A defendant does not have to specifically plead fundamental dishonesty for a court to find that qualified one-way costs shifting (QOCS) should be disapplied, the Court of Appeal has ruled.
Lord Justice Newey said that, in the case before the court, the doubts of the defendant insurer about the claimants’ honesty were clear enough in its pleadings so that they were not ambushed at trial, while the honesty of their evidence and case was “adequately explored during the oral evidence”.
Howlett v Davies & Anr  EWCA Civ 1696 was a personal injury claim by two passengers who said they were injured in a car accident.
The trial judge, Deputy District Judge Taylor, sitting in Portsmouth, held that the claim was fundamentally dishonest and so granted second defendant Ageas Insurance permission to enforce a costs order against the claimants. Their appeal was dismissed by His Honour Judge Blair QC.
Newey LJ, with Beatson and Lewison LJJ agreeing, held: “Statements of case are, of course, crucial to the identification of the issues between the parties and what falls to be decided by the court.
“However, the mere fact that the opposing party has not alleged dishonesty in his pleadings will not necessarily bar a judge from finding a witness to have been lying.”
Further, he said, where an insurer, as Ageas did here, has not put forward a substantive case of fraud but set out facts from which it invited the judge to draw the inference that the claimant had not in fact suffered the injuries he asserted, “it must be open to the trial judge… to state in his judgment… that the alleged accident did not happen or that the claimant was not present.
“The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence.”
Similarly, an insurer could invoke QOCS regardless of whether there was any reference to fundamental dishonesty in its pleadings.
Here, Ageas expressly stated that it did not accept the accident “occurred as alleged, or at all”, that credibility was in issue and that the claimants were required to “strictly prove” the claim.
“In my view, this pleading gave the Howletts sufficient notice of the points that Ageas intended to raise at the trial and the possibility that the judge would arrive at the conclusions he ultimately did. The Howletts cannot, in the circumstances, fairly suggest that they were ambushed.”
It appeared from the district judge’s ruling (there was no transcript) that the honesty of the Howletts’ evidence and case was “adequately explored during the oral evidence”.
This meant “it was proper for Ageas to contend, and the district judge to hold, that the findings made in the judgment showed the claim to be “fundamentally dishonest” within the meaning of CPR 44.16(1)”.
The court also approved the meaning of ‘fundamentally dishonest’ formulated by His Honour Judge Moloney QC, sitting in Cambridge County Court, in Gosling v Hailo (29 April 2014).
HHJ Moloney said: “It appears to me that this phrase in the rules has to be interpreted purposively and contextually in the light of the context. This is, of course, the determination of whether the claimant is ‘deserving’, as Jackson LJ put it, of the protection (from the costs liability that would otherwise fall on him) extended, for reasons of social policy, by the QOCS rules.
“It appears to me that when one looks at the matter in that way, one sees that what the rules are doing is distinguishing between two levels of dishonesty: dishonesty in relation to the claim which is not fundamental so as to expose such a claimant to costs liability, and dishonesty which is fundamental, so as to give rise to costs liability.
“The corollary term to ‘fundamental’ would be a word with some such meaning as ‘incidental’ or ‘collateral’. Thus, a claimant should not be exposed to costs liability merely because he is shown to have been dishonest as to some collateral matter or perhaps as to some minor, self-contained head of damage.
“If, on the other hand, the dishonesty went to the root of either the whole of his claim or a substantial part of his claim, then it appears to me that it would be a fundamentally dishonest claim: a claim which depended as to a substantial or important part of itself upon dishonesty.”
Newey LJ said it was “not, I gather, unusual for insurers to file defences comparable to that put in by Ageas in the present case” in response to claims arising from low-speed traffic accidents.
Ageas’s counsel suggested four reasons for insurers being slow to include fully-fledged pleas of fraud in their defences, he recounted.
“First, that they lack direct knowledge of the relevant events; secondly, that lawyers’ professional obligations mean that they must be slow to allege fraud; thirdly, that a case is more likely to be allocated to the multi-track if fraud is asserted; and, fourthly, that a trial judge concluding that a fraud defence has not been proved is liable to find for the claimant without sufficiently considering whether he has made out his case.
“While the third of these points seems unattractive, the others are easier to understand.”