Confronting fraud: why claimants should put their cards on the disclosure table
Many of the underlying principles of English law developed from simple cases of relatively low monetary value, perhaps most famously in the foundational negligence case of Donoghue v Stevenson.
The recent decision in AXA Insurance v Kryeziu  EWHC 3233 (KB), a low-value insurance dispute, is a useful reminder that no matter the garden variety of the underlying wrong, important principles can be underlined and developed through such cases. This was certainly so in Kryeziu, where Mr Justice Johnson provides a cogent analysis of what is and is not expected of the victim of fraud, both in terms of pleading and disclosure.
An insurance dispute
The underlying dispute was between insurance giant AXA Insurance and five individuals, the latter of whom had submitted claims following a road traffic accident in 2018 involving a Mr Fraser. The claims were for personal injuries, damage to the car, and costs of a replacement vehicle. AXA paid out over £40,000 in respect of the claims.
AXA later identified that the driver of the car and Mr Fraser were connected on Facebook, which cast doubt over the authenticity of the claims. Shortly thereafter, AXA issued proceedings against the five individuals, seeking recovery of the sums it had paid out. Notably, the particulars of claim did not allege the prior existence of a relationship between the driver and Mr Fraser; but rather that “No genuine accident occurred” and “No Defendant suffered genuine injury”. This was deliberate, as AXA wanted the driver to commit to a position before showing its hand.
Despite an order for standard disclosure, AXA did not refer to, give disclosure of documents relating to or adduce any evidence of the Facebook connection until the exchange of witness statements, some eight months after disclosure had been given. Thereafter, AXA applied to amend its particulars of claim to include the Facebook connection, and agreed settlement terms with all parties but for the driver. The application to amend their particulars of claim was subsequently refused; this decision, inter alia, was appealed to the High Court and considered by Mr Justice Johnson.
What is required to plead an allegation of fraud?
At the heart of the appeal was what exactly AXA, alleging fraud as it was, was required to plead. AXA contended for a minimalist position: the ingredients of the tort had to be pleaded but not the underlying facts, and there was no duty when alleging a fraud to identify the facts as they truly were.
Mr Justice Johnson’s judgment carefully addressed both submissions.
Relying on the available guidance (CPR 16.4(1) and paragraph 5.32 of the King’s Bench Guide) and developed in case law, he emphasised that if a party alleges fraud, that party must set out the facts on which it relies. Therefore, if the allegation is one of misrepresentation with the express intention of defrauding a party (i.e. deceit), the party must plead facts which show that the representation was false. No more than a concise statement of the facts relied on is required (Sofer v Swissindependent Trustees SA  EWCA Civ 699, per Arnold LJ, in -), but a failure to do so when alleging dishonesty risks the claim being struck out (Three Rivers District Council and others v Governor and Company of the Bank of England (No 3)  2 AC 1, per Lord Hobhouse, in  and Lord Millett in -).
Although this minimum requirement exists, a party need not know the true underlying factual position to make an allegation of fraud, as the respondent’s counsel had argued. Rather, if a party can set out the facts relied on to show that the representation was false, this is sufficient.
By way of example, as provided in the judgment, a “claimant who has been fraudulently induced to purchase a watch on the basis that it was manufactured by Rolex is not required to establish who in fact manufactured the watch. It is sufficient to establish that the defendant knew that it was not manufactured by Rolex”.
AXA should therefore have pleaded the existence of a relationship between the driver and Mr Fraser, as the factual basis for the allegation that the accident and injuries were not “genuine”. It was not, however, required to establish what had in fact happened.
Can a party deliberately delay disclosure?
Those unfamiliar with litigation – and influenced by popular portrayals of the process – often labour under a misapprehension of the importance of surprise. AXA’s decision to hold back documents evidencing the Facebook connection falls within such an approach and was categorically rejected by Mr Justice Johnson. Therefore, by choosing not to disclose the Facebook connection document, which fell to be disclosed due to being relevant to the issues in dispute (i.e. whether the accident and injuries were “genuine”), AXA knowingly and deliberately breached the court’s order.
Despite accepting the breach, appellant counsel offered three justifications:
1. the document was the respondent’s document, as the information in it was known by the respondent;
2. the court’s approach to permitting the late disclosure of surveillance evidence should be considered analogous; and
3. there was a “strong public interest” in enabling insurers to investigate cases of fraud, in circumstances where they are often being required to prove a negative (e.g. a genuine crash did not happen).
Mr Justice Johnson rejected all three arguments.
Dealing with the first, the factual position was that the Facebook evidence belonged to AXA and was held in its physical possession (the document being a print-out), so it fell to be disclosed. The respondent’s knowledge of the document would not provide an exemption from the duty of disclosure.
Applying Muyepa v Ministry of Defence  EWHC 2236 (QB), if and when a party decides to rely on surveillance evidence (which is often initially privileged), it must be disclosed to the other side. It is then a consideration for the court whether to permit the evidence at trial, influenced by the “timeously” nature of the disclosure. This could be distinguished from AXA’s deliberate decision to delay disclosure and offered no justification for a breach of the court’s order or the court rules. Instead, as held in Muyepa, late admission of the Facebook evidence would need to be determined by reference to the test for relief from sanctions.
Although sympathetic to the plight of insurers investigating cases of fraud, Mr Justice Johnson was clear in his rejection of the public interest justification: “None of that remotely justifies a deliberate breach of rules of court or a court order”.
Interestingly, and of note to practitioners, Mr Justice Johnson emphasised how pre-action correspondence could have been used strategically to push the driver on his dealings with Mr Fraser, without AXA being required to provide evidence of the Facebook connection. The possibility of sequential disclosure or the use of the Court’s broad case management powers was also floated.
Useful lessons for fraud claimants
Mr Justice Johnson’s approach to these questions will not be of great surprise to many practitioners. The basis of an alleged fraud must be identified clearly and disclosure is not a trap to spring on an opponent but a duty to the court.
Importantly, however, despite AXA’s deliberate breach of disclosure duties and court order, it was still granted permission to amend its particulars of claim to include the Facebook connection. The consequence for the breach being “significant costs sanctions” and the refusing of an exemplary damages claim against the driver.
In making this decision, Mr Justice Johnson applied the test for relief from sanctions and determined that, although the breach was “serious and significant”, refusing relief would deny AXA the effective cornerstone of its fraud case. Conversely, admitting the evidence would not significantly prejudice the driver, as he would face a “simple binary case” as to whether the accident had genuinely occurred as he described, or not.
The message of the English court is clear: confronting fraud as a claimant requires you to put your cards on the table in identifying the facts relied on and disclosing the evidence in keeping with court orders. Litigation by ambush is to be rejected, with confidence placed in the judge to find the just result for victims of fraud.