he was grossly disabled and unable to work. However, surveillance evidence showed that he appeared to be living a normal existence without any significant disability and was working. The defendant argued that the court had power to strike out the claim as it was tainted by fraud and an abuse of process.

The judge found that the claim was substantially fraudulent but he was bound by Court of Appeal authority to award damages for the claimant’s genuine loss, which amounted to just over 10 per cent of the sum claimed.

His Lordship concluded that notwithstanding the decision and clear reasoning in Ul-Haq v Shah (The Times July 14, 2009; [2010] 1 WLR 616), the court did have jurisdiction to strike out a statement of case, whether under rule 3.4(2) of the Civil Procedure Rules or under its inherent jurisdiction, even after the trial of an action.

However, his Lordship agreed with Masood v Zahoor ([2010] 1 WLR 746, para 72) that, while the court had power to strike a claim out at the end of a trial, it would only do so if it were satisfied that the party’s abuse of process was such that he had thereby forfeited the right to have his claim determined.

That was a largely theoretical possibility because it would be a very rare case in which, at the end of a trial, it would be appropriate for a judge to strike out a case rather than dismiss it in a judgment on the merits in the usual way. The same was true where the court was able to assess both the liability of the defendant and the amount of that liability.

The draconian step of striking a claim out was always a last resort, a fortiori where to do so would deprive the claimant of a substantive right to which the court had held that he was entitled after a fair trial. It was very difficult indeed to think of circumstances in which such a conclusion would be proportionate. Such circumstances might, however, 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 because they were all too prevalent. However, there was a balance to be struck. To date the balance had been struck by assessing both liability and quantum and, provided that those assessments could be carried out fairly, to give judgment in the ordinary way.

Such an approach would be correct in the vast majority of cases. There were many ways in which dishonest claimants could be deterred other than striking out their claims. They included ensuring that the dishonesty did not increase the award of damages, making orders for costs, reducing interest, proceedings for contempt and criminal proceedings.

The test in every case had to be what was just and proportionate. It would only be in the very exceptional case that it would be just and proportionate for the court to strike out an action after a trial. The more appropriate course in civil proceedings would be that judgment would be given on the claim if the claimant’s case was established on the facts.

The claimant was likely to face a substantial order for indemnity costs in respect of time wasted by his fraudulent claims. The defendant might well be able to protect itself against costs by making a Calderbank offer: see Calderbank v Calderbank ([1976] Fam 93).

Moreover, it was open to the defendant to seek to bring contempt proceedings against the claimant, which were likely to result in the imprisonment of the claimant if they were successful.

The combination of those consequences was like to be a very effective deterrent to claimants bringing dishonest or fraudulent claims, especially if the risks were explained by the claimant’s solicitor.

Further, it was in principle more appropriate to penalise such a claimant as a contemnor rather than to relieve the defendant of what the court had held to be a substantive liability.

Solicitors: Berrymans Lace Mawer LLP, Manchester; SAS Daniels LLP, Stockport.