Fundamental dishonesty - A new regime

From 13th April 2015, the Courts and Criminal Justice Act 2015 ("the Act") provided Defendants with the possibility of striking out a personal injury claim on the basis of fundamental dishonesty. This was a significant development in the ways open to Defendants of fighting back against fraudulent claims.

Before the Act, a Defendant who suspected that a claim may be fraudulent had various options, and the option closest to having a claim struck out for fraudulent dishonesty was to have it struck out for conduct on the part of the Claimant which amounted to an "abuse of process". The Court has the power to strike out a dishonestly exaggerated claim as an abuse of process at any stage in the proceedings. However, this power is only to be exercised in very exceptional circumstances and for this reason is rarely exercised. In addition, in the event that a claim is struck out on this basis, the fraudulent Claimant can often recover the genuine element of his claim even if it is found that he has dishonestly claimed other losses.

This situation changed with the introduction of the Act. It applies to claims issued on or after 13th April 2015 and is not retrospective, so Defendants facing claims issued before this date will have to rely on the abuse of process rules.

Section 57 of the Act requires a court to dismiss a personal injury claim if it is satisfied, on the balance of probabilities, that the Claimant has been "fundamentally dishonest" in respect of the primary or related claim. Dismissal of the claim is mandatory unless the court is satisfied that the Claimant would suffer substantial injustice if the claim were dismissed.

Unhelpfully, the Act does not define fundamental dishonesty. However, case law provides some assistance - dishonesty will be deemed to be fundamental if it goes to the whole or a substantial part of the claim. Significant exaggeration or misrepresentation of the extent of ongoing medical symptoms will also be considered to constitute fundamental dishonesty.

If the court does dismiss a claim for fundamental dishonesty, it must record in the Judgment the amount of damages that would have been awarded if the claim had succeeded. This is because the order of dismissal will almost certainly provide that the Claimant must pay the Defendant's costs, but, if such an order is made, the amount that the Claimant would have been awarded but for his dishonesty will be deducted from the amount he is ordered to pay in respect of those costs.

This could in theory lead to a situation where a Claimant is ordered to pay more in costs than he would have received in damages. For example, take a situation where a Court dismisses a claim for fundamental dishonesty, and records that had it not done so, and the claim had succeeded, the Claimant would have received £45,000. If the Defendant's costs are then assessed at £100,000, the Claimant would be liable to pay £55,000. The downside is that an application to dismiss a claim on the basis of fundamental dishonesty cannot be made if liability remains in issue, so it will only be possible to make such an application if liability is admitted, or the court finds that it attaches. This means that in reality, if a claim reaches the stage of Court proceedings, and liability is contested, an application to dismiss for fundamental dishonesty will only be able to be made at the end, and then, only if liability is found to attach to the Defendant. Since in many cases, liability will be disputed on the basis that a Claimant's claim is total fabrication, this is a disadvantage. Unless primary liability is admitted, Defendants in this position will have to revert to the old system and claim abuse of process if they wish to get the Claimant's claim struck out at an earlier stage. The advantage of successfully alleging fundamental dishonesty is that the court must strike out the whole of the claim even if there are genuine aspects to it. This is not the case with a claim of abuse of process, where such a strike out would only happen in exceptional cases.

A finding of fundamental dishonesty or abuse of process will entitle the Defendant to sidestep the Qualified One Way Costs Shifting (QOCS) costs rules (the general rule is that for personal injury claims issued after 1st April 2013, a Defendant who succeeds on liability will not be entitled to recover its legal costs. However, fundamental dishonesty and abuse of process are exceptions to this rule).

There is of course a possible situation where a claim is defended on the basis that the Claimant is fabricating the entire accident or injury. If this is proved to be the case, and the Defendant is found not to be liable, it will not be able to make an application to get the claim dismissed for fundamental dishonesty (since in order to do this, there needs to be an acceptance or finding of liability).

Fortunately, there is a QOCS exception provision in the Civil Procedure Rules (CPR 44.16) giving the Court discretion to render a costs order enforceable if the Claimant is proved to have been fundamentally dishonest. This exception has no requirement of a finding or admission of liability. An application under CPR 44.16 will be made after trial or at any other stage where the defendant has secured a costs order in its favour but cannot enforce it because of the QOCS rules.

The further advantage of an application under CPR 44.16 is that, if successful, the order will be for payment of the entirety of the Defendant's costs, not just the amount that would have been awarded to the Claimant. Fundamental dishonesty is a developing area, and there is therefore little in the way of case law. However, an example of a decision where an allegation of fundamental dishonesty was successful concerned a Claimant who alleged that her car was stationary when the Defendant's employee collided with her. The Defendant's employee said that there was no impact.

A joint forensic engineering report was obtained, and confirmed that the damage to the Claimant's car was inconsistent with her evidence in relation to the impact. At trial, the Circuit Judge at Liverpool County Court dismissed the claim. Although he accepted that there had been an impact, he held that it was of minimal severity. He went on to hold that the Claimant's dishonesty was fundamental and she therefore lost the protection of the QOCS rules. On this basis, he ordered that the Claimant should pay the Defendant's costs.

For more information on this topic, or to read the latest advice from the People Claims Team view the industry developments page.

Staff Author