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“Fundamental dishonesty” – what it might mean

The Qualified One-Way Costs Shifting regime was introduced in personal injury cases on 1st April 2013, but ahead of its introduction many people expressed concern that offering claimants the protection of QOCS would lead to a “have a go” claims culture.  There was already a perception that claimants usually escaped censure in cases where they exaggerated the nature and extent of their injuries: the bar that defendants needed to clear to prove fraud was set too high.

Getting it right

Against that background, and in order to tackle ever increasing numbers of fraudulent claims, it was essential as the reforms were introduced that claimants knew that costs protection would be lost, in the event that there were findings of dishonesty, once we knew how dishonesty was to be defined.  QOCS has come into operation for all injury claims where pre 1st April 2013 the claim was not signed up to a CFA, nor was an ATE policy taken out before that date.

When the Civil Justice Council looked at this issue in July 2011 as part of the incoming reform process, they unanimously agreed that:

  • the bringing of a fraudulent claim should cause the loss of QOCS protection

  • an appropriate definition of "fraudulent” for these purposes should be chosen in order to prevent satellite litigation on the point

  • the most straightforward approach was to recommend that that the definition of fraud for these purposes should be that a judge (trial judge or costs judge) had made a finding of fraud in the pursuit or conduct of the claim applying the usual civil standard for proof of fraud.

The CJC’s recommendations were accepted almost completely, with one exception.  The rules as implemented provide that protection under QOCS is lost if the claim is struck out, or if the “claim is found on the balance of probabilities to be fundamentally dishonest”, without any reference being made to the term “fraud”. All those involved in the handling of injury claims have been waiting for an indication as to the likely judicial approach to what constitutes “fundamental dishonesty”.  His Honour Judge Maloney, sitting in Cambridge County Court, has provided us with his approach.

The decision

Hearing the case of Gosling v Screwfix, the Judge was asked to consider whether the claimant had been dishonest when he gave his evidence in respect of the accident circumstances and in respect of his case on quantum.  Although the Judge rejected submissions that the Claimant was dishonest in his evidence about how the accident had taken place, the judge concluded that the surveillance evidence obtained by the Defendant demonstrated that the Claimant had attempted to exaggerate his claim.  The Judge in finding for the claimant on liability and awarding damages reduced the claim by 50% and concluded that the Claimant had been “fundamentally dishonest” in the presentation of his claim.

The Judge held that the term ‘fundamentally dishonest’ had to be viewed in context.  The effect of the Claimant’s dishonesty was crucial to around half the value of his claim, and that on the balance of probabilities and ‘on any view’ could be characterised as fundamental.

In arriving at his conclusion, the Judge considered whether the Claimant’s conduct was such he should receive the protection conferred upon him for reasons of policy. As far as the Judge was concerned, there was a distinction to be drawn between dishonesty that was fundamental to the claim and that which was ‘incidental’ or ‘collateral’. Dishonesty that went to the ‘whole or a substantial part of the claim’ was fundamental, he decided.

Our view

The Judge was prepared to make a finding of fundamental dishonesty even though part of the claim was genuine and we would not be surprised if the decision were subject to an appeal.  If this case were cited in future, we would expect there to be much debate by practitioners as to what might constitute “a substantial part” of a claim.

Before the implementation of the QOCS regime, the Defendant would have had to prove fraud, not “fundamental dishonesty”, and we wonder whether the Defendants would have achieved the same result if they had had to prove fraud.

In Summers v Fairclough Homes [2012] UKSC 26 the Claimant recovered just over 10% of his pleaded claim and was still awarded his costs.  Mr Gosling recovered 50% of his damages and yet was ordered to pay the Defendant’s costs on an indemnity basis and the ruling, if upheld by decisions from the Court of Appeal on the point, suggests that the definition of “fundamental dishonesty” as used for the QOCS regime may have gone some way in addressing flaws that were present before.

Whilst we are reassured that the Judge considered the issue from a social policy perspective, the Judge’s comments about “incidental” and “collateral” dishonesty might not be viewed as being particularly helpful in the context of the wider fight against fraud.

The Judge’s approach to deciding whether the Claimant was fundamentally dishonest, seems similar to the approach advocated in cases of first party fraud in MacGillivray on Insurance Law (12th Edition), that is to say that the fraud “must relate to a substantial, not trivial, part of the claim being made, it must be material to the claim, and the assured must either know that he is providing incorrect information in order to obtain a benefit, or be reckless as to whether what he says is true”.  This was a definition that we recommended as suitable for use in the case of third party fraud when we responded to the Law Commission’s proposal to include “fraud by victims of personal injury” in the forthcoming 12th Programme of Law Reform.

We expect there to be more cases in the coming months, including the first from the Court of Appeal, where the “fundamental dishonesty” definition is considered.  There are a number of issues which we hope will be clarified:

  • Will the QOCS regime still be effective in those cases where claimants do not have the means to meet the defendant’s costs?

  • Where findings of fundamental dishonesty have been reached, will defendants be less inclined to pursue applications for contempt?; and

  • Will the courts be less likely to grant permission to pursue contempt proceedings on the basis that the awarding of costs in the civil action is penalty enough?

We will keep you updated on developments as these issues become clearer.

Contact

For further information please contact James Pinder, Partner on 01772 556 677.

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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