Fundamental dishonesty: The complete package
Fraud Aware Issue 4
The introduction of the s57 Criminal Justice & Courts Act 2015 (CJCA) in April this year saw the completion of the package of reforms aimed at enabling courts to more effectively tackle claims in the personal injury arena that are found on balance of probabilities to be ‘fundamentally dishonest’.
However, with recent focus on s57 it is perhaps forgotten that there are already provisions in force that utilise the concept of fundamental dishonesty, namely Part 44.16 CPR, which permits the court to set aside QOCS protection in cases that are found to be fundamentally dishonest.
For insurers to obtain the most benefit from these provisions it is vital that the provisions themselves, and the circumstances in which they can be deployed, are fully understood. Whilst both rely upon the nebulous concept of fundamental dishonesty they are in fact separate and distinct regimes, with very different outcomes, particularly in terms of costs.
The two regimes are:
- Setting aside QOCS protection on grounds of fundamental dishonesty. This is governed by CPR 44.16 and enables the court to set aside QOCS protection on litigated personal injury claims deemed fundamentally dishonest, enabling a defendant to recover costs from the claimant. Fundamental dishonesty in this context is purely a costs sanction enabling costs recovery where QOCS would otherwise apply.
- Striking out a personal injury claim under s57 Criminal Justice & Courts Act (2015) as fundamentally dishonest either in itself (the Primary Claim), or by virtue of the claimant supporting the presentation of a fraudulent claim of another (a Related Claim). Unlike CPR 44.16, this limb of the fundamental dishonesty regime enables the court to strike out the entire claim. Indeed, under s57 the court must strike out the entire claim on application of the defendant if, on balance of probabilities, the claim is deemed fundamentally dishonest. The only exception is where the court considers that striking out the entire claim would cause substantial injustice to the claimant. However, s57 only applies to litigated claims where the claim form was issued on or after 15th April 2015 so cannot be applied retrospectively to pre-existing litigation. Section 57 equally does not apply to all fraud types – it applies only where there are otherwise genuine aspects to the claim and damages would have been awarded had it not been for the exercise of s57.
Although both of these options fall under the fundamental dishonesty regime, there are some key differences in terms of costs recovery.
Whilst a successful application under CPR 44.16 enables a defendant to recover its full costs from the claimant, this is not the position under s57. In the latter, where a claim is struck out as fundamentally dishonest under s57, the court must make a notional assessment of damages that would have been awarded were it not for the claim being struck out - with that notional damages assessment being used to calculate the costs recoverable by the defendant. The notional damages are deducted from the defendant’s assessed costs and the defendant is only able to recover the balance – at the very least reducing the sum that a successful defendant can recover in costs from the claimant, and in cases where the notional damages are higher than the defendant’s costs, essentially reducing the costs recoverable to nil.
S57: Unsatisfactory costs consequences?
A key consideration that must be considered in assessing the overall merits of the fundamental dishonesty regime is the contrast between costs implications of a finding of fundamental dishonesty under CPR 44.16 as compared to an equivalent finding under s57 CJCA.
Where an application under CPR 44.16 is successfully made, and QOCS protection is set aside on the grounds of the claimant’s fundamental dishonesty, then a defendant is entitled to enforce a costs order to the full extent of the costs awarded.
However, if a defendant’s s57 application is successful, then the notional damages calculation made by the court will be utilised in determining the claimant’s costs liability to the defendant. Under s57(5) the claimant will only be ordered to pay the costs over and above the extent of damages that would otherwise have been awarded.
To illustrate this point consider the following examples:
The claimant was the driver of a vehicle in which there were no passengers, and yet claims from three alleged passengers are presented. The claim proceeds to trial and the defendant makes a successful application under s57 to dismiss the whole of the Primary Claim due to the claimant’s fundamental dishonesty in supporting the fraudulent Related Claims. The claimant’s notional damages are assessed at £5,000. The defendant’s costs are assessed at £10,000.
In applying s57(5) to this scenario, the claimant would only be ordered to pay the defendant costs over and above the notional damages calculation. A simple sum (£10,000 - £5,000) shows that the claimant would only be ordered to pay the defendant £5,000 in costs. The defendant would have to bear the remainder of its own costs, in this scenario recovering only 50% of its costs from the claimant, despite the claim having been dismissed entirely as fundamentally dishonest.
In the same circumstances, the claimant’s damages were notionally assessed at £10,000 whereas the defendant’s costs were assessed at £5,000. In this scenario, in off-setting the damages against the costs (£5,000 - £10,000) it is clear that the defendant’s costs would be extinguished. The claimant would therefore pay no costs to the defendant, despite the claim having been dismissed in its entirety as fundamentally dishonest.
In the same circumstances, the claimant was the alleged bogus passenger. The matter proceeds to trial and the court accepts the defendant’s evidence that the claimant was not present, dismissing the claim. The defendant makes a successful application under CPR 44.16 to set aside QOCS protection, and the defendant’s costs are assessed at £10,000. In this scenario the defendant can enforce the full extent of the £10,000 costs order against the claimant.
How we can help:
The volume of claims in which the courts are now making findings of fundamental dishonesty is growing by the day, and the use of the fundamental dishonesty regime is now essentially part of ‘business as usual’ fraud handling.
Our handlers will therefore identify all appropriate opportunities to pursue a case of fundamental dishonesty. On pre-litigation matters, we will ensure that our repudiation letters advise the claimant’s solicitors that should they proceed to litigation then we shall defend the proceedings and seek to apply an appropriate fundamental dishonesty sanction. On claims that proceed to litigation, we will ensure that fundamental dishonesty is pleaded in all appropriate claims, and that a sanction is secured under either CPR 44.16 or s57 CJCA.
A copy of our ‘Fundamental dIshonesty: The complete package publication is now available for clients, please contact Chris Holmes (firstname.lastname@example.org).