Hussain & Anor v Sarkar & Anor

On a late application to amend a defence to allege fraud, the court must ask whether refusal creates a substantial risk of injustice through an incorrect result and, if so, whether the applicant should bear that risk because of the delay. A prima facie allegation of fraud may properly rest on an accumulation of circumstantial evidence. It does not require a single fact conclusively demonstrating fraud.

Where credible material reasonably establishes a prima facie case, a party is not making a fishing expedition merely because cross-examination may strengthen or weaken the case. If the material was obtained responsibly and the delay is not culpable, justice may require permission to amend, the setting aside of the trial judgment, and a retrial.

Two passengers injured when a hired van collided with the rear of a car brought personal injury claims. The van driver and his insurer were defendants. Shortly before trial, the insurer sought permission to amend its defences to allege that the accident had been staged.

Mr Recorder Gardner QC, sitting in Southampton County Court, refused permission. He regarded the insurer’s material as insufficient to support the serious allegation and as amounting to a fishing expedition. He later tried the claims without a pleaded fraud case and awarded damages to both claimants.

The insurer appealed both the refusal to amend and the resulting awards. The central issue was whether the available circumstantial material gave a proper prima facie foundation for alleging fraud and, if so, whether the lateness of the application nevertheless justified refusing the amendment.

1. Appeals allowed. Toulson LJ, with whom Patten LJ and Mummery LJ agreed, held that the Recorder had misdirected himself by finding that the proposed fraud allegation lacked a proper evidential foundation. The trial judgment was set aside and the claims were ordered to be retried.

2. The correct inquiry on a late amendment application was whether refusal would create a substantial risk of injustice, in the sense that the court might reach the wrong result, and, if so, whether the applicant should bear that risk because of the lateness of the application. Justice ordinarily requires parties to have a reasonable opportunity to advance a case which they may properly raise, consistently with Cobbold v London Borough of Greenwich [1999] EWCA Civ 2074.

3. The insurer’s proposed case was properly arguable. Fraud may be established by circumstantial evidence. The absence of a single conclusive fact did not mean that there were no hard facts. The relevant question was whether the assembled facts gave rise to a reasonable belief, rather than mere suspicion, that the accident had been staged. The insurer did not depend on damaging answers in cross-examination to make its case and was therefore not embarking on a fishing expedition.

4. Applying the professional standard referred to in Medcalf v Weatherill [2002] UKHL 27, the insurer had acted responsibly. It did not initially have reasonably credible material establishing a prima facie case, but later witness statements and company information supplied that foundation. The interval before the amendment application did not justify requiring the insurer to bear the risk of an incorrect result.

5. Cross-examination at the original trial did not cure the refusal of permission. Counsel had been unable formally to contend that the accident was staged. Patten LJ added that a related claim by the car’s driver could conveniently be tried with the fraud issue. Costs of the appeal and amendment application were preliminarily reserved to the trial judge.

• Court of Appeal (Civil Division): Allowed the insurer’s appeals in [2010] EWCA Civ 301, set aside the trial judgment, and ordered a retrial.
• Southampton County Court (Mr Recorder Gardner QC): Refused, shortly before trial, permission to amend the insurer’s defences to allege that the accident had been staged. He then awarded damages to the two passenger claimants.