Court of Appeal dismisses relief from sanctions application even though claim contained evidence of fraud

In Gentry v Miller and another [2016] EWCA Civ 141, the Court of Appeal considered an application to set aside a default judgment and damages award, in circumstances where the defendant insurers suspected the claim to be fraudulent.

The Court of Appeal unanimously dismissed the insurer’s application for relief from sanctions and refused to set aside a default judgment and damages award against its insured, even though there was evidence to suggest that the claim was fraudulent.

Vos LJ (who delivered the judgment of the court) found that the insurer had delayed inexcusably in making the application. He held that a default judgment could not be set aside, long after it had been made, simply on the basis of an allegation of arguable fraud. The court could not ignore that insurers are professional litigants, who can be held responsible for any disregard of their own commercial interests. Moreover, professional litigants were particularly qualified to respect the change in litigation culture introduced by Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 and Denton v TH White Ltd and another [2014] EWCA Civ 906.

The decision confirms that the Denton three stage test also applies to applications under CPR 39.3 (which allows a party to apply to set aside a judgment or order made at a hearing it did not attend). It is also a warning to insurers to investigate claims at the outset (even if of low value). If, having made an early admission of liability, they subsequently come across evidence suggesting fraud, they should not assume that their suspicions justify taking a passive role in the litigation. As the party who may ultimately pick up the bill, they should take active steps to protect their interests from the start and, if they decide to take part in litigation, conduct it efficiently, ensuring orders and directions are complied with.

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