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Published 16 junio 2018
The Court of Appeal has today clarified a 50 year old law as to when exemplary damages can be claimed. In its ruling in AXA Insurance UK Plc v Financial Claims Solutions Limited and others, the Court of Appeal confirmed that AXA Insurance, advised by international law firm DAC Beachcroft and barrister Brian McCluggage, was entitled to exemplary damages against a group of fraudsters behind a large scale bogus personal injury claims scam that they operated through Coelum Legal, an unregulated and fake legal practice.
Lord Justice Flaux commented that "it was only through the diligence of AXA, its legal advisors and experts that the fraud was exposed… The Fraud was sophisticated, well-planned and brazen, and involved serious abuse of the process of the court."
"This case is a paradigm case for the award of exemplary damages"
In 2014, AXA uncovered a large number of claims as part of an organised fraud investigation. In addition to ghost broking, policy inception fraud, bogus claimants, forged witness statements and fake medical reports, one of the fraudsters, Abdul Hakim, had held himself out to be a solicitor. In a novel move AXA applied to the High Court for an injunction against Coelum Legal to prevent them from litigating.
The fraud was described by Lord Justice Flaux as "a sophisticated and sustated fraud involving deceit and fraudulent misrepresentation from the outset". In addition to ghost broking and policy inception fraud, Hakim misrepresented himself as a solicitor using a number of aliases. AXA secured evidence proving the use of bogus claimants, false addresses, forged witness statements (purportedly taken from staff at the MOJ), fake medical experts, forged medico-legal reports, false vehicle details, false credit hire and a litany of extreme abuses of the legal system and court process.
The fraudsters modus operendi was to issue proceedings and inform the court of solicitor service. Instead of serving proceedings, they would send junk mail by recorded delivery and use the tracker reference as evidence of service. When the junk mail was received by post room staff, it would be discarded with the exception of one envelope, which went on to be crucial evidence of the mechanics of the fraud. The fraudsters then requested judgment from the court and issued enforcement proceedings within the 14 day judgment period for sums in excess of £40,000, which included costs that they were not entitled to. Fortunately and in spite of Coelum Legal's best efforts, AXA was able to avoid making any payments to the fraudsters.
Coelum Legal was not authorised to conduct litigation by the SRA, nor was it licenced to manage claims with the MOJ. In the face of the most extreme abuses of the legal system and court process at every juncture, immediate and novel action was taken by AXA. In addition to placing staff on high alert, post room staff were also asked to retain unusual mail. An envelope containing junk mail and a shopping receipt incriminating Hakim was intercepted and went on to be vital evidence leading to the conviction of Hakim. In the absence of any constructive investigation by regulatory bodies, AXA took the innovative step to injunct Ceolum Legal from litigating against it.
The claims were described as 'rotten to the core', by one High Court judge when awarding the injunction and another High Court judge when hearing the part 20 claim, awarded AXA its costs but had refused to award exemplary damages – damages over and above AXA's loss.
DAC Beachcroft's organised fraud team investigated over 40 accidents for multiple insurers as part of the operation connected to Mr Hakim's criminal enterprise and assisted police with their enquiries, whilst saving large sums of money in civil claims.
Today, the Court of Appeal overturned this decision. It clarified for the first time since the House of Lords’ decision in Rookes v Barnard , the law as to when exemplary damages may be claimed in Lord Devlin’s second category of wrongful acts calculated to make a profit. Following submissions from Brian McCluggage, the rationale for exemplary damages is now firmly focussed on outrageous behaviour and deterrence. Lady Justice Sharp noting that "this situation is fraudulent from top to bottom".
Claire Laver, Counter Fraud Partner at DAC Beachcroft, comments: “I am delighted with the decision which finally resolves decades of uncertainty around the application of exemplary damages. It is still rare for courts to award exemplary damages but the Court of Appeal clearly felt that the fraudsters' activities were so extreme that exemplary damages were appropriate. I am thrilled for those at AXA who have worked tirelessly to bring about this change and who have led a novel approach to tackling organised fraud. This is a great example of collaboration and partnership between insurer, solicitor and barrister at its best.”
The quantum of exemplary damages is not to be based on what the profit would have been had the fraud been successful, but is to be approached more generally.
This case is relevant not merely to low value motor fraud claims but also cases of malingering and dishonesty in large/complex loss cases, where a claim in deceit backed with exemplary damages is a valid alternative to a private prosecution and/or committal proceedings. This decision is also a reminder that an injunction may be sought to prevent contempt of court under the Legal Services Act 2007 where parties who are not authorised to conduct litigation (eg. claims management companies) purport to do so.
Tom Wilson, Counter Fraud Manager at AXA Insurance comments “This decision from the Court of Appeal, clarifying the law on exemplary damages, helps send out a clear message to anyone attempting to defraud insurance companies and will make unscrupulous organised fraudsters pause and think about their actions carefully. Insurance fraud of this type hits ordinary policyholders in the pocket and we are delighted that this new ruling could see fraudsters pay in kind for their outrageous actions.”
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