Fundamental dishonesty, tort of deceit, and contempt of court: the tools available to insurers to fight fraudulent claims, says Roger Cooper
Instances of fraud arising from road traffic accident claims continue to cause considerable concern to motor insurers who remain understandably enthusiastic in taking steps to expose fraudsters. Such claims are susceptible to fraud in several ways, ranging from deliberately staged accidents to malingering and gross exaggeration of injuries and disability. Insurers who consider that fraud may be at play now have a considerable battery of tools available to combat it.
The most obvious tool available is simply to defend the claim on the basis it is fraudulent. The burden of proving fraud naturally falls on the party raising the allegation and it is necessary to plead the allegations plainly; fraud must not be pleaded by insinuation – see Hussain v Amin  EWCA Civ 1456. Indeed, for counsel to plead fraud they must be provided with express instructions to do so and also reasonably credible material which indicates fraud. Care should be taken in drafting allegations because if they are not found proved at trial there is a significant risk of the successful claimant being awarded his costs on an indemnity basis.
Even if fraud is not pleaded but at trial it becomes clear the claimant has been ‘fundamentally dishonest’, then pursuant to section 57 of the Criminal Justice and Courts Act 2015 the judge must dismiss the whole of the claim, including those parts in respect of which the claimant was not fundamentally dishonest, unless it is satisfied the claimant would suffer substantial injustice by the dismissal. This statutory provision only applies in respect of cases issued after 12 April 2015.
A finding of fundamental dishonesty also allows a successful defendant to escape from the qualified one-way costs shifting rules and to recover costs against a dishonest claimant. There have been many reported decisions at district judge and circuit judge level – many in the context of QOCS – but as yet a decision of a higher court has not been reported.
Tort of deceit
A further remedy for a motor insurer who has been a victim of a fraud is to bring an action based on the tort of deceit. In Zurich v Hayward  3 WLR 637 the Supreme Court considered an action founded on the tort of deceit arising out of the conduct of a personal injury claim. In the original litigation Hayward, who had suffered some injury, had dishonestly exaggerated the extent of his injuries. The insurer and its advisers were suspicious and obtained covertly taken surveillance evidence of the claimant. Notwithstanding its concerns, the insurer settled the case for £135,000.
After the conclusion of the settlement, Zurich came into possession of further evidence of Hayward’s dishonesty and an action for deceit was brought against him. At trial the judge found the true value of the original claim for damages was about £14,720 and ordered Hayward to repay the balance by way of the settlement.
The Supreme Court upheld the trial judge’s ruling, reversing the decision of the Court of Appeal. The essential ingredient of the tort of deceit was that it had to be demonstrated that Hayward had made a materially false representation, which was intended to induce and caused the representee to act to its detriment. The court found it was not necessary for Zurich to have believed the representations of Hayward as to the extent of his injuries and disability. It was sufficient that the existence of those dishonest representations caused Zurich to settle for a higher sum than otherwise would have been the case. It was not that Zurich and its advisers had been taken in by the dishonesty – they were sceptical – but in deciding at what level to settle, Zurich had to take into account the risks that at trial the judge would accept some of Hayward’s assertions over the degree of his disability. Accordingly the false representation did cause Zurich to act to its detriment and the tort of deceit had been established.
Before the Supreme Court, Zurich conceded it was necessary for it to establish that at the date of settlement Hayward’s dishonesty could not have been discovered by the exercise of reasonable diligence on the part of Zurich. In his judgment Lord Toulson pointedly did not express any view on this concession on the grounds that any comment would have been obiter in any event. It clearly remains arguable that even in circumstances where a claimant’s fraud could have been discovered by the exercise of reasonable diligence, if the fraud later comes to light an action founded on deceit would not necessarily fail.
The effect of the decision in Hayward is that fraudsters will remain at risk of having their dishonestly obtained damages taken from them in the event the insurers subsequently discover evidence of dishonesty.
Contempt of court
The most draconian tool in the insurers’ toolbox is an application for contempt of court. Such applications have become common in recent times. Nevertheless, applications to commit should only be made where the evidence is strong and where the dishonesty had an important bearing on the case.
Such applications in a personal injury context are often based on allegations that a false statement has been made in a document verified by a statement of truth, such as a pleading, witness statement, or schedule of loss. Clearly, in a road traffic accident case the falsity alleged could relate to the circumstances of the alleged accident, the extent of the injuries, or the basis for the calculation of special damages.
It is necessary to prove beyond reasonable doubt that: the statement made was false; the maker of the statement knew at the time that it was false; the statement would have interfered with the administration of justice if persisted in at the time it was made; and the maker knew it would be liable to interfere with the administration of justice. In county court cases, applications to commit can be made to a single judge of the High Court pursuant to CPR part 18.1.
Guidance as to the approach to such cases was provided by the Court of Appeal in KJM Superbikes v Hinton  1 WLR 2406. The purpose of such applications is not to exact revenge upon a dishonest litigant but to safeguard the public interest in ensuring the integrity of the justice system is not undermined by the dishonesty of litigants and witnesses. Permission to bring an application to commit will only be allowed after consideration of the strength of the evidence, the gravity of the alleged false evidence, and an assessment as to whether granting permission would be proportionate. Accordingly, if the alleged falsity would only have an impact in relation to a trivial level of damages then it is unlikely that permission would be granted. Applications for permission should be made pursuant to part 23 and should be supported by an affidavit.
The correct approach to such applications is set out clearly in Liverpool Victoria Insurance v Khan  EWHC 2590 (QB) where permission to apply to commit four individuals was granted by the High Court. The original case arose out of a road traffic accident. On behalf of the claimant, a Mr Iqbal, a medical report had been served, authored by a Dr Zafar, setting out that Iqbal was suffering from continuing soft tissue injuries and with a prognosis for recovery at six to eight months post-accident. When it came to trial, the bundle contained a report from Dr Zafar with an identical date to the first but this time the report indicated that Khan’s symptoms had settled one week post-accident. The trial collapsed. Ultimately permission to apply to commit four individuals, including employees of Iqbal’s solicitors and Dr Zafar, was granted. The application to commit has not been heard and comment on the merits of the case would not be appropriate.
Dishonest litigants and witnesses have much to fear: there is a substantial risk that cases will fail for dishonesty. Even if a claim has been successfully concluded, an action for deceit may still be brought years later and, in extreme cases, there is the risk of lying litigants and witnesses serving prison sentences.
Roger Cooper is a barrister at Parklane Plowden