An update on fundamental dishonesty: the application of QOCS

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What is fundamental dishonesty? Tiger country or muddle ?

The application of QOCS

Qualified one-way costs shifting (QOCS) was introduced in April 2013 providing that a losing claimant has no liability for costs except in limited circumstances which are contained within CPR 44.15 and 44.16. One such exception is where the claim is found “on the balance of probabilities to be fundamentally dishonest”. In such cases the court must make a finding of fundamental dishonesty and the court’s permission is then needed to enforce any order made for costs. But what is fundamental dishonesty? Tiger country or muddle ?

What is fundamental dishonesty?

What constitutes fundamental dishonesty has been left to the discretion of the court with no definition provided within the CPR.

The first case to deal with the issue was Gosling v Screwfix Direct Ltd (unreported, HHJ Moloney QC, Cambridge County Court, 29 March 2014) where the claimant was alleged to have significantly exaggerated the extent of his injuries. The claimant discontinued his claim against Screwfix, who then applied to enforce the deemed order for costs following discontinuance, on the basis of the claimant’s fundamental dishonesty.

The court found that fundamental dishonesty had to be given a contextual meaning. “Incidental” or “collateral” dishonesty was not fundamental; dishonesty that went to the “whole or a substantial part” of the claim was required.

In Gosling, although it was accepted that the claimant had suffered injury, he recovered only half of the damages sought because he had exaggerated the extent of his injury. His conduct was considered dishonest and designed to deceive. The dishonesty did not have to affect the whole of the claim to be fundamentally dishonest. It was sufficient that it affected a substantial part of the claim.

A detailed discussion of Gosling can be found here.

A number of other first instance decisions have since followed. It remains the case however that the defendant must apply to the court for an order under CPR 44.16 (1) when it seeks to rely upon fundamental dishonesty.

The Criminal Justice and Courts Act 2015

The Criminal Justice and Courts Act 2015 came into force on 13 April 2015. Section 57 of the Act applies to all personal injury claims issued after the Act was implemented and allows a defendant to seek dismissal of a claim on the basis of fundamental dishonesty.

It is important to note the following when seeking to utilise section 57:

  • The definition of a personal injury claim includes “disease and any other impairment of a person’s physical or mental condition”.
  • Section 57 applies only where the claimant has an entitlement to damages. If liability has not been admitted or the claimant fails on liability, the defendant cannot seek an order under the Act, although CPR 44.16 (1) continues to afford the defendant an alternative route to costs recovery.
  • The claimant must be found to have been fundamentally dishonest in relation to the “primary claim” (his own claim) or a “related claim” (a personal injury claim made by another person which stems from the same incident or series of incidents).
  • As under CPR 44.16, the balance of probabilities standard of proof applies.
  • The court does not have to dismiss the claim where it finds that dismissal would result in a “substantial injustice” to the claimant. Substantial injustice is not defined but it is likely that dishonesty considered to be of a minor nature against the backdrop of a large claim will not be sufficient for the defendant to successfully seek an order under the Act.
  • Where the court finds that there has been fundamental dishonesty the entire claim is struck out, not just the dishonest element.
  • The court must record the amount of damages it would have awarded had the claim not been struck out. That sum is then deducted from the costs order made in favour of the defendant. By way of example:
    • Had the claim not been dismissed the claimant would have received £12,500
    • The defendant’s costs are assessed at £20,000
    • The court makes a costs order in the defendant’s favour of £7,500

The benefit of recording the sum that would have been awarded is not just to allow calculation of the set off against the defendant’s costs, but will also assist where there is an appeal of the decision by the claimant and will assist any court which later deals with criminal or contempt proceedings (see below).

It is unclear what costs order would be made where the damages which would have been awarded are greater than the defendant’s assessed costs. The explanatory notes to the Act do not deal with this issue.

It is also unclear whether any CRU (Compensation Recovery Unit) liability which would have been repayable to the DWP (Department for Work and Pensions) would also be classed as part of the damages award.

  • If the claimant is later found guilty of a criminal offence or contempt of court in respect of a claim that was dismissed under section 57 of the Act, the court must have regard to the dismissal of the claim when sentencing the claimant or otherwise disposing of the proceedings. This requirement is to ensure any later punishment is proportionate.
  • Fundamental dishonesty also applies to counterclaims relating to a personal injury claim.

It remains unclear at what stage the defendant must raise the issue of fundamental dishonesty or whether it needs to be formally pleaded. Often it is not immediately obvious that the claimant has been dishonest when a letter of claim or claim notification form is received.

Summary

The prudent defendant may seek to allege fundamental dishonesty as soon as there is sufficient evidence to suggest that the claim as a whole is dishonest or that some element of it is (for example by exaggeration or malingering) and where liability is in issue, to advance arguments under both CPR 44.16 (1) and section 57 of the Criminal Justice and Courts Act 2015.

Without a statutory definition of fundamental dishonesty, defendants have little option but to weigh up whether the dishonest element of a claim is greater than the honest element on a case by case basis or to look at matters in purely numerical terms. For example, where 50 per cent of the value of a claim is considered unsupported by evidence (as was in Gosling), fundamental dishonesty should be alleged but not where only 10 per cent is unsupported.

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