100 and counting! Counter Fraud success in Fundamental Dishonesty Findings
Since January 2015 DAC Beachcroft's Counter Fraud Team has now recorded its 109th finding of Fundamental Dishonesty against claimants committing fraud…
Published 22 August 2016
The phrase "Fundamental Dishonesty" is now well known to defendant insurers in respect of personal injury claims following the introduction of Qualified One Way Costs Shifting. With the commencement of section 57 Criminal Justice and Courts Act 2015 the phrase takes on an expanded role and is leading to significant changes in fraudulent personal injury claims. As a result defendant insurers and practitioners should be re-evaluating their strategies.
Before the commencement of the Act a claimant who intimated a genuine claim which was (i) either tainted with fraud itself; or (ii) related to a fraudulent claim, would be awarded damages for the genuine element of their claim but would be penalised in costs. That position followed the Court of Appeal decision in a phantom passenger claim, Ul-Haq v Shah  which concluded that the dishonest assertion of a claim by a co-claimant did not prevent recovery of the sums properly due to a claimant. This applied even if the court had found that the claimant had dishonestly supported the fraudulent claim. The only exception lay in insurance claims. Where necessary, a court could show its disapproval of a party’s behaviour by awards of costs. It could not do so by preventing a proper claim. The court felt unable to deviate from the principles in tort stating that this would be better dealt with by legislation.
Section 57 Criminal Justice and Court Act 2015
The Act substantially changes the position under 'Ul Haq' for personal injury claims. Section 57 provides that where the court finds that a claimant is entitled to damages, but finds (following an application by the defendant) on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary or a related claim, it must dismiss the entire claim unless it is satisfied that the claimant would suffer substantial injustice.The Ministry of Justice had provided guidance prior to the commencement of the Act suggesting the "related" claims to which section 57 would apply include phantom passenger claims when it stated that "where the claimant colludes in a fraudulent claim brought by another person in connection with the same incident or series of incidents in connection with which the primary claim is made – for example, a claim by a “phantom passenger” in a road traffic accident".
DAC Beachcroft has had a recent trio of successes utilising section 57 and these decisions provide useful guidance on when fundamental dishonesty comes in to play. The first case of Shahid & Others v Puddick re-wrote the case law around "genuine" claimants supporting bogus passenger claims.
In that case DAC Beachcroft were instructed to defend 3 personal injury claims following a road traffic accident in December 2014. The insured gave a good account on occupancy, indicating only one of the claimants was genuine and the decision was made not to settle the "genuine" claimant's claim due to the fact that she was supporting the phantom claims.
The judge dismissed all the claims and found the entire action to be a dishonest one. The judge found that two of the three claimants had not been present at the time of the accident. Further, the judge dismissed the "genuine" claimant's claim and ruled that had the claimant's claim been an honest one, she would have been awarded £2,000. As it was the claim was dismissed in its entirety following an application by the defendant pursuant to section 57 Criminal Justice and Courts Act 2015. The claimants were further ordered to pay the defendant's costs.
In the second case, Clarke v Owen the insured's evidence was that he had collided with an unoccupied vehicle. Two personal injury claims were presented. The trial judge was persuaded by the insured's evidence and dismissed the two personal injury claims. The claimant driver had also presented a claim for accident damage, there was no dispute regarding the accident damage claim but following the fundamental dishonesty finding an application was made to dismiss this head of loss. The application succeeded and consequently all heads of loss were dismissed.
In the final case of the trio, Ashraf & Others v CSL Associates Limited, three claimants presented claims for personal injury and the driver's claim included a claim for credit hire and pre-accident value. There were numerous issues with the case; firstly liability was resolved 80:20 in the defendant's favour; secondly, there were causation arguments and the judge was not satisfied that the claimants were injured and went on to find that the personal injury claims were fundamentally dishonest. The defendant made an application to dismiss the credit hire and pre-accident value claim under section 57 which succeeded and the claimants left Court with no compensation.
There are some important considerations when making a section 57 application. Prior to the commencement of section 57 case law was shifting (albeit slowly) following the decision in Summers v Fairclough with the Court of Appeal ruling that Shah was incorrect and the Court did have both an inherent jurisdiction and power under CPR 3.4 to strike out an abusive claim. However, the Court was restrictive in its interpretation of that power stating that the power should only be exercised in 'very exceptional circumstances'. In cases where there is a genuine element but that element is of a low value, a series of cases following Fari v Homes for Haringey suggests that the power may be exercised more frequently and indeed a number of claims were struck out as an abuse where there was strong evidence of fraud.
With two potential routes to dismiss a claim the question follows, which is the more attractive option? Section 57 has a number of advantages not least of which is that where there is fundamental dishonesty the judge must strike out the claim unless it results in a substantial injustice.
The downside to a section 57 is the way in which the successful defendant's costs are calculated. Subsection (5) provides that where a claim is dismissed, the Court when assessing costs must reduce the assesd amount by the amount it would have awarded for the genuine element of the claim. If a claim was dismissed due to fundamental dishonesty following an application under the Court's inherent jurisdiction or CPR 3.4, then it must follow that QOCS would be set aside and the defendant awarded its costs in full.
Further sanctions, such as committal, are also affected by a finding under section 57. Subsection 7 states that "if the court in those proceedings finds the claimant guilty of an offence or of contempt of court, it must have regard to the dismissal of the primary claim under this section when sentencing the claimant or otherwise disposing of the proceedings."
DAC Beachcroft has recently had success with a committal finding against four personal injury claimants in the case of Stanmore Quality Surfacing Limited v Kartel & Others. The substantive claim had multiple issues including slam-on and phantom passengers. The claims failed in their entirety due to fraud. A contempt application was made on the basis of the false evidence given in relation to the phantom claims. The application succeeded and the judge sentenced each of the claimants to an immediate custodial sentence of 6 months each.
The case pre-dates the commencement of section 57 which in any event would not have been applicable in this case but gives rise to an interesting question post–section 57. The substantive claim failed due to the slam on and wider fraud concerns but the committal application succeeded purely on the phantom passenger issue. However, in a post–section 57 world had the slam on arguments failed or not been pleaded and the genuine claimants' claim been dismissed on the basis of section 57 - what would be the outcome of the committal application? The nature of the lies and contempt before the judge considering the committal would be the same both pre and post-section 57.
An immediate custodial sentence sends a clear message by the Court that contempt in low value road traffic accidents is something that the judiciary are keen to deter and is a matter of public interest. Given the wording of section 57(7) would a judge give a lesser sentence in the committal application because there had been a section 57 finding? One would hope not in a case which would have attracted a custodial sentence either pre-section 57 or from a none section 57 dismissal, as it would be perverse that the same lie would result in two different outcomes.
Furthermore, the financial outcome in section 57 cases is not too dissimilar from the pre-Jackson / QOCS position and in fact the calculation of costs may be more favourable to claimants due to section 57(5). That said it must have been Parliament's will that the section 57 finding be taken into consideration – so whether this should affect a sentence which is purely financial or whether a custodial sentence would be reduced is a question we will be keen to see the judiciary answer.