An insurance company which was dilatory in dealing with a personal injury claim and only alleged fraud after default judgment had been entered has been refused relief from sanctions by the Court of Appeal in a decision it acknowledged may seem “harsh”.
Lord Justice Vos said: “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.”
In Gentry v Miller & Anor  EWCA Civ 141, the claimant appealed that Mitchell and Denton should be applied so as to refuse to set aside the default judgment and damages judgment against UK Insurance Ltd.
After the judgments had been entered against the defendant, the insurer contended that the two parties to the accident actually knew each other and alleged fraud.
District Judge Henthorn concluded that “claims of alleged fraud are the one type of claim which should now be exempt from the strictures of the current CPR rules and the views of the Court of Appeal in Mitchell and other recent cases”.
Balancing the windfall to the claimant if the judgment was not set aside and the claim was fraudulent, against the delay in getting paid if the claim was genuine, he decided that the interests of justice required the default judgment to be set aside, the defence having reasonable prospects of success.
On appeal, Mr Recorder Gregory found the decision within the judge’s ambit of discretion, ruling that the applications to set aside were, in context, made promptly by the insurer once it had the relevant information available.
Moreover, he decided that the insurer had shown that it had a good reason for not attending the disposal hearing and had a reasonable prospect of success at trial.
But on second appeal to the Court of Appeal, it was accepted that the district judge should not have considered that allegations of fraud provide an exemption from Mitchell and Denton, meaning the Court of Appeal had to reconsider the matter.
Giving the judgment of the court, Vos LJ found that the insurer did not promptly apply to set aside the default judgment; indeed, “it delayed inexcusably”. Going through the Denton test, it was common ground that the breach was serious or significant, and while there was some reasonable excuse for the failure, it was not “complete”.
On the final limb of the test, he said that “insurers are in a particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders”.
As a result, the appeal succeeded. “This is a case where the insurer will have to pursue what remedies it can by way of a new fraud action,” Vos LJ concluded.