Liam Ryan considers what needs to be pleaded, and put to witnesses in order for a Court to reach a finding of fundamental dishonesty in light of the recent Court of Appeals decision in Howlett v Davies  EWCA Civ 1696.
Every single day in County Courts up and down the country, witnesses give evidence and Judges assess its quality, credibility and reliability in deciding how much weight if any to give to it. It is a sad fact that in civil proceedings witnesses will, at times, knowingly give evidence dishonestly for personal gain, despite having been made aware of the consequences and the immorality of their actions. Whilst Judges do not need to find that a witness has lied in order to discount their evidence (it can simply not be “preferred”) the implementation of qualified one-way costs shifting (“QOCS”) has brought an incentive for parties to secure such findings in personal injury proceedings.
The Jackson reforms and the implementation of QOCS in personal injury litigation has created situations where establishing that a Claimant has not given their evidence honestly, has become (by virtue of Part 44.13 – 17 CPR) the only real way in which a Defendant can hope to recover the costs of defending a claim. Set against this, with the falling amounts of recoverable costs available to Claimants, there is a real risk of cases being prepared more rapidly and in less detail than they deserve. In turn, this can give rise to more situations where such findings can be made, for example, a Claimant may well struggle to establish that they did suffer injury, a point which may well have been capable of identification had there been a more in depth review of medical records.
In some circumstances, Claimants may not be able to pay a costs order made against them. In such circumstances, there is a sense that the legislature politically discourages a Claimant from bringing claims by creating situations where a Claimant faces disproportionate costs consequences (compared to the potential gains) in bringing claims for personal injury.
Whilst it may not have been Sir Rupert Jackson’s intention to create all-or-nothing situations, where issues are disproportionately contested, he stated that he wanted Claimants to have a stake in their claims. As a trend, it does appear that Defendants will more regularly seek to establish findings of fundamental dishonesty. The net result of this is that more Claimants are being put off from pursuing claims, and more time spent in Court litigating over such issues. The current trend by Defendants to pursue arguments that suggest “late notification” of a claim should be seen as dishonest, is an example of this.
The sad reality is that large insurance companies will habitually seek to place injured Claimants into the firing line of the law with threats of contempt of Court, adverse costs and other sanctions set against them. In contrast, a Claimant will enter into litigation more often than not having thought: “Is this really worth it?”. Such a situation sits in direct opposition to the principal of access to justice.
With this in mind, what needs to be done for a finding of fundamental dishonesty to be made? The Court of Appeal case of Howlett v Davies  EWCA Civ 1696 offers some guidance.
At first instance in the County Court at Portsmouth, Deputy District Judge Taylor, held that the Claimants claim was “fundamentally dishonest” and so granted the second Defendant, Ageas Insurance Limited (“Ageas”), permission to enforce a costs order against the Claimants. The Claimants appealed against that decision without success. Their appeal was dismissed by His Honour Judge Blair QC, sitting in the County Court at Swindon with the case being appealed in turn to the Court of Appeal.
The claim was one for personal injuries and financial loss that they claimed to have suffered as a result of a traffic accident on 27th March 2013. It was their case that they were passengers in a car driven by the first Defendant, Ms Penelope Davies, when it struck a parked vehicle and that the collision was caused by negligence on the part of Ms Davies.
The claim was resisted by Ageas, which was Ms Davies’ insurer. Ageas’ defence said that it did “not accept the index accident occurred as alleged, or at all” and required the Claimants “to strictly prove”: (1) that they “were involved in the index accident”; (2) that it was caused by the negligence of Ms Davies; (3) that they suffered injury and loss in consequence; and that (4) the accident, injury and loss were reasonably foreseeable. The relevant part of the pleading continued, “If, which is denied, there was an accident as alleged, [Ageas] will aver that it was a low velocity impact unlikely to cause injury with injury being unforeseeable in any event.” This is, of itself, not an uncommon style of pleading.
The credibility of the Claimants was expressly stated to be in issue, and paragraph 6 of the defence asserted that the Claimants must prove their case “on a balance of probabilities, set against the backdrop of the following facts and/or contentions”.
It was stated in paragraph 2 of the defence that Ageas did “not assert a positive case of fraud at this stage”, but required the Howletts “to prove their case”. Paragraph 11 of the defence set out that “[s]hould the court find any elements of fraud to this claim, the Second Defendant will seek to reduce any damages payable to the Claimants to nil together with appropriate costs orders therein.”
As indicated above QOCS can be displaced if a claim is found to be “fundamentally dishonest” (part 44.16 (1) CPR). The meaning of this expression was considered by HHJ Moloney QC, sitting in the County Court at Cambridge, in Gosling v Hailo (29 April 2014). He said this in his Judgment:
“It appears to me that this phrase in the rules has to be interpreted purposively and contextually in the light of the context. This is, of course, the determination of whether the claimant is ‘deserving’, as Jackson LJ put it, of the protection (from the costs liability that would otherwise fall on him) extended, for reasons of social policy, by the QOCS rules. It appears to me that when one looks at the matter in that way, one sees that what the rules are doing is distinguishing between two levels of dishonesty: dishonesty in relation to the claim which is not fundamental so as to expose such a claimant to costs liability, and dishonesty which is fundamental, so as to give rise to costs liability.
The corollary term to ‘fundamental’ would be a word with some such meaning as ‘incidental’ or ‘collateral’. Thus, a claimant should not be exposed to costs liability merely because he is shown to have been dishonest as to some collateral matter or perhaps as to some minor, self-contained head of damage. If, on the other hand, the dishonesty went to the root of either the whole of his claim or a substantial part of his claim, then it appears to me that it would be a fundamentally dishonest claim: a claim which depended as to a substantial or important part of itself upon dishonesty.”
The issue before the Court of Appeal asked whether a Claimant could be found to be fundamentally dishonest where such allegations were not pleaded, or put in cross examination. In short, had the Court gone too far? Practitioners understand the potential severity of the consequences to Claimants of a finding of fundamental dishonesty, and in turn have a reasonable expectation of having the point put to them fairly and squarely.
Newey LJ in the judgment of the Court of Appeal set out that it was not unusual for insurers to file defences comparable to that put by Ageas in claims caused by low-speed traffic accidents. This is reflected in the case of Kearsley v Klarfeld  EWCA Civ 1510, which established guidance as to how such cases should be dealt with.
Before the Court of Appeal, the Defendant suggested four reasons for insurers being slow to include fully-fledged pleas of fraud in their defences:
While the third point seems unattractive (the others are easier to understand although the fourth also seems flawed) a finding that a Claimant has “not proven” their case often seems an enticing compromise position for a Judge in claims where issues of honesty are raised. In dealing with the issue of the Defendants pleaded case, the Court of Appeal held that
“Statements of case are, of course, crucial to the identification of the issues between the parties and what falls to be decided by the Court. However, the mere fact that the opposing party has not alleged dishonesty in his pleadings will not necessarily bar a judge from finding a witness to have been lying: in fact, judges must regularly characterise witnesses as having been deliberately untruthful even where there has been no plea of fraud
… I do not think an insurer need necessarily have alleged in its defence that the claim was “fundamentally dishonest” for one-way costs shifting to be displaced on that ground. Where findings properly made in the trial judge’s judgment on the substantive claim warrant the conclusion that it was “fundamentally dishonest”, an insurer can, I think, invoke CPR 44.16(1) regardless of whether there was any reference to fundamental dishonesty in its pleadings”.
As for the argument as to the failure on the part of the Defendant to put to the Claimants’ case of fundamental dishonesty, the Court of Appeal held that when dealing with similar claims;
“First, where a witness’ honesty is to be challenged, it will always be best if that is explicitly put to the witness. There can then be no doubt that honesty is in issue. But what ultimately matters is that the witness has had fair notice of a challenge to his or her honesty and an opportunity to deal with it. It may be that in a particular context a cross-examination which does not use the words “dishonest” or “lying” will give a witness fair warning. That will be a matter for the trial judge to decide. Secondly, the fact that a party has not alleged fraud in his pleading may not preclude him from suggesting to a witness in cross-examination that he is lying. That must, in fact, be a common occurrence”.
The Judgment makes sense and, really, is just a clear application of the law. The Court of Appeal’s decision reflects in many respects the applicable provisions of section 57 of the Criminal Justice and Courts Act 2015 namely that-
“where, in proceedings on a claim for damages in respect of personal injury (“the primary claim”)-
(a) the court finds that the claimant is entitled to damages in respect of the claim, but
(b) on an application by the defendant for the dismissal of the claim under this section, the court is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim.
(2)The court must dismiss the primary claim, unless it is satisfied that the claimant would suffer substantial injustice if the claim were dismissed.
There is no reference in the legislation for the need for a pleading or requirement for cross examination to include an exploration of the issue of honesty. Rather, there is weight and emphasis placed on a Court’s ability to make its own decisions. Practically, it would be a strange case indeed where a Claimant who had been fundamentally dishonest would accept the same in their evidence, so the issue of requiring the point be put is somewhat redundant.
Whilst Defendants may seek to present this decision as a victory, it is no more than an accurate application of the law by a Court. In this case the claim at first instance ran for 4 days, and Deputy District Judge Taylor would have had a clear opinion and understanding of the evidence, and the credibility of the Claimants. To have insisted that any other Judge’s hands be bound in the ambit of the conclusions they are entitled to reach due to pleadings or cross examination would sit in opposition to section 57 of the Criminal Justice and Courts Act 2015 and Parliament’s intention.
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