Fundamental Dishonesty – What do we need to know?

Qualified One Way Costs Shifting (“QOCS”) rules were introduced into the Civil Procedure Rules (CPR) on 1st April 2013 as part of Lord Justice Jackson’s reforms. The rules are contained within CPR 44.13 – 44.17 and CPR44 Practice Direction Section 12. The rules were introduced to allow a Claimant to avoid costs liability if their case failed, as long as they had not been guilty of fundamental dishonesty.

What is the definition of fundamental dishonesty?

Dishonesty is not defined in any statute, explanatory notes, the CPR or any practice direction. The only source available is the case laws.

The definition was however clarified in the case of 1) Lorna Howlett (2) Justin Howlett v (1) Penelope Davies (2) Ageas Insurance Limited. The court of Appeal considered the judgment of HHJ Maloney QC in Gosling v Hailo, (see below) where it was held that:

“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.”

Did the dishonesty go to the root of the claim?

The crucial issue is whether the dishonesty went to the root of the claim, or a substantial part of it. The Defendant does not have to plead fundamental dishonesty in their Defence. However they should provide a Claimant with notification that their credibility/honestly is likely to be challenged.

If a Defendant is successfully able to establish fundamental dishonesty, they are entitled to argue that the QOCS protection should be removed. This is contained within CPR 44.16(1), which also states that it will be considered on the balance of probabilities.

In addition, pursuant to Section 57(2) Criminal Justice and Courts Act 2015, if the court finds the Claimant has been fundamentally dishonest under Section 57(2), “the court must dismiss the primary claim, unless it is satisfied that the Claimant would suffer substantial injustice if the claim were dismissed”. In the case of Razumas v Ministry of Justice [2018] EWHC 215 (QB) (see below) the High Court held that something more than the loss of damages was required before there could be substantial injustice.

Key cases and how they have impacted on the law

In the case of Gosling v Hailo & Screwfix, the judge stated that: “The corollary term to “fundamental” would be a word with some such meaning as “incidental” or “collateral”. So, a Claimant should not be exposed to costs liability simply because he is shown to have been dishonest as to some collateral matter or perhaps a 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 …that it would be a fundamentally dishonest claim: a claim which depended as to a substantial or important part of itself upon dishonesty.”

HHJ Moloney QC stated that fundamental dishonesty did not have to go to the root of the issue of liability, nor even to damages in their entirety, adding that ‘fundamental dishonesty’ must be “interpreted purposively and contextually in the light of the context… the determination of whether the claimant is “deserving… of the protection… extended, by reasons of social policy, by the QOCS rules.”

On the requirement to plead, Newey LJ stated that “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.

“On top of that, it seems to me that where an insurer in a case such as the present one, following the guidance given in Kearsley v Klarfeld [2006] 2 All ER 303, has denied a claim without putting forward a substantive case of fraud but setting out “the facts from which they would be inviting the judge to draw the inference that the plaintiff had not in fact suffered the injuries he asserted”, it must be open to the trial judge… [to conclude] that the alleged accident did not happen or that the claimant was not present.

“The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence.”

It now seems settled that, in the absence of a positive allegation of fraud, it remains open to the trial judge to make a finding of fundamental dishonesty, provided that the Defendant has set out in its Defence the facts from which it will invite the court to draw that inference.

Howlett emphasises that whilst it may not be necessary to plead fraud, the issue is whether the Claimant is on notice of the possibility that the judge may reach a conclusion of fundamental dishonesty. Defendants must put their cases in such a way that Claimants know the case they must meet, the challenges they must overcome and the findings which the court may make.

The relevant principles in Howlett have since been applied in Molodi v Cambridge Vibration Maintenance Service [2018] EWHC 1288 and Pinkus v Direct Line [2018] EWHC 1671 (QB). The latter reiterated that the court will not allow issues to be raised where the Claimant has not had sufficient notice of those issues.

The same rule applied in the case James v Diamanttek [2016], where the judge allowed a costs order to be enforced against a Claimant who had lost an industrial disease compensation case against his former employer because test in Rule 44.16 was satisfied and QOCS protection was removed.

In the case of Razumas v Ministry of Justice 2018 EWHC 215 (QB), the Court considered how to deal with a Claimant who had positively pleaded a misleading account of his medical treatment. Concluding that this behaviour amounted to fundamental dishonesty as his lie went to the heart of the case

This claim involved an action for clinical negligence against the Ministry of Justice (“the MOJ”). The claim failed at trial on its merits but the Court considered the issue of “fundamental dishonesty” pursuant to s57 of the Criminal Justice and Courts Act 2015 (“the Act”), as, in the course of bringing his claim, Mr Razumas had positively asserted an allegation in the Particulars of Claim which he knew to be false.

 

Mr Razumas had, for various periods between 2010 and 2013, been in prison and during that time, it was accepted by the MOJ that he had received medical care which was deficient in various respects. He underwent left above knee amputation due to a failure to diagnose and treat a tumour.

 

The MOJ argued that there were large periods of time when Mr Razumas was not in prison, during which, he could have sought medical advice and his failure to do so broke the causative connection between any earlier negligence and the effects of a failure to treat on his return to prison.

 

Mr Razumas argued, amongst other things, that he had attended a GP and been given a date for an operation for removal of the tumour. However, he then returned to prison and the MOJ failed to appropriately manage his medical care thereon. Despite attempts by Mr Razumas’ Solicitors, no records of these medical consultations were ever obtained. There were also issues regarding fluctuations in the Claimant’s account given to his own expert and in his own evidence (including telling his expert that he had not sought medical treatment whilst out of prison as he was on the run from the police).

 

The MOJ invited the Court to conclude that Mr Razumas made a deliberate choice not to seek medical attention in order to evade police arrest and the Court did so, agreeing that no reliance could be placed upon Mr Razumas’ evidence on this point.

 

 

Practical considerations

The introduction of the concept of “fundamental dishonesty”, both under the CPR and 2015 Act, does require claimant representatives to have practical and procedural issues in mind throughout any claim where such an allegation may be made. The following should be borne in mind:

  • Claimants need to understand the serious consequences of dishonesty.
  • Claimants may wish to adopt a “zero tolerance” approach to insinuations of dishonesty in pleadings or evidence suggesting dishonesty when that issue has not been pleaded or not adequately pleaded.
  • Where dishonesty is an issue in the case that will require allocation to the multi-track with appropriate case management directions for the exchange of evidence. That may need to include a specific direction giving a date for disclosure of surveillance evidence whether that be the date for disclosure or witness statements.
  • Evidence duly exchanged should be carefully scrutinised to establish whether the allegations are substantiated and also whether this is in the form of admissible evidence. The claimant must be ready, at trial, to argue the scope of “fundamental dishonesty” and whether, on the pleaded case and evidence, it is established in the particular case.
  • The claimant should also be ready to advance any argument which may be appropriate as to “substantial injustice”, given the terms of section 57(2) 2015 Act.
  • Claimants should remember the importance of Part 36 offers, as the costs consequences may be particularly significant in the event that additional costs are incurred by the defendant raising allegations, which are not proved, of dishonesty.
  • At trial, if successful, the claimant may wish to ask for indemnity costs under Part 44, though if judgment is at least as advantageous as any Part 36 offer made by the claimant there will be an entitlement to indemnity costs, as well as other benefits, under Part 36 (unless that would be unjust).
  • A claimant who successfully resists allegations of dishonesty but fails to beat a Part 36 offer by the defendant may wish to argue the judgment obtained is “more advantageous” than the defendant’s offer and/or that, in the circumstances, the usual costs consequences under Part 36.17 would be unjust.

Claimants should not allow themselves to be intimidated by Defendants who allege fundamental dishonesty but tackle the allegations head on. If they are consistent with their instructions and always provide the full story there is no reason why their case should not be successful.

 

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