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"Cards on the table" for claimants who suspect fraud – no exceptions

When a claimant pleads fraud, particular rules are applicable to make sure they clearly set out their case. The court has recently considered how those rules apply where a claimant tactically holds back a piece of evidence in the early stages in the hope of catching out a defendant when he commits to an untrue account in his witness evidence. The court confirmed that there is no exception to the requirement fully to set out the allegations and evidence relied on, even where the other side is suspected of fraud.

What happened?

In AXA Insurance UK PLC v Kryeziu and others[1], the claimant insurer held back evidence that two parties to a road traffic accident were “friends” on Facebook. The claimant had come to believe that in fact there had been no genuine accident and the evidence suggesting there was a prior connection between the defendants was to form part of the insurer’s case in deceit and conspiracy to recover insurance monies it had paid out.

The claimant waited until the defendants had committed themselves to a particular version of events in their witness statements which denied a prior connection to each other. It then sought permission after the exchange of evidence to amend its case to plead the additional evidence as to the connection between the defendants. Initially, permission was refused, and the claim was struck out as the facts relied on leading to a suspicion of fraud had not been properly pleaded. The claimant appealed.

What did the appeal decide?

On appeal to the High Court, Johnson J allowed the amendment and reinstated the claim, but criticised the claimant for holding back the evidence.

The judge issued a reminder that if a party pleads fraud, they are required to plead the facts on which they will rely to make out their case. They must:

  1. comply with the general requirement in the Civil Procedure Rules that particulars of claim must include a concise statement of the facts on which they rely;
  2. where they allege dishonesty, concisely set out the facts on which they rely to substantiate that allegation;
  3. comply with the requirements for pleading fraud in in the King’s Bench Guide, Commercial Court Guide or Chancery Guide as applicable. Each is broadly similar and in general terms requires that allegations of fraud must be particularised, meaning the relevant allegations must be set out, and which may mean listing the facts from which the court is asked to infer dishonesty.

Johnson J said that the claimant ought to have set out the alleged Facebook friendship between the individuals involved in the accident because their prior connection was a key part of the evidence from which it asked the court to infer that the road traffic accident was not genuine. 

The judge noted that the claimant accepted that the document demonstrating the Facebook friendship was disclosable under the court’s order for standard disclosure and that not disclosing it (and waiting instead for evidence to be exchanged on the point) was a knowing and deliberate breach of the court’s disclosure order. The overarching message from the Court is that a claimant who believes they have been defrauded cannot decide to keep their cards close to their chest for such reasons and proceed through pleadings, disclosure and evidence without properly setting out the facts on which they rely. The judge said the claimant could have sought to press its point in other ways. For example, it could have used pre-action correspondence to ask whether the defendant knew or had had any dealings with the other people involved in the accident.

However, although Johnson J was critical of the claimant’s breach of the court order, he decided that it was in the interests of justice to grant relief from sanctions and to allow the claimant now to amend its case to plead the evidence it had previously withheld. Although the claimant had committed a serious and significant breach of a court order, refusing to allow the amendment would deprive it of a (possibly the) key part of its case. There would be no significant prejudice in requiring the defendant to deal with the additional piece of evidence. In this case, the judge decided that refusing to allow the claimant to seek exemplary damages was a suitable way to mark the breach. 

What does this mean for parties to fraud cases?

Parties who wish to advance a case based on fraud should ensure they provide the concise details of the facts on which they will rely. Withholding evidence on the basis that a claimant expects the defendant may commit to a lie in evidence is contrary to the rules. Instead, this should be tested in pre-action correspondence.
 

[1] [2023] EWHC 3233 (KB)

Tags

litigation, civil fraud, corporate crime, article