Staring dishonesty in the face
By Howard Cohen
1. Insurance fraud has become a significant problem in recent years, whether in the home insurance, holiday insurance or motor insurance markets. In 2013, the number of dishonest motor insurance claims rose by 34% compared to 2012. Action was needed.
2. It appears that we are now heading in the right direction. It is encouraging that in recent figures produced by the ABI for 2017, the number of overall detected dishonest insurance claims fell by 5% to 125,000 compared to the 2015 figure, however the number of detected insurance frauds (including fraudulent applications for insurance) was still 562,000. That equates to one detected insurance fraud every minute. Although the number of detected motor fraud and property claims fell by 4% during this period, there is no room for complacency as the value of those claims is still estimated to be around £1.3 billion. 2,400 fraudulent insurance claims (with a combined value of £25 million) are said to be thwarted every week.
3. It is certainly good news that organised fraud, such as crash for cash staged accidents have fallen by 30% since 2015, with 15,000 frauds valued at £174 million detected. This reflects the good work of the Insurance Fraud Bureau (IFB) and the Insurance Fraud Enforcement Department (IFED), a specialist police investigation unit. It appears that as a result of this, fraudsters are now diversifying into other areas, such as false food poisoning claims against overseas hotels and tour operators.
4. It is no surprise that the number of detected fraudulent claims has dropped in light of the substantial focus now placed upon this problem by insurers and those who represent them. Further, in the last few years, there has been a real change in the way in which the Courts have dealt with dishonest personal injury claims, with the introduction of more stringent tests of credibility and a wider range of more substantial punishments for those found to have been dishonest.
Dishonesty – What is it?
5. The now-settled test of dishonesty is set out by Lord Hoffmann in Barlow Clowes International Ltd v Eurotrust International Ltd  UKPC 37;  1 WLR 1476 @ 1479-80, in the following terms,
“Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If, by ordinary standards, a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.”
6. This definition was most recently rehearsed and approved in Ivey v Genting Casinos UK Ltd (T/A Crockfords Club)  UKSC 67, where Lord Hughes stated at paragraph 74,
“When dishonesty is in question, the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice, determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. Once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards or ordinary decent people. There is no requirement that the Defendant must appreciate that what he has done is, by those standards, dishonest.”
7. This test was further approved within the context of a claim under s.57 of the Criminal Justice and Courts Act 2015 (see below) in London Organising Committee of the Olympic and Paralympic Games (in liquidation) v Sinfield  EWHC 51 (QB).
8. Qualified one-way costs shifting (“QOCS”) was introduced as one of the many changes to the CPR that came into force on 1st April 2013 and is dealt with at CPR r44.13 to r44.17. Costs orders made against a Claimant bringing a PI claim cannot be enforced above the level of damages that are awarded to a Claimant save for where a specified exception applies. Fundamental dishonesty is one of these exceptions provided for in r44.16:-
“Exceptions to qualified one-way costs shifting where permission required
44.16 – (1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest”.
9. Practice Direction 44 provides the following guidance:
“12.4 In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –
(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;
(b) where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;
(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;
(d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.”
10. The fundamental dishonesty exception allows the court to enforce costs orders against Claimants, although the court is still left a discretion as to whether they are enforced and the extent to which they are enforced.
11. It is important to note that the claim needs to be found to be fundamentally dishonest, not the Claimant. Also the standard of proof is expressly the balance of probabilities.
S.57 of the Criminal Justice and Courts Act 2015 (‘CJCA’)
12. Section 57 of the CJCA places an obligation on courts to strike out personal injury claims which are found to be fundamentally dishonest upon application by Defendants:
“57 Personal injury claims: cases of fundamental dishonesty
(1)This section applies 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.
(3)The duty under subsection (2) includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest.
(4)The court’s order dismissing the claim must record the amount of damages that the court would have awarded to the claimant in respect of the primary claim but for the dismissal of the claim.
(5)When assessing costs in the proceedings, a court which dismisses a claim under this section must deduct the amount recorded in accordance with subsection (4) from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant.
(6)If a claim is dismissed under this section, subsection (7) applies to—
(a)any subsequent criminal proceedings against the claimant in respect of the fundamental dishonesty mentioned in subsection (1)(b), and
(b)any subsequent proceedings for contempt of court against the claimant in respect of that dishonesty.
(7)If the court in those proceedings finds the claimant guilty of an offence or of contempt of court, it must have regard to the dismissal of the primary claim under this section when sentencing the claimant or otherwise disposing of the proceedings.
(8)In this section—
“claim” includes a counter-claim and, accordingly, “claimant” includes a counter-claimant and “defendant” includes a defendant to a counter-claim;
“personal injury” includes any disease and any other impairment of a person’s physical or mental condition;
“related claim” means a claim for damages in respect of personal injury which is made—(a) in connection with the same incident or series of incidents in connection with which the primary claim is made, and (b) by a person other than the person who made the primary claim.
(9)This section does not apply to proceedings started by the issue of a claim form before the day on which this section comes into force.”
13. These new rules apply to claims issued on or after 12th April 2015 and apply to both claims and counterclaims. The consequence of a finding of fundamental dishonesty is that the court ‘must’ dismiss the claim “unless it is satisfied that the claimant would suffer substantial injustice if the claimant was dismissed” – s57(2). The whole claim must be struck out and not just the part which is founded on dishonesty – s57(3). That said, dismissal will only be considered on application by the Defendant and not on the court’s own accord – s57(1)(b).
14. Dismissal can only be made where “the court finds that the claimant is entitled to damages” s57(1)(a) and therefore it is likely to only be applicable where liability is admitted or judgment has been entered.
15. There is no definition of fundamental dishonesty within s.57 but it specifies that it can apply to a related claim, which will include supporting linked claims for phantom passengers. Clearly, s.57 does not apply to claims which have no PI element within them. Importantly the standard of proof is expressed as the balance of probabilities.
16. Where a claim is struck out under s57 the court will still have its work cut out as the genuine damages need to be assessed in case of any appeal and also so that they can be set off against the Defendant’s costs. If a claim is struck out under this section, the court must record the amount the claimant would have received for any genuine element of the claim had it not been dismissed. The claimant will be ordered to pay the defendant’s costs, but the amount recorded for the genuine element will be deducted from the amount that the claimant will have to pay. For the first judicial application of s.57, see Stanton v Hunter, LTL, 12/6/17.
17. As well as adopting the concept of fundamental dishonesty, s57 also introduces another term that is undefined: substantial injustice. It has been ruled that substantial injustice cannot simply be the fact that a Claimant is losing out on their claim, however, there is no further guidance as to what might amount to substantial injustice.
18. The powers under s57 in many instances will overlap with the existing powers that the courts were determined to have in Summers v Fairclough Homes  UKSC 26. In Summers the Claimant presented a claim of around £850,000 but the judge at trial determined that the genuine element was under £90,000 with the Claimant having been found on surveillance footage to have exaggerated the effect of his injuries. The Supreme Court found that the court did have jurisdiction to strike out the whole case as the fraudulent exaggeration of a claim was an abuse of process. However, this was expressed to be a power that should only be exercised in very exceptional circumstances. The Claimant’s claim was not struck out in Summers as it was found that he had still suffered a significant injury as a result of the Defendant’s breach of duty.
19. Section 57 is expressly stated to extend the previous position after Summers. In particular it will not be limited to exceptional cases.
20. Prior to s57, strike- out was only exercised in a few cases where the behaviour of the claimant was so egregious, for example:
• Admans v Two Saints Limited (2016) Swindon, HHJ Watson QC: Interlocutory application to strike out based on video and social media evidence inconsistent with claim. Claimant was a litigant in person, her solicitors having come off the record.
• Plana v First Capital East Ltd (2013) CLCC, HHJ Collender QC: Interlocutory application to strike out based on video evidence inconsistent with claim. Claimant was a litigant in person, his solicitors having come off the record (the committal proceedings failed as a criminal prosecution saw the Claimant not convicted).
• Fari v Homes for Haringey (2012) CCLC HHJ Mitchell: Grossly inflated claim, video evidence, trial on quantum, litigant in person.
So what is FUNDAMENTAL dishonesty?
21. The first major decision on fundamental dishonesty, now endorsed by the Court of Appeal, was Gosling v Screwfix Unreported, April 29, 2014 CC (Cambridge). Gosling is the type of case we see all the time, with the Claimant sustaining a genuine injury to his knee after an accident on a ladder causing him to require a knee replacement. The value of his pleaded claim was around £80,000. However, surveillance footage proved that, contrary to his pleaded case (and his presentation to the medical experts), he was not reliant on crutches, nor was he unable to do his own shopping. After disclosure of the surveillance, the Claimant accepted an offer from the First Defendant of £5,000 and discontinued against the Second Defendant.
22. The Second Defendant applied for its costs order to be enforced against the Claimant as an exception to QOCS because the claim was fundamentally dishonest. HHJ Maloney QC heard the application summarily without hearing evidence from the Claimant and found that the claim had been fundamentally dishonest as to the quantum aspects. Important guidance included the following:-
a. Where the dishonesty is incidental or collateral to the claim, it is not fundamental. A Claimant should not be exposed to a costs liability merely because of dishonesty as to some collateral matter or a minor, self-contained head of damage – §45;
b. Dishonesty that goes to the “the root of either the whole of his claim or a substantial part of his claim” is fundamental – §45;
c. The dishonesty in that case was felt to be fundamental to around half of the total claim in damage terms and therefore the claim was characterised as fundamentally dishonest;
d. It is not necessary for dishonesty to go to the root of either liability as a whole, or damages in their entirety.
23. That statement of principle has since been endorsed by Newey LJ in Howlett v Davies  EWCA Civ 1696;  1 WLR 948. In Howlett the Claimants appealed a decision that found their claims to be fundamentally dishonest so that QOCS were disapplied. As to whether fraud needs to be pleaded, Newey LJ held:-
“The present case raises the question of whether a trial judge can find that QOCS has been displaced because of “fundamental dishonesty” without fraud having been alleged in terms in the insurer’s defence…
30. Nor, as it seems to me, does paragraph 12.4 of Practice Direction 44 take things any further forward in the present context. As already mentioned, that states that the Court “will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at trial”. I do not think this means that, for one-way costs shifting to be displaced because of fundamental dishonesty, there need have been a pleading to that effect in the defence. The point of the provision is, I think, to indicate that such issues should generally be decided at the trial rather than some other stage, not to impose any pleading requirement. Paragraph 12.4 of Practice Direction 44 can be contrasted with paragraph 5.2 of Practice Direction 46, which provides:
“In general, applications for wasted costs are best left until after the end of the trial.”
31. 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. 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, 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, assuming that the relevant points have been adequately explored during the oral evidence, to state in his judgment not just that the claimant has not proved his case but that, having regard to matters pleaded in the defence, he has concluded (say) 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.
32. Further, 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.”
24. In summary Howlett states:-
a) In relation to QOCS, fundamental dishonesty need not be pleaded. Provided the grounds for later arguing that a claim is fundamentally dishonest are put in cross examination the Defendant can then argue the same;
b) The ratio in Gosling as to what makes a claim fundamentally dishonest is good.
25. Of course, when pleading fraud/dishonesty, there must still be “reasonably credible material establishing a prima facie case” (Lord Bingham in Medcalf v Mardell  3 WLR 172 @ para. 10).
26. The same definition of fundamental dishonesty applies under s57 – as confirmed by Knowles J in LOCOG v Sinfield  EWHC 51. In that case the Claimant injured his arm when working as a volunteer at the London Olympics in 2012. Liability was admitted and the Claimant claimed that the injury prevented him tending to his 2 acre garden and that he now needed a gardener. A claim for around £14,000 was submitted for gardening services. It was found at the end of trial that the Claimant had created false gardening invoices and been dishonest but that the dishonesty was not fundamental. On appeal Knowles J found that the gardening claim made up around 42% of the special damages claim (And 28% of the whole claim) and therefore was sufficiently fundamental and the entire claim was struck out under s57.
27. In Razumas v Ministry of Justice  EWHC 215 (QB) Cockerill J confirmed that “…it cannot in my judgement be right to say that substantial injustice would result in disallowing the claim where a claimant has advanced dishonestly a claim which if established would result in full compensation. That would be to cut across what the section is trying to achieve. As per Julian Knowles J in Sinfield “something more is required than the mere loss of damages to which the claimant is entitled to establish substantial injustice. Parliament has provided the default position is that a fundamentally dishonest claimant should lose his damages in their entirety even though… he is properly entitled to some damages…”.
28. Richards & McGrann v Morris  EWHC 1289 (QB) is another useful decision for defendants. Although a finding of fundamental dishonesty was not found, Martin Spencer J made some helpful comments about cases where there were a raft of inconsistencies. He urged against the “much too benevolent approach to evidence from Claimants which could be demonstrated to be inconsistent, unreliable and, on occasions, downright untruthful”. He also gave helpful commentary about CNF’s being important documents and inconsistencies in them should be taken seriously.
29. Wright v Satellite Information  EWHC 812 (QB) is a case where Yip J refused to overturn a trial judge’s refusal to make a finding of fundamental dishonesty. In that claim the trial judge dismissed the care claim but Yip J found that a finding of fundamental dishonesty was not bound to follow. The trial judge rejected the care claim because the evidence did not support it and not because they found the Claimant’s evidence to be dishonest.
30. Pinkus v Direct Line  EWHC 1671 (QB) is a recent example of a high value claim where fundamental dishonesty was found. The Claimant claimed that he suffered significant psychological symptoms as a result of an RTA and that he was incapable of working as a result. He claimed that he suffered from PTSD with dissociative symptoms causing difficulty with everyday functioning. His claim was pleaded at around £850k. HHJ Coe QC found that the Claimant exaggerated his symptoms and memory difficulties. He assessed general damages at £4,250 and special damages at £250. He found that the Claimant was fundamentally dishonest and that the Claimant would not suffer any substantial injustice beyond the loss of the valid part of his claim.
31. Molodi v (1) Cambridge Vibration Maintenance Service (2) Aviva Insurance Ltd  EWHC 1288 (QB) suggests a tougher judicial approach to dishonest claims. In that case, the His Honour Judge Main QC at first instance accepted a degree of exaggeration on the Claimant’s part but nonetheless awarded damages for both PI and repairs. On appeal, it was held that the multiple inconsistencies relating to the Claimant’s post-accident ability to work, his ongoing symptoms, his prior accident history and the exaggerated level of special damages claimed (£1,300 as against £400 actually paid out) all pointed to fundamental dishonesty. “Of course, I recognise that Claimants will sometimes make errors or forget relevant matters and that 100% consistency and recall cannot reasonably be expected. However, the courts are entitled to expect a measure of consistency and certainly, in any case where a Claimant can be demonstrated to have been untruthful or where a Claimant’s account has been so hopelessly inconsistent or contradictory or demonstrably untrue that their evidence cannot be promoted as having been reliable, the court should be reluctant to accept that the claim is genuine or at least, deserving of damages.”
32. Other County Court examples of what does and doesn’t amount to fundamental dishonesty include:
a) Zimi v London Central Bus Co Ltd Unreported, January 8, 2015 CC (Central London) the Claimant alleged that his car was hit by a bus that had encroached into his lane. On the basis of CCTV evidence it was found that there had not been a collision and even if there had been it was caused by the Claimant’s car as the bus was stationary at the time. It was held by DJ Madge that the claim had been dishonest. He noted that fundamental dishonesty went to the core of the claim and had to be crucial to it. DJ Madge rejected the submission that the claim had been brought in mistaken belief and found that there had been fundamental dishonesty.
b) Creech v Apple Security Group Ltd & Others Unreported, March 23, 2015 CC (Telford) is another case where the court did not accept the Claimant’s version of an accident and fundamental dishonesty was found. The Claimant alleged that he fell over a pile of mats left as a hazard on a railway station concourse but the court did not accept that he was right about his recollection. DJ Rogers found that the Claimant must have known the case he advanced was incorrect and was plainly against the weight of the evidence and therefore that the claim was fundamentally dishonest. Here, the QOCS exemption was applied in favour of the Defendant who had filed a costs schedule but not in favour of another Defendant who had not. This provides a warning even in a QOCS case to file a schedule where there is a potential finding of fundamental dishonesty at the end of the trial.
c) The case of Zurich Insurance Plc v Bain, Unreported, June 4, 2015 CC (Newcastle) involved a claim where the district judge found that the claimant had suffered no injury after a minor collision, despite claiming that he had. In that case the claimant was recorded telling the defendant insurers that he suffered no injury but then was cold called by a claims management company and brought a PI claim. He also did not tell the GP expert about previous back pain. The claim was dismissed at first instance but fundamental dishonesty was not found and therefore QOCS still applied. This was overturned on appeal with HHJ Freedman finding that fundamental dishonesty did not “cover situations where there is simply exaggeration or embellishment…[but that] this is serious dishonesty and it is difficult to imagine a case where it is more central to the claim than it was here”.
d) Fundamental dishonesty could not be found in Brahilika v Allianz Insurance Plc, Unreported, July 30, 2015 CC (Romford) because the claimant did not attend to be cross examined in a case where the defendant was disputing that an accident took place at all. However, the judge enforced costs on the basis that failure to attend trial was likely to obstruct the just disposal of the proceedings which included the defendant’s opportunity to cross examine the claimant to establish a case on fundamental dishonesty.
e) In Rouse v Aviva Insurance Ltd, Unreported, January 15, 2016 CC (Bradford) on appeal it was held that the procedure in conducting r44.16 applications was in the judge’s discretion. A judge could decide to hold a trial, a limited inquiry or reach a decision on the papers. An adverse inference could be drawn from a claimant’s failure to provide a reason for discontinuance.
f) Diamanttek Ltd v James, Unreported, February 8, 2016 CC (Coventry) is an appeal decision by HHJ Gregory. That involved a NIHL claim where the claimant was found to have lied about whether he was provided hearing protection for a number of years. The trial judge at first instance concluded that the claimant had not been telling the truth during the hearing but dismissed an application for a finding that the claim was fundamentally dishonest. On appeal HHJ Gregory stressed that it is the claim that needs to be fundamentally dishonest and a judge did not need to categorise a claimant as a dishonest person to uphold such an application. In this case one of the key parts of the claim was that the claimant was not provided with ear protection and so there should have been a finding that the claim was fundamentally dishonest.
33. If there is reason to be suspicious about the genuineness of a claim, then the following should be borne in mind:-
a. Although fundamental dishonesty need no longer be pleaded to be argued at trial (Howlett), a robust defence setting out a Defendant’s best points constitutes a very effective warning to a dishonest Claimant;
b. Where a Claimant has a crowded pre-accident medical/claims history, there is much to be gained by applying for specific disclosure of particular documents, ie: medical notes, medico-legal reports, details of settlements etc;
c. Where a suspected dishonest Claimant has multiple occupants in his/her vehicle who have also intimated claims, efforts should be made to ensure that these are all case managed and heard together to flush out all issues simultaneously;
d. Social media searches/surveillance;
e. Should the matter reach a final hearing, costs schedules should be prepared (Creech);
f. If a finding of fundamental dishonesty is made following a trial, is there any appetite to apply for permission to bring contempt of court proceedings under CPR 81?
34. Finally, in the event that a Claimant discontinues shortly before trial, presumably to avoid a fundamental dishonesty finding against him/her, a Defendant may still apply for such a finding in order to recover costs under the exception to QOCS (para. 12.4(c) of PD44). A Court will then consider whether to direct a hearing to consider the specific allegation of fundamental dishonesty, either on the papers or in person (Rouse). Whether a hearing takes place and in what form depends upon proportionality, justice and the overriding objective.
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