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Fraudulent claims – The net continues to close

Commentary following the decision in Rasoul v Linkevicius & Grouparama Insurance (Oct 2012) Lawtel Document No. AC0135642.

Judge in Rasoul places the burden for investigating and abandoning fraudulent claims squarely upon the claimant’s solicitor.

It seems that the courts - and in particular Central London Court - are taking an increasingly intolerant approach to fraudulent and exaggerated claims, and are visiting the consequences of such claims on the solicitors, as well as the unsuccessful claimant.

Following what many insurers considered to be a disappointingly nuanced judgement in Fairclough Homes v Summers [2012] UKSC 26, the matter of Fari v Haringey (2012 ) Lawtel Document No. AC0135666 was then decided at first instance which gave insurers some re-assurance that the striking out of obviously fraudulent claims was not a mere aspiration.

Mrs Fari’s claim was struck out entirely when video evidence emerged showing that her allegations of considerable disability were wholly false. The High Court has recently given permission for a contempt application to proceed.

Fari should, of course, be treated with some caution as a basis for striking out a claim. Mrs Fari had no representation at the trial or hearing to strike out the claim - much to the annoyance of the Trial Judge who made adverse comment.

Upon disclosure of the incriminating video, her solicitor effectively abandoned her, failing to show up at trial. Mrs Fari was therefore unable to advance a cogent legal argument as to why the Judge should not strike out her entire claim; although counsel for the Defendant clearly (and very fairly) made the judge aware of all the necessary criteria to be applied.

Fari is one in a line of robust case management decisions taken at the Central London County Court, where the Judges have shown themselves willing to make landmark decisions when presented with the proper case; witness recent decisions in Carver v BAA1, Fari and now Rasoul. Rasuol was actually decided a few days before Fari, although has only just been reported.

In Rasoul the claim collapsed at trial in what the Judge described as "spectacular fashion". All the claimant witnesses disavowed their evidence and the claimant himself was found to have little or no grasps of English. There was a strong suggestion – although no finding was made – that the evidence had been concocted without input from the witnesses who purported to give it.

The matter was thereafter adjourned pending an application by the insurers (added as second defendant) to seek wasted costs as against the claimant’s solicitor.  

HHJ Collender QC who made the costs decision, placed considerable reliance on the following facts in making a wasted costs order as against the claimant solicitor:

  1. The defendant insurer had placed the claimant (and his solicitor) on notice at an early stage that they had concerns “relating to the bone fides of the claims”.
  2. The "unusually full" defence set out the defendant’s position on fraud "clearly and robustly".
  3. In circumstances where the veracity of the facts in the witness evidence was being challenged, having the statement of truth on a separate sheet rather than in the body of the document was “a serious defect”.
  4. The collapse of the witnesses at trial who abandoned their statements indicted “either extreme incompetence” … “or an attempt to establish a case on fabricated evidence”.
  5. The failure to obtain a signed statement from the claimant or witnesses before the institution of proceedings where fraud was clearly being alleged, was of itself evidence if incompetence (and therefore negligence).
  6. The collapse of the trial showed the weakness, if not inappropriate nature, of the claim and the collapse supported the early allegation made by the insurer from the outset.
  7. Proper competent work by a solicitor would have insured this case collapsed long before the trial that took place.

The decision indicates that when insurers identify and plead fraud at an early stage, and the claimant’s solicitors fail to make proper investigations into that allegation before pursuing a case to trial, those solicitors may well find themselves at the wrong end of a wasted costs order.

The dilemma confronting insurers faced with a potentially fraudulent claim, is that a finding of fraud will almost inevitably mean that that ATE insurers avoid the policy and the costs liability. The successful defendant is therefore left with a costs judgement against an almost inevitably impecunious claimant. Indeed, ATE insurers have sought to avoid policies in circumstances where there is merely an allegation of fraud, absent a finding. 

This "lose-lose" costs situation has sometimes led insurers to advance rather tortuous defences, listing ‘matters of concern’ without actually alleging fraud.   This style of pleading, whilst perhaps understandable in the absence of absolute proof of fraud, has been – perhaps a little unfairly - criticised by the Court of Appeal in Hussain v Amin and Charters Insurance Ltd [2012] EWCA Civ 1456

Fraudulent claims advanced by experienced claimants or accident management companies with experience of the system, often require – by way of defence - inferences to be drawn from a number of individually otherwise innocuous facts. Such claimants do not often disclose a document which proves of itself that the claim is fraudulent.

The Rasoul decision shows that the onus on investigating the bone fides of a claim rests not simply upon the defendant to attempt to winkle out the fraud, but - in appropriate circumstances – upon the claimant solicitor’s too.  Moreover, a failure to do so may result in the costs of the action being visited upon that same solicitor.

A sobering decision for any solicitor faced with cogent allegations of fraud by their client(s).  A significant weapon, if utilized with care, in the hands of defendant insurers fighting fraudulent claims.

[1] Since over-ridden by changes to Part 36.