The Court of Appeal recently granted an insurer's appeal against an order refusing permission to bring contempt proceedings against a Claimant who had discontinued his action. The discontinuance followed allegations that the Claimant – who was pursuing a noise-induced hearing loss ("NIHL") claim against his former employer - had signed a false statement of truth.
Lord Justice Haddon-Cave stated that the tactic of discontinuing claims, "should not be seen to be used by unscrupulous claimants or lawyers as an inviolable means of protecting themselves from the consequences of their dishonest conduct."
The Claimant had brought a claim for noise-inducing hearing loss (NIHL) in the amount of £5,000 against Zurich's policyholder, Stanley Refrigeration Limited.
Liability was contested and the Claimant's medical records obtained.
The Claimant's medical report stated that he did not have "any noisy hobbies". The medical records suggested he was in fact, a professional singer and a motorcyclist, activities relevant to causation.
Zurich's representatives issued a Part 18 Request asking:
- if he was or had been a professional singer
- whether he played an instrument
- if he performed with a live band and, and if so, how often
The Claimant denied being a professional singer and performing with a live band. In a supporting witness statement, he also denied riding a motorcycle, repeating he was not a professional singer.
An intelligence report was commissioned to address the inconsistencies. These searches revealed the Claimant was the lead singer in a live band, in which he played the electric guitar. The band was regularly performing and actively rehearsing. His page also showed his interest in motorcycles and fast cars.
Zurich made an application to strike out the claim. On 21 March 2017, a notice of discontinuance was served by the Claimant's solicitors. Over the course of the next 3 months, both the Claimant's initial and subsequently instructed solicitors were the subject of interventions by the SRA.
Committal proceedings were issued on 12 September 2017. The Claimant opposed the application.
The Claimant submitted he had been cold-called, and that he was a victim of a scheme to make money from his hearing loss. He told the court his initial solicitors stated it would pursue his claim, and complete paperwork for him described as 'generic'. The Claimant stated that he had not signed the relevant Statements of Truth and had not seen the Part 18 responses containing his alleged electronic signature.
The application by Zurich for permission to start contempt proceedings was dismissed on paper without a hearing on 17 August 2018. A further application was refused. The High Court Judge relied upon the authorities of A Barnes (T/A Pool Motors) v Michael Seabrook  C P Rep 42 and KJM Superbikes Ltd v Hinton  1 WLR 2406.
Despite finding the false statements were "made deliberately and dishonestly" by the Claimant and that "the evidence [against the Claimant] establishes a good prima facie case", the Judge decided the balance of public interest did not "fall in favour of permission being granted".
He reasoned that the Claimant had not been warned he might be committed for contempt of court, and that he had discontinued the proceedings "almost immediately" following the strike-out application.
Zurich appealed to the Court of Appeal.
Court of Appeal
Haddon-Cave LJ upheld the appeal.
The test for granting permission in these circumstances is not whether a contempt has, in fact, been committed but whether it is in the public interest for proceedings to be brought (and this includes a consideration of proportionality).
The Judge at first instance had erred in two respects when considering whether to exercise his discretion to grant permission:
- He had taken into account the absence of warning given to the Claimant. Although this can be a relevant factor, it is not necessarily a factor in all cases. In this case, the allegedly false statement of truth was provided early on and the insurers at that stage could not reasonably have been expected to give a warning about contempt. By the time they had carried out their investigations "the die was already cast". As the Court of Appeal put it: "it is difficult to conceive of circumstances where a claimant can be heard to say that he was prejudiced by the absence of warning about the risks of contempt proceedings if he, himself, has been responsible for bringing a fraudulent claim".
- He had taken into account the Claimant's immediate discontinuance of the proceedings. Again, this can be a relevant factor but the judge failed to have regard to the "very real mischief that the stratagem of early discontinuance represents in this arena as one of the tactics of unscrupulous claimants and lawyers who engage in the practice of low-value wide-scale insurance fraud, particularly in the field of e.g. NIHL claims".
The Judge had also erred in finding that the committal proceedings would not be proportionate. Furthermore, the argument raised by the claimant that he was unaware of what was being said or written by his then solicitors was something to be raised at the committal hearing later on.
What can we learn?
- The Court of Appeal were very much aware of the challenging landscape insurers operate in, recognising that the "modus operandi" of those issuing fraudulent insurance claims is to issue "tranches of deliberately low-value claims (sometimes on an industrial scale)" only to discontinue if fraud is alleged. This is in the expectation that insurers will not pursue them because of the costs involved, noting the "problem has become even more acute in recent times because of one-way cost shifting ("QOCS")" and the cost of proving "fundamental dishonesty".
- The Court of Appeal did not address the Claimant's allegation that he was "a victim of a claims management scheme to make money from his hearing loss predicament", as the Claimant's conduct will be an issue for the committal proceedings.
- Haddon-Cave LJ did however issue a stark warning to fraudulent claimants: "the message needs to go out to those who might be tempted to bring – or lend their names to – fraudulent claims: that dishonest claimants cannot avoid being liable to committal proceedings merely by discontinuing their original fraudulent claim."
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