AXA Insurance UK Plc v Financial Claims Solutions Ltd & Ors [2017] EWHC 3803 (QB)

[2017] EWHC 3803 (QB)Case No B02YJ629THE HIGH COURT OF JUSTICEQUEEN’S BENCH DIVISIONWREXHAM DISTRICT REGISTRYThe Law CourtsBodhyfrydWrexhamDate Friday, 17 th February 2017
Before
HIS HONOUR JUDGE KEYSER QCsitting as a Judge of the High Court
Between
FINANCIAL CLAIMS SOLUTIONS LIMITEDThird Party
Transcribed from the Official Recording byAVR Transcription LtdTurton Suite, Paragon Business Park, Chorley New Road, Horwich, Bolton, BL6 6HGTelephone: 01204 693645 - Fax 01204 693669
Counsel for Defendant and Part 20 Claimant: Brian McCluggageThe Fourth Party appeared in person for in person for The Third Party and the Fifth Party did not appear and were not represented

JUDGMENT APPROVED

[1]In these Part 20 proceedings, I have to assess the damages for the torts of deceit and conspiracy pursuant to default judgments that were given against the parties. My order will identify the parties by description. But on 10 March 2016 judgment was given against Financial Claims Solutions Limited (which I shall call “the third party”) and against Mr Mohammed Aurangzaib (whom I shall call “the fourth party”), who appears before me. On 20 May 2016, judgment was given against “the fifth party”, as I shall call him, Hakim Mohammed Abdul. I am not concerned with the merits of the claim underlying the judgment; the judgment is valid and unimpeached.[2]Compensatory damages are claimed, as also are exemplary damages. I shall turn presently to consider exemplary damages after hearing argument. Compensatory damages are sought for three heads, all of which relate to the costs and expenses to which AXA (as the Part 20 claimant) was put in unravelling the effects of the underlying conspiracy and deceit. In short, AXA ended up facing liability on fraudulent road traffic accident claims, for which judgments were obtained against its insured. Then enforcement proceedings were taken against AXA and it ended up facing default judgments in those proceedings, in circumstances where it knew nothing of either the underlying proceedings or the enforcement proceedings. AXA had to take steps to prevent enforcement and to undo the underlying judgments. The whole situation was the result of a scam—a scam which AXA says, and the default judgments conclusively determine, was perpetrated by the third party, the fourth party and the fifth party.

Compensatory Damages

[3]There are three heads of loss claimed, though the division between points 2 and 3 is pragmatic rather than principled.[4]The first head of loss is the value to be placed on the time expended by AXA’s own staff in working to unravel the effects of the deceit. The expenditure and value of that time are explained in detail in the witness statement dated 18 August 2016 of Mark Taylor; I shall not repeat the explanation or the calculation there given. The calculation has not been subjected to challenge and I see no reason to take issue with it. The sum is £743.58.[5]The second and third heads of loss represent moneys expended by AXA in respect of the unravelling of the fraud. They fall into two categories: the first is disbursements to counsel and investigators; the second is the costs of the solicitors acting in respect of unravelling the judgments in the original action and the enforcement proceedings.[6]So far as the disbursements are concerned, there are various invoices in the bundle which, together with counsel, I have analysed in the course of argument. I shall record which of them I consider to be valid as damages flowing from the fraud and which I consider properly to be referable to the costs of these Part 20 proceedings. The amount of the invoices referable to the fraud is in the sum of £2,895 net of VAT. Correspondingly, there are three statements of costs relating to solicitors’ costs and other minor disbursements such as court fees, copying, travel and the like, but distinct from those included in the second head that I have mentioned. These are in the total sum of £21,315.73, net of VAT.[7]These three heads together give a total of £24,954.31. All of these heads of loss in the sums stated are, in my judgment, losses properly recoverable as flowing from the underlying tort and, accordingly, I shall allow them as damages. (Further argument) Exemplary Damages[8]I have already dealt with the question of compensatory damages. I now have to deal with the claim by AXA for exemplary damages. In very brief, as already mentioned in the earlier part of this judgment, these Part 20 proceedings are in consequence and by way of seeking remedy for a fraud committed by the Part 20 defendants. Mr Aurangzeb, who appears to represent himself here, has told me that he strongly disputes the fraud but, as I have already indicated, there is a default judgment against him and against the other Part 20 defendants. The nature of the fraud was that, with the use of a claims management company, fraudulent road traffic accident claims were brought against persons for whom AXA was said to be liable as insurer and payment of judgment sums in respect of those accidents was sought against AXA. The accidents and the claims were all bogus, as were the activities of the claims management company, the Third Party. This was simply a scam to pretend that there were claims and thereby to extract money from AXA as insurer.[9]AXA managed, through its own diligence and investigations, to avoid paying out money on these fraudulent claims, to expose the fraud and to suffer no more by way of loss (though the losses are not to be viewed lightly) than roughly £25,000 in the costs of rectifying the matter. I have already dealt with those costs in respect of compensatory damages. AXA is understandably concerned not merely by this particular instance of fraud but by what is, as the courts well know, the great prevalence of such fraud. This is not an isolated case; there is a lot of it about. The cost to the insurance industry and thereby to the public at large is very significant. It cannot be regarded as in any sense a victimless crime. It has consequences for everybody.[10]AXA’s compensatory damages comprise three heads:(1) the cost of the time it took AXA staff to deal with the matter;(2) disbursements spent by AXA in respect of challenging and setting aside the earlier proceedings (that is the fraudulent proceedings) and the judgments in them; and(3) the solicitors’ costs that it incurred in respect of the same matter. The £25,000 does not include any amount paid by way of satisfaction of the fraudulent insurance claims because, as I have said, AXA managed to identify and address that matter before it paid out for the claims. However, the total amount that was claimed in respect of two fictitious and fraudulent road traffic accident claims was a little over £85,000 – significantly more than AXA spent in avoiding payment of that sum.[11]I am urged to give an award of exemplary damages in accordance with the second category of case identified in the speech of Lord Devlin in Rookes v Barnard & Others [1964] AC 1129; I refer in particular to the following passages at 1226-7 and at 1228. “Cases in the second category are those in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff. … It is a factor also that is taken into account in images for libel; one man should not be allowed to sell another man’s reputation for profit. Where a defendant with a cynical disregard for a plaintiff’s rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity. This category is not confined to moneymaking in the strict sense. It extends to cases in which the defendant is seeking to gain at the expense of the plaintiff some object — perhaps some property which he covets — which either he could not obtain at all or not obtain except at a price greater than he wants to put down. Exemplary damages can properly be awarded whenever it is necessary to teach a wrongdoer that tort does not pay.” “Thus a case for exemplary damages must be presented quite differently from one for compensatory damages; and the judge should not allow it to be left to the jury unless he is satisfied that it can be brought within the categories I have specified. But the fact that the two sorts of damage differ essentially does not necessarily mean that there should be two awards. In a case in which exemplary damages are appropriate, a jury should be directed that if, but only if, the sum which they have in mind to award as compensation (which may, of course, be a sum aggravated by the way in which the defendant has behaved to the plaintiff) is inadequate to punish him for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it, then it can award some larger sum. If a verdict given on such direction has to be reviewed upon appeal, the appellate court will first consider whether the award can be justified as compensation and if it can, there is nothing further to be said. If it cannot, the court must consider whether or not the punishment is, in all the circumstances, excessive.”[12]On behalf of AXA it is submitted that this was wilful and fraudulent conduct of a kind that constitutes a great evil and is both difficult to detect and potentially very profitable. The profit that was potentially to be made here from the fraudulent claims was some £85,000, albeit that, because of the diligence of AXA, that profit was not made nor that loss incurred. It is submitted that in such a case it is inadequate, both for the instant parties and more widely, for there to be only a relatively small compensatory award when the potential profits of the fraud were so large. The question of the calculation of profit, it is said, should look at the state of affairs prior to the wrongdoing taking place with an eye to the potential for gain that was in existence.[13]I have been referred to two other authorities. One is the decision of the House of Lords in Kuddus v Chief Constable of Leicestershire Constabulary [2001] UKHL 29, [2002] 2 AC 122, which established that, provided a case falls within one of the categories identified by Lord Devlin, there is no further restrictive qualification for an award of exemplary damages; in particular, it is not necessary that the claim be based on one of a limited number of causes of action. That is not a matter that arises for consideration here and, although I was referred to paragraph 38 in the speech of Lord Mackay of Clashfern, it does not seem to me that his remarks there have any direct bearing on the present case.[14]The other case to which I was referred is the decision of his Honour Judge Holman sitting as a judge of the High Court in Direct Line v Suleman in 2010. That was a case involving fraudulent road traffic claims also. Judge Holman considered Rookes v Barnard and Kuddus and some first instance authorities in the County Court; he was persuaded that he had the power to award exemplary damages in that case and indeed he did so. Judge Holman’s decision is not binding on me. I note it, but I do not find it to be of any particular assistance in the present case. My task is to apply established principle to the facts of the case before me.[15]Lord Devlin’s speech in Rookes v Barnard remains the fount of the modern jurisdiction to award exemplary damages. Having referred to what are for present purposes the most significant passages in the speech, I make two short observations. First, Lord Devlin’s remarks are of course not to be read as though they were an Act of Parliament. Second, not only is the jurisdiction to award exemplary damages not limited to cases of money-making in the strict sense (as Lord Devlin himself pointed out) but the use of the word “calculated” in the second line of the dictum does not mean that there has to be shown a careful, mathematical computation. As Lord Hailsham said in Broome v Cassell & Company Limited [1972] AC 1027 at 1079:
“What is necessary is that the tortious act must be done with guilty knowledge for the motive that the chances of economic advantage outweigh the chances of economic, or perhaps physical, penalty.”
The point is neatly made also in a dictum in a libel case, Riches v News Group Newspapers [1986] QB 256at 284 by Parker LJ:
“There must have been evidence which would have entitled the jury, after due directions, to find: (a) that the defendants knew the article complained of to be defamatory or were reckless whether it was so or not; and (b) that they published because they took the view that it would, in a broad sense, pay them to publish and risk the consequences of any action the [claimants] might take.”
It seems to me that the ending of that dictum nicely captures the point that Rookes v Barnard makes.[16]Exemplary damages are an exception from the normal tortious principle that damages in the civil jurisdiction are compensatory not penal. The point of the limited departure is identified clearly by Parker LJ in Riches and by Lord Devlin himself in Rookes v Barnard. One does not necessarily require evidence of a tortfeasor’s subjective cogitations; the matter is largely one of common sense. There are cases where, as exemplified by but not limited to some defamation cases or some cases of trespass to land or goods, the tortfeasor’s attitude can be seen to be one of, “This is worth doing as a deliberate infringement of the victim’s rights because, even if he sues us, we are (so to speak) ‘up on the deal’ – we get a benefit that we could not get any other way and, even if we have to meet the compensatory requirements of the law, it is still worthwhile to do it.” For example: it is worthwhile publishing a scurrilously defamatory story about a person on the front page of my newspaper, because any compensation I have to pay will be a price worth paying for the boost to the circulation figures. Or again: even if I have to pay damages for trespassing on this land, the benefits I achieve will far outweigh the meagre amount of the landowner’s losses. (The possible availability of Wrotham Park Estate damages does not detract from the basic point made by this second illustration.)[17]The important point is that Lord Devlin was not talking merely about conduct that simply is so malign or anti-social that it seems to call for punishment. That description could apply to many cases that do not usually attract exemplary damages; for example, all cases of fraud might be so described. Nor does his dictum justify awarding exemplary damages just because a defendant has committed a tort in the hope of getting away with it; probably most fraudsters do that, many of them successfully. Exemplary damages are not a substitute for the criminal law. They are (at least so far as the second category is concerned) available for the case where compensatory damages are inadequate to remove the wrongful gain achieved by the tort—where paying compensation in accordance with normal principle would leave the tortfeasor “up on the deal”.[18]That is not this case at all. The profit that was sought to be gained (let us call it £85,000) was entirely by means of abstracting money from the insurer. The profit and the compensation would be identical. The fact that the fraud did not work, in the sense that AXA discovered it before paying out on the fraudulent claims, makes no difference. It is nothing to the point to say that if the fraud had succeeded the profit would have been far larger than the compensatory damages are when it has failed. In my judgment, the present case does not remotely fall within the scope of Lord Devlin’s second category in Rookes v Barnard and it seems to me to be a fundamental misunderstanding of the principle that he enunciated to suppose that it does.[19]It is not for this court to extend the scope of exemplary damages. That is the effect of what I am being asked to do, although that is not how AXA puts its case. Although it might be convenient to insurers to use the civil courts as vehicles of social policy, that is not the function of the civil courts. There are available avenues in the criminal courts or in the jurisdiction of the civil courts in respect of contempt. But this case is a straightforward case of compensatory damages and I refuse the claim for exemplary damages. (End of judgment)