Fundamental dishonesty strike out

Section 57 of the Criminal Justice and Courts Act 2015, which received Royal Assent in February this year, provides that if, on an application by the defendant, an otherwise successful claimant is found on the balance of probabilities to have been ‘fundamentally dishonest’ in relation to their claim or a related claim, that claimant’s claim must be dismissed unless the court is satisfied that the claimant would suffer substantial injustice.

The stakes are higher than they first appear. If found guilty of fundamental dishonesty, not only will a claimant recover no damages but they also will lose the costs protection offered by qualified one-way costs shifting (QOCS), as a court finding fundamental dishonesty for the purposes of section 57 will almost certainly find it for the purposes of Civil Procedure Rules 44.16, which allows for the displacement of QOCS costs protection, too.

So, then, when is dishonesty fundamental?

Significantly exaggerated claims

The legislation applies to situations such as that which arose in Fairclough Homes v Summers [2012] UKSC 26 – the significantly exaggerated claim. Mr Summers had claimed £838,616 initially, before later revising his claim to £250,923. At trial, he was awarded £88,716.76. The Supreme Court held that in such cases there was a discretionary power to strike out the case in its entirety, thereby depriving the claimant of any damages. However, the court emphasised that the use of the power should be reserved to very exceptional cases in which it was just and proportionate. It indicated that other sanctions, such as indemnity costs and proceedings for contempt, ought to be the more readily adopted method of deterring dishonest claimants.

Section 57 fundamentally alters this approach. Under the common law, it is for the defendant to convince the court to exercise its power; under the proposed section 57, the court must strike out unless convinced that doing so would cause the claimant ‘substantial injustice’. In other words, the court can no longer refuse to exercise its power because it is not just or equitable.

‘Incidental’ dishonesty

As was seen in the case of Gosling v Screwfix (unreported, Cambridge Country Court, 29 March 2014), the court was prepared to hold that exaggeration that effectively doubled the claimed value of a case was ‘fundamentally dishonest’ for the purposes of QOCS.

The judge held that the term ‘fundamentally dishonest’ had to be given a purposive and contextual meaning. In this respect, he posed the question he had to answer, in broad terms, as being whether the claimant was deserving of the costs protection extended to him for reasons of social policy by QOCS. He held that there was a distinction to be drawn between dishonesty that was fundamental to the claim and that which was not. In his view, dishonesty that was ‘incidental’ or ‘collateral’ to the claim would not be fundamental. However, dishonesty that went to the ‘whole or a substantial part of the claim’ was.

In significantly exaggerating the extent of ongoing symptoms, the claimant’s conduct was dishonest and designed both to deceive and to give a false impression. The judge held that dishonesty, crucial to around half the value of a claim, was ‘on any view’ sufficient to be characterised as fundamental.

Will a similar interpretation be applied under section 57? I believe so.

‘Substantial injustice’

As for what amounts to ‘substantial injustice’, there is no guidance proposed in the Act. It is clear, though, that a substantial injustice cannot amount to the fact that the claimant would be deprived of all damages.

Such an interpretation would undermine the purpose of the Act. As a result, a claimant will have a very high threshold to cross in order to persuade a court not to strike out the claim. They will probably have to point to some compelling extraneous circumstances as a suitable reason.

Section 57 will apply only to claims issued after it has been implemented. At present, the necessary commencement order has not been made. Once it has been, however, claimants and their advisers are likely to face numerous applications to have claims struck out, at least until a body of case law emerges as to what is and is not fundamentally dishonest.

The likely outcome from the legislation will be the consistent undervaluing of claims by claimants for fear that they will be deemed exaggerated by the courts. I wish I could reassure practitioners, but given the approach to striking out claims many tribunals took after Mitchell v News Group, it might be prudent to be fearful. SJ

Simon Brindle is a barrister at 9 Gough Square

@Simon_Brindle