horwich farrelly

CoA refuses to set aside default judgment – despite allegation of fraud

March, 11, 2016

A recent judgment by the Court of Appeal will serve as a stark warning to insurers as to the importance of dealing with proceedings and related correspondence promptly.

The Court of Appeal overturned an order to set aside judgment, in the case of Gentry v Miller & UK Insurance, because there had been a substantial delay in making the application. This was despite an acceptance that there was a strong suspicion of fraud in the case.

Background

This appeal followed a collision which allegedly occurred in March 2013. As well as vehicle damage and personal injury the claim included ongoing credit hire charges.

Following repeated requests for an interim payment, proceedings were issued against the insured, who did not respond. Judgment in default was entered and the matter progressed to a disposal hearing. Meanwhile, seemingly unaware of the situation, the insurer made a payment for vehicle damage and a Part 36 offer for injury.

At the disposal hearing judgment was entered in the sum of £75,089 for damages – predominantly credit hire charges – and costs of £12,945. There was no representation for the defendant at the disposal. The insurer contended that they had never received the papers in advance and in November 2013 finally instructed solicitors who made an application to have the judgment set aside

Around that time, evidence started to come to light to cast serious doubt as to whether the accident was genuine. In early 2014 solicitors acting for the insurer applied to join them as second defendant, alleging that the claim was fraudulent and there had been collusion between the claimant and the first defendant.

The Application and First Appeal

This application was granted in March 2014 and the judgment set aside. Whilst the District Judge acknowledged that there were faults and delay on the part of the insurer, he considered that the strict tests for granting relief from sanctions (as set down in Mitchell) did not apply with the same rigour where there is prima facie evidence of fraud. The allegation of fraud therefore meant that there should be a trial on the issue regardless of the delay.

At the first appeal in February 2015 the Recorder upheld the District Judge’s decision.

The Appeal before the Court of Appeal (CoA)

The second appeal came before the CoA on 26 February 2016. Solicitors for the claimant contended that the insurer’s application had been acknowledged to be late and that the District Judge was wrong to hold that the fraud defence provided an exception to the principles within Mitchell and Denton. In this case they argued that compliance with the rules was the imperative not the setting aside of the first instance judgment because the insurer could, in any event, bring separate proceedings for fraud against the claimant and first defendant.

Whilst accepting that the insurer had shown that it had a real prospect of successfully defending the claim on the grounds of fraud the CoA considered that the application to set aside the initial judgment had not been made promptly enough.  Indeed, the Court was highly critical as to the delays which were considered “inexcusable”, citing that it took them seven months to instruct solicitors to take action.

Vos LJ stated: “The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests. This insurer had known since April 2013 that it was at risk of proceedings being commenced and being served on its insured, yet it did nothing to ensure its position was protected.”

The appeal was therefore allowed and the insurer’s application to set aside judgment was dismissed.

Implications and Comment

It is now abundantly clear that where there is significant and unjustified delay in making an application to set aside judgment, the fact that an allegation of fraud will not serve to lessen the rigours of the Mitchell and Denton criteria.

Insurers should be fully alive to claimant attempts to proceed to disposal ‘under the radar’. Horwich Farrelly has already tracked a rise in cases recently where no notification has been given to the insurer. Such behaviour can only be expected to increase further following this decision.

Accordingly insurers would be strongly advised to review, test and constantly seek to improve the systems they have in place to ensure that proceedings and any correspondence relating to proceedings are flagged and acted upon promptly. The decision is also a reminder of the leakage that can occur if ongoing credit hire situations are not dealt with appropriately.

Prompt nomination of solicitors is therefore always strongly advisable, particularly when dealing with litigious opponents, and particularly where the insured appears to be uncooperative or untraced.

To discuss any of the issues raised contact Paul Brandish, Counter Fraud Partner, on 0161 413 1808 or email paul.brandish@h-f.co.uk or Gary Herring, Credit Hire Fraud Associate, on 0844 3300 199 or email gary.herring@h-f.co.uk.

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