Court of Appeal rules that allegations of fraud are no excuse for delay in seeking to set aside default judgment

The Court of Appeal’s judgment in the case of Gentry -v- Miller and another [2016] EWCA Civ 141 serves as a warning to insurers of the need for compliance with procedural rules, notwithstanding that there may be suspicions of fraud.

The claim arose from an RTA on 17 March 2013. The Claimant alleged that the accident was caused by the First Defendant (Lee Miller), resulting in personal injury, the writing off of his Range Rover, and various recovery, storage and credit hire charges.

A claim was commenced through the MOJ Portal, pursuant to the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents. The Second Defendant (the First Defendant’s insurer) admitted liability, paid Stage 1 costs, but did not make any settlement offer, despite a number of requests and reminders that hire charges were continuing to accrue.

The Claimant issued proceedings on 03 July 2013, and these were served on the First Defendant. Judgment in default was entered on 08 August 2013. During this period, the Second Defendant did not instruct solicitors and did not take any steps to protect its position, but further interim payments were made.

At a disposal hearing on 17 October 2013, the district judge awarded damages in the sum of £75,089 (mostly hire and other charges), with costs summarily assessed at £12,945. Notice of the hearing had been given to the First Defendant, but neither the First Defendant nor his insurers were in attendance.

On 25 November 2013, the First Defendant’s solicitors applied to cease acting for the First Defendant, to add the First Defendant’s insurer as Second Defendant, and to set aside the judgment.

It was alleged by the Second Defendant that the claim was fraudulent, and that the Claimant and First Defendant were known to each other. The application was allowed at first instance, which was upheld on appeal. The Claimant subsequently appealed to the Court of Appeal.

The Court of Appeal unanimously allowed the appeal, and dismissed the Defendants’ application for relief from sanctions. It considered that, by failing to apply to set aside judgment until November 2013, the insurer had not acted promptly, as required by CPR 13.3. The delay was not excusable; the insurer admitted liability in April 2013, but failed to take steps to settle or defend the claim. Solicitors were not instructed to consider whether fraud should be alleged either before the admission of liability or for 7 months afterwards.

Vos LJ commented that it is well established that the test in Denton -v- TH White Ltd is applicable to applications to set aside default judgments. He also considered that the same test should apply to consideration of CPR 39.3(5).

The Court of Appeal considered that the insurers had failed to apply promptly either under CPR 13.3 or CPR 39.3. Even if a good reason could be shown for failing to attend Court, and it could be established that there was reasonable prospect of success, the application would fail as it was not made promptly. The Court of Appeal further indicated that, had the Court been required to consider the third limb of the test in Denton, the application would have been refused. Dealing justly with the case included a need to enforce compliance with rules, and to ensure litigation is conducted at proportionate cost.

Vos LJ commented that:

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.

… Mitchell and Denton represented a turning point in the need for litigation to be undertaken efficiently and at proportionate cost, and for the rules and orders of the court to be obeyed. Professional litigants are particularly qualified to respect this change and must do so. Allegations of fraud may in some cases excuse an insurer from taking steps to protect itself, but here this insurer missed every opportunity to do so. It admitted liability before satisfying itself that the claim was genuine, perhaps because it mistakenly thought the claim was a small one. That does not excuse the months of delay that then followed. The insurer must in these circumstances face the consequences of its own actions.

This judgment will serve as a warning to insurers. The Court of Appeal has signalled that it considers that ‘professional litigants’ such as insurers should be particularly aware of the importance of complying with the CPR, and the need to conduct litigation in accordance with the rules and at proportionate costs.

The decision underlines the importance of dealing proactively with claims where there are suspicions of fraud; such concerns must be investigated promptly and insurers must take active steps to protect their position. The courts will not accept concerns regarding the veracity of a claim as an excuse for failing to comply with procedural rules.

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