In Gentry -v- Miller and UK Insurance Company  EWCA Civ 141 the Court of Appeal held that the fact that a defendant was alleging fraud did not entitle it to any special treatment in relation to breaches of rules. The Denton principles still apply with all their vigour.
“The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests”
“insurers are in a particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders. It cannot avail an insurer in this position to say it was not a party to the claim at that stage. It was directly affected by it and knew that it had to protect its interests from the moment liability was admitted.”
“Mitchell and Denton represented a turning point in the need for litigation to be undertaken efficiently and at proportionate cost, and for the rules and orders of the court to be obeyed. Professional litigants are particularly qualified to respect this change and must do so. Allegations of fraud may in some cases excuse an insurer from taking steps to protect itself, but here this insurer missed every opportunity to do so. It admitted liability before satisfying itself that the claim was genuine, perhaps because it mistakenly thought the claim was a small one. That does not excuse the months of delay that then followed. The insurer must in these circumstances face the consequences of its own actions.”
- An insurer, as a professional litigant, cannot expect special indulgences from the court.
- Where an insurer had failed to take basic steps to protect its own interests and allowed judgment to be entered in default it may find it difficult to persuade the court to grant relief from sanctions.
- The fact that an allegation of fraud was being made and the insurer alleged its own insured may be complicit in this was irrelevant. It had always been open to the insurer to protect its own interests, it had failed to do so.
- This case calls into question those High Court decisions where it was held that the court could look at the merits of the case when considering relief from sanctions/setting judgment aside.
- Insurers really need to consider their practices carefully, particularly at the lowest level. Delays by insurers (which were unexplained and actually militated against the insurer’s own best interests) are now more likely to come back and bite them.
The claimant was injured in an accident in March 2013. The claim included vehicle damage and hire charges.
- An application was made using the MOJ portal, indicating that the claim was under £10,000.
- On the 2nd April 2013 the insurer admitted liability and paid the stage 1 costs.
- No substantive offer was made.
- The insurers were sent details of the pre-accident value of the car and informed that an alternative vehicle was being hired.
- The claimant sent regular reminders to the insurers asking for payment and warning about hire charges accruing.
- On telephoning the claimant’s solicitors were informed that the insurers “were not taking calls that day”.
- Proceedings were issued in May 2013 against the driver defendant alone.
- A disposal hearing took place, the defendant was notified, but not the insurer. Judgment was given for £75,089, largely made up of hire charges.
- On receiving notice of the order in November 2013 the insurer made an application to set aside the judgment.
- That application was, eventually, allowed by the District Judge, once the insurers had become a party. This decision was confirmed, on appeal, by the recorder.
THE COURT OF APPEAL: JUDGMENT SHOULD NOT HAVE BEEN SET ASIDE
The Court of Appeal, in a very robust judgment, made it clear that the judgment should not have been set aside. The judgment was given by Lord Justice Vos.
THE APPLICATION WAS NOT PROMPT
Like the district judge, I think we should start with the application to set aside the default judgment. The first question is whether the insurer has shown that it has a real prospect of successfully defending the claim. That was quite rightly not disputed by Mr Andrew Hogan, counsel for the appellant. It is to be noted, however, that the insurer adduced no evidence that the claim was fraudulent until 10th February 2014. It seems only to have started investigating the matter after Keoghs were instructed on 12th November 2013. The period for such an investigation may not, in itself, be unreasonable (two months including the Christmas period), but there has been no explanation whatsoever as to why the insurer took so long either to instruct solicitors or to commence the investigation. The starting point nonetheless is that the insurer has satisfied Part 13.3(1). I must turn then to consider the promptness of the application under CPR Part 13.3(2).
The original application on 25th November 2013 was made on Mr Miller’s behalf, but that application was not unequivocally an application to set aside either the default judgment or the order of 17th October 2013. It referred mistakenly to the interim payment order, rather than the default judgment. In my view, however, it is reasonable to treat the application as one to set aside the default judgment, since Mr Herring made clear that was what he thought he was doing by referring to CPR Part 13.3 in his first statement. Moreover, paragraph 2 of the application itself sought permission to serve a defence, which made no sense if Mr Herring was applying to set aside an order for an interim payment. In these circumstances, the promptness of the application should, I think, be considered up to the time of the application of 25th November 2013, and not up to the date of the second application of 26th February 2014. The fact that Mr Herring could perhaps have obtained the orders from the court or could have worked out more of what had happened from his own file, should not be held against the insurer, when it made perfectly clear to the appellant by the letter of 13th November 2013 and in its application and evidence of 25th November 2013 at the latest that it intended to apply to set aside the default judgment.
The question then arises as to whether the insurer is to be regarded as having acted promptly in making the application of 25th November 2013. I do not think it matters for these purposes that the insurer was at that stage applying on behalf of Mr Miller, nor that that application was later, in effect, replaced with the application of 26th February 2014 made in the insurer’s own name.
In my judgment, the insurer did not make its application promptly. It delayed inexcusably. And as a matter of fact the insurer has made no attempt to justify its delays up to 25th November 2013 save to say that it did not receive some of the documentation from the appellant’s solicitors. It has failed to provide any evidence of the procedures that it adopts in dealing with its post or give any reason why the numerous letters sent to it that I have described above might have failed to reach its file. Indeed, in my judgment, the suggestion that the insurer did not know the risks it was running or what, in broad terms, was going on, is falsified by its own actions.
The insurer admitted liability on 2nd April 2013. From then on, it knew that it was at risk of proceedings, a judgment in default or on an admission and an assessment of damages if it did not settle or defend the claim. But it made no real effort to do so. It did not instruct solicitors to consider whether fraud should be alleged either before it admitted liability or for 7 months afterwards. It paid the interim payment awarded against it, showing that by that time it was fully aware that proceedings had been issued. Yet, it still did not appoint solicitors to protect its position. The insurer’s argument that it thought the claim was a small one that was impliedly not worth investigating, is falsified by the fact that it was repeatedly warned that hire charges were escalating. It was in the best position to know what it costs to hire a replacement Range Rover for months on end; yet it repeatedly ignored the requests to pay for a replacement vehicle to be purchased in respect of a claim it had long since admitted. It thereby allowed the claim rapidly to grow.
The default judgment was entered on 8th August 2013 and it is true that a copy of it was not immediately served on the insurer as, prudently, it should have been. The first question is, therefore, when the insurer either actually received the default judgment in question, or had or could with reasonable diligence have obtained a sufficient knowledge of it to enable it to apply to the court to set it aside. As both counsel accepted, a person cannot be criticised for failing to make an effective application to set aside before that stage is reached.
Despite not being provided with a copy of the default judgment, the insurer was kept informed about a number of other steps that were being taken. On 2nd July 2013, the insurer wrote asking why proceedings were being issued, but still did nothing to instruct solicitors on behalf of its insured. On 15th July 2013, the insurer was asked for, I think, the 7th time to pay the value of the car, was warned for the 7th time that hire charges were mounting up, and was asked for “an interim payment by return”. After the default judgment, on 22nd August 2013, the insurer made a CPR Part 36 offer, which seems to confirm that it realised proceedings were on foot. At that stage, it could have inquired at court what orders had been made, but did not do so. On 19th and 23rd September 2013, the insurer was sent costs schedules “ahead of the upcoming application hearing”. It still did nothing; it did not even enquire what the “upcoming hearing” was about. In my judgment, by that time, at the very latest, the insurer could with reasonable diligence have obtained a sufficient knowledge of the default judgment to have enabled it to apply to the court to set it aside. The court cannot ignore that insurers are professional litigants, who can properly be held responsible for any blatant disregard of their own commercial interests. This insurer had known since April 2013 that it was at risk of proceedings being commenced and being served on its insured, yet it did nothing to ensure its position was protected.
On this analysis, the relevant period of delay is, at the least, from 19th September (almost a month after the insurer made its CPR Part 36 offer) to 25th November 2013, a period of more than 2 months. The insured cannot, in the context of the history I have described, be regarded as having made its application to set aside the default judgment promptly. CPR Part 13.3(2) enjoins the court to have regard to that lack of promptness in exercising its discretion as to whether or not to set aside the judgment.”
APPLYING THE DENTON CRITERIA
At this point, the analysis continues by reference to the Denton tests. It was common ground that the default that allowed the default judgment to be entered in the first place – in failing to file an acknowledgement of service – was serious or significant, although it needs to be borne in mind that that was not a default of the insurer, which was not served with the proceedings. In these circumstances, there was some reasonable excuse or explanation for the failure, albeit not a complete one. The insurer could and should have protected itself when it knew proceedings were being issued by appointing solicitors to accept service on behalf of Mr Miller.
Finally, the court has to consider “all the circumstances of the case, so as to enable it to deal justly with the applications including” factors (a) and (b), which are to be accorded particular weight (see paragraphs 31-38 in Denton). Factor (a) points to the need for litigation to be conducted efficiently and at proportionate cost. Factor (b) refers to the need to enforce compliance with rules and orders. Here, insurers are in a particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders. It cannot avail an insurer in this position to say it was not a party to the claim at that stage. It was directly affected by it and knew that it had to protect its interests from the moment liability was admitted. It was able at any stage to conduct Mr Miller’s defence.
THE APPLICATION UNDER 39.3(5)
The insurer had made an application under CPR 39.3(5) on the grounds that judgment should be set aside because it “failed to attend the trial”.
I can deal with this application more briefly. The insurer has first to show that it satisfies the 3 conditions in CPR Part 39.3(5). There is an anomaly in the conditions, because they apply to “a party who failed to attend the trial” and the insurer was not such a party. But in a case of this kind, it seems to me that the insurer cannot be regarded as being in a better position than its insured. I understand that it says that its insured was working against its interests, but the fact remains that it was in a position to protect its own interests and failed to do so. If the insured failed to protect the insurer’s interests, that is a matter between insurer and insured. Here, the insurer is seeking the indulgence of the court in applying to set aside the judgment of 17th October 2013. It needs to show that it can satisfy CPR Part 39.3(5).
It seems to me that the insurer as applicant did not act promptly when it found out that the court had exercised its power to enter judgment or make an order against Mr Miller, by which it was directly affected. On 25th October 2013, the insurer was told that sums were outstanding in respect of damages. Its response was to ask for the orders. It could have sought the orders from the court. Instead, it delayed until 26th February 2014 before it made any application to set aside that order. That is a delay of 4 months on top of its previous delays and failures. In those circumstances, even if the insurer could show a good reason for not attending court and a reasonable prospect of success (which it probably could), it could not satisfy the first condition which makes it clear that the application may only be granted if the applicant has acted promptly when it found out about the order. It did not do so in this case.
In my judgment, therefore, the second application fails at that stage. It would anyway, I think, have failed when the third stage of the Denton test came to be considered, for similar reasons to those I have given in relation to the default judgment. This is a case where the insurer will have to pursue what remedies it can by way of a new fraud action.
I should not leave this aspect of the case without commenting on what may seem a harsh decision. In my judgment, Mitchell and Denton represented a turning point in the need for litigation to be undertaken efficiently and at proportionate cost, and for the rules and orders of the court to be obeyed. Professional litigants are particularly qualified to respect this change and must do so. Allegations of fraud may in some cases excuse an insurer from taking steps to protect itself, but here this insurer missed every opportunity to do so. It admitted liability before satisfying itself that the claim was genuine, perhaps because it mistakenly thought the claim was a small one. That does not excuse the months of delay that then followed. The insurer must in these circumstances face the consequences of its own actions.