Court of Appeal decides on first ‘fundamental dishonesty’ costs exception to QOCS in personal injury litigation

In the case of Howlett v (1) Penelope Davies (2) Ageas Insurance Limited [2017] EWCA Civ 1696 Tom Vonberg appeared for the successful Second Respondent.

This is the first Court of Appeal decision to consider the “fundamental dishonesty” costs exception to “Qualified one-way costs shifting” which applies to personal injury proceedings issued after 1 April 2013 where the Claimant has not entered into a pre-commencement funding agreement.

In Howlett, the Appellant argued that in the absence of a Defence which specifically pleaded a positive case of dishonesty, the trial judge could not find her to have been dishonest nor that the claim was fundamentally dishonesty for the purpose of CPR 44.16(1).

In today’s decision, the Court of Appeal have unanimously rejected that argument. Delivering the leading judgment, Lord Justice Newey considered, at paragraph 32, that “Where findings properly made in the trial judge’s judgment on the substantive claim warrant the conclusion that it was “fundamentally dishonest” an insurer can, I think, invoke CPR 44.16(1) regardless of whether there was any reference to fundamental dishonesty in its pleadings.”

The Court observed that the key issue is whether the party against whom the trial judge has made findings of dishonesty has had fair opportunity to make representations in that regard, such that a suggestion of dishonesty did not amount to an ambush.

In so doing, the Court of Appeal have accepted the insurer’s main argument that the guidance given in Kearsley v Klarfied [2005] EWCA Civ 1510 and the rules in CPR 16.5 apply equally in the era of QOCS and which does not therefore create any special pleading requirements.

In addition, the Court of Appeal approved of His Honour Judge Moloney QC’s approach in Gosling v (1) Hailo (2) Screwfix Direct CC (29 April 2014) in which he considered that for dishonesty to be deemed fundamental it should be something going to a substantial rather than incidental part of the claim.

Howlett is a significant decision as to the pleading obligations on a Defendant in circumstances where an unequivocal defence of fraud is inappropriate.

The clear finding of the Court of Appeal is that the trial judge is entitled to make findings as to the honesty of a witness on the relevant issues, such that there is no magic formula in the use by a Defendant of the words “fraud” or “fundamental dishonesty” when it comes to QOCS. This common-sense approach is likely to be welcomed by practioner’s and judges alike many of whom had previously assumed this to be correct but had not, until now, had the benefit of a binding authority.  

This decision did not specifically deal with circumstances where an application is made under section 57 of the Criminal Justice and Courts Act 2015. But there is no reason to suspect that the pleading requirements with regard to a fundamentally dishonest Claimant in that context should be any different.

The full judgment can be downloaded as a PDF file here  

In the Court of Appeal Tom Vonberg was instructed by Iain Davison who is the head partner in the counter-fraud team at the Leeds office of national Defence firm Weightmans LLP.