Fraudulent Claims and Avoidance - Moral Hazard and the use of a "fraudulent device"

Sharon’s Bakery (Europe) Ltd v.  Axa Insurance & Anor [2011]
Commercial Court, 9 February 2011

This case represents the latest in a serious of recent High Court decisions involving dishonesty in the presentation of claims.

The insured ("Sharon") operated a wholesale bakery in North London, owned by its two directors, Mr Bension Nassim and Mr Ali Caplin. Prior to the formation of Sharon, Mr Nassim had run his own business, Sharon’s Bakery (Wholesale and Retail) Ltd ("SBWR") but in 2007 he had had agreed to go in to business with Mr Caplin, with the formation of Sharon. Mr Caplin provided the premises for the new bakery, and Mr Nassim the equipment, which he brought from his former company, SBWR.

The new company also obtained finance for its operations from Lombard North Central Plc ("Lombard"), in the course of which it provided to Lombard a copy of an invoice from SBWR for the equipment that was being contributed by Mr Nassim. As SBWR and Sharon were related entitles, however, Lombard demanded sight of an invoice from the ultimate supplier, so that it could verify the relevant valuation. Lombard was duly given what purported to be an invoice, made out to SBWR by a company called Bakequip (UK) Ltd ("Bakequip"), apparently evidencing the sale of the equipment to SBWR. It was marked "paid in full with thanks". In fact, so it turned out, the invoice was false. Although there was no suggestion that the equipment had come into the possession of Sharon by any illegitimate means, the fact was it had not been acquired by means of the sale from Bakequip purportedly evidenced by the invoice.

Lawyers Anthony Menzies, James Crabtree, Susannah Wakefield, Peter Kempe, Jonathan Rogers, Dr. Gunbritt Kammerer-Galahn, Franz Janssen, Dr. Astrid Wagner, Wolfgang Schaller, Alain de Foucaud, Christine Flion, Christopher Dixon, Claus Peter Knufinke