PERSONAL INJURY REVOLUTIONIZED: CRIMINAL JUSTICE AND COURTS ACT 2015

CRIMINAL JUSTICE AND COURTS ACT 2015

The Criminal Justice and Courts Act 2015 has received Royal Assent.

Sections 57 to 61 deal with personal injury claims. The whole claim is defeated if there is any fundamental dishonesty in relation to any part of the claim. I deal below with the issue of what constitutes fundamental dishonesty.

Whole claim defeated if any fundamental dishonesty

Section 57 (1)(b) requires a court to dismiss the whole of a personal injury claim if it is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim, that is in relation to any part of the claim. Thus fundamental dishonesty in relation to, for example, an aspect of future special damages means that the whole case, including the general damages claim, is lost. Likewise an exaggeration of symptoms, if that is held to be fundamental dishonesty, means that a client loses the whole claim including the claim for his written-off vehicle caused by the other party’s negligence.

Section 57 (3) makes it clear that this “includes the dismissal of any element of the primary claim in respect of which the Claimant has not been dishonest.”

Dismissal of the claim is mandatory unless the court is satisfied “that the Claimant would suffer substantial injustice if the claim were [sic] dismissed.” Thus the claim is lost completely; it is not won but with a reduction or complete removal of damages.

The court must record the amount of damages it would otherwise have awarded – Section 57(4).

Any costs order made against the Claimant must take into account the foregone damages. Thus if the Defendant’s costs are £30,000.00 and damages would have been £20,000.00, then a Claimant pays the balance of £10,000.00 to the Defendant.

The Act applies to fixed recoverable costs cases as well as all other personal injury cases.

Fundamental dishonesty is not defined and nor is substantial injustice.

Section 57(8) is the definition section and reads:-

“(8) In this section:-

“claim” includes a counter-claim and, accordingly, “claimant” includes a counter-claimant and “defendant” includes a defendant to a counter-claim;

“personal injury” includes any disease and any other impairment of a person’s physical or mental condition;

“related claim” means a claim for damages in respect of personal injury which is made –

(a) in connection with the same incident or series of incidents in connection with which the primary claim is made, and

(b) by a person other than the person who made the primary claim.”

The provisions are retrospective in the sense that they apply to causes of action arising before the Act comes into force; however the provisions do not apply when proceedings are issued before the day on which this section comes into force.

Issuing proceedings is defined as “proceedings started by the issue of a claim form” and so the matter being in the portal prior to implementation day does not succeed in avoiding the new sanctions.

The provision is similar to section 26 of the Civil Liability and Courts Act 2004 in the Republic of Ireland, the text of which appears at the end of this piece.

Make no mistakes about the huge extra risk this imposes upon claimants’ solicitors. A case previously unlosable on liability – for example a person injured whilst travelling as a passenger – will now lose on liability if they are fundamentally dishonest in relation to any part of the claim.

A good solicitor should be able to spot liability and causation issues and take the case on with her or his eyes open, but spotting what might just be mild exaggeration is impossible.

Section 57 alone justifies a 100% success fee in every case and solicitors may now take the view that 35% of damages is the appropriate fee from the client, rather than the more usual 25%. Remember that it is only the success fee, not overall solicitor and own client costs, that are limited to 25%.

Section 57 will cause major problems in relation to after the event insurance. A case where there was no liability risk, but rather just a Part 36 risk will now have a liability risk. A case where liability has been admitted will now be lost on liability at a quantum hearing if the court finds that there has been fundamental dishonesty in relation to any part of the claim.

Thus all quantum hearings are potentially liability hearing replays.

A claim is brought. Liability is admitted. Past specials are agreed and paid at £40,000. Generals are agreed and paid at £30,000. There is a dispute about future loss of earnings and that issue goes to court and the judge finds that the claimant had an unrealistic view of his future career prospects and has been fundamentally dishonest in his future loss of earnings claim.

Bang goes the whole award and the claimant must refund the £70,000. Admissions in personal injury cases are now meaningless.

Satellite litigation will not begin to describe what will happen; it will be constellation litigation.

It was pointed out in the debate in the House of Lords on 23 July 2014 that the whole clause is designed to do substantial injustice, that is a Claimant with a good claim has the whole claim dismissed because of “fundamental dishonesty”, whatever that means, in relation to one part of the claim.

Lord Marks said:-

“…the subsection works against the interests of justice, or certainly risks doing so, in two ways. The first is by imposing a presumption in favour of dismissal, subject to a modest saving provision that, frankly, is difficult to understand.”

“…the saving subsection,

“unless it is satisfied that the claimant would suffer substantial injustice, if the claim were dismissed”,

is very difficult to understand. On one view of justice, and the view of justice which appears to be intended by the proponents of the clause, if there is dishonesty, it is not unjust for the whole claim to go. If that is the meaning, how does the saving provision come in at all? If, on the other hand, it means that the interests of justice seem broadly to require the claimant still to get some of his damages, does that amount to a duty to dismiss or is it merely a power to dismiss, which is what my amendments are directed to?”

“The second area where I believe there is a risk that justice will not be done is that the clause as it stands allows for no middle course—no way of allowing a judge to reduce the damages rather than dismiss the claim, where a reduction in damages is really what is required to do justice between the parties.”

Quite.

Lord Marks also posited the question as to whether, for example, claiming five bus fares when only one was incurred requires the whole claim to be disallowed in what could be a very serious injury case.

Lord Beecham asked why this provision was being brought in only for personal injury claims and not, for example, for breach of contract claims, professional negligence claims etc etc.

It was also pointed out that in cases of catastrophic injury – which is where the point is most likely to be taken by the defendant’s’ insurance companies – the losing party is likely to be the taxpayer who will have to pay for the care of a seriously injured person where the injuries have been caused by a defendant tortfeasor which has got off scot-free, or rather the insurance company has got off scot-free.

Thus the burden passes from an insurance company to the taxpayer.

Either the legal world is going mad or I am.

 

FUNDAMENTAL DISHONESTY

In Hayward v Zurich Insurance Company plc [2015] EWCA Civ 327

the Court of Appeal overturned a first instance decision that a claimant should repay a large part of a personal injury award from an earlier settled action.

It will now be very difficult for the settled cases to be reopened.

Here the claimant had been injured at work and liability was admitted and shortly before trial the action was settled for £134,973.11, the insurer having argued that the claim was exaggerated. It settled for around one third of the sum claimed.

After settlement the insurers were informed that the claim had been inflated and they successfully sued the claimant for fraudulent misrepresentation in claimed rescission of the agreement. The judge held that the true value of the claim was £14,720.00 and ordered the claimant to repay the balance.

On appeal it was argued that the insurer had settled the original action on the basis that it was overstated and fraudulent and thus should not be allowed to reopen the case simply because it now had better evidence to establish one of the factors that it had taken into account when deciding to settle. To allow the insurer to reopen the case would make settlements difficult, if not impossible.

The Court of Appeal upheld those submissions. It pointed out that the contract was one to compromise a disputed claim and that the misrepresentation on which the claim for rescission was based consisted of some of the very facts averred by the claimant in advancing the claim. This was not a case of collateral representations designed to induce the settlement as in cases such as:-

Gilbert v Endean [1878] 9 Ch D 259 or Dietz v Lennig Chemicals [1969] 1 AC 170.

Consequently the defendant could not now have the agreement set aside simply because he could now show that the statements put forward by the claimant had been wrong.

“In deciding to settle the defendant takes the risk that those statements are in fact untrue (or, to put it more accurately, would not be proved at trial) and pays a sum commensurate with his assessment of that risk. He could have taken the case to trial in order to disprove the statements in question; but by settling he agrees to forego that opportunity and he cannot reserve the right to come back later for another attempt. If it were otherwise no settlement would be final.” (Paragraph 16 of the Judgment).

By entering into the settlement the defendant implicitly agrees not to seek to have it aside on the basis that the statements made in support of the claim were faults.

The Court of Appeal went on to say that the position would be different where the factual statements advanced by the claimant and replied upon by the defendant were not merely faults but were fraudulent. However the court went on to say:-

“If it is in any case sufficiently apparent that the defendant intended to settle notwithstanding the possibility that the claim was fraudulently advanced, either generally or in some particular respect – the paradigm being where he has previously so asserted – there can be no reason in principle why he should not be held to his agreement even if the fraud subsequently becomes demonstrable.” (Paragraph 19 of the Judgment).

The Court of Appeal said that it cannot be right that a defendant who has made an allegation of fraud against the claimant but decided not to have it tested in the court should be allowed, whenever he chooses, to revive that allegation as a basis for setting aside the settlement.

That was the case here.

Parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later. Here Zurich had alleged fraud from the outset and what happened afterwards was that better evidence of that fraud came to light after the settlement contract had been made.

At paragraph 33 the court said:-

“To extend the law of rescission in the manner here under consideration would have the most unfortunate consequences. The first would be that it would become almost impossible to compromise a whole swathe of litigation if settlements were vulnerable to being set aside in this manner. Apprehension by one party that his opponent may persuade the trial judge of matters which he denies, and disbelieves, is an everyday characteristic of litigation, and a healthy driver towards settlement, as every mediator knows. If the principle contended for were correct, almost any litigant could say that he was influenced to settle a case for more than it was worth because of a fear that the judge might believe his opponent, even though he did not. To be able to treat as an actionable misrepresentation the opponent’s statement of his case merely because of such an everyday apprehension would expose almost any settlement to subsequent attack if fresh evidence became available. Indeed, there is nothing in the reliance test propounded by the judge that would even make the obtaining of fresh evidence a necessary condition. The public policy which encourages settlement of litigation would be gravely undermined if, in effect, dissatisfaction on either side led, with or without later forensic research, to the settlement being impugned on the ground that the opponent’s case contained a misrepresentation which, without being believed, influenced the terms of settlement.”

This case would have been decided differently had the new section 57 of the Criminal Justice and Courts Act 2015 been in force at the time.

The court clearly found fundamental dishonesty, indeed fraud, and therefore there could have been no question of any part of the claim being allowed to stand; the whole claim would have had to have been dismissed, even though the Defendant was liable for part of the damages.

The case is potentially significant in relation to the definition of fundamental dishonesty, both in relation to section 57 and also in relation to Qualified One-Way Costs Shifting.

Working on the basis that anything that constitutes fraud has also passed the fundamental dishonesty test, that is assuming that fundamental dishonestly is in fact a step short of fraud, then any exaggeration for financial gain will constitute fundamental dishonesty and thus trigger the loss of Qualified One-Way Costs Shifting protection and also the loss of the whole claim which otherwise would have been successful.

Here the allegation of the defence was as follows:-

“The Claimant has exaggerated his difficulties in recovery and current physical condition for financial gain.”

There was no direct reference to fraud or dishonesty.

Indeed the whole point of the second action was that they had now discovered that the claimant had acted fraudulently and they had not taken that into account when setting the first action.

Here the court said, at paragraph 20:-

“The employers had in their Defence not simply put them in issue but positively asserted that they were dishonestly advanced: see para. 2 above. Ms Adams [counsel for the insurance company] argued that the relevant paragraphs did not amount to a plea of fraud, but I cannot see how an averment that the Appellant was exaggerating his disability “for financial gain” can be anything else.”

Later at paragraph 26 another judge of the Court of Appeal referred to “the grossly inflated amount which he received upon the settlement of his fraudulently exaggerated claim”.

In Creech v Severn Valley Railway, 25 March 2015, Telford County Court, Unreported, District Judge Rodgers made a finding of fundamental dishonesty and thus denied the claimant the protection of Qualified One-Way Costs Shifting and ordered the claimant to pay defence costs of over £11,000.00.

The claimant was a security guard who fractured his shoulder and brought a personal injury claim on the ground that he had tripped on matting left behind after an ice-rink had been removed from a railway station in Worcester where the defendant company had installed it to entertain families while the railway was closed.

The judge accepted evidence from the defendant company that the ice-rink was still on the concourse at the time that the accident was alleged to have happened and had not been dismantled and therefore the claimant could not have been telling the truth. The judge rejected a suggestion that the claimant had simply made a mistake in his evidence.

In September 2014 District Judge Dudley, sitting at Southend County Court, said that he had “absolutely no doubt whatever in my mind” that the claimant had been fundamentally dishonest in giving evidence and thus he deprived the claimant of the protection of Qualified One-Way Costs Shifting and ordered the claimant to pay costs of £6,000.00 in addition to the £1,000.00 costs of the application by the defendant for a ruling that the claimant had been fundamentally dishonest.

The defendant was insured with Admiral and its insured was accused of driving into the back of the claimant’s car after the claimant performed an emergency stop to avoid a collision with a motorbike. The claimant alleged that he had suffered neck and back whiplash injuries which persisted for months and obtained GP reports for himself and his passenger.

The court held that in fact there had been no contact at all between the two vehicles.

Defence Lawyer James Heath, of Keoghs, has said that the new rule on Fundamental Dishonesty brings with it “a lot of potential for satellite litigation”.

FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000

FIXED RECOVERABLE COSTS IN ALL CIVIL CASES UP TO £250,000

In Chapter 16 of Lord Justice Jackson’s Review of Civil Litigation Costs: Final Report he set out a proposal by Cameron McKenna LLP for fixing recoverable costs in all civil litigation where the damages are £250,000 or less.

This proposal is now very much back on the agenda and was referred to again by Lord Justice Jackson in a speech given at the Costs Law and Practice Conference on 30 September 2014.

Much more in due course, but here is a brief reminder of the proposal, which applies to all civil cases, not just personal injury work.

Case settles pre-issue

Fixed Recoverable Costs (FRC)                                             =             10% of settlement

Case settles post-issue but pre allocation                         =             15% of settlement

Case goes to trial                                                               =             40% of settlement

There will be other, as yet unspecified percentage figures for other, as yet unspecified, stages. However those stages are likely to mirror those in the existing FRC scheme for personal injury work, that is:

1 – Pre issue

2 – Post issue – pre allocation

3 – Post allocation – pre listing

4 – Post listing – pre trial

5 – Trial

As will be seen specific percentages have been suggested for stages 1,2 and 5, but not 3 and 4. Those are likely to be 25% and 30% respectively.

These figures are likely to include counsel’s fees but exclude VAT and disbursements, that is VAT and disbursements can be charged on top but counsel’s fees will be included in the fixed fee.

So, for example, a £200,000 claim goes to trial. The FRC are £80,000 plus VAT and disbursements, but including counsel’s fees.

The solicitor is free to charge the client solicitor and own client costs on top. I am certain that the market will settle down with this being a damages-based fee, albeit expressed as a cap on unrecovered solicitor and own client costs and success fee.

Typically this may be 30% of damages if existing arrangements are anything to go by. This element includes VAT, so the fee for that £200,000 claim will be

FRC                                       £80,000

VAT thereon                          £16,000

Charge to client                     £50,000

VAT thereon                          £10,000

plus disbursements excluding counsel’s fees.

Thus the profit costs will be £130,000 including counsel’s fees.

If you can’t make a living on that then you are in the wrong profession.

The potential massive losers here are barristers. Once solicitors are paying counsel out of their own fixed fees things change. This has already happened in FRC in personal injury cases and has always been the case in employment tribunals where cases are often dealt with on a contingency fee basis with any counsel’s fee coming out of the solicitor’s fee.

Watch this space.