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Claims of alleged fraud not exempt from Denton

“The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests.” - Gentry v Miller & Anor [2016] EWCA Civ 141 at 34. Such was the warning sent to insurers by the Court of Appeal earlier this month in allowing a Claimant’s appeal against a decision to set aside default judgment in what the Defendant’s insurer alleged was a fraudulent claim. The Facts The Claimant, Mr Gentry, alleged that he was in a road traffic accident with a Mr Miller on 17th March 2013 in a claims notification form valuing the claim at under £10,000. On 2nd April 2013 Mr Miller’s insurer admitted liability. On 8th April the Claimant’s solicitors wrote requesting immediate payment of the pre-accident value of his car (being £16,000) and warning that until that was received he was hiring a replacement vehicle under a credit hire facility. Proceedings were issued against Mr Miller alone on 3rd July and on 8th August the Claimant obtained default judgement. At no point in this period did the insurer instruct solicitors and it replied to only one of seven letters. In late August the insurer made a voluntary interim payment of £14,000 and a Part 36 Offer of £1,870. A further interim payment of £2,000 was ordered in September and paid. At a disposal hearing on 17th October 2013, DJ Benson awarded the Claimant damages of £75,089 consisting mostly of hire charges. On receipt of notification of this award the insurer instructed solicitors who, on 25th November, issued an application referring to CPR 13.3 (1). On 10th February 2014 those same solicitors applied to come off the record for Mr Miller, to add the insurer as the second defendant and to set aside both the default judgment and the order of 17th October. For the first time they alleged that Mr Gentry and Mr Miller were well known to each other and that the claim was a fraud. The application to set aside was granted by DJ Henthorn on 17th March 2014 and on 4th February 2015 Mr Recorder Gregory (as he then was) dismissed the Claimant’s appeal. The decision of the Court of Appeal The Court of Appeal considered the applications under CPR 13.3 and 39.3. In relation to the former Vos LJ was satisfied that the Defendant had demonstrated that it had a real prospect of successfully defending the claim but had to consider under CPR 13.3 (2) whether the application was made promptly. The delay to the application of 25th November was inexcusable. In particular Vos LJ noted that the insurer: Failed to adduce any evidence of its postal systems to explain how documents might not have reached it; Must have been aware after admitting liability at the beginning of April 2013 that it was at risk if it did not defend or attempt to settle the claim; Did not instruct solicitors or investigate fraud in the seven months after that admission; Was repeatedly warned of hire charge risks so that the suggestion that it believed the claim to be small and therefore impliedly not worth investigating did not hold water; In ignoring those warnings allowed the claim to grow; While not notified of the default judgment of 8th August as promptly as it might have been, clearly knew that proceedings were on foot when it made a Part 36 offer on 22nd August; Must also have been aware of proceedings when it paid the interim payment ordered by the court; Upon receiving costs schedules on 19th and 23rd September sent “ahead of the upcoming application hearing”, made no enquiry as to what that hearing was about. The court’s analysis then continued by application of the Denton test. It was common ground that Mr Miller’s default in not filing an acknowledgment of service was serious or significant. The fact that it was not served with the proceedings gave the insurer some reasonable excuse or explanation but it could and should have protected itself when it knew proceedings were being issued by appointing solicitors to accept service on behalf of Mr Miller. Finally, looking to all of the circumstances and in particular factors a) and b) it was held that “insurers are in a particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders”. It cannot avail an insurer who knows the risk from the moment it admits liability to say it was not a party at the time. The application under CPR 39.3 to set aside the order of 17th October, despite the insurer having notice, (although not a copy), of that order since 25th October, was not made until 26th February 2014. It had not been made promptly and therefore, even if the insurer could show it had a good reason for not attending the trial and a reasonable prospect of success, the application could not be granted. Again, it would in any event probably have failed the third stage of the Denton test. Key Lessons There are two key lessons for insurers arising out of this decision. The first is the reminder at the start of this post that insurers will be treated as professional litigants capable of protecting their own interests. The second is that a credible allegation of fraud is not a trump card. When weighing the competing policy interests of the desirability of testing the allegation of fraud against the requirement that there be finality of litigation, the latter at least can outweigh the former. At some point the insurer must be left to bring its own action in relation to the fraud.

Chartwell Estate Agents and the Mitchell decision

Having delivered and attended several post Mitchell case updates, one recent decision that surprised and interested me (in the context of other post Mitchell decisions) was Chartwell Estate Agents Ltd v (1) Fergies Properties SA and Another [2014] EWHC 438. This decision was appealed and the Court of Appeal’s decision appeared on Lawtel last week. So why did I find the first instance decision surprising? We know from Mitchell and subsequent case law that a) if a party is in breach of a rule, order or practice direction and that breach is more than trivial and b) there is no good explanation for it, then the chances of obtaining relief from sanctions were looking rather slim. Not impossible, but slim. The background to Chartwell’s application was as follows: The underlying dispute concerned non-payment of £450,000 of commission which was alleged to be due;  The non-compliance related to service of witness statements and the cross over between relief from sanctions and CPR 32.10.  Both parties had failed to comply with the direction for service of witness statements;  Notably, the Claimant alleged that they could not comply with the direction because they were awaiting further disclosure from the Defendant and without that disclosure it was unable to prepare its witness statements;  There was correspondence passing between the parties which suggested that they were unaware that they could not agree extensions between themselves and/or that CPR 32.10 would serve so as to exclude their evidence at trial;  Cleary, failure to allow relief from sanctions was most significant for the Claimant because without this evidence the Claimant could not prove their claim and would (without striking it out) effectively bring the claim to an end;  Further disclosure was finally provided by the Defendant and witness statements were exchanged several weeks late. At first instance it was noted that the failure could not be characterised as trivial – the statements were several weeks late. Further, the reason for failure was not to be regarded as a good reason. The judge took the view that the Claimant’s solicitors could and should have prepared and served statements and then dealt with any issues arising out of a further disclosure in supplementary statements. The judge also noted that there was no good reason as to why the parties had not made applications for an extension of time before the time for expiry of the time for exchange. Indeed, the Claimant’s could have made an application for specific disclosure in good time to allow them to complete their witness statements. There was no good reason as to why these steps hadn’t been taken. Nonetheless, despite the above conclusions the judge concluded that in all of the circumstances of the case relief should be allowed and referred to the following: Both parties were in default; It would be a disproportionate result if the Claimant were deprived from pursuing their claim (it wouldn’t result in strike out, but effectively the claim couldn’t be proven because there was no factual evidence); Whilst 3.9 placed proportionality and compliance with rules as paramount considerations, it did not mean that other considerations were irrelevant.       The Court of Appeal upheld the decision and made the following points:   Had the parties applied prior to the time for service, the application fell to be decided according to the overriding objective as opposed to 3.9 and so would not have been a relief from sanctions application – this is a great reminder of the need to make prospective applications;  The judge had been required by r.3.9 to consider all the circumstances of the case, including that the trial date would not be lost and no significant extra cost would be occasioned if relief were granted;  Mitchell had not said that the factors specified in r.3.9 would always prevail over any other circumstances;  The judge had been entitled to attribute importance to the fact that refusal of relief effectively meant the end of the action. This could not, however, necessarily be a determinative factor in the Claimant's favour, because of the requirements in Mitchell circumstances other than those in r.3.9(a) and (b) were ordinarily to be given less weight than those matters;  The White Book suggested that where a witness statement was served late it would be unjust to exclude the evidence from trial save in very rare circumstances, but that stated the position too broadly. The revised r.3.9 and Mitchell required an altogether more rigorous approach. The judge had not decided to grant the Claimant relief solely because of a disproportionately severe consequence. He had concluded that it would be too severe a consequence when set against all the background history and other matters. That had entitled him to depart from the expectation which otherwise would have arisen;  A further factor was the Defendant’s default. They had also needed relief to rely on their witness statements, but had not applied for relief (no doubt having calculated that if the Claimant could not rely on witness evidence it would not matter if they likewise could not do so). That would be an unattractive result and the judge had been entitled to attach importance to that factor;  The decision at first instance was sound and properly applied 3.9 and Mitchell. The Court of Appeal could not see any basis for interfering with that decision. Mitchell is an incredibly important case, this is without doubt. But the Court of Appeal decision in Chartwell reminds us that Mitchell is not to be elevated to the status of a rule or legislation. It is an interpretation of 3.9 and, in appropriate cases “all of the circumstances of the case” and the relative prejudice to the parties may just trump other considerations. The result being that, even where the breach is not trivial and there is no good reason, relief may still be granted. The Court of Appeal also expressed its unwillingness to interfere with decisions where the law has been properly applied.  This is a further reminder of the need for precision and thoroughness in the evidence at the initial application stage.