Fundamental dishonesty: what's all the fuss about?

Qualified one-way costs shifting (QOCS) was ushered in on 1 April 2013. In most cases a defendant now has to bear their own costs in defending a claim, even if it fails. There are some exceptions, including where a claim is found to be ‘fundamental dishonesty’. This term has since provoked much debate culminating in a recent stand-up row over the words in the House of Lords.

The reason for ‘fundamental dishonesty’ causing such a fuss is because of its distinction from the term ‘fraudulent’. Historically, the court has already long since had the power to penalise fraudulent claimants.

The decision not to
limit the QOCS exception
to ‘fraudulent’ claims was interpreted by many to extend penalties so as to also cover claims that were, at heart, genuine but the value of
which had been inflated
out of all proportion by unscrupulous exaggeration.

Valiant efforts

What is an exaggerated claim? Usually, it’s one made by an individual who sustains a minor injury but then dresses it up as a major injury, rendering them housebound or unable to work, for example.

Valiant efforts have been made to address exaggerated claims. Summers v Fairclough [2012], for example, centred around an attempt to persuade the House of Lords to strike out a claim where the claimant advanced a claim for more than £800,000, ultimately recognised to have a genuine value of only £88,716. That case was successful to the extent that the court recognised that it had the power to strike out such claims.

However, that power, it said, would only be exercised in exceptional circumstances,
with even Summers’ conduct not having been so exceptional as to justify the striking out of his claim.

Since Summers, there have been instances exercising the power recognised in that case
but they can be counted on one hand. Those campaigning for a wider exercise of the court’s powers were left crestfallen when, in May, the Law Commission announced that
it would not address the problem within its 12th programme of reform.

However, it then experienced a rapid change in fortunes when on 7 June 2014, Chris Grayling made the surprise announcement that the government would be introducing new law to tackle
the issue.

Industry request

Fast forward to 2 July 2014. A hastily amended Criminal Justices & Courts Bill clause 45 emerged, requiring fundamentally dishonest claims to be struck out unless to do otherwise would cause substantial injustice. But the Bill’s passage through the House of Lords was far from easy.

The charge? Clause 45 had been inserted at the behest of the insurance industry. It duplicated existing powers of the court, conveying a lack of trust in judges to act sensibly. The needs of the claimant had to come first. And even in the face of fundamental dishonesty, denying an individual compensation would be
very wrong.

So, a ‘no’ to penalising fundamental dishonesty, as
such a penalty would be ‘very wrong’, and protection for the fundamentally dishonest,
less we might encourage
the unscrupulous.

Thankfully, not all the voices were dissenting. Of particular poignancy were the words of Lord Brown, who remarked that: “The modest narrowing of an existing discretion is a price worth paying for the discouragement... to those... inclined or tempted to advance dishonest claims.”

Behind that comment was perhaps recognition that, in attempting to preserve justice, an eye needs to be kept on injustice that the cost of fraudulent and exaggerated claims create for the average motor premium payer.

After all, that £1.3bn expense translates to an addition £50
to £100 on an annual premium.

Clause 45 will throw up challenges and the suggestion that there will be satellite litigation around the meaning
of ‘fundamentally dishonest’ and ‘substantial injustice’, for example, is entirely valid.

However, looking at clause 45 in the round, it might just
bring us closer to achieving
the balance that’s needed. SJ