No default costs penalty for failed fundamental dishonesty plea, rules CoA

The Court of Appeal has rejected pleas for a costs penalty against an insurer who made an unsuccessful claim of fundamental dishonesty.

Lord Justice Coulson ruled in Thakkar & Ors v Mican & Anor that Her Honour Judge Backhouse had been entitled to refuse to make an order for indemnity costs against the defendants.

Coulson said the appeal raised the question of whether there should be default entitlement to indemnity costs where a claimant has been accused of fundamental dishonesty.

His judgment would appear to rule that out, as he concluded that even if there were criticisms that could be made of the defendants, there was no principle of law that the judge failed to follow or apply.

‘Other judges (and I am one of them) might have reached a different view,’ added Coulson. ‘But that is not the test. The trial judge plainly reached a conclusion that was open to her in all the circumstances. Her conclusion on costs was not perverse.’

The case involved a claim from an RTA in 2017 in which there was a dispute about who was at fault. The defendants had stated that the claimants’ credibility and honesty would be challenged at trial and they sought to amend their defence to allege fundamental dishonesty. This application was rejected at the case management conference, with the trial judge saying that defence lawyers’ reasons for their approach ‘slightly baffle me’.

The trial took place over two days in April 2022 and Backhouse found in favour of the claimants: they then sought to recover indemnity costs for the period in which fundamental dishonesty had been alleged. This was rejected by the trial judge and on first appeal.

Coulson said there was a wide discretion for judges on costs, and the courts had repeatedly advised against going beyond the civil procedure rules to identity new default positions. The ultimate decision, he concluded, had been a matter for the trial judge.

The claimant advanced three reasons for applying indemnity costs: the defendants’ persistence in the allegations, the fact that the allegations had hung over the claimants’ heads for a long time; and the potentially detrimental effect that such allegations might have on independent witnesses.

But Coulson said the trial judge had taken account of the defendants’ conduct and decided that the case did not meet the high hurdle for indemnity costs.

He added: ‘It is clear that the trial judge had always regarded the raising of the dishonesty allegations in this case as “a storm in a teacup” and did not think that this was a case where those allegations would or did make any real difference to the outcome.’

Lady chief justice Lady Carr of Walton-on-the-Hill agreed with Coulson’s judgment but added a note on the way both sides in the case had been ‘too ready to throw unnecessary and serious allegations against each other’.

She said the courts had made clear that an unnecessarily aggressive approach to litigation was unacceptable.

‘Potential costs incentives are not a good reason for making unwarranted allegations of misconduct, let alone dishonesty,’ added. ‘The unfortunate effect of the parties’ conduct was to increase not only aggravation to an independent witness but also costs on both sides.’

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