The merits of fundamental dishonesty

One of the key reforms introduced by the 2013 Jackson Reforms in personal injury cases is the introduction of Qualified One Way Costs Shifting (QOCS). The detail is to be found in the Civil Procedure Rules 44.13 – 44.17. The mechanism used concerns the ability of a defendant to enforce any costs order they obtain in their favour. So it’s not about getting a costs order, it’s about enforcing it. Without enforceability, the order is generally valueless.

The CPR provide that orders for costs made against a claimant may be enforced without the permission of the court but only to the extent of the aggregate amount in money terms of any order for damages and interest made in favour of the claimant.

Obviously, usually, a losing claimant will not have obtained an order for damages and interest and so there is nothing against which the defendants can offset any costs order in their favour .

However, this is qualified by at least two exceptions by which the claimant becomes liable to have the full extent of any costs order against them enforced : (1) if the claim is struck out on certain grounds (eg, there are no reasonable grounds for bringing the proceedings) - this is allowed without permission of the court; or (2) if “the claim is found on the balance of probabilities to be fundamentally dishonest.” In this event permission of the court is required.

The recent case of Gosling v Screwfix Direct Ltd (unreported, HHJ Moloney QC, Cambridge County Court, 29 March 2014) sheds the first light on the meaning of the second exception to QOCS. In fact it is believed to be the first case since the implementation of the new costs regime on the meaning of “fundamentally dishonest”. Even though it is only a County Court case, this decision is likely to have an impact on how legal advisers interpret “fundamentally dishonest” and to significantly affect the way defendants defend personal injury claims, until such time as the issue is considered by a higher court.

The facts in Gosling

Mr Gosling sustained an injury to his knee after falling through the rung of a ladder designed by the first defendant and supplied to him by Screwfix, the second defendant. He brought a case against both defendants. Inconsistencies in the reporting of the claimant’s symptoms led the defendants to carry out covert surveillance of the claimant which revealed that Mr Gosling had significantly exaggerated his symptoms. Just a week before trial the claimant settled the claim with the first defendant and served a notice of discontinuance on Screwfix, which created a deemed order for costs in favour of Screwfix under CPR 44.9(1)(c). In order to be able to recover its costs Screwfix pursued an application for leave to enforce the costs order to its full extent on the basis of the claimant’s fundamental dishonesty.

When is a claimant fundamentally dishonest?

The judge held that the term “fundamentally dishonest” has to be given a contextual meaning. While the judge found that dishonesty which is “incidental” or “collateral” to the claim would not be fundamental, dishonesty that went to the “whole or a substantial part” of the claim would.

The judge found that even though the claimant had suffered some injury in the accident, the covert surveillance revealed that the he had significantly exaggerated the extent of his symptoms. This exaggeration meant that the potential value of Mr Gosling’s claim was reduced by half. On these facts the judge held that the claimant’s conduct was dishonest and designed both to deceive and give a false impression. He also held that dishonesty crucial to around half of the value of a claim was sufficient to be characterised as “fundamental”. He was satisfied that, on the balance of probabilities, the claimant had been fundamentally dishonest and therefore Screwfix were entitled to enforce their costs order to its full extent.

The findings of HHJ Moloney QC point to at least three factors which may indicate that a claimant is being fundamentally dishonest:

• Firstly, it is not necessary that the claimant is dishonest about the nature and extent of his injury. He may be found fundamentally dishonest even though he has suffered the alleged injury but then exaggerates his symptoms.
• Secondly, the dishonesty need not affect the whole of the claim; it is sufficient that it affects a substantial part of it. What will be regarded as substantial will no doubt vary depending on the circumstances. In this case the judge found that dishonesty that reduced the value of the claim by half was substantial and therefore sufficient for a finding of fundamental dishonesty.
• Thirdly, the standard of proof in a civil case is only on the balance of probabilities, which means that the court must be satisfied that it is more likely than not that the claimant has been fundamentally dishonest. It is not necessary that the court is satisfied beyond any reasonable doubt (as would happen in a criminal case).

The importance of Gosling for defendants

While not forgetting that the decision in Gosling is a first instance County Court decision and so is not formally binding on other cases, in practice it has potential beneficial repercussions for insureds (and their insurers) against whom personal injury claims are regularly brought.

Gosling offers a viable way of recovering litigation costs when, as sometimes happens, claimants dishonestly exaggerate their injuries or symptoms. If the judge is minded to make a finding of fundamental dishonesty, the balance of probabilities test is a relatively low hurdle to overcome. This should encourage defendants to invest in collating evidence that would undermine the bona fides of the claimant’s case. Importantly, Gosling can be used as a tactical tool to put under pressure claimants who are suspected of having exaggerated their claims.

However, defendants should bear in mind two important points. Firstly, the dishonesty of the claimant must be shown not to be merely incidental or collateral to the claim. This will require defendants to entertain a cost/benefits analysis before investing in collating evidence, through covert surveillance for example, which might prove insufficient to ground a finding of fundamental dishonesty. Most importantly, the claimants’ financial position should be assessed to determine whether they will be able to bear the defendant’s costs should the application for fundamental dishonesty succeed. In Gosling the claimant had before the event legal expenses insurance cover against which Screwfix could expect to recover their costs.

We may now see many more applications by defendants for leave to enforce costs orders.