Reading between the lies: What are we to do with fraudulent claims?

17 Nov 2011

On the 9th of September, the Government declared its intent to tackle the "compensation culture". This phrase, hitherto unknown prior to the removal of legal aid, now appears to typify an apparent endemic problem which is at the centre of the legal political agenda. The debate on the "compensation culture" is now the focus of lobbying by insurers, claimant and defendant firms, unions and human rights organisations who wish either to validate or undermine the concept. Characterised as representing either the ills of society or the self interested protests of the few it has thus far proved impervious to eradication.

What is the root of this "compensation culture"? According to the Parliamentary Under Secretary of State for Justice, Jonathan Djanogly, the difficulty arises through "more and more compensation claims" which "are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents." The difficulty for both Government and Judiciary is how to structure a system of personal injury compensation which affords protection both for those bringing claims and those defending them.

Recent government efforts to address the issue appear confused. Whilst the proposals of Jackson LJ on funding litigation and a potential ban on referral fees have been accepted there appears no interest in addressing the issue at a micro level. The Eleventh Programme of Law Reform announced by the Law Commission in July 2011 eschewed the proposal to take action to extend the Insureds duty of good faith in insurance claims beyond that already established. Of course it is not only the Government that is  being asked to take positive steps to address fraudulent or exaggerated claims and a spate of cases in the last year illustrate a willingness by interested parties to utilise the Judiciary to tackle these issues. The following gives an indication of the jurisprudence flowing from the higher Courts who appear willing to respond to the challenge at both a micro and macro political level.

Micro management

In determining how a Defendant should properly deal with disclosure of evidence pointing towards exaggeration / fraudulent behaviour, the High Court exhibited sympathy for a Defendant faced with an exaggerated claim where it had evidence to prove the same. In the matter of Douglas v O'Neill [2011] EWHC 601 the High Court declared it appropriate for a Defendant to withhold video surveillance evidence until exchange of witness evidence even where the date of trial itself was imminent. The Defendant was entitled to assert privilege in the DVD given that it should be viewed as a document prepared for the purposes of litigation. It was further established that there was no duty to state the existence of a surveillance document when signing a disclosure list until the appropriate juncture in such circumstances.

The conclusion of the Court in Douglas would seem inescapable when viewed alongside the decision in Singh v Habib [2011] EWCA Civ 599 wherein Sir Anthony May the President of the Queen's Bench Division gave the leading judgement in an appeal brought by a Defendant insurer to admit evidence after the conclusion of a trial going to the issue of credibility. Sir Anthony May found that, whilst any Court faced with such an application must defer to the criteria set out in Ladd v Marshall, public interest is an overriding principle which the Court should strive to uphold. The Court specifically recognised that the public interest included a "widespread concern about fraudulent cases of this kind" and where such claims were brought before the Court "there is a strong public interest in a full investigation on all the evidence".

The importance of public interest in the Courts adopting a principled stance was also raised in the matter of Zurich Insurance Company Plc v Hayward [2011] EWCA Civ 641. In Hayward the Court was asked to determine whether a concluded agreement should be set aside on the basis of new evidence when the Defendant had earlier raised fraud as an issue. The judgment is worth reading in its entirety as there are different rationales put forwards to justify the Court setting aside such an Order however of greatest interest is a recognition of public interest as a factor. In her judgment Smith LJ noted the desirability of finality in litigation but also recognised that public interest demands integrity in the administration of justice and a recognition of the private interests of the defendant insurer. She noted that the investigation of allegations of fraud far outweigh the public interest in the finality of litigation and the interests of litigants who would wish to avoid a second action. It was deemed in such circumstances the setting aside of a concluded agreement is not an abuse of process. Where an agreement has been reached with fraud being raised but subsequent evidence comes to light strengthening a defence of fraud the original agreement is therefore likely to be void.

The jurisprudence arising in these cases reflects a measured and conservative approach to the question of fraud however a more radical approach is invited by the appellant in the matter of Summers v Fairclough Homes [2010] EWCA Civ 1300. In Summers the Court of Appeal (Ward LJ and Smith LJ) were faced with an application for permission by a Defendant to strike out the Claimants claim for damages in totality. The Claimant brought a claim to compensate him for genuine injury but at trial he was found to have fraudulently exaggerated his claim on a vast scale. The Court found itself bound by its earlier ruling in the case of Shah v Ul-Haq [2009] EWCA Civ 542 and accepted the previous dicta of Smith LJ that: "The law is so well established that I would not think it right to change it by judicial intervention. In my view such a change would have to be a matter for Parliament".

As set out in the first paragraph in this article there are no proposals for such change by either the Law Commission nor the Ministry of Justice. It is therefore of some significance that the Supreme Court has granted the appellant in Summers a right to appeal. In the absence of legislative changes it will be of interest to determine whether they, like the Court of Appeal, feel bound by the doctrine of stare decesis or are more compelled to act in the current climate.

Where parliament has thus far feared to tread the Supreme Court may step. Whichever decision the Supreme Court reaches is likely to further shape the nature and purpose of our current law of tort. We must wait for 2012 to see which direction the challenge takes us in.


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