QUOCS
In 2013, the costs landscape saw a significant change due to the introduction of Qualified One-Way Costs Shifting (QUOCS). This change to the costs rules was intended to counterbalance the introduction of fixed fee protocols, a ban on success fees, and a removal of the recoverability of after-the-event policies. The effect of these changes could be described as reducing the cost of litigation and making it more financially attractive for insurers to settle cases early.
QUOCS meant that unless certain situations applied, Defendants in personal injury claims would no longer be able to enforce awarded costs if they won their cases..
Summers v Fairclough Homes [2012]
Around this time, Defendants affected by grossly exaggerated injury claims were dealt a blow with the case of Summers. In this landmark judgment, the Supreme Court refused to strike out a claim brought for £800,000 in which the Claimant had lied about being able to work, and had been caught out using video surveillance evidence. The Claimant was awarded £80,000 and the Defendant’s application to strike out the claim was refused. The court instead held the Defendants should have made offers for the ‘genuine’ element of the claim and penalised the Claimant in costs recovery.
Section 57 – Criminal Justice and Courts Act 2015
In response to Summers and evidence from insurers that up to 8% of Road Traffic Accident claims were dishonest, parliament introduced a new provision as part of the CJCA 2015.
57 Personal injury claims: cases of fundamental dishonesty
(1) This section applies where, in proceedings on a claim for damages in respect of personal injury (“the primary claim”) —
(a) the court finds that the claimant is entitled to damages in respect of the claim, but
(b) on an application by the defendant for the dismissal of the claim under this section, the court is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim.
(2) The court must dismiss the primary claim, unless it is satisfied that the claimant would suffer substantial injustice if the claim were dismissed.
(3) The duty under subsection (2) includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest.
(4) The court's order dismissing the claim must record the amount of damages that the court would have awarded to the claimant in respect of the primary claim but for the dismissal of the claim.
(5) When assessing costs in the proceedings, a court which dismisses a claim under this section must deduct the amount recorded in accordance with subsection (4) from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant.
This act introduced the concept of ‘fundamental dishonesty’.
Analysing S.57 CJCA
The new legislation opened up a number of new questions which would require case law to clarify. Specifically:
- What is fundamental?
- What is dishonesty?
- What is substantial injustice?
The first of these was answered in the case of Ivey v Genting Casinos [2017]. Here the Supreme Court considered the question of what ‘dishonest’ meant in the context of civil claims.
By a majority of 2-1 the court held that the definition of dishonesty would not be held at the criminal standard. This applied both a subjective and an objective test – i.e. the act would be considered dishonest by the measure of ordinary people, and that the person committing the act was aware that their act would be perceived this way. The Supreme Court held that the only relevant test in civil cases was the objective test.
The more complicated test would turn out to be the meaning of ‘fundamental’. The case that would address this was LOCOG v Sinfield [2018], where a volunteer had been injured at the 2012 Olympics and brought an inflated claim for damages. On investigation, it was determined that the gardening claim for just under £14,000 had been invented entirely with fake invoices.
The claim for gardening represented about 40% of the claim for special damages, and the court had to consider whether this was ‘fundamental’ to the claim. It was considered that the dishonesty ‘goes to the heart’ of the claim. The judge held that because the gardening claim was the largest head of loss this tainted the entire claim – it was not relevant that the majority of the claim was honest.
LOCOG remains the leading authority on this issue.
More recently, the DWF case of Williams-Henry v ABP [2024] clarified the question of substantial injustice. It was stated by Ritchie J that in practice, cases of substantial injustice will be rare, and they will generally involve cases where there is a significant genuine claim, where the dishonesty is not persistent, and/or where the acts of the tortfeasor are particularly heinous.
Criticisms by claimant representatives
The main opposition to Section 57 has historically been voiced by APIL. Therefore it seems reasonable to evaluate the provisions through the lens of the most ardent critics of the legislation.
In a parliamentary briefing submitted during the second reading of CJCA 2015, APIL voiced the following concerns with the proposed legislation:
- It would result in satellite litigation to determine the definitions of fundamental dishonesty and substantial injustice;
- There would be an increase in spurious allegations of fraud by unscrupulous insurers;
- Claimants would underplay their symptoms or not bring claims for fear of being accused of dishonesty.
APIL voiced concerns over what would be considered to be exaggeration, and whether it would prevent Claimants from bringing legitimate arguments over loss of earnings claims where those arguments were difficult to substantiate but would otherwise be perfectly legitimate.
APIL has also accused Defendants of using a ‘scattergun approach’ to fundamental dishonesty, and called for sanctions against those who abuse the rules to seek to intimidate honest Claimants.
Evaluating the criticisms
There can be no question that the new legislation led to some satellite litigation while definitions were determined. But it is perhaps indicative of the responsible approach taken by litigants to these issues that ‘substantial injustice’ was only defined in 2024, a full nine years after implementation. The case law on fundamental dishonesty is a narrow volume, and in this writer’s view that reflects the relatively black-and-white nature of most of the cases falling within this ambit, and perhaps goes some way to refute the suggestion that fundamental dishonesty is being levelled in a frivolous or abusive manner.
Turning to claims volumes, it is hard to analyse the impact of Section 57 due to the near-contemporaneous implementation of QUOCS, which did much to narrow the claims that were brought. One can observe that Employers Liability cases registered with the Compensation Recovery Unit (CRU) declined precipitously after 2014/2015, but RTA claims in fact went on to increase for several years after the act’s implementation. Both RTA and Public Liability claims saw their peaks in 2011/12, which reflected a significant front-loading of claims ahead of the implementation of QUOCS.
However, when we consider the claims intended to be targeted by Section 57 (i.e. larger claims with loss of earnings claims as referenced by APIL), then the CRU data appears to suggest there has been no real impact on the pursuit of the claims. When looking at the Benefit recoveries recorded by the CRU, the figures have increased consistently year after year. This suggests there has been minimal impact on larger claims, and that the impact on claims volumes has been more significant at the lower end of the market. This would suggest that the most vulnerable and seriously injured are not seeing a significant impact.
And what of the spurious claims of dishonesty? Those who represent Defendants will regularly encounter those who feel aggrieved and angry about what they perceive to be an unjust burden upon their time. Despite these apparent motivations, example of these spurious allegations remain thin on the ground, but it is worth considering some high-profile examples.
Nadeem and Thakkar
Two recent cases have been raised to highlight perceived injustices. These are Aviva Insurance Limited v Atiquillar Nadeem [2024] and Thakkar (& Others) v (1) Mican & (2) AXA Insurance UK PLC [2024].
The case of Nadeem is known largely through an unsuccessful application of committal following a finding of fundamental dishonesty at first instance. The Claimant was found to have been fundamentally dishonest due to inconsistencies in the described injuries and their impact. It has been suggested that the conduct of the judge at the original trial fell short, and that the decision was questionable even though the Claimant’s evidence when examined on the issue of the claimed injuries was poor.
This is not a case in which the Defendant was ultimately criticised, nor has subsequent analysis focused on the Defendant. Criticism has largely been levelled at the judge’s conduct and possible bias, the preparation of the Claimant’s case, the failure to secure a translator for the Claimant, and the failure of the Claimant’s representatives to appeal the case. It seems that in those circumstances, there are remedies that the Claimant could seek against his own representatives.
Turning to Thakkar, this concerned an instance in which an overzealous Defendant handler had pleaded fundamental dishonesty in the context of an RTA liability dispute. There is no question that the allegation of fundamental dishonesty appears to have been improper in this context, but the words used by the trial judge are perhaps illuminating:
Certainly, the case had none of the hallmarks of the sort of fundamentally dishonest fraudulent claims that this court sees all too frequently. I do wonder whether Parliament intended that blunt tool to be used for cases like this. [39]
Far from being an example of a widespread egregious abuse of a system, the judgment highlights how extra-ordinary the allegations were in the context of this case.
The Court of Appeal in Thakkar refused to impose any additional cost sanction on the Defendant.. This is relevant because those who represent Claimants will often raise the prospect of indemnity costs against Defendants who spuriously raise issues of dishonesty.
That suggestion overlooks the options that already exist, since Claimants who see a Defendant entrenched in its position could simply make a Part 36 offer and obtain the same benefits, including indemnity costs. It is perhaps also unwise for Claimants to suggest that those who raise unsubstantiated pleadings should be penalised in costs, given that generic templates are a common sight in low value litigation.
The benefits brought by Section 57
Having addressed the criticisms of Section 57, it would be remiss not to address the tangible benefits of these changes. Gone are the days when grossly exaggerated claims would have to be evaluated by Defendants who would be forced to second-guess which aspects were true and which were not, and then pitch a ‘best-guess’ offer as envisaged by Summers.
Without Section 57, our fraud teams at DWF might not have be able to secure the very substantial savings by pushing back on claims that are motivated by deceit and greed. One has only to look at the example of Kirsty Williams-Henry to see the substantial savings that can be achieved in a single case. A link to a previous DWF article discussing this case can be found here:
https://dwfgroup.com/en/news-and-insights/insights/2024/10/case-focus-fundamental-dishonesty
These types of results are replicated across cases on a weekly and monthly basis, reducing the cost of fraud to insurers, and thereby reducing the cost of fraud to the entire economy. At a time when the ABI reports that the value of detected fraudulent claims exceeds £1 Billion per annum, there has never been a greater need for effective and clear processes to challenge the blight of fraud.
Conclusions
Perhaps it is best to leave the last word in this matter to The Criminal Law Revision Committee when it substituted the word “dishonestly” for “fraudulently” in the instruction of juries:
“‘Dishonestly’ seems to us a better word than ‘fraudulently’. The question ‘Was this dishonest?’ is easier for a jury to answer than the question ‘Was this fraudulent?’. ‘Dishonesty’ is something which laymen can easily recognise when they see it, whereas ‘fraud’ may seem to involve technicalities which have to be explained by a lawyer.”
The system is designed to be comprehensible to a lay person, and the analysis of dishonesty comes down to application of common sense. It is clear enough for juries, and it must be clear enough for insurers and their lawyers.
Thus, and despite the occasional hiccup, the Section 57 provisions have proven themselves fit for purpose. There is no ‘mischief’ to be identified that can not be addressed within the existing frameworks. Contrary to what some might believe, insurers are not motivated to spend money pursuing hopeless allegations of dishonesty. Our short history shows that those who would pursue such a strategy would swiftly have their fingers burned.
