England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM SOUTHAMPTON COUNTY COURT
(MR RECORDER GARDNER QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th January 2010

Lord Justice Toulson:

1. These appeals relate to a road accident which happened on the evening on 10 September 2005 on the northern outskirts of Southampton. A hired van driven by Mr Birenda Sarkar ran into the back of a Mercedes driven by Mr Matthew Hussain. In the Mercedes there were two rear seat passengers, Mr Liaquat Hussain, who is Matthew's brother, and Mr Sachin Shah. Personal injury claims were brought in the Southampton County Court by the two passengers. The claims were brought initially against Brit Insurance Limited, who were the insurers of the vehicle driven by Mr Sarkar. The claims should have been brought against Mr Sarkar but were in fact brought against Brit because the claimants were at that stage acting in person. As events turned out, it was convenient that Brit was made a defendant.
2. The claims were subsequently amended to make Mr Sarkar the first defendant and Brit the second defendant.
3. After solicitors were instructed for the claimants, their pleadings were put into proper order between February and March 2008. Defences were then served by Brit, which at that stage consisted of little more than denials and non-admissions.
4. On 30 April 2008 District Judge Sparrow ordered that the case should be tried before a district judge in the week beginning 6 October 2008. There was a case management conference before the same district judge on 21 July 2008. On that occasion Brit's counsel, Mr Egleton, who has also appeared before us, told the district judge that Brit had serious suspicions that the accident had not happened as a result of negligence but had been staged. However, he did not at that stage wish to explain the grounds of Brit's suspicions because he did not want to disclose Brit's hand too soon, but he asked for more time for investigation. Unsurprisingly, since the district judge was given no further indication what exactly it was that Brit wanted to investigate and why they needed more time to do so. He declined to postpone the trial date. It was then already some two-and-a-half years from the date of the accident. He also said that if the insurers wished to amend their pleading to allege a case of fraud, they should get on with doing so as soon as possible, and he gave a number of directions about other matters including the service of witness statements. He extended the trial estimate to two days and directed that it should be heard by a circuit judge rather than a district judge.
5. I will come back to what happened over the next ten weeks, but on 2 October 2008, one week before trial was due to the be heard, Brit issued applications for permission to amend its defences so as to allege that the supposed accident had been staged. The application was heard by Mr Recorder Gardner QC on 7 October, ie two days before the trial, and he refused it. After summarising the procedural history and grounds put forward in support of the application he concluded:

"At the end of the day, Mr Marshall [counsel for the claimants in the court below and in this court] says, however, the court has to ask itself what hard facts, as opposed to suspicions, have been put before the court today to found an allegation, a serious allegation, of fraud against his clients, and I think he is right in concentrating my mind on that question. There may be many, many cases where insurers are suspicious, but the court has to be careful to protect litigants from allowing cases to be developed into fishing expeditions, which may have the result of discouraging entirely legitimate claimants.

Therefore, although I accept that parties should be allowed to advance their cases where they are able to persuade the court that justice requires that they should be able to do so, I am unable in this case to find that the second defendant has been able to clear that hurdle at this very late stage.

I therefore refuse the application to amend and I, subject to anything anyone else has to say, see no reason why the fixture should be broken, and consider that the matter should proceed on 9^th October."

6. The trial did indeed proceed before him on that date. Counsel for Brit was obviously not able to put it to the claimants that the supposed accident was not an accident at all. He did, however, cross-examine them on their financial claims and questioned them about other matters using material which he would have deployed to support a defence of fraud in order to challenge their credibility when it came to their alleged injuries and losses.
7. The Recorder said at the beginning of his judgment, after referring to the previous unsuccessful application for an amendment of the defence:

"However, in this hearing, having put the claimants to proof as to the circumstances of the accident, Mr Egleton (counsel for the second defendant) cross-examined the claimants and the driver of the Mercedes, without objection from Mr Marshall (counsel for the claimants), as to the route that was being taken and its illogicality, as to where they had come from, where they were going to, the nature of the damage and the extent to which these claimants and parties knew each other, seeking to reveal discrepancies which would cause the court to doubt the credibility of those who gave evidence. However, that exercise, which he was no doubt instructed to carry out, having been completed, Mr Egleton, entirely realistically and properly, conceded that, although the second defendant did not admit the claim, he was not able to advance any contention that there was evidence that the accident did not occur as alleged or it did not occur as a result of the first defendant's negligence."

8. Mr Egleton was of course not in a position to make a submission that the entire supposed accident had been staged and he would properly have been stopped had he attempted to do so, because that would have been to open up the very issue which he had been refused permission to raise. The Recorder continued:

"Having heard the evidence, I have no hesitation in finding that this accident occurred as alleged and was the result of the first defendant's evidence and resulted in both claimants suffering injury."

In the result, he gave judgment for Mr Liaquat Hussain for £33,204 with interest and for Mr Shah for £3,155 with interest.

9. Brit appeals against both the refusal of leave to amend and the damages awarded at the trial. The argument has concentrated on the rightness of the decision to refuse leave to amend.
10. In order to set that issue in its context, I come back to what happened between the case management conference on 21 July and the issue of applications to amend Brit's defences on 2 October 2008. At the time of the case management conference Brit had serious misgivings about the genuineness of the claims, but not enough material to make out a defence of fraud on the evidence. The first thing that caused Brit to want to investigate the genuineness of the claims was that the accident happened within a few hours after the van had been hired for a single day. That in itself was not evidence of fraud but the insurers' experience has caused them to look at such cases more closely.
11. Their investigations indicated that there were connections between the four people involved in the accident. By the time of the case management conference Brit knew that the claimants and the first defendant, Mr Sarkar, all worked for the same company, but they did not know much about the company or what exactly the different individuals did. Brit wanted to explore further the extent of the connection between them, what they had to say about it and why they were where they were at the time of the accident. Mr Liaquat's witness statement was served on 28 July 2008. In it he said:

"8. I have seeing the driver of the other vehicle before. I now know him by name. I could not say that I knew him by name at the time, but the reason why I knew him was because he had gone to the same middle school as me.

9. There is quite a large 'immigrant community' in the Derby Road area of Southampton, and I know the first Defendant through our respective contacts in that community. I have also seen him at various sites that I have worked on. I have never had any direct conversations with him as such, or anything to do with him as a friend."

12. Dealing with his employment, he said that from August 2005 he had worked for a firm called RK Transport in a managerial role and he produced a number of wage slips purporting to be issued by RK Transport covering the period from 17 September 2005 to 3 December 2005. He said that on 3 December 2005 he took out employment with another company called Ram Tippers, which seems to have been closely connected with RK in the sense that it was run by the same person. As Mr Egleton put it in argument, it appears that in some way RK morphed into Ram Tippers. The documents produced by him indicated that his pay by RK worked out as equivalent to over £90,000 per annum.
13. On 26 August 2008 Brit was able to take a witness statement from Mr Sarkar. They had tried to obtain a statement from him previously but had been unable to do so.
14. In his statement he explained how he came to be where he was at the time of the accident. He said that he had taken the afternoon off work as he had some furniture to move, so he hired the van for one day from a local company. He said that he drove the van for most of the afternoon, although Mr Egleton has pointed out that in fact the hire documents show that he did not take delivery of it until shortly before 5pm. He said that at the time of the accident he had left his sister's house in Southampton and was driving to Winchester to pick up a torque wrench that he had left at a weighbridge earlier in the day. Mr Egleton has produced a map and made the point to this court, as he did before the Recorder, that, on the face of things, Mr Sarkar was in an unusual place at the time of the accident because the road where the accident happened, an unlit road with no houses, was not in any way the natural route for somebody driving from Southampton to Winchester.
15. Mr Sarkar said that the van was badly damaged and could not be driven any further. The insurers were in fact notified of the collision a few days later. The mileage on the clock indicated that the vehicle would have had to have been travelling constantly at 25 miles per hour from the moment of hire until the moment of the accident, if the accident happened at the time alleged and if the vehicle was undriveable afterwards. Mr Egleton suggested that if what he Mr Sarkar was ferrying furniture around in an urban area, this did not readily fit with the evidence of the mileage covered, but that was not Mr Egleton's most significant point. He attached greatest importance to what Mr Sarkar said and did not say about his knowledge of the occupants in the Mercedes. In relation to Mr Liaquat Hussain, Mr Sarkar said in his witness statement:

"I have never met Mr Hussain before and I did not recognise him in any way, but I did subsequently see him at our local shops sometime during 2007 and we did acknowledge one another."

16. He continued:

"His passengers were both Asian as well and I did recognise one of them at the scene as being a local man who I once went to school with […]. I did not know his name and I had not been a friend of his at school, but he was still local and I had seen him around the area at various times.

I was later approached by him in the street about a year after the accident when he told me that he was the brother of the driver, Mr Hussain, and that solicitors were trying to contact me in respect of it. I later received letters informing me that the passengers' names were Liaquat Hussain and Sachin Shah."

Mr Sarkar indicated that he too worked for RK, and in the hire form he described his position as transport manager.

17. On 17 September 2008 Brit received replies to a part 18 request which had been served on Mr Liaquat Hussain. He was asked, among other things, about where he was going from and to at the time of the accident. He said that he and his brother Matthew were giving Mr Shah a lift from a snooker club to a friend's house where Mr Shah was lodging. He did not indicate where the snooker club was or where Mr Shah was staying.
18. On the same day witness statements of Mr Shah and Mr Matthew Hussain were also served. Mr Matthew Hussain said that he recognised the driver of the other vehicle, ie Mr Sarkar, but he did not know him by name; he had seen him around Southampton. Mr Shah said that at the time of the accident they were travelling from the snooker club, he having asked the others for a lift home, and they had agreed, he said, that he was at the time living at a friend's house in Eastleigh. He said that the journey took them along Stoneham Lane in Southampton, but his statement was "I have informed him about where the snooker club was or where he was staying in Eastleigh".
19. In August 2008 Brit discovered further information about the companies. It transpired that Ram Tippers had a total of twelve employees. RK had been incorporated in May 2004. In May 2005 it filed documents under the Companies Act relating to dormant companies. The effect was to certify that the company had not traded during the preceding year, ie ever since it had been incorporated, and Mr Egleton submitted that the documentation overall indicated that RK had never traded. This was difficult to square with claimants' statements that they had been employed by RK and with the production of wage slips purporting to come from RK. There was a further complication because RK produced what was said to be information giving details of the relevant peoples' employment dates, although Brit had been told at one stage that the personnel records relating to the relevant people had been destroyed in a fire.
20. These points were deployed by Mr Egleton in his argument before the Recorder, albeit not in the same detail as they have been before this court. He did, for example, make the point in his argument before the Recorder, of which we have a transcript, that the evidence showed RK not to have been trading, and it was therefore very difficult to see how Mr Liaquat Hussain could have been receiving £1800 per week supported by wage slips from a dormant company. To fast forward, Mr Liaquat Hussain was to say at the trial that he had in fact not received any payment from RK Transport; he had received payment from Ram Tippers. As to that the judge was to comment in his judgment:

"As for the documentation, I am quite willing to accept that this was inconsistent with itself and inconsistent with the first claimant's evidence."

He went on to accept the account which Mr Liaquat Hussain advanced for the first time in evidence at the trial. None of that, of course, was to be foreseen by Brit when they deployed the material that they did before the Recorder on the adjourned application.

21. Brit's case in summary was this. The accident itself involved most unusual, albeit not impossible, coincidences, because a van which had only just been hired by Mr Sarkar collided on a road outside Southampton on a winter's evening with another vehicle which happened to contain three people all connected with the company for which Mr Sarkar worked, in circumstances where it was not a natural place for any of them to be. It was not the natural place for Mr Sarkar to be if he was driving to Winchester. Brit did not at that stage know exactly where the Mercedes was coming to and from, because the information given by the Mercedes' occupants did not go that far. Mr Egleton submitted that this was indicative of evasiveness. Today he has supplemented his submissions by saying that it emerged at the trial that the snooker club was near the Civic Centre in Southampton; and Brit also ascertained the address where Mr Shah was staying; and for the Mercedes to have gone along Stoneham Lane was also taking it out of its natural course from the snooker club to Mr Shah's address. As I say, at the time of the application before the Recorder Mr Egleton was not able to make the second part of that argument; he was merely able to observe that it was curious, to say the least, that it was curious that the two vehicles should happen to be at the same place at the same time. He also relied strongly on the alleged dissembling of the various individuals concerned about what they knew of one another, the unsatisfactory financial information about RK and the cause for doubts about the genuineness of the payslips, in support of the submission that all of this added up to a prima facie case of fraud.
22. Mr Marshall in his submissions before the Recorder submitted that the insurers had raised a lot of smoke but no hard facts to warrant making an allegation of fraud. He has repeated that submission before this court. He has made additional points. His three points in summary were these. First, there never was a case of fraud properly to be made. Secondly, what Brit knew in October at the time of the application for leave to amend, but had not known in July at the time of the case management conference, made no material difference. Thirdly, since Mr Egleton was able to cross-examine freely with no objection from himself at the subsequent trial, and had put all the material available to him in order to dent the claimant's credibility, his inability to advance formally a case of fraud had made no difference.
23. We have been reminded, as was the Recorder, of the fundamental objective of the Civil Procedure Rules, which is to do justice. Justice requires that each party should have a reasonable opportunity to present any case which it may properly wish to advance. We were also reminded of the observations of Gibson LJ in the case of Cobbold v London Borough of Greenwich [1999] EWCA Civ 2074 to the effect that justice ordinarily requires that issues which either party properly wishes to raise should be heard.
24. There seem to me to be two key questions. They are these: 1) On the material put forward by Brit to the Recorder, was there a substantial risk that it would suffer injustice, in the sense of the court coming to the wrong result, if it was not allowed to make the amendment? 2) If so, was it right that Brit should bear that risk because of the lateness of this application?
25. As to the first question, the passage which I have quoted from in the Recorder's judgment implies that he considered that Brit's application was no more than a fishing expedition and that there were no hard facts to support an allegation of serious fraud. That depends on what is meant by hard facts. The nature of a case built on circumstantial evidence is that there will often be no simple hard fact demonstrative of guilt; but in such cases the fact-finder is asked to consider whether the assembly of facts points to the probability of guilt. The fishing expedition metaphor, much loved by English lawyers, conjures up the picture of a person casting a hook in the chance of catching something. Used in the present context, it implies making an allegation for which there is insufficient foundation in the hope of being able to strengthen it through cross-examination. I do not regard that as a fair description of the insurers' position. They submitted that on the material which had emerged there were enough rum things about the claims to cause them to entertain a reasonable belief, rather than mere suspicion, that the accident was staged. Mr Marshall argued against that submission but I accept it. Where a case is built on circumstantial evidence it is axiomatic that the evidence of the person or people accused of fraud may strengthen or weaken the case, but I do not see this as a case where the insurers are dependent on the claimants making a poor showing or damaging admissions in the witness box in order to present to the court a properly arguable case that the accident was staged.
26. I do not wish to say any more about that aspect of the case, because if there is to be a retrial it is undesirable that any comments of mine should in any way be used to influence the judge's evaluation of the evidence. At this stage the only question is whether Brit properly raised a prima facie case.
27. I turn to the second question, whether Brit should be left to carry the risk of the court reaching an incorrect result through its inability to raise fraud because of the lateness of the application. In giving leave to appeal Smith LJ observed that:

"There is no doubt that in recent years there has been a significant increase in the number of fraudulent claims for damages arising out of road and traffic accidents. They are extremely difficult for insurers to investigate and they represent a serious problem."

28. That is not a relevant factor when considering the previous question. The fact that there may be an epidemic of fraudulent claims is no reason for deciding whether on the facts of a particular case there is a prima facie case of fraud made out. But the reason that there are so many frauds is that they are often by their nature very difficult to prove. The position of an insurer, which credibly suspects that a claim may be fraudulent, is undeniably difficult. Its means of investigation are often limited.
29. There are professional rules about the pleading of allegations of fraud which were considered by the House of Lords in Medcalf v Weatherill [2002] UKHL 27. A barrister must not draft a pleading containing an allegation of fraud unless he has clear instructions to make such allegation and has before him reasonably credible material which, as it stands, establishes a prima facie case of fraud. In some jurisdictions there sometimes appears to be a much greater readiness to make allegations of fraud. But it is the experience of members of this court that the test to which I have referred is observed conscientiously by practitioners. It is important that it should be. With that test in mind, the question arises whether the insurers acted responsibly in this case.
30. Mr Egleton has explained to the court why, at the time of the July case management conference, he and those instructing him did not consider that the material available to them was sufficient as it stood to establish a prima facie case of fraud. But, after considering witness statements from the four people involved in the accident, Mr Liaquat Hussain's replies to the request for particulars and the further information about RK and Ram Traders to which I have referred, Mr Egleton and those instructing him concluded that they did have credible material which then, as it stood, established a prima facie case of fraud. In my judgment, that was a responsible position to adopt, both at the time of the case management conference and at the time of the application for permission to amend. As to timing, Brit had no control of the date that it received the witness statements of the Hussain brothers and Mr Shah. The statement of Mr Sarkar was given by him reluctantly. The information about the filing of dormant company documents by RK could not have been discovered before mid July 2008 at the earliest because they were not filed until then. Nobody could seriously argue that the interval of fifteen days between receipt of the witness statements on 17 September, and the date of the service of the application for leave to amend was such as to justify a refusal of the application.
31. I conclude that the Recorder was wrong in his evaluation that on the material before him there was not a proper foundation for the amendment, and it therefore falls to this court to exercise its discretion whether it should be allowed. In my judgment, justice requires that the insurers should have the opportunity of putting forward their defence. I am not persuaded by Mr Marshall's argument that, in effect, the insurers had the opportunity to do so at the trial on 9 October. Mr Egleton was plainly circumscribed in the degree of attack that he could make on that occasion.
32. For those reasons, I would allow the appeal against the decision on 7 October. It must follow also, for the reasons I have given, that the judgment of the trial should be set aside and there should be a retrial. On the question of costs, about which obviously counsel are entitled to make their submissions, I would indicate my preliminary view that this is an unusual case in which the costs of this appeal and the application below should be reserved for the trial judge. If it is found that the claims are genuine, there is no reason why the claimants should not have their costs of the insurers' attempt to raise allegations of fraud against them. If, on the other hand, it is found that the allegations of fraud are well-founded, then there would seem to be no reason why the claimants ought not to bear the insurers' costs.

Lord Justice Patten:

33. I agree with Toulson LJ that the Recorder misdirected himself in ruling that the facts pleaded in the second defendant's draft amended defence were insufficient to justify an allegation of fraud. As he has explained, because of this the Recorder did not in fact exercise a discretion as to whether the lateness of the proposed amendment could be compensated for by a suitable award of costs coupled with an adjournment. Those are matters which we have to consider in the exercise of our own discretion. I agree with the way in which Toulson LJ proposes we should exercise discretion. I would only add that a relevant factor in the exercise of that discretion is the fact that we are now told that Mr Matthew Hussain, the driver of the car, has held back his own claim for damages and that that is likely now to proceed following the outcome of this appeal. In those circumstances, there would be no inconvenience in having the full trial of the fraud issue in the actions we are concerned with tried together with that action where the defendants have already included in their defence the pleading of fraud which the Recorder refused to admit in the cases we are concerned with.

Lord Justice Mummery:

34. I agree that the appeals should be allowed for the reasons given by Toulson LJ and Patten LJ.

Order: Appeals allowed