Don’t delay! Denton applies even where fraud is suspected

 

The implications of Gentry v Miller & UK Insurance Ltd [2016] EWCA Civ 141 on relief from sanctions

On 9 March 2016, the Court of Appeal unanimously dismissed an insurer’s applications, under CPR 13.3 and CPR 39.3, to set aside a default judgment and order. The case provides guidance on how to approach relief from sanctions applications where the defaulting party has delayed in seeking relief, but seeks to justify its delay with allegations of fraud. The Court determined that Denton applies in the usual manner; the fact that fraud is alleged will not outweigh a procedural flaw that is otherwise inexcusable.

 

 Facts

  • March 2013: Mr Miller is alleged to have negligently driven into Mr Gentry, causing personal injury and loss.

  • April 2013: Liability is admitted within the pre-action protocol. No offers are forthcoming from the insurer, despite letters on behalf of Gentry requesting compensation.

  • June 2013: Proceedings issued.

  • August 2013: Default judgment entered. The insurer makes a voluntary interim payment.

  • September 2013: The insurer makes an interim payment pursuant to a court order.

  • October 2013: Assessment of damages hearing. Gentry is awarded over £75,000, with costs.

  • November 2013: The insurer applies to set aside judgment upon discovering that Miller knew Gentry prior to the incident; fraudulent collusion is suspected.

     

    First instance and first appeal: successful application to set aside

    The District Judge referred to Mitchell jurisprudence, particularly:

 

  1. Durrant v Chief Constable of Avon and Somerset Constabulary [2014] EWCA Civ 14 on “the need to comply with the rules”; and

  2. Hussain v Sarkar [2010] EWCA Civ 301 regarding the court not using a procedural failure to deny a trial of fraud.

    He concluded that, “claims of alleged fraud are the only type of claim which should now be exempt from the strictures of the current CPR rules and the views of the Court of Appeal in Mitchell and other recent cases”.

     

    On appeal, the Recorder referenced Miller’s failure to co-operate with the insurer and decided that the latter had acted promptly once in possession of the relevant information. He held that the District Judge’s decision fell within the ambit of his discretion.

     

    Second Appeal

    Vos L.J. noted that, in determining applications under CPR 39.3 and/or CPR 13.3, the court will consider the ‘express requirements’ under the relevant rules and then apply the Denton three-stage test. The Court found as follows.

     

  3. The failure to file an acknowledgement of service was serious or significant (Denton stage one). This was conceded.

     

  4. There was “some reasonable excuse or explanation” but not a complete one (Denton stage two). This was not robustly disputed, save for the contention that the blame lay with the insured rather than the insurer for the bulk of the delay.

     

  5. All circumstances of the case suggested that the insurer’s application should be dismissed (Denton stage three). The circumstances given primary consideration were as follows.

     

    Finality of litigation

    Vos L.J. acknowledged the tension regarding “the finality of litigation set against the desirability of allowing the allegation of fraud to be tried out”, with the former preferred by the Court in this case. The insurer unsuccessfully submitted that finality was not certain as the option remained to bring a separate claim for fraud. Therefore, allowing the claim to proceed on the fraud defence could have been potentially more effective and less costly.

     

    Delay

    It was not disputed that the insurer had a real prospect of successfully defending the claim, but the Court concluded that, whichever way the delay was analysed (irrespective of the accepted start date), the application was not sufficiently prompt. Despite not being a party, the insurer knew of the case from an early stage, was directly affected by it, admitted liability and made payments. It could and should have done more. The Court dismissed the insurer’s justification for the delay, Finding that the insurer had “delayed inexcusably” and was required to “face the consequences of its own actions”.

     

    Insurers as professional litigants

    Insurers are to be treated as professional and experienced litigators, as they are in a “particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders”. They are expected to understand the steps that need to be taken and the consequences of failure to do so. Vos L.J stated that allegations of fraud may, in some cases, excuse an insurer from taking such steps, but that in this case the insurer indefensibly missed “every opportunity”.

     

  6. The applications to set aside the default judgment and order were unanimously dismissed. The Court noted that the outcome “may seem a harsh decision”, but concluded that “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”.

     

    Safeguarding your Client

    A failure to apply to set aside judgments or orders promptly can be fatal to the application. By way of safeguarding your client, remain mindful of the following “lessons” from Gentry.

     

  7. Be prepared to justify any delay including, but not limited to:

 

      • why a solicitor was not instructed sooner, especially if an insurer was aware of the risk of proceedings; and

      • why it took so long to commence an investigation (given the date from which time is deemed to start running). This is especially relevant if, as in this case, there is a difference between the date on which the judgment was made and the date on which the insurer claims it became aware of the judgment.

         

 

  1. Investigate allegations of fraud expeditiously: default judgments cannot be set aside solely on grounds that allegations of fraud are made. However, the Court will seek to balance the need for finality in litigation against the desirability of allowing any allegation of fraud to be tried. The Court is likely to look more favourably upon an application if it is supported by evidence of prompt investigation.

     

  2. Substantiate allegations: the Court of Appeal remarked that the insurer had “produced no evidence to substantiate” its contention that it had not received key communications from the appellant’s solicitors. This included a failure “to provide any evidence of the procedures that it adopts in dealing with its post or give any reason why the numerous letters sent to it […] might have failed to reach its file”.

     

  3. Appreciate the changing value of the claim. Developments (e.g. escalating hire charges) may affect the value of the claim and the scheme/track in which it should proceed. In this case, hire charges took the claim above the £10,000 low value claim threshold.

     

    NB: Courts may be sympathetic where a party mistakenly refers to an incorrect judgment in its application. In this case, the Court was prepared to treat the application as one to set aside the default judgment, even though the application referred to the order for an interim payment.


    For the judgment, please see: http://www.bailii.org/ew/cases/EWCA/Civ/2016/141.html

 

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