REUTERS | Hannah McKay

Fraudulent claims: Terry v BCS Corporate Acceptances Limited

In 2012, the Supreme Court gave judgment in Fairclough Homes Limited v Summers about the wide-ranging power of the court to strike out fraudulent claims, even after a trial. Summers was a personal injury case but its tentacles reach into almost all areas of civil law. The recent Court of Appeal decision in Terry v BCS Corporate Acceptances Limited in 2018 has clarified that the judgment in Summers does not provide a new route for striking out a claim after a final judgment has been given.

Unfortunately, fraudulent claims are a fact of life. Judges, insurers and lay clients regularly have to deal with exaggerated or fraudulent claims. Terry provides welcome confirmation of the existing mechanisms that are available to deal with judgments obtained by fraud. Yet these mechanisms present various challenges.

Terry v BCS Corporate Acceptances Limited

The claimants claimed in respect of money allegedly handed over by them to the defendant, to procure corporate financial guarantee bonds and to secure a credit facility. The claimants’ case was that these were never provided and the claimants were left out of pocket. Their claim was for the full amount of premiums paid and damages for breach of contract, misrepresentation and fraud. There was various procedural wrangling and the claimants obtained judgment in default and a worldwide freezing order against the defendant.

The defendant then applied to strike out the claimants’ claim under CPR 3.4(2) in reliance on the Supreme Court decision in Summers, and for a stay of all proceedings for abuse of process (amongst other things). The defendant alleged that the claimants’ claim was wholly fraudulent and designed to deceive the French courts, where the third claimant was being prosecuted for fraud.

At first instance, Laing J heard the defendant’s application and decided that:

  • A court cannot strike out a claim after final judgment. Nothing said by the Supreme Court in Summers even begins to suggest that the court has such a power.
  • There are other routes available to the defendant, such as to apply for permission to appeal out of time.

The defendant applied for permission to appeal Laing J’s decision. Gloster LJ granted permission and also raised the possibility of an argument being available to the defendant based on CPR 3.1(7).

The Court of Appeal dismissed the appeal (Hamblen LJ giving the judgment of the court), agreeing with Laing J. Hamblen LJ said that, in Summers, the court had been dealing with a strike out application at the end of a trial but (importantly) before judgment was given. That is very different to the situation in Terry, where judgment had already been given. Had the court in Summers intended for a power to exist to strike out a claim after judgment had been given, it would have had to grapple with issues concerning the status of the claim, in particular whether the claim had merged into the judgment and no longer existed. Further, the Court of Appeal decided that, for a number of reasons, CPR 3.1(7) did not assist the defendant.

The Court of Appeal in Terry did not expressly deal with the situation where a final judgment has been provided in draft form to legal advisers but not yet formally handed down, as frequently happens when judgments are reserved. Given the fact that a judgment can be altered at any point before it is formally handed down, it must follow that the Court of Appeal’s reasoning in Terry applies only from the point of formal handing down.

The Court of Appeal concluded by noting that there was no good reason why the defendant should not have adopted one of the existing means of challenging a judgment obtained by fraud. The problem for the defendant in Terry may well have been that using one of those mechanisms would not have been straightforward.

Existing mechanisms available for challenging judgments obtained by fraud

In Terry, the Court of Appeal confirmed the existence of mechanisms available to parties wishing to challenge judgments which have been obtained by fraud:

  • Appealing out of time, adducing fresh evidence through which either a fraud is admitted or the evidence of it is incontrovertible.
  • A fresh action seeking the equitable relief of setting aside the judgment. The fraud would need to be properly particularised and proved.

The key difficulties with these mechanisms are that the former involves a very high burden and is likely to arise rarely. The latter is likely to involve considerable expense. There is also the practical consideration of whether there is likely to be any pot of money available at the end of the process for the innocent party (which may arise if, for example, insurance funds are no longer available to a fraudulent party).

Further, in order to succeed in setting aside the judgment of the lower court, not only must the fraud be proved, it must have involved “conscious and deliberate dishonesty”, must be “material” (although the case law is not consistent as to the meaning of “material”) and the evidence relied on to establish the fraud must be such that it could not with reasonable diligence have been obtained for the trial.

In other words, there are significant procedural and practical constraints associated with making successful use of these mechanisms.

Separately, there is always the risk of a custodial sentence for a party pursuing a dishonest claim. In the recent 2018 case of EUI Ltd v Dodd and others, custodial sentences were given to three individuals who had been involved in a staged road traffic accident and pursued fraudulent insurance claims. The insurance company applied for the committal for contempt of court of the three respondents. The three respondents abandoned their claims before the case reached a final hearing. Notwithstanding this, two of the three were handed a custodial sentence of nine months reduced to six months, and the third was handed a custodial sentence of six months reduced to four months. The court was keen to emphasise the very serious view it takes of fraudulent claims.

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