Fundamental dishonesty and the QOCS exceptions

Since the advent of the Jackson reforms it is widely known that claimants face little cost risk when proceeding with dubious claims against defendants.

All personal injury claims where the claimant has entered into a conditional fee agreement after 1 April 2013 are now covered by CPR 44 and the qualified one-way costs shifting (QOCS) regime. In essence a successful defendant cannot enforce a costs order against the claimant unless the court has made a finding of fundamental dishonesty or if the case falls within certain other exceptions set out under CPR 44.15 (this includes no reasonable grounds to bring claim, abuse of process or conduct of the claimant and/or his legal advisers).

The introduction of QOCS has left defendants in a precarious position where they are having to settle suspicious claims on commercial grounds as there is little prospect of recovering any costs even if the matter is successfully defended.

In claims where it is suspected that a claimant is being fundamentally dishonest it can require the defendant to incur significant costs to fully investigate such issues and bring such evidence before the court.

We are finding that in some cases where fundamental dishonesty is pleaded by the defendant, the claimant and his legal advisers will tactically pursue such cases nearly to trial to test the defendant’s resilience in the hope of securing an offer to avoid trial. In some cases in which our defendant client has maintained a defence of fundamental dishonesty, the claimant has eventually discontinued in the hope that they can then walk away from the litigation without any financial consequences because the court had not then made any finding of fundamental dishonesty. In such case, what options does a defendant have?

We have successfully secured an enforceable costs order against a claimant in these circumstances having satisfied the court that the claimant was fundamentally dishonest.

Vishal Sharma v Barratt Developments Plc (2016) – unreported

The claimant was pursuing a claim for personal injury against the defendant. The claimant had purchased a flat which had been built and sold by the defendant. The claimant alleged that he was sitting on the balcony of his flat when a wooden board fell from the floor of the balcony above and struck him on his head. He alleged that the wooden board knocked him unconscious and his flat mate carried him down a flight of stairs and drove him to the hospital for treatment.

Breach was conceded by the defendant but the position regarding causation was reserved. This was a fast track matter and fell within the remit of QOCS.

The defendant had inspected the balcony and noted that the it had suffered from water damage over a period of time. This led to the wooden boarding underneath rotting and flaking. Pieces of rotten, flaked, wood were scattered on the floor of the claimant’s balcony and he confirmed something similar to these pieces had struck him and caused personal injury.

The defendant did not accept such material could have caused any injury since it was rotten, lightweight and would crumble under any pressure. Causation was denied. The claimant issued proceedings claiming damages for soft tissue injuries to his neck and shoulder. The defendant filed a defence conceding breach of duty however denying causation. The defendant also pleaded fundamental dishonesty.

As part of the claimant’s schedule of special damages, he sought to recover £680 in respect of taxi fares and £320 in respect of care and assistance. The claimant disclosed taxi fare receipts and a receipt in respect of care assistance which were suspicious. The taxi fare receipts were in sequential order and contained the same handwriting. The care receipt also appeared to have similar handwriting. The claimant provided signed Part 18 Replies confirming these claims were legitimate and he had not prepared the receipts.

The defendant requested inspection of the original receipts. Despite numerous requests and assurances by the claimant that the same would be provided, the claimant failed to provide the originals for inspection.

The defendant obtained expert handwriting evidence to assess the suspicious receipts. The expert evidence concluded that all of the receipts were written by the same person and the handwriting, on the balance of probabilities, belonged to the claimant. This led to the defendant filing an application to strike out the claim and to request that the court dis-apply QOCS protection so that any costs order could be enforced against the claimant on grounds of fundamental dishonesty.

The defendant’s application was based on two primary arguments:

1. The claim should be struck out due to the conduct of the claimant and/or his legal advisors by failing to provide inspection of original receipts (CPR 44.15); or
2. The claim should be struck out on grounds of fundamental dishonesty (CPR 44.16).

The claimant discontinued his claim two days before the application hearing (itself just 22 days before the trial date) and confirmed that he will not be attending the hearing as the claim was no longer being pursued. The claimant objected to the defendant having any entitlement to costs as this matter was subject to QOCS.

Prior to the hearing, we referred the claimant to Practice Direction 12.4 (c) to Part 44 which directs that where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to CPR 38.4. In the circumstances, we suggested that the claimant attends in light of our intention to rely upon PD 12.4 (c). The claimant was given ample notice of our submissions in relation to fundamental dishonesty. It should be noted that the claimant had never confirmed his position regarding fundamental dishonesty and/or the forged receipts.

The court accepted the defendant’s submissions and accepted that it had the power to determine the costs issue in light of fundamental dishonesty being alleged, despite the claimant discontinuing and failing to attend the hearing. These powers are contained within CPR 38.5 (3) and Practice Direction 12.4 (c) to Part 44.

The court agreed that the claimant has been fundamentally dishonest. There was overwhelmingly cogent evidence that the receipts were fraudulent and were prepared by the claimant for the purposes of the claim. The court also considered proportionality and held that it was proportionate to decide this issue at the hearing rather than defer the matter to a later hearing. The court accepted the defendant had put the claimant squarely on notice.

The court ordered that the claimant pay the defendant’s costs on the indemnity basis and such costs shall be enforceable on grounds of fundamental dishonesty.

The claimant is in work and there are reasonable prospects of recovery of the costs should his ATE insurers decline cover.
Conclusion

This case is a prime example of where positive action can be taken against a claimant who is suspected of being fundamentally dishonest and/or is behaving unreasonably during the course of litigation.

It should be noted that a defendant does not necessarily have to incur the time and expense in pursuing the matter to a trial in order to argue fundamental dishonesty. This can also be done by way of an interim application so long as the evidence supports such position.

To stand the best chance of pursuing arguments of fundamental dishonesty, the defendant should lay its cards on the table from the outset so that the claimant is aware of its position. The claimant should be given reasonable opportunities to respond and explain any anomalies.

In cases where an allegation of fundamental dishonesty is raised and has led to a discontinuance, the defendant should bear in mind the court’s powers to determine the costs issues pursuant to CPR 38.5 (3) and Practice Direction 12.4 (c) to Part 44. The court can still dis-apply QOCS if the circumstances justify such approach.