Fundamental Dishonesty: A Matter of Substance, Not Form

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The case of Howlett v Davies [2017] EWCA Civ 1696 clarified a number of issues relating to fundamental dishonesty. Here, we review the relevant case law and what information professionals should be aware of going forward.

Fundamental Dishonesty Howlett v Davies [2017]

The Court of Appeal provided clarification on two issues regarding fundamental dishonesty:

  1. Definition for QOCS purposes
  2. Requirement to plead

The Claimants brought claims for injuries and losses arising out of an alleged road traffic accident. At first instance, the Deputy District Judge had no confidence that the accident happened as described by the Claimants or at all, and found fundamental dishonesty despite it not having been pleaded. On a second appeal, the Court of Appeal confirmed that the Deputy District Judge had been entitled to do so.

1. Definition of fundamental dishonesty for QOCS purposes

In the Court of Appeal, Newey LJ approved HHJ Moloney QC’s definition of fundamental dishonesty in Gosling v Hailo (1) and Screwfix Direct (2) [2014] (unreported): “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 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 the 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.”

HHJ Moloney QC stated that fundamental dishonesty did not have to go to the root of the issue of liability, nor even to damages in their entirety, adding that ‘fundamental dishonesty’ must be “interpreted purposively and contextually in the light of the context… the determination of whether the claimant is “deserving… of the protection… extended, by reasons of social policy, by the QOCS rules.”

2. Requirement to plead

On the requirement to plead, Newey LJ stated that “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: in fact, judges must regularly characterise witnesses as having been deliberately untruthful even where there has been no plea of fraud.

“On top of that, it seems to me that where an insurer in a case such as the present one, following the guidance given in Kearsley v Klarfeld [2006] 2 All ER 303, has denied a claim without putting forward a substantive case of fraud but setting out “the facts from which they would be inviting the judge to draw the inference that the plaintiff had not in fact suffered the injuries he asserted”, it must be open to the trial judge… [to conclude] 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.”

It now seems settled that, in the absence of a positive allegation of fraud, it remains open to the trial judge to make a finding of fundamental dishonesty, provided that the Defendant has set out in its Defence the facts from which it will invite the court to draw that inference.

Howlett emphasises that whilst it may not be necessary to plead fraud, the issue is whether the Claimant is on notice of the possibility that the judge may reach a conclusion of fundamental dishonesty. Defendants must put their cases in such a way that Claimants know the case they must meet, the challenges they must overcome and the findings which the court may make.

The relevant principles in Howlett have since been applied in Molodi v Cambridge Vibration Maintenance Service [2018] EWHC 1288 and Pinkus v Direct Line [2018] EWHC 1671 (QB). The latter reiterated that the court will not allow issues to be raised where the Claimant has not had sufficient notice of those issues.

Our experienced barristers keep informed of case law such as this to inform the advice and representation we provide to clients, as well as notify other professionals about these developments.

If you would like to reach out to us for clear, trusted representation or for guidance on situations such as this case on fundamental dishonesty, call 01245 605040 or send us an email.

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