January 26, 2018

Questions remain after High Court offers guidance on section 57 Fundamental Dishonesty

The High Court has provided guidance how section 57 fundamental dishonesty will be addressed by the courts, but questions remain on how the provision should be applied on a case by case basis.

The dispute concerned what was ultimately found by the High Court to be a dishonest claim for gardening services in the sum of approximately £14,000 (representing 28% of the whole claim or 42% of the special damages claim).

In the first instance, Mr Recorder Widdup had found that the Claimant had initially been muddled and confused rather than dishonest,  although he accepted the Claimant's witness statement (and invoices he had manufactured himself) claiming for services required as a consequence of the incident had been dishonest.

Thereafter, it fell to be decided if this dishonesty would be considered fundamental and therefore (subject to the exception of substantial injustice) lead to the claim being struck out.

Recorder Widdup found the dishonesty was not fundamental and even if it was, the escape clause of substantial injustice would apply.

The indication was that this was because the gardening claim was seen to be peripheral to the claim for personal injury.

On appeal, Mr Justice  Knowles provided interesting guidance on the issues around Section 57 of the Criminal Justice and Courts Act.  He rejected the assertion that the Claimant had been muddled and confused, and found that the dishonesty had run through the course of the claim.

More importantly, he found that as dishonesty had been proved (based on the test established in Ivey –v- Genting Casinos Ltd) the question to be addressed was whether or not that dishonesty "substantially affected the defendant in a significant way."

Substantial effect would be considered on a case by case basis, but the suggestion is that it was meant to echo the comments in Gosling –v- Screwfix as a deception that goes to the root or heart of the claim.

The argument that the greater part of the claim was honest was irrelevant for the purposes of fundamental dishonesty; the indication given is that as long as the dishonest head of loss is not peripheral, then the entire claim will be struck out.

Justice Knowles also made the important point that substantial injustice and fundamental dishonesty were separate and discrete concepts and that for substantial injustice to apply, it must mean more than a claimant simply losing his damages (echoing the reasoning of Recorder Hatfield in Stanton –v- Hunter).

Analysis

The following key criteria for establishing fundamental dishonesty within the meaning of section 57(1)(b) can be taken from the judgment:

  • Having regard to the particular facts and circumstances of the claim, if a defendant can prove, on balance, that a claimant has been dishonest in respect of the primary claim and/or a related claim in a manner which substantially affected the presentation of that claim, and potentially adversely affected the Defendant in a significant way, then the claim should be found to be fundamentally dishonest;

Mr Justice Knowles found:

  • The dishonesty was "premeditated and maintained" over a lengthy period, and was only uncovered by the Defendant's investigations.
  • As was the case in Stanton –v- Hunter, the repetition of the lie seemed to factor into the judges thinking on the question of dishonesty (if not on the issue of whether that dishonesty was fundamental).;
  • The special damages claim was substantial, and the largest head of loss was supported by false invoices and a dishonest witness statement provided by the Claimant.
  • On that basis, it would be difficult to argue that it was peripheral, although it is not a stretch to suspect that there would be a cut-off point at which the dishonesty would not have been fundamental.
  • The interesting question that arises is, had the gardening claim been inflated rather than wholly fictitious, would that have led to a different outcome? The judgment would suggest not, but it will be a point that is likely to be considered by the Courts at some stage.
  • The Defendant was left in a position where it could only have made settlement offers based on the incorrect valuation;
  • The fact that the Claimant reduced the claim after he was presented with the evidence did not save him (as was the case in Stanton).

Mr Justice Knowles went on to state that the trial judge was incorrect to suggest the dismissal of a claim in its entirety resulted in "substantial injustice", as it would render section 57(3) redundant.  A claimant indirectly receives credit for the genuine part of his claim, by having this sum offset against costs awarded to the defendant on dismissal.

From a tactical perspective, the following points are worth considering in claims from now on:

  1. The question of why this head of loss was deemed to be substantial is an interesting one. The previous best guidance prior to this case came from Gosling –v Screwfix and referred to dishonesty that went to the "heart" or "root" of the claim. One school of thought suggested that Section 57 would be triggered if the overall claim was more dishonest than honest; setting the threshold at around 50%. The judgment in LOCOG v Sinfield suggests that is not the case and a lower threshold is to be applied.
  2. It is worth noting that this head of special damages was the largest head of special damages, although it was as significant as the agreed general damages of £16,000;
  3. It was not the case that the head of loss was inflated; it was more or less entirely fabricated.Would an inflated loss have been treated in the same manner?
  4. Do insurers have Part 36 offers open that the Claimant might wish to accept once evidence of dishonesty is advanced? It may be the case that a shrewd claimant representative takes instruction to accept an offer out of time - if the claim is now at risk of being found to be fundamentally dishonest;
  5. The Claimant's efforts to minimise his actions by making a substantial reduction to his gardening claim in an amended schedule before the final hearing had no influence on the decision- similar to Stanton -v- Hunter.
  6. Repetition of the lie was clearly an influence in the decision, given that the dishonesty was found to be premeditated.

What next?

The judgment of Mr Justice Knowles provides some much needed direction on how courts are expected to consider the issue of fundamental dishonesty.  However, this judgment was only achieved after the expense of a trial and appeal.

Having secured the landmark strike out of a fundamentally dishonest high value claim last year, Clyde and Co have been trialling an initiative to defeat exaggerated injury claims using the Section 57 procedure without the need to proceed to trial.  We will be reporting on the successes achieved to date in the near future… watch this space!