Axa Insurance UK Plc v Financial Claims Solutions Ltd & Ors

Exemplary damages may be awarded under the second Rookes v Barnard category where the defendant calculated that the profit from tortious wrongdoing might exceed the compensation payable. The comparison is made prospectively when the tort is committed. The jurisdiction is not confined to cases where the wrongful gain cannot be recovered through compensatory damages. Criminal, confiscation or contempt proceedings do not preclude an award where the conduct is cynical and outrageous. Any award must be principled and proportionate.

Axa Insurance UK Plc brought Part 20 proceedings against Financial Claims Solutions Ltd and the individual respondents for deceit and unlawful means conspiracy arising from two fictitious motor-accident claims. Default judgments had been obtained against insured persons and then against Axa under the Road Traffic Act 1988, section 151. The fraud was exposed before the judgments were enforced.

The High Court awarded compensatory damages of £24,954.31 but dismissed the claim for exemplary damages. Axa appealed, contending that the respondents had calculated that the sums sought would exceed the damages likely to be payable if the fraud were discovered. The central issue was whether the second category identified in Rookes v Barnard was satisfied despite Axa’s prevention of the intended gain.

1. Appeal allowed. The respondents were liable for exemplary damages of £20,000 each.
2. The second category in Rookes v Barnard [1964] AC 1129 remains confined to conduct calculated to make a profit which may well exceed the compensation payable to the claimant. Where that criterion is satisfied, exemplary damages may be awarded to punish and deter cynical and outrageous conduct.
3. The criterion is assessed prospectively, when the tort is committed. It is wrong to compare the intended profit with the claimant’s eventual compensatory damages after the fraud has been detected and stopped. The respondents sought to extract about £85,000, whereas Axa’s loss was limited to the substantially smaller costs of investigating and undoing the fraud.
4. The second category is not limited to so-called unreachable damages. The approach in Ramzan v Brookwide Ltd [2011] EWCA Civ 985 supported rejecting that limitation, and the wider analysis in Borders (UK) Ltd v Commissioner of Police of the Metropolis [2005] EWCA Civ 197 was preferred.
5. Criminal proceedings, confiscation proceedings and contempt of court proceedings did not make exemplary damages inappropriate. Contempt concerned only a narrower aspect of the conduct and required proof to the criminal standard, while the civil award addressed the overall fraud.
6. The fraud was sophisticated, sustained and abusive of the court process, and was a paradigm case for exemplary damages. The award had to be principled and proportionate. In the absence of evidence of means, it was inappropriate to adjust the award by reference to ability to pay.

• High Court of Justice, Queen’s Bench Division: compensatory damages of £24,954.31 were awarded, but exemplary damages were refused.
• Court of Appeal (Civil Division): the appeal was allowed and exemplary damages of £20,000 were awarded against each respondent.