AXA Insurance UK Plc v Financial Claims Solutions Ltd & Ors

Exemplary damages under the second category in Rookes v Barnard require more than deliberate, fraudulent or socially harmful tortious conduct. The defendant must have acted with the expectation that the economic advantage obtained would outweigh the likely civil consequences, so that compensatory damages would leave the defendant up on the deal. Where the intended gain consists solely of money taken from the claimant, the gain and the compensation ordinarily correspond. A failed fraud does not qualify merely because the potential claim exceeded the claimant’s costs of detecting and undoing it. The civil courts cannot extend exemplary damages to pursue wider social policy. Compensatory damages remain available for reasonable losses flowing from the tort.

AXA Insurance UK Plc brought Part 20 proceedings against Financial Claims Solutions Ltd, Mohammed Aurangzaib and Hakim Mohammed Abdul following default judgments for deceit and conspiracy. The underlying fraud involved fabricated road traffic accident claims and attempts to enforce judgments against AXA as insurer.

AXA claimed compensation for staff time, disbursements and solicitors’ costs incurred in exposing the fraud and setting aside or preventing enforcement of the fraudulent proceedings. It also claimed exemplary damages, relying on the second category identified in Rookes v Barnard. The central issue was whether the potential proceeds of the unsuccessful fraud justified exemplary damages when AXA had avoided paying the fraudulent claims.

1. Compensatory damages. The court accepted the unchallenged calculation of AXA staff time and allowed the disbursements and solicitors’ costs shown to flow from the underlying fraud. The total compensatory award was £24,954.31.

2. Applicable principle. The modern jurisdiction to award exemplary damages derives from Rookes v Barnard. Under its second category, the tort must have been committed with guilty knowledge and with the motive that the prospect of economic advantage outweighed the prospect of economic or physical penalty. The conduct must be such that ordinary compensation would leave the tortfeasor with the wrongful gain.

3. The word “calculated” does not require proof of a mathematical computation or detailed subjective reasoning. The issue is assessed largely by common sense. Nevertheless, exemplary damages are not available merely because conduct is fraudulent, malign or intended to escape detection. They are not a substitute for the criminal law.

4. The authorities in Broome v Cassell & Company Limited and Riches v News Group Newspapers supported that approach. Kuddus v Chief Constable of Leicestershire Constabulary established that no further restriction applies once a case falls within one of Lord Devlin’s categories, but that issue did not arise. Direct Line v Suleman was a non-binding first-instance decision and provided no particular assistance.

5. AXA’s potential gain of approximately £85,000 consisted entirely of money to be extracted from AXA. Had the fraud succeeded, the profit and AXA’s compensatory loss would have been identical. The fact that AXA detected the fraud before payment, and therefore incurred only rectification costs, did not alter the analysis. The case did not fall within the second category in Rookes v Barnard. The claim for exemplary damages was refused.