Having recently secured permission on behalf of Zurich Insurance to pursue contempt of court proceedings against Defendant AB, whose claim had previously been found at trial to be fundamentally dishonest, Julian Dexter considers in the context of that case the relevant factors and criteria that insurers, and defendants in general, should take into account when considering taking such action.
It feels difficult to remember a time when the concept of fundamental dishonesty (FD) was not indelibly etched upon our psyches. Indeed, contemplating and raising FD allegations is now second nature for those of us involved in large loss injury litigation, where surveillance and/or social media evidence shows that a claimant is likely to be wilfully exaggerating their injuries in order to inflate their claim. Less common perhaps in large loss injury claims, at least compared to lower value “crash for cash” RTA claims, are FD allegations and findings that an accident was entirely staged or fabricated.
The case of AB is therefore a rare example of a higher value claim in which the court made wide ranging findings of dishonesty which, when taken individually may well each have supported a finding of FD, but when viewed cumulatively most certainly did.
AB brought his claim against Zurich’s policyholder, a small social housing landlord that owned and managed the estate where he lived, following an alleged accident in February 2017. AB alleged that he had fallen on a footpath on the estate that was in disrepair. He claimed that as a result of the fall he sustained back and shoulder injuries which had prevented him from taking up a role as a Project Manager in Oman, from which he would have earned £234,000 in just two years.
To cut short what really was a very long story, following service of witness statements, medical reports, intel and surveillance evidence and an Amended Defence alleging FD, AB discontinued. Keoghs and Zurich then successfully reinstated the claim in order to obtain a formal finding of FD, on the basis that:
The FD trial took place over six days in March 2022 before HHJ Parker in the County Court at Canterbury. Having long since parted company with his solicitors, AB represented himself.
HHJ Parker subsequently produced a 47-page judgment, concluding with a finding of FD. Some of the highlights from this are as follows:
It follows that the finding of FD meant that AB lost his QOCS protection, although no costs have been recovered from him on the basis that he is the proverbial ‘man of straw’.
So, what next? In many cases where such a result has been achieved that would be the end of the matter, with the insurer happy that the claim had been resolved with no outlay in respect of damages or claimant’s costs, and a theoretical prospect of recovering defence costs. However, should they so desire, there is a further course of action open to them, namely pursuing contempt of court proceedings against the deceptive claimant.
When deciding whether or not to pursue this option on a particular case, an insurer needs to weigh up various factors, including:
Regarding the last of these, there is no direct financial gain for the insurer if successful in securing a finding of contempt of court. The purpose would therefore normally be to secure a sanction against the claimant which reflects their attempted fraud (ideally a prison term), rather than them simply being allowed to walk away. This in turn sends a clear message to current and prospective future claimants that the insurer does not tolerate fraudulent claims and will look to put the perpetrators behind bars in appropriate cases.
The costs, however, of pursuing contempt of court proceedings are likely to be significant. If successful there is an entitlement to recover costs, but as with the civil defence costs there may be little realistic prospect of getting anything back. The question for the insurer is therefore whether they are willing to expend those costs in order to secure the desired punishment and send the intended message.
All of which leads to the prospects of success, and an insurer will naturally want to satisfy themselves as to the merits before embarking on this exercise. In this regard, it needs to be noted that:
Guidance as to the criteria to be applied by the High Court when considering an application for permission to pursue contempt proceedings is contained within the White Book commentary upon CPR Part 81.3. Essentially it can be distilled from the relevant authorities that there are four strands to the threshold test:
The White Book commentary emphasises that the court’s approach should be a cautious one, per KJM Superbikes.
It should be noted that in the AB case, negotiations had taken place between the parties prior to the permission hearing (AB having secured legal representation due to the availability of Legal Aid funding to defend contempt of court allegations). This resulted in admissions by AB as to specific allegations of contempt, namely that he had advanced a false witness, lied about an injury he had not sustained and sought to exaggerate the extent of another alleged injury. Whilst these are not criminal proceedings, AB’s admissions were effectively tantamount to an early guilty plea. The judge took those admissions into account when considering the permission criteria. The parties’ co-operation in streamlining and compromising each of their cases on the contempt allegations to be brought before the court was a positive factor in terms of satisfying the merits and proportionality strands of the tests considered below.
Within this context, the AB case, in which the permission hearing was determined by Mr Justice Freedman on 1 March 2024, helpfully illustrates the application of these criteria in practice:
1. Prospects of Success
Freedman J identified that the applicant needs to establish a strong prima facie case that contempt had been committed, such that there are real prospects of success. The authorities warn that permission should not be granted unless there is a strong case, with reference to the evidence, the circumstances in which the alleged false statements were made, the maker’s state of mind at the time, and the use to which the statements were put in the original proceedings. The court must also pay due regard to the overriding objective and the question of whether the case justifies the resources to be expended.
Freedman J concluded that Zurich had a strong prima facie case for contempt against AB such that this strand of the test was satisfied. This was particularly so because (a) HHJ Parker had produced a careful and detailed written judgment and (b) AB had admitted his contempt in respect of some of the allegations pursued against him, and Zurich agreed not to pursue the other allegations in the interests of proportionality.
2. Proportionality
Freedman J began by noting that it is not intended that contempt of court proceedings should arise from every false statement made in the context of a claim. He noted that a particularly concerning feature identified by Zurich was the production of PN as a false witness and reliance by AB upon statements by PN which he knew to be false (the implication being that PN was an acquaintance of AB who had allowed himself to be persuaded by AB to make false statements to support his claim). It was argued on Zurich’s behalf that in the context of the fabrication of injuries and consequent losses, the proportionality test was met. Hence the seriousness and context of the alleged contempt was relevant to whether it was proportionate to allow the matter to proceed.
Freedman J agreed, noting that that the pre-meditated and deliberate attempts to mislead the court were particularly concerning, and justified the pursuit of the application.
3. Public Interest
In terms of the public interest, Zurich relied on a witness statement from its Head of Fraud, Scott Clayton, which set out the financial implications of fraudulent claims for insurers and their policyholders. Freedman J accepted the proposition that insurance fraud is not a victimless crime, as the costs to insurers ultimately affect the premiums paid by the general public, businesses and public authorities. Freedman J also took into account the fact that the defendant to the original claim was a charitable organisation providing housing for people in need, and whose attention and resources had been distracted by AB’s claim.
For those reasons Freedman J found that the public interest test was satisfied.
4. Individual Grounds
Freedman J confirmed that the merits, proportionality and public interest tests were satisfied in respect of all the grounds of contempt that Zurich wished to pursue, such that permission should be granted to pursue each of them.
It is clear that when contemplating contempt of court proceedings, an insurer must satisfy themselves that it is the right case. It is an expensive and time-consuming process, and failure can cause embarrassment and dilute the message of intolerance towards fraud.
If a decision is made to proceed, it is important to ensure that strong evidence is before the court to support the application for permission, which addresses directly the requirements for strong prospects of success, proportionality and public interest. The grounds of contempt all need to be selected and framed carefully, as the courts have made it clear that they do not condone a scattergun approach – the grounds should therefore be focused and limited in number. In AB six key grounds were selected from the manifold options available in light of the judgment of HHJ Parker. The decision was made to streamline and focus on the key fraudulent acts rather than seeking to re-litigate every possible issue of dishonesty. We were also fortunate to have such a detailed and strong judgment, which may well have played a part in AB’s decision to make the admissions which smoothed the pathway for permission to be secured. There is no doubt, however, that the additional evidence from Zurich in relation to the public interest test was also crucial.
Finally, whilst contempt of court proceedings are by their nature confrontational, with potentially serious consequences including the ultimate sanction of a prison sentence, there is definite merit in engagjng with the other side to work collaboratively to assist the court and not waste court time nor insurers’ money unnecessarily. As in the AB case, there may be scope for a compromise such that the parties reach an agreed position for the purposes of the permission hearing, which renders the task simpler for the judge in terms of granting permission, avoids the need for a contested trial at which the applicant has to prove the respondent’s contempt to the criminal standard (with the associated costs and risks), and paves the way for a swift transition towards a final sanction hearing. This requires the legal team to provide an objective steer in circumstances whereby the original litigation may have been contentious and combative, as it most certainly was with AB.
Insurers must be careful, though, not to make too many concessions such that the overall objective is compromised. If the objective is to secure an immediate custodial term (as opposed to a suspended sentence or community sanction), then the grounds of contempt that remain to be pursued must be of sufficient strength to justify it, bearing in mind that the respondent will naturally try to put forward the strongest mitigation they can in the hope of escaping a jail term. Moreover, where any concessions are made it will be important to ensure that there is a proper understanding between the parties as to the nature and extent of those concessions which should be formally recorded in a document, and signed with a statement of truth by the defendant.
The case against AB is now listed for a final hearing on 7 June 2024, at which the High Court will hear submissions regarding sanction, including aggravating and mitigating factors, before determining the appropriate sanction to impose. I will deal with relevant factors in the sanction process, in the context of the outcome of the AB case, in part 2 of this article.
Julian Dexter is instructed by the Large Loss Injury Team at Zurich Insurance in the case of Zurich v AB. Counsel is Matthew Snarr of 9 St John Street Chambers, Manchester.
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