1 Fraudulent Claims, Exaggerated claims and How to Deal With Them Richard Methuen QC & William Featherby QC CPD Ref: AVV/CHRW 12 King s Bench Walk, Temple, London EC4Y 7EL, Tel: , Fax: , Video Conferencing: Website: DX 1037 Chancery Lane
2 FRAUDULENT CLAIMS AND HOW TO DEAL WITH THEM Contempt of court: a powerful weapon Problem: Solution: Advantage: Vast and increasing fraud, much of it encouraged by professionals. An apathetic and ineffectual civil and criminal justice system. Proceedings for contempt of court. Relatively inexpensive; hugely deterrent. 1. Contempt of court is not the same thing as:- the tort of deceit; the crimes of:- (i) (ii) (iii) fraud (attempted or completed); perjury (perjury involves telling lies on oath: very few actual or attempted frauds on insurers will reach that stage; prosecutions for perjury are very rare.) perverting (or attempting or conspiring to pervert) the course of justice. 2. The problem As recently as 9 June 2009 Toulson LJ said in Shah v. Ul-Haq and others  EWCA 542:... fraud is a scourge of our time. On the judge s findings the claimants were guilty of serious criminal offences, including conspiracy to defraud and conspiracy to pervert the course of justice. If, as has been suggested, such fraudulent claims have reached epidemic proportions, it may be that prosecutions are needed as a deterrent to others. Notwithstanding, the Court of Appeal declined in Shah to strike out a case in which a married couple, who had suffered slight injuries in a road accident for which they sued, fraudulently also claimed that the wife s mother was in the car and was injured in the accident as well. The Court of Appeal reaffirmed
3 the principle that claimants suing tortfeasors are entitled to their legitimate damages no matter how fraudulently they behave. Thus, a claimant who suffers 500 worth of injury and loss can sue for 1m and lie through his teeth but still collect his 500 (subject to costs). Many judges will express their outrage in costs (which the fraudulent claimant seldom if ever pays anyway) but that is by no means always or reliably the case. (N.B. that the recoverability of damages in fraud cases is due to be reviewed by the Supreme Court in Summers v. Fairclough Homes Ltd.) 3. The police and the CPS don t want to know. Prosecutions for perjury and perverting the course of justice arising out of civil proceedings are exceedingly rare. The former Attorney-General indicated that she would not intervene to support insurers outraged by frauds against them; there is no reason to believe that the current A-G s stance is different. Until recently, Claimants didn t just think they knew that they could attempt to defraud with a good chance of success and only a tiny risk of adverse consequences. Contempt of court 4. This talk is about proceedings for contempt of court with particular regard to the recent successful civil prosecutions of malingerers in Kirk v. Walton  EWHC 1780 (Cox J) and  EWHC 703 (Coulson J) M.I.B. v. Shikell  EWHC 527 (HHJ Belcher sitting as QB judge). Brighton Bus v. Brooks  EWHC 2819 (Richards LJ and Nicola Davies J) M.I.B. v. Richards (unreported) (Thomas LJ and Wyn Williams J) 5. Mrs Kirk s case: Mrs Kirk (who had a pre-accident history of crying off sick from her job in university administration) suffered a trivial whiplash injury. She sacked her first solicitors when, presumably, they told her the claim would bring paltry damages and no meal ticket. She went to fibromyalgia specialist solicitors who set up a claim for nearly 1m. She put her statement of truth to, among other false averments, an allegation that on bad days she was bed ridden and on good days she could only walk ten paces. The DVDs showed her on long, pain- and disability-free shopping expeditions. When the videos were disclosed, she settled for a two-year-old payment
4 into court with an adverse costs order. Evidence emerged during the contempt trial that Mrs Kirk s husband had connived in her fraud. 6. Mr Shikell s case: Mr Shikell, a previously fit young man, sustained a head injury and some orthopaedic injuries. (Two other men injured in the same accident had much more serious head injuries.) His injuries were potentially life-changing and the claim started genuinely. However, he made a very good probably complete recovery from all his injuries. Nevertheless, he claimed m. He resumed playing energetic league football at least twice a week as captain of a side in the Doncaster league. There was evidence that he and his father resented the lavish settlements the other claimants recovered. He and his father started lying about the football and excessive fatigue to the experts and in their witness statements. Another witness was roped into the fraud. After DVDs of Mr Shikell playing football were disclosed, he promptly settled for an interim payment of 30,000 which he had already wasted on an unnecessary case manager. The Shikells were sent to prison for a year each (plus costs) and the witness was fined and had to pay costs. 7. The Brighton Bus case: Mrs Daoud was run over by a bus and suffered what, at first sight, seemed to be a devastating head injury. However, she recovered her mobility and powers of social interaction. Her daughter (acting as litigation friend) and husband lied repeatedly in witness statements and to experts that Mrs Daoud could barely walk (wheelchairs, zimmers, etc.) and had virtually no power of speech. Seven figure claims. Many hours of DVDs revealed that she was fully mobile and enjoyed full social interaction. After disclosure of the surveillance evidence (and a year of trying to brazen it out) she settled for a small sum that had been offered before proceedings were issued. The two defendants claimed to have developed serious health problems by the time they were sentenced and received suspended sentences. They were ordered to pay very large sums in costs. 8. Mr Richards s case: Mr Richards suffered a head injury as passenger in an uninsured driver s car. He also made a rapid and full recovery. However, he and his sister presented themselves at numerous medico-legal examinations as if he could barely function. He claimed to have lost the ability to talk. DVD s and some material kindly donated by the police showed him to be living a normal life. Mr Richards was also involved in benefits scams. He and his sister were sent to prison.
5 9. The law: CPR Part 32.14(1) provides:- Proceedings for contempt of court may be brought against a person if he makes... a false statement in a document verified by a statement of truth without an honest belief in its truth. Making a false statement of truth is contempt of court. Essentially, two things must be proved:- that the statement was false; that the person who made it did so without an honest belief that it was true. 10. CPR Part 31.23(1) provides:- Proceedings for contempt of court may be brought against a person if he makes... a false disclosure statement without an honest belief in its truth. 11. Contempt of court is a non-statutory beast. These provisions do not create a new species of contempt of court; they merely illustrate ways in which contempt of court may be committed. Running a fraudulent claim is itself capable of being a contempt of court. 12. Who may apply: An application for committal for contempt of court may be made by any interested person (and does not need the permission of the Attorney-General). There is a school of thought that the Court may not proceed until the Attorney-General has been consulted (for example, Eady J in Montgomery v. Brown (unreported)) but this is incorrect: (1) the last A-G said she was sympathetic but declined to become involved (no doubt partly because of budgetary constraints); and (2) in KJM Superbikes Ltd v. Hinton  EWCA Civ 1280 the Court of Appeal expressly indicated that the A-G s involvement was not necessary. 13. Jurisdiction is important. This type of contempt of court can only be dealt with in the High Court. Where the contempt of court has been committed while the proceedings were in the County Court, the proceedings must be issued in the Divisional Court of the Queen s Bench Division (Brighton and Hove Bus and Coach Co. Ltd v. Brooks  EWHC 806 (Admin) but see, now, Ali v. Esure Services Ltd  EWCA 1582 which, at the very least, suggests that a single judge has jurisdiction if the claim is transferred to the High Court). Otherwise, ordinary Queen s Bench proceedings are appropriate. (The question of the Divisional Court s jurisdiction is currently under
6 review and is likely to be abolished; future proceedings are likely to be dealt with by single judges of the QBD.) 14. Permission: The Applicant must obtain the Court s permission to bring proceedings for contempt of court. This can only be given by a High Court judge (or a judge with such powers) or the Divisional Court as the case may be, and is dealt with at a preliminary hearing. Cox J, at the permission stage in Kirk, held that permission should be given where:- (c) (d) there is a strong prima facie case of contempt of court; proceedings would be in the interests of justice and/or in the public interest; proceedings would be proportionate and in accordance with the overriding objective. but that the discretion should be exercised with great caution. 15. Proof: The burden of proof is on the Applicant and is to the criminal standard. 16. Tactics: Vital. The stage at which and the way in which the fraudulent claimant lies in a witness statement or pleading is crucial. Equally important is the way in which the lie is exposed. The lie must be obvious: some cases will be black and white (e.g. Mr Shikell s claims that he could not and did not play football) but some will be more shades of grey (e.g. Mrs Kirk s avowals of disability or Mr Shikell s claims of fatigue ). Cases must be chosen carefully and thorough preparation and careful pleading are essential. 17. If contempt of court proceedings are contemplated, they should be started promptly. If the judgment sum has not been paid, the Court will normally order it to be paid into Court and to remain there until the outcome of the contempt of court proceedings. It might be used to pay a fine or costs. 18. Ingredients: At trial in Kirk Coulson J held that the Applicant must prove:- the falsity of the statement in question;
7 (c) that the statement has, or if persisted in would be likely to have, interfered with the course of justice in some material respects; that, at the time it was made, the maker of the statement:- (i) (ii) had no honest belief in the truth of the statement, and knew of its likelihood to interfere with the course of justice. In personal injury cases the course of justice will be the award of damages. 19. Coulson J distinguished the sort of conduct that constitutes a contempt of court from (as Bell J put it in Rogers v. Little Haven Day Nursery Ltd (1999, unreported)), exaggeration which... falls within the bounds of familiar and understandable attempts to make sure that doctors and lawyers do not underestimate a genuine condition, rather than indicating an outright attempt to mislead in order to increase the value of [the] claim beyond its true worth. This is one reason among many why cases for contempt of court proceedings must be chosen carefully. 20. Contempt of court is usually committed in one or more of the following documents:- Pleadings / Statements of Case (N.B. which might, by reference, incorporate other documents e.g. medical reports); Part 18 Answers; (c) Schedules of Special Damage / Loss; (d) Disclosure statements (See CPR Part 31.23); (e) Witness statements. Hiding behind a solicitor is no defence. 21. Lying to and misleading (e.g. by affecting a limp or turning up in a wheelchair) experts is contempt of court. 22. Commonly run defences I was telling the truth. (I only exaggerated a little bit.) I didn t really think that what I am seen doing in the DVD s was inconsistent with my case. I wasn t really working as such; I was helping a mate. Good days; bad days.
8 My solicitor misunderstood me. My solicitor made it all up. I didn t authorise my solicitor to sign the document that contains the lies. The expert misunderstood me. That s not what I told the expert. I wasn t shown the experts reports. I didn t read the document containing the lies before signing it. I was too ill to read and/or understand the document that contains the lies when I signed it. My solicitor didn t advise me how serious telling lies might be. It s not my signature. My lies wouldn t have made any difference to the measure of damages. The insurers would have found me out anyway; my lies made no difference to the outcome. Variations of these defences may be run by people who were intended to be corroborative witnesses in the original claim. 23. Penalties: up to 2 years imprisonment or an unlimited fine (which does not, of course, go to the insurer but to the state). Mrs Kirk was only fined but, in fact, the result for her and her family was disastrous (this may have mitigated imprisonment down to a financial penalty in the judge s mind): she and her family owned their own home and had to stump up 200,000 to 250,000 or so for all the various parties costs. The Shikells and the Richards went to prison. 24. Deterrence: These prosecutions for contempt of court have attracted a lot of publicity. The identity of the insurance company never seems to interest the press, so the perceived publicity downside risk is minimal (insurers seem to need a lot of reassurance about this! in all the many press reports I have seen the identity of the insurers has never been mentioned; the M.I.B. seem keener to be identified). The deterrent effect seems to be enormous: a claimant who is lying or tempted to lie is going to think twice if he or she is advised or learns that prison might be the destination. His CFA solicitors are likely to be similarly wary. Shikell caused
9 enormous embarrassment and extra, unrecoverable cost to his former solicitors, quite apart from the fact that they were never paid for the original claim. 25. Disadvantages: Costs are the only real disadvantage. If applicants lose, they will very probably be ordered to pay the respondent s costs. If applicants win, they may well recover no costs from the contemnor. However, if the damages are held somewhere out of the respondent s clutches pending the resolution of the contempt of court proceedings, the applicant should have a fund out of which to make some recovery.
10 Procedural note Once it has been decided that there is a sufficiently strong case of contempt of court and a decision to proceed has been taken, the following steps should be taken:- 1. Are/were the original proceedings in the County Court or the Queen s Bench Division? If County Court, go to 2. If QBD, go to Issue an Application Notice asking for an Order transferring the proceedings to the DC of the QBD. This may be done without notice. A brief Affidavit identifying the alleged contempt will probably be necessary at this stage. Go to Ensure that all hearings from henceforth are listed in front of a single High Court judge or a judge vested with the powers of a High Court judge [RSC Ord. 52 r. 1(3)]. Go to Ensure that all hearings from henceforth are listed before a Divisional Court of the QBD. Go to Do the contempt proceedings arise out of a false statement of truth or a false disclosure statement [CPR Parts / 31.23]? If yes, go to 7. If no (i.e. if the allegation is purely of contempt of court of the more generic kind), go to Was the alleged contempt committed while the proceedings were in the County Court? If yes, go to 7. If no, go to Such proceedings may only be brought by the Attorney-General or with the permission of the Court [RSC Ord. 52 r.2(1)]. (N.B. the Court might order a reference to the A-G before considering whether permission should be granted. If the A-G decides to bring the proceedings the insurers involvement is at an end, save for cooperating with such proceedings. If the A-G decides not to bring such proceedings, the matter should be restored for the application for permission to be considered.) Go to Issue an Application Notice confined to asking for permission to bring proceedings for contempt [RSC Ord. 52, P.D. 2.3]. The application must made without notice [RSC
11 Ord. 52 r. 2(2), which also sets out the material required it is hard to see the sense of this rule and no applicant is likely to be ruled out if he in fact gives notice.]. Go to Obtain the Court s permission to bring proceedings for contempt. (N.B. the respondent has no right to apply to have such permission set aside, even if he had no notice of the application [RSC Ord. 52 PD 2.4(5)]). Go to Issue an Application Notice supported by an affidavit [RSC Ord. 52 r.4(1)] asking that the respondent be committed for contempt. This must be served personally unless the Court otherwise orders [RSC Ord. 52 r. 3(3); RSC Ord. 52 P.D. 2.6(1)]. The Application Notice must set out the full grounds on which the committal application is made and must identify, separately and numerically, each alleged act of contempt, including, if known, the date of each of the alleged acts [RSC Ord. 52 P.D. 2.6(2)]. Go to Proceed to a case management conference [RSC Ord. 52 P.D. 4]. Carefully thoughtthrough directions are vital. (All written evidence must be given by affidavit (not mere witness statement) [RSC Ord. 52 P.D. 3.1 but see 3.4].) NB the respondent is not obliged the serve an affidavit, presumably to preserve his right of silence (RSC PD52 3.3). Go to Care must be taken to see that the proceedings are fair and Article 6 compliant. In practice, this means setting out the factual allegations that are said to amount to a contempt of court in detail, for example in a form similar to the indictment in the Crown Court. 13. N.B.: RSC Ord. 52 is a Scheduled rule to the CPR. As such it will be redrafted and consolidated into the CPR. Preparations for this are now well advanced and the contempt rules are likely to form a new Part 80 to the CPR later this year or early next. This is only a rough guide. Close attention to the complex and exacting rules is strongly advised. The moral of the tale is that the applicant s case must be procedurally immaculate or it risks failure.
12 Some thoughts about detecting fraud 1. Notification of the claim. (c) 2. The letter of claim Do the circumstances look suspicious? Are the insured and the potential claimant related or in some other close relationship, e.g. a business partnership or the one employed by the other in a very small business? Do the injuries and losses look out of proportion to the severity of the accident? Does the description of the accident and/or the losses match what the insured has told you? 3. Medical evidence What disciplines? Is the claimant using unusual disciplines to prove a physical injury: psychologists, rheumatologists, pain consultants? One of the usual suspects? (c) Non-consultants (beware associate specialists, locums, G.P. s, etc.) does the expert have current or former senior NHS appointments?. (d) (e) (f) (g) (h) Is there a diagnosis?: soft tissue injury and whiplash are not diagnoses (but sometimes it s all there is!). Beware exotic diagnoses, especially at an early stage: e.g. pain disorders, atrophies, psychiatric explanations, controversial and easily faked conditions such as fibromyalgia. Does the prognosis seem more pessimistic than common sense would suggest? Does it stack up? Proportionality of the sequellae to the original trauma. Claims suddenly escalating in value after an admission of liability lulling junior / inexperienced claims staff into a false sense of security. 4. The claim for financial losses (c) Does the time off work seem too long for the original trauma? What sort of work was the Claimant doing? A labourer might well be expected to take much longer off work than a clerical worker. Seemingly excessive care, DIY, etc. 5. Pleadings / statements of case Is the case properly pleaded? Vague pleadings often cover uncertain cases. Are the pleadings supported by the medical evidence?
13 6. Contemporaneous records (c) (d) (e) (f) (g) Medical records, especially A&E and the first visit to the G.P., including delay after the trauma. (Beware of reluctance or slowness to disclose medical records. Beware of partial disclosure or assertions of confidentiality and data protection.) Is the claimant a serial claimant? Applications for state benefits, especially capacity for work questionnaires. Employment records. School / sports records. Divorce records. Google. Facebook. Picasaweb. Do they add up? Are they consistent? 7. Witness statements Is it over the top? Who is supporting the claim? Are they reputable? 8. Cultures of disability. 9. Surveillance mainly videos. William Featherby Q.C. April King's Bench Walk, Temple, London EC4Y 7EL.
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