Regular readers know that we at 1CL take our obligations to our public very seriously, rushing to educate and inform you as soon as we become aware of anything you may need or wish to know. We’re the same in practice, of course; let it not be said that a judge has ever had cause to criticise us for missing a deadline. So it was with a degree of smugness that we read the judgment of the Court of Appeal in Natwest Markets Plc v Bilta (UK) Ltd (In Liquidation)  5 WULK 66, a case concerning allegations of dishonest assistance and knowing participation in fraudulent trading. The original High Court trial had taken place in the summer of 2018, with judgment reserved and eventually handed down on 10th May 2020. The Court of Appeal took a dim view of the 19 month delay between trial and judgment, ruling that it was ‘plainly inexcusable’. It went on to observe that although delay alone was insufficient as a ground for setting a judgment aside, and that ordinarily, where a party appealed against findings of fact based on an assessment of credibility the appeal court would show considerable deference to the trial judge, who had the advantage of seeing and hearing the witnesses. However, in this case any advantage enjoyed by the trial judge in having seen the witnesses diminished in importance as a consequence of the lengthy delay. Further, in his judgment he had not mentioned the contemporaneous documentary evidence, which was supportive of the accounts given by the witnesses whose evidence he had rejected. In the circumstances, the case was remitted to another High Court Judge for determination.
Interim Payments: How Do They Work?
In PAL v Davison  EWHC 1108 (QB) Yip J considered an application for an interim payment in a catastrophic injury claim. The Claimant, a young girl, had received payments totalling over £1 million and sought a further £2 million for the purchase and adaptation of a property for her long-term accommodation. The severity of the Claimant’s brain injury meant that she would be unlikely to ever regain real independence, and would always require carers for all activities of daily living.
Yip J cited Eeles v Cobham  EWCA Civ 204 as summarising the correct approach to interim payment applications. In that case, Smith J explained that the court’s first task is to assess the likely amount of final judgment on a conservative basis, and to award a reasonable proportion of that sum. Elaborating on this, Yip J held that in doing so a judge “should not […] embark upon a mini-trial or seek to determine issues which are properly left to the trial judge.”
Yip J then addressed the “thorny issue” of whether this first stage involves assessing the likely special damages to trial, or only to the date of the interim payment application. Yip J held that the starting point would remain that the court would look at special damages “to date”, but allowed that “there will be many instances where it is entirely appropriate in making the conservative assessment at the first stage to bring in special damages which have not yet accrued but will do so before trial […] The objective is not to keep the claimant out of his or her money but to avoid the risk of overpayment”. Examples of where the court could be confident that special damages yet to accrue would form part of the likely lump sum included an ongoing claim for loss of earnings, or the provision of gratuitous care expected to continue to trial.
Yip J noted that the court could not bring in the likely costs of care and other needs to trial when addressing an application for a payment for accommodation. Doing so would prejudice future applications for interim payments for those care costs. Considering the issue of accommodation, and the likely general damages, Yip J found a reasonable proportion of a conservative estimate for those heads of loss to be £2 million.
Considering stage 2, at which the judge was to consider whether there is a real need for the interim payment sought, Yip J found that there was an “urgent need” to secure suitable accommodation for the Claimant. The Claimant’s current accommodation was unsuitable, and she would not be able to remain there for more than 12 months. Refusing to make the payment would lead to disruption, stress, and wasted expenditure. The Defendants had had to concede that they could not put forward any viable alternative available property.
The question of what will be an appropriate interim payment will be heavily fact specific to each case. It will usually begin with a careful analysis of the evidence of a Claimant’s medical, care, and accommodation needs, depending on the purpose for which the payment is sought. In what are often sensitive cases, the courts welcome and encourage a relatively co-operative approach between the parties. Determining a reasonable proportion of a conservative estimate of damages inevitably involves a degree of uncertainty, but the court will not conduct a mini-trial and will simply seek to do the best it can in a necessarily broad brush (albeit conservative) approach.
About the Author
Called in 2011, prior to pupillage Conor Kennedy spent two years working with a leading insurance law firm, gaining experience across regulatory, employment, leisure, travel and public sector teams. He has a varied civil practice and is accredited for Direct Access instruction, but has a particular interest and expertise in claims involving fundamental dishonesty.
Fundamental Dishonesty: How Does it Work?
The consequences of a finding of fundamental dishonesty can be devastating to an unwary litigant, but the exact mechanics are not always as well understood as they ought to be.
There are, in fact, two related but distinct types of fundamental dishonesty finding- one, under s.57 of the Criminal Justice and Courts Act 2015, allows for the striking out of an otherwise successful personal injury claim; another under CPR 44.16(1) is relevant to costs irrespective of whether or not the claim succeeds. The relevant tests, and the ensuing consequences, are surprisingly different.
What Exactly is Fundamental Dishonesty, Anyway?
Fundamental dishonesty, as a concept, means the same the same thing whichever of these two types of finding is engaged.
It was defined in Locog v Sinfield  EWHC 51 as dishonesty which has
62… substantially affected the presentation of [the] case, either in respects of liability or quantum, in a way which potentially adversely affected the defendant in a significant way, judged in the context of the particular facts and circumstances of the litigation.
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. When 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 of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
In practice, this is likely to apply to a Claimant who exaggerates or fabricates injury, or falsifies evidence to support his claim in respect of liability or quantum, or who lies to a key witness. The evidential requirement is the balance of probabilities, though as with any allegation of fraud, a high standard of evidence is likely to be expected. Mere discrepancies in medical records, for example, are not likely to be sufficient- see e.g. Bell v London Borough of Havering  EWCA Civ 689.
Type One: Dismissing the Claim
Section 57 CJCA 2015 applies to personal injury claims issued after 13th April 2015.
It applies only to a successful claim, i.e. one where the Claimant (including a counterclaimant) shows that he or she is entitled to damages arising from personal injury.
The consequences in such proceedings will flow if the court finds on balance of probabilities that the Claimant has been fundamentally dishonest in relation to this claim or a related claim (e.g. as a witness in proceedings arising from the same incident).
The consequences are:
- The court must dismiss the whole claim (s.57(2)), including any parts of it which were not dishonest. (s.57(3)).
- The above does not apply if the court is satisfied that the claimant would suffer “substantial injustice” (s.57(2)). The latter will be rare. It is not clear what be sufficient, but the mere fact that any dishonesty was disproportionate to the loss is not sufficient, see e.g. Razumas v Ministry of Justice  EWHC 215 (QB).
- The court must record what level of damages would have been awarded but for the dismissal of the claim (s.57(4)). Assuming that a costs order is made in favour of the Defendant (see below) that amount must be deducted from that order (s.57(5)).
- If there is a finding of contempt, or if there are later criminal proceedings (s.57(6)) the court must take into account the dismissal of the head claim in sentencing (s.57(7)).
Type Two: Defendant’s Costs
In normal circumstances, an unsuccessful Claimant does not pay the Defendant’s costs in a claim for personal injury or under the Fatal Accidents Act 1976 where those proceedings are issued after 1st April 2013 as a result of Qualified One-Way Costs Shifting (“QOCS”). Introduced following the Legal Aid, Sentencing and Punishment of Offenders Act 2012, the current rules are as set out in CPR 44.13-44.17.
The exact mechanism is complex. It is described in CPR 44.14(1): an order for costs may be made against a Claimant, but:
- May only be enforced as of right to an amount not exceeding the Claimant’s damages (i.e. if the Claimant has failed entirely, not at all); unless the claim has been struck out for specific reasons set out in CPR 44.15.
- With the permission of the court.
That permission will only be granted in certain circumstances. One of these, as set out in CPR 44.16(1), is where the claim has been fundamentally dishonest. This, of course, is quite different to s.57 dishonesty as described above.
Assuming a Claimant is caught by CPR 44.16, what this means in practice is that the Claimant will lose his or her QOCS protection and becomes vulnerable to enforcement of an order in respect of the Defendant’s costs.
In principle, this remains discretionary- the costs “may” be enforced with the court’s “permission”. It is admittedly difficult to envisage a court not granting such permission having found a claim to be fundamentally dishonest, except in the most unusual circumstances, though as this may arise following fundamental dishonesty on the part of someone other than the Claimant, the obvious scenario might be, for example, where the dishonesty was on the part of a litigation friend or an expert.
It gets worse (for which, read “more expensive”). Pursuant to CPR 45.29F(10), the Defendant in these circumstances is not confined to fixed costs ordinarily payable under, say, the Low Value RTA protocol. This means that those costs will be calculated on an hourly rate, and will likely be assessed on the indemnity basis.
It may be a surprise to many practitioners that the requirements for these two provisions are actually very different:
- The dishonesty for the purposes of CPR 44.16 need not be that of the Claimant him or herself, whereas it must be for s.57.
- CPR 44.16 dishonesty need only relate to “the claim”, i.e. this set of proceedings. Thus, fundamental dishonesty on the part of a third party in the proceedings (such as a witness) will suffice for the purposes of QOCS, but will not lead to the striking out of the claim.
- Looked at another way, CPR 44.16 dishonesty must relate to the instant proceedings. A claimant who is fundamentally dishonest as a witness in a related claim, but not in respect of his or her own claim, is not at risk of the disapplication of QOCS.
- CPR 44.16 dishonesty need not arise in the context of an otherwise successful claim, this applies only to s.57. Most obviously, this means that there may be no offsetting of potential damages against a Defendant’s costs.
- The “substantial injustice” exception in s.57 does not apply to CPR 44.16. However, there may be substantial overlap between the exercise of the court’s residual discretion and this exception in any event.
- The consequences of s.57 fundamental dishonesty are mandatory except in cases of substantial injustice, whereas the application of CPF 44.16 is always discretionary.
Careful argument in unusual cases could take advantage of this:
- Suppose a Claimant advances a genuine claim which is exaggerated (without the Claimant’s knowledge) by a third-party physiotherapist who exaggerates his fees. In that case, the claim is dishonest, but the claimant is not. The claim could not be struck out under s.57; and while in principle the Claimant may lose his or he QOCS protection, costs are likely to follow the event and the Claimant is unlikely to face adverse consequences.
- Similarly, a Claimant who lies as a witness in a related claim but does not in his own claim will not lose QOCS protection in his own claim. If that claim fails, s.57 is not engaged and there may be no financial consequences for the Claimant (though of course they may be found in contempt).
- A Defendant might look for signs of fundamental dishonesty other than in respect of the Claimant- for example, of a witness- to deprive the Claimant of QOCS protection even if dishonesty on the part of a Claimant is not suspected.
Does Fundamental Dishonesty Need to be Pleaded?
In short, no, so long as the Claimant has had adequate notice of the allegation. Per Howlett v & Anor  EWCA Civ 1696:
31… 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.
This generally means that there is no need to amend proceedings to include a pleading of fundamental dishonesty if it is later suspected- see Mustard v Flower & Ors  EWHC 846 (QB).
Given the professional duty to avoid unsubstantiated pleadings of fraud, and the risk of indemnity costs against an insurer if fundamental dishonesty allegations are not made out at trial, a Defendant may be cautious about pleading it at all unless there is very clear evidence from the outset, but may instead consider raising the issue in correspondence and/or a witness statement if that evidence emerges later.
Other Potential Consequences
A person in respect of whom a finding of fundamental dishonesty is made faces a real possibility of contempt proceedings, either of the court’s own initiative or following application in the head proceedings under CPR 81. This carries with it a very real risk of imprisonment, see, for example, Calderdale & Huddersfield NHS Trust v Atwal  EWHC 961 (QB).
The standard of proof in contempt proceedings is criminal (i.e. beyond reasonable doubt) but a court may record that it is persuaded of the dishonesty to that standard; as in Aviva v Kovacic  EWHC 2772 (QB), which pre-empts such an application.
A court also has a wide range of other powers- it can refer, or direct a party to refer, the person found to be fundamentally dishonest to a regulatory body such as the FCA, SRA, or CQC (if for example a relevant professional was found to be fundamentally dishonest); or to a government department such as the DWP for review (if, for example, exaggeration of disability gave rise to a false entitlement to benefits). Plainly, the consequences for an individual could be devastating.
About the Author
Robert Parkin was called in 2009. He has a mixed civil practice, including in the area of travel and cross-border claims. He was junior drafting counsel in Barclay-Watts & Others v Alpha Paraneti & Others  HQ11X02379, a substantial cross border dispute involving mis-selling of holiday lets in Cyprus.
We were interested to read that, according to the Insurance Fraud Bureau, Birmingham has more cases of crash-for-cash car insurance fraud than any other area in the UK. The research, conducted between October 2019 and the end of 2020, identified more than 170,000 separate incidents linked to suspected cash-for-crash networks. We had no idea these people were so prolific! With a work ethic like that, they could almost get work at the Bar.