Power to strike out exaggerated claim will rarely be exercised

The Supreme Court has ruled that the court has power to strike out a dishonestly exaggerated claim as an abuse of process at any stage of the proceedings, even where it has already determined that the claimant is in principle entitled to damages in an ascertained sum: Fairclough Homes Ltd v Summers [2012] UKSC 26. In doing so, it has overturned previous Court of Appeal authority to the effect that a person could not be deprived of a judgment for damages to which he was otherwise entitled on the ground that the claim had been exaggerated.

However, the court went on to say that the power should only be exercised in very exceptional circumstances. This conclusion will be disappointing to liability insurers, who pressed the appeal on the basis that fraudulent claims are rife and should in principle be struck out as an abuse of process. In light of the Supreme Court's decision, the possibility of striking out a genuine claim on the basis that it has been exaggerated is likely to be largely theoretical.

Defendants who wish to protect their position in respect of what they believe is an exaggerated claim should make a well-judged offer to settle, either under Part 36 of the Civil Procedure Rules (bearing in mind that if such an offer is accepted the claimant will be entitled to costs) or as a "without prejudice save as to costs" offer outside of Part 36 (in which case there is flexibility to make the offer on different terms regarding costs).

Background

The claimant brought a claim for personal injuries against his employer following an accident at work. The defendant was found liable, but before the trial on quantum the defendant disclosed surveillance evidence which showed the claimant's injuries had been exaggerated. The defendant (and its liability insurers) argued that the claim should be struck out as an abuse of process under CPR 3.4 or under the court's inherent jurisdiction. 

Both the county court and the Court of Appeal held that the court did not have power to strike out the claim for abuse of process, as they were bound by the Court of Appeal decisions in Ul-Haq v Shah [2009] EWCA Civ 542 and Widlake v BAA Limited [2009] EWCA Civ 1256. The claimant was awarded damages of about £88,000, just over one-tenth of the claim as originally put forward.

Decision

The Supreme Court dismissed the appeal. Contrary to the decisions of the lower courts, it found that the court did have power to strike out an exaggerated claim as an abuse of process, even after a trial in which the court has been able fairly to assess the damages. Such a power exists under both CPR 3.4 and the court's  inherent jurisdiction.

However, the court concluded that as a matter of principle this power should only be exercised in very exceptional circumstances, where the court is satisfied that the party's abuse of process is such that he has thereby forfeited the right to have his claim determined. 

The court went so far as to consider whether the possibility was so theoretical that it should be rejected as beyond the powers of the court, but accepted that one should "never say never". Although it was difficult to think of circumstances in which it would be proportionate to strike out a claim in such circumstances, these might include a case where there had been a massive attempt to deceive the court but the award of damages would be very small.

Comments

This decision gives to defendants with one hand and takes away again with the other, concluding that there is a power to strike out exaggerated claims as an abuse of process but that the power is largely theoretical. In general, where the court is able to make a fair assessment of both liability and quantum, despite the exaggerated nature of the claim, it should give judgment in the usual way drawing any appropriate inferences against the claimant.

Claimants who put forward dishonestly exaggerated claims should however expect to be penalised via indemnity costs orders and reduced interest, and may also have to face proceedings for contempt of court.

As the Supreme Court pointed out, the decision does not affect a case where the entire claim is tained by fraud or dishonesty, as opposed to there being a genuine claim which is dishonestly exaggerated.