Costs & Funding

As Ministry of Justice officials return to their desks after the summer, they will no doubt be cheered by the knowledge that they have some costs-related reading to do.

As part of its five-year review of the Jackson reforms, the MoJ asked lawyers to complete a survey (which closed on 24 August) giving views on the impact of the changes. One issue to be examined is the effect of qualified one-way costs shifting (QOCS) in personal injury.

QOCS is designed to protect claimants who lose their case from being liable for the defendant’s costs. Lawyers on both sides of the claimant/defendant divide would tend to agree that it has largely been successful and has slashed the amount defendant insurers have had to pay in after-the-event insurance premiums – which was its primary goal. But there is one sticking point. That is how the rules relating to ‘fundamental dishonesty’ – which can strip a claimant of their costs protection, or indeed cause the whole claim to be dismissed – should operate.

Some defendant lawyers have made zealous use of ‘fundamental dishonesty’ to successfully challenge hundreds of claims. No one would argue with the notion that false and unmeritorious claims should indeed be challenged. But claimant lawyers warn of a growing number of instances in which allegations of fundamental dishonesty are being raised in an inappropriate way: for example, because dishonesty is not always pleaded outright, or raised at an early enough stage to give the claimant a fair chance to rebut the allegations. Indeed, some claimant lawyers argue that alleged dishonesty should be raised at case management stage, as it may justify a lower-value case being elevated to the multi-track.

Whether fundamental dishonesty needs to be specifically pleaded, and at what stage, is a topic that has been hard fought in the courts, and it reared its head again in July. This latest ruling, by the High Court in Pinkus v Direct Line [2018] EWHC 1671 (QB), suggests that where a judge smells a rat, arguments over the timing of dishonesty pleadings will not deter them from dismissing the claim.

In Pinkus, the claimant sought £850,000 in damages for a road traffic accident that he claimed was so terrifying that he suffered post-traumatic stress disorder which affected his ability to work. The insurer asserted that the PTSD was fabricated or exaggerated, and put the claim at £2,000 -£3,000. However, dishonesty was not actually pleaded until the first day of the trial.

The judge considered the claim to be worth around £4,500 but dismissed it in its entirety, on the basis that the claimant had been fundamentally dishonest, and this had substantially affected the claim. Although dishonesty was not pleaded until late, the judge found that the allegation would have come as ‘no surprise’ to the claimant, and noted that it had been clear from the outset that the claimant’s credibility was in issue.

In Pinkus, the judge was following a Court of Appeal decision last year, Howlett v Davies & Anor [2017] EWCA Civ 1696, in which the appeal court found that a district judge had been entitled to make a finding of fundamental dishonesty against a claimant, even though it had not actually been pleaded by the insurer. The insurer’s barrister accepted that he had not used words such as ‘fraud’ or ‘dishonest’ in cross-examination; but he had said things like ‘that is not true’, which meant the claimants ‘knew what they were facing’.

Fight against fraud

Provided claimants are given the appropriate opportunity to rebut allegations, it is quite right that the insurance sector should seek to vigorously challenge dishonest claims, as they have been doing in the road traffic accident sphere. But are they as vigorous in all parts of the personal injury claims arena?

Returning to the MoJ’s LASPO review, the Forum of Insurance Lawyers’ submission gives a largely favourable assessment of QOCS, which it says is working as intended, with a body of case law having given an ‘appropriate steer’ on what is meant by fundamental dishonesty. But the submission says there are some instances in which QOCS has ‘increased the incidence of unmeritorious claims’.

For instance, FOIL asserts: ‘Some claimant firms have developed a business model for NIHL [noise induced hearing loss] claims based on the fact that claimants with low incomes are exempted from court fees, which together with QOCS removes the risk to the claimant and the legal adviser to such a degree that almost any case is worth running on the basis that the insurer may be tempted to make a nuisance payment in settlement.’

If insurers are serious about stamping out fraud and dishonesty in legal claims, then surely there is no place for such ‘nuisance payments’ in any part of the claims arena.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding