Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
With over 30 practice areas, we have all bases covered. Find out how we can help
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Regulatory, business information and analytics solutions that help professionals make better decisions
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Discuss the latest legal developments, ask questions, and share best practice with other LexisPSL subscribers
AXA Insurance UK plc v Financial Claims Solutions Ltd and others  EWCA Civ 1330
This case does not make any new law, however it clearly reaffirms the categories of cases when exemplary damages might be awarded and emphasises that exemplary damages are available in instances of insurance fraud, specifically where the wrongdoer calculates that the profit to be made outweighs any damages at risk.
Insurance companies and their advisers will in particular want to note the Court of Appeal’s clear green light to claims for exemplary damages.
In 2014 Axa had been greeted by bailiffs at its door, instructed by solicitors to enforce default judgments issued in enforcement proceedings, themselves brought following two default judgments against Axa under section 151 of the Road Traffic Act 1988 (RTA 1988). How had this happened? In short, the ‘solicitors’ (the respondent company, with two directors) were not solicitors; the accidents were fictitious; the credit-hire company did not exist; the medico-legal expert did not exist; and it seems likely that the ‘claimants’ themselves did not exist. In addition, service of court documents on Axa, when it had happened at all, had consisted of sending bundles of junk mail by registered post (thereby creating apparent evidence of service). The conduct of the respondents was cynical and abusive, and the fraud was extensive, multi-layered, and total.
It was unravelled, and led to the prosecution, conviction and imprisonment of at least one of those responsible. Axa brought an action against three parties to recover compensation for the costs incurred in defeating the fraud, and for exemplary damages. At first instance, the costs of nearly £25,000 were recovered, but the claim for exemplary damages was dismissed.
The framework for exemplary damages is set out in Rookes v Barnard  AC 1129. The category relevant to this case was described by Lord Devlin as:
‘…those in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff…. Where a defendant with a cynical disregard for a plaintiff's rights has calculated that the money to be made out of his wrongdoing will probably exceed the damages at risk, it is necessary for the law to show that it cannot be broken with impunity…’ .
The judge at first instance interpreted this to say that exemplary damages were:
‘available for the case where compensatory damages are inadequate to remove the wrongful gain achieved by the tort—where paying compensation in accordance with the normal principle would leave the tortfeasor ‘up on the deal.’
In the present case, the fraudsters sought a profit of £85,000 by way of claims against the insurer and the compensation they would have had to pay if the fraud had been successful would have been the full £85,000. The judge therefore held that there would have been no ‘unreachable’ profits, and so exemplary damages were inappropriate.
The Court of Appeal overruled the decision of the court below.
Lord Justice Flaux considered that the lower court had been looking at the question of profit vs damages ‘through the wrong end of the telescope’. The requirement was not that there would have been unreachable profits had the fraud succeeded but rather, as put by Lord Hailsham in Broome v Cassell  AC 1027, 1079:
‘What is necessary is that the tortious act must be done with guilty knowledge for the motive that the chances of economic advantage outweigh the chances of economic, or perhaps physical, penalty’.
In other words, the hoped-for profit if successful must outweigh the potential cost if unsuccessful. The court below was, therefore, entirely wrong to say that:
‘…it is nothing to the point to say that if the fraud had succeeded the profit would have been far larger than the compensatory damages are when it failed.’
The court also held, contrary to the decision of the court below, that it was irrelevant that there were other punitive measures available, such as prosecution, confiscation proceedings and contempt of court proceedings. These matters should not adversely affect the award of exemplary damages if it is otherwise appropriate.
Overall, the fraud was sophisticated and sustained and the cost at risk was far less than the hoped for profit. In addition, there is a need to deter others from engaging in such insurance fraud. The Court of Appeal was therefore of the view that this was in fact a paradigm case for the award of exemplary damages and each respondent was accordingly ordered to pay Axa a further £20,000.
David Willink is a barrister in Lamb Chambers, and a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact email@example.com.
Access this article and thousands of others like it free by subscribing to our blog.
Read full article
Already a subscriber? Login
0330 161 1234