Pleading Fundamental Dishonesty – Mustard v Flower
06/21/2021
A recent decision in Mustard v Flower [2021] EWHC 846 (QB) clarified the issue of pleading fundamental dishonesty. In this case, although liability has been admitted, causation and quantum are disputed, and the case is set down for a 10-day trial in November 2021. The decision involved the issue of whether the third Defendant (the insurer) could amend its defence, and the proposed amendments were uncontroversial, apart from the following concerning fundamental dishonesty (the text in italics were highlighted by the judge):
The proposed amendment stated:
“4.4 The Claimant’s accounts of the RTA and its immediate aftermath, and the nature and severity of her symptoms both before and after the accident have varied over time, are unreliable and are in issue. They have been exaggerated (or in the case of her pre-RTA history minimised) either consciously or unconsciously – the Third Defendant cannot say which absent exploring the issues at trial. In the event that the Court finds that the Claimant has consciously exaggerated the nature and/or consequences of her symptoms and losses, the Third Defendant reserves the right to submit that a finding of fundamental dishonesty (and the striking out of the claim pursuant to section 57 Criminal Justice and Courts Act and/or costs sanctions including the disapplication of QOCS) is appropriate.”
The issue was whether fundamental dishonesty could be pleaded at this stage.
What is fundamental dishonesty in a personal injury claim?
Establishing that a Claimant was ‘fundamentally dishonest’ about an aspect of their claim is a powerful litigation tactic that Defendants can pursue to have either the claim dismissed via section 57 of the Criminal Justice and Courts Act 1957 or, further to a finding under CPR 44.16, recover costs from a Claimant who would have otherwise been protected by "qualified one-way costs shifting" (QOCS). The latter will automatically follow a case being dismissed on section 57 grounds.
In Howlett v Davies [2017] EWCA Civ 1696, the Court defined ‘fundamental dishonesty’ as dishonesty that goes to the heart of the whole claim or a good portion of it or where an important part of the claim relies upon a falsehood.
Fundamental dishonesty can become apparent following disclosure of evidence before the trial or during the trial following cross-examination and/or findings of fact.
In RTA personal injury claims, ‘fundamental dishonesty’ is often suspected during the pre-trial investigation when evidence shows that the injuries claimed have been exaggerated and/or elements relating to the quantum of special damages (loss of income, pension contribution, medical expenses, vehicle repair costs, cancelled holidays, unused gym membership etc) have been inflated.
When should fundamental dishonesty be pleaded?
Defendants have a good deal of flexibility when it comes to fundamental dishonesty – an application pursuant to section 57 can be made at trial even if it was not pleaded. In Howlett v Davies, Lord Justice Newey explained the circumstances in which the Court should provide such flexibility to the Defendant:
“The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence.”
Master Davison concluded that there was no basis for a plea of fundamental dishonesty to be entered at this stage of proceedings and to allow it would prejudice the Claimant. The trial judge could make a finding of fundamental dishonesty regardless of whether or not it was pleaded. An application pursuant to section 57 “did not require any particular formality”, and “in an appropriate case” could be made verbally and as late as during the Defendant’s closing submissions.
The Master stated that at this stage, there was no reasonable chance of the Defendant proving fundamental dishonesty. Furthermore, if it were pleaded, the Claimant would have to inform her legal expenses insurer. This could result in the insurer avoiding the policy ab initio (from the beginning). Even if avoidance were avoided, admitting a plea of fundamental dishonesty would result in increased administration and cost on the Claimant’s part.
The application for a plead of fundamental dishonesty to be added to the proceedings was therefore denied.
Comment
There are two key takeaways from this decision:
1. Defendants cannot enter pleas of fundamental dishonesty on a purely speculative basis. Not entering a plea will not stop the trial judge from making such a finding, providing the Claimant had been given adequate warning that fundamental dishonesty was an issue.
2. The Statements of Case should include any issues to be explored that may lead the trial judge to make a finding of fundamental dishonesty. This will ensure the Claimant can be cross-examined on such matters.
Master Davison pointed out that his decision was in no way meant to detract from the modern approach of ensuring “all cards [are] on the table”. Instead, his decision was aimed at discouraging “pleas of fundamental dishonesty which are merely speculative or contingent.”
