Kerry Underwood

Archive for July 2016


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In Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1937 (Comm) (27 July 2016)


a claimant beat its own Part 36 offer only because of a change in the exchange rate between the pound and the dollar by the time the Judgment was given.


The claimant had made an offer of £3,775,272.00.


The court made an award of $5,430,924.00 equating to £4,117,114.00 at the exchange rate current on the day of judgment.


However when the offer was made it equalled $6,342,457.00 and thus taking that figure the claimant had not beaten its offer.


The court held that the value must be taken as at the date when the order containing the court’s judgment is made – see Barnett v Creggy [2015] EWHC 1316 (Ch).


Thus the claimant had beaten its offer.


However the court held that it was entitled to take into account the fact that the only reason that the claimant had beaten its offer was the fall in the value of Sterling against the Dollar.


Even at the start of the trial the value of the offer was more than subsequently awarded:-


“If judgment had been entered at any time between the start of the trial on 26 April and 23 June 2016, Novus would not have beaten its Part 36 offer and orders for interest at an enhanced rate and indemnity costs could not have been made. It is only through the happenstance that the judgment was not handed down until 30 June 2016 that the possibility of making such orders exists.”


The court exercised its discretion to refuse to award these extras as it would be unjust so to do as provided by CPR 36 itself:-


“I consider that it would in these circumstances be unjust to make orders under CPR 36.14(3) for any part of the period between the date on which “the relevant period” expired and today’s date. The reality is that if at almost any time between the date when the offer was made and the end of the trial Alubaf had accepted the offer, the sum received by Novus would have been worth more than the judgment which it has ultimately obtained (even ignoring the time value of money). It would in these circumstances be adventitious and inconsistent with the principle of risk allocation which underlies Part 36 to penalise Alubaf for not accepting the offer.”




Variations on this theme throw up some interesting points.


Supposing the Pound strengthens against the Dollar and the claimant had made an offer of £4 million.


The court makes a Dollar award which at the exchange rate at the date of the offer exceeded £4 million but, due to the weakening of the Dollar, as at the date of judgment is, say, £3.5 million.


Following the logic in Novus, that the claimant had beaten its offer as the relevant date is the date of judgment, then it must follow that in this scenario the claimant has failed to beat or match its offer.


In those circumstances the court has no discretion to give the extras, although arguably it could use its general discretion to award the claimant indemnity costs from the date of expiry of the relevant period.


However, traditionally, where a claimant does not match or beat its own offer then there can be no criticism of the defendant for failing to accept an offer that is higher than the court eventually awards.


In any event the court has no discretion to award the 10% uplift in damages. That only occurs when a claimant matches or beats its own Part 36 offer.


Thus, on the logic of Novus, a claimant making a Part 36 offer always loses out on currency exchange.


My view is that the court exercised its discretion wrongly, or at least failed to consider its effect in other scenarios.


Defendants’ Part 36 offers


Sterling weakens


The defendant makes a Part 36 offer of £4 million, which at the time it is worth $6 million.


Sterling weakens. The court orders exactly $6 million and so by that measure the claimant has failed to beat the defendant’s Part 36 offer and is liable for costs from the expiry of the relevant period until judgment.


However, due to the weakening of Sterling, that award of $6 million is now worth £5 million and thus the claimant has beaten the defendant’s Part 36 offer.
Again, absent any wrongdoing on the claimant’s behalf, the court appears to have no discretion to award  costs against the claimant, even though, at one level, the claimant clearly should have accepted the offer.


Sterling strengthens


The defendant makes an offer of £4 million, which equates to $5 million.


The court awards $6 million, but that is now worth only £3.9 million as Sterling has strengthened and therefore more Dollars buy less Pounds.
Thus the claimant has failed to beat the defendant’s offer even though it has recovered more in Dollars than was effectively on offer for the period of accepting the defendant’s offer.


Presumably there the court would exercise its discretion not to order the claimant to pay  costs from expiry of the relevant period.

Are parties under a duty to keep an eye on exchange rates in such circumstances?


In the Novus case the claimant simply did not get the benefit following from beating its own offer.


Is it open to a court, under its general discretion on costs – which is very wide – to say in such a situation:-


“You should have lowered your offer. You knew any award would be made in Dollars and therefore you would require fewer Pounds as those Dollars would be worth more on judgment.”


Matters can become extremely complicated if both parties have made Part 36 offers – a blog on that must wait another day.


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July 29, 2016 at 8:45 am

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A client is a passenger in a bus which is involved in a collision with a car and the passenger has no idea what happened as they were reading and not paying attention to what the bus was doing.
The passenger is injured and eventually issues proceedings against the bus company who blame the driver of the car and the passenger then issues against the driver of the car.


The driver of the car then makes a Part 36 offer in the sum of £2,500.00, which is a good offer.


However Part 36 provides that an offer cannot be accepted by the claimant unless all defendants consent and the bus company has not consented as they want their costs.
There are different insurers involved for the bus company and the car driver.


Ignoring the Part 36 point for the moment, can the bus company avoid the QOCS protection that the passenger has by setting off the costs order that it will get, but be unable to enforce, against the damages?


On the face of it the answer should be no as set-off is between parties where A owes B money and B owes A money and the fact that C is owed money should not affect the transaction between and A and B.


However there is a case at first instance which came to a different view.


As far as the Part 36 point is concerned it appears that the claimant could make a Part 36 offer in the sum of £2,500.00 as there is nothing to prevent a defendant from accepting a claimant’s offer in such circumstances.


Alternatively the claimant could ask the defendant to make a non-Part 36 offer of £2,500.00 and undertake to accept such an offer within 10 minutes of it being made, or whatever.
Thus the rule in Part 36 appears to be capable of being got round if there is a genuine wish to settle between, in this case, the passenger and the car driver, but there remains the issue of enforcement or otherwise of the costs order which the bus company will inevitably obtain on discontinuance or on dismissal of the claimant’s claim against the bus company.


Written by kerryunderwood

July 28, 2016 at 9:56 am

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New rules in relation to costs budgeting came in on 6 April 2016, but only apply to proceedings issued after that date and so will only now be starting to have effect.


Dates for filing costs budgets


New CPR 3.13 provides:-



  • Unless the court otherwise orders, all parties except litigants in person must file and exchange budgets—


  • where the stated value of the claim on the claim form is less than £50,000, with their directions questionnaires; or


  • in any other case, not later than 21 days before the first case management conference.


  • In the event that a party files and exchanges a budget under paragraph (1), all other parties, not being litigants in person, must file an agreed budget discussion report no later than 7 days before the first case management conference.”


The sanction remains the same,  that is that failure to file the budget on time results in the defaulting party having its own costs budget limited to court fees, unless relief from sanction is granted.


In those circumstances, that is where the costs budget is limited to court fees, this rule has been softened in relation to the situation where a claimant matches or beats its own Part 36 offer at trial.


By virtue of CPR 36.23 such a claimant can get 50% of its assessed costs without reference to that limitation.


Likewise a defendant who makes an offer which a claimant fails to beat shall receive 50% of its assessed costs from the period from the expiry of the time for accepting the Part 36 offer until settlement or court order stop.


There is little problem with CPR 3.13(1) (a) as the parties know when the Directions Questionnaires are to be filed, but (b) can cause problems as the costs budget has to be filed 21 days before the first Case Management Conference, even if the court only gives little notice, due to the frequent and lengthy time gap between the court making the order and the order being sent out.  


Simon Gibbs, in his excellent Legal Costs Blog states in his post on 19 July 2016 – Date to File Costs Budgets


“It is difficult to see the logic behind the different dates for when the budgets should be filed and exchanged.  To do so with the directions questionnaire, for lower value claims, is inevitably a costs front-loading step.  It is likely to be a more disproportionate additional cost for these lower value claims than it would be for higher value ones.  It is also more likely to be an additional wasted cost as lower value claims are, on average, more likely to settle at an early stage in proceedings and often well before a CMC (when a costs management order might actually be made).


The latter problem is compounded by the fact that the courts continue to struggle to list matters for CMCs at an early stage.  The consequence of this is that by the time the matter does reach a CMC the earlier costs budgets will often be out-of-date and largely redundant (with the work therefore either being wasted or having to be repeated with up-to-date budgets).


It is unfortunate that the rules have been drafted in such a way as to generate a largely unnecessary and unhelpful front-loading of costs.  Unless you are a costs lawyer or law costs draftsman I suppose.”


It has also been pointed out that the “unless the court otherwise orders” provision still remains in force and that courts are still sending out the Notice of Allocation which contains a provision that budgets are to be filed with the Directions Questionnaire regardless of the value. On the face of it this conflicts with CPR 3.13, but is arguably allowed under the “unless the court otherwise orders” provision, even though no one will have actually made a decision.


Changes to Practice Direction 3-E Costs Management


Sub-paragraph (b) provides that “parties must follow the Precedent H Guidance Notes in all respects”.


(c) states:-


“(c) In cases where a party’s budgeted costs do not exceed £25,000 or the value of the claim as stated on the claim form is less than £50,000, the parties must only use the first page of Precedent H.”


Thus if the value of the claim as stated on the Claim Form is less than £50,000.00 then only the first page of Precedent H must be completed.


Even if the value of the claim stated on the Claim Form is £50,000.00 or more then only first page of Precedent H must be completed if the party’s budgeted costs are £25,000.00 or less.


In non-multi track claims and fixed costs cases there is no requirement to file a budget. Consequently claims for damages for £25,000 or less, which will normally be fast-track claims, do not require a budget unless allocated to the multi-track. A higher value claim not allocated to the multi-track does not require a budget either.

Fixed Costs cases can be allocated to the multi-track, for example if there is an allegation of fraud, but do not require a budget unless the court so orders, which it may well do in those circumstances.


Budget discussion report


New Practice Direction 3 – E – C – 6A provides:-


“The budget discussion report required by rule 3.13(2) must set out—


(a)          those figures which are agreed for each phase;


(b)          those figures which are not agreed for each phase; and


(c)           a brief summary of the grounds of dispute.


The parties are encouraged to use the Precedent R Budget Discussion Report annexed to this Practice Direction.”


Precedent R is here.


Other changes


Exemption for children


A new CPR 3.12(1 )(c) is inserted:-


“(c)         where in proceedings commenced on or after 6th April 2016 a claim is made by or on behalf of a person under the age of 18 (a child) (and on a child reaching majority this exception will continue to apply unless the court otherwise orders); or


  • where the proceeding are the subject of fixed costs or scale costs; or


(e) the court otherwise orders.”


CPR 3.12 is the exception provision and the full rule may be found here.


This new provision may well apply to fatal accident cases where a claim is brought on behalf of a child, even where the child is not a party as the rules state “made by or on behalf of a child”. Thus in a fatal accident case where one of the dependents is a child this provision may apply. The action may be brought by the executors, administrators or other dependents, but the claim is brought on behalf of all of the dependents.


Impaired life expectancy


As we have seen the exemption for children is part of the Civil Procedure Rules. The Practice Direction provides another potential exemption in that it states that the court will “normally dis-apply” costs management in a case where the claimant has limited or severely impaired life expectancy.


The relevant Practice Direction is PD 3E-2(b) which reads:-


“(b) In cases where the Claimant has a limited or severely impaired life expectation (5 years or less remaining) the court will ordinarily disapply cost management under Section II of Part 3.”


No fixing of hourly rates


Generally courts have not set hourly rates at the costs budgeting stage and there is a new Practice Direction at paragraph 7.10 of Practice Direction 3-E:-


“7.10 The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget. It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget. The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”


Bill of Costs to show each phase


In Practice Direction 47 – Procedure for Assessment of Costs and Default Provisions – new sub-paragraphs 5.8(7), (8) and (9) are inserted as follows:-


“(7) Where the case commenced on or after 1 April 2013, the bill covers costs for work done both before and after that date and the costs are to be assessed on the standard basis, the bill must be divided into parts so as to distinguish between costs shown as incurred for work done before 1 April 2013 and costs shown as incurred for work done on or after 1 April 2013.


(8) Where a costs management order has been made, the costs are to be assessed on the standard basis and the receiving party’s budget has been agreed by the paying party or approved by the court, the bill must be divided into separate parts so as to distinguish between the costs claimed for each phase of the last approved or agreed budget, and within each such part the bill must distinguish between the costs shown as incurred in the last agreed or approved budget and the costs shown as estimated.


(9) Where a costs management order has been made and the receiving party’s budget has been agreed by the paying party or approved by the court, (a) the costs of initially completing Precedent H and (b) the other costs of the budgeting and costs management process must be set out in separate parts.”


The amendment rules are the Civil Procedure (Amendment) Rules 2016 and are here 

The 83rd Update – Practice Direction Amendments – are here.

I am very grateful to Gordon Exall for his indispensable blog – Civil Litigation Brief and to Simon Gibbs for his excellent Legal Costs Blog.

Written by kerryunderwood

July 28, 2016 at 7:23 am

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Kerry Underwood

The application form

An application for help with fees, that is to avoid paying a court or tribunal fee altogether, or getting a reduction on the normal fee, is made on Form EX160 – Apply for Help with Fees – available here.

From 20 June 2016 potential users of the court have been able to apply for “Help with Fees” online at

“Help with Fees” is the name now given to fee remission.

The process for applying online is:-

  • court users will be able to enter their details and check them before submitting the application;
  • court users will receive an application reference number that needs to be written on their Court/Tribunal claim or application form;
  • if the application reference number is not written on the Court/Tribunal claim or application form, staff will not be able to process the application for help with fees;
  • the applicant will receive a confirmation…

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Written by kerryunderwood

July 27, 2016 at 10:01 am

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Suppose for example the vehicle damages aspect of a claim is settled for £2,000.00 out of the portal but pre-issue and the general damages claim settles for £5,000.00 post-allocation.


The fee for a matter settled post-allocation is £1,880.00 as the core fee plus 20% of damages. Thus in that example is it 20% of £7,000.00, being the total of the settlement sum, or is it 20% of £5,000.00 being the sum settled at that stage?


A case settled pre-issue for between £1,000.00 and £5,000.00 attracts a fee that is the greater of £550.00 or £100.00 plus 20% of damages.


Thus in the example given a fee for settlement of the £2,000.00 element pre-issue would be £550.00 as that is the minimum, but arguably the claimant has then effectively got two core fees.


In that particular example the claimant would receive more costs because part of the claim was settled early. That seems to make little sense.




Fee payable
In relation to the settlement pre-issue of £2,000.00, the fee would be: £550.00
Balance of £5,000.00, the fee would be £1,880.00
20% of damages £1,000.00
Overall total £3,430.00



However if the correct analysis is that the whole of the £7,000.00 comes into play at the post allocation period then the calculation would be:-


Fee payable
Balance of £7000.00, the fee would be £1,880.00
20% of damages £1,400.00
Overall total £3,280.00


However let us turn that around and assume that the £5,000.00 element was settled pre-issue and the £2,000.00 element post-allocation.


The calculation is then as follows:-


Pre-issue costs of £100.00 plus 20% of damages £1100.00
Post-allocation costs of £1,880.00 plus 20% of damages of £2,000  (£400.00) £2280.00
Total £3380.00


Again the claimant is getting more because part of the claim settles early and that does not seem logical.


Clearly fixed costs are structured on the basis of a fixed core cost plus a percentage of damages. The fixed core cost is to represent the fact that there is a minimum amount of work in any case.


The potential effect is that if different parts of the claim are settled at different stages then the claimant could get the core costs several times over.


On the other hand if no fee is payable in respect of the first payment then surely the value of that payment must be taken into account later on as otherwise the claimant will get nothing for the work done in relation to the earlier settled aspect of the claim.


For example if there is a £100,000.00 claim, of which £80,000.00 is vehicle related damage and that element settles pre-issue and the £20,000.00 element settles later and costs paid on the basis of that £20,000.00, then the claimant’s solicitors would have recovered £80,000.00 and received no costs.


Thus it seems likely that one takes the later stage at which any part of the claim was settled but then uses the total settlement figure, whenever those elements have been settled.


However it appears that nothing settled in the portal comes into play.


On a high value claim this can have a significant effect.


Let us take the £100,000.00 claim, of which £80,000.00 is vehicle related damage. There is no doubt that such a claim goes into the portal and therefore goes into the Fixed Costs Regime.


If the £20,000.00 aspect is settled pre-issue and the £80,000.00 aspect settled post-allocation then the calculation is as follows:-


Pre-issue element £1,930.00 + 10% of £10,000.00 (damages over £10,000.00) £2,930.00
Post-allocation £1,880.00 plus 20% of damages (£80,000.00) £17,880.00
Total £20,810.00


Turn that around the other way:-


Pre-issue element £1,930.00 plus 10% of damages over £10,000.00 (£70,000.00) £8,930.00
Post-allocation £1,880.00 + 20% of damages (£20,000.00) £5,880.00
Total £14,810.00


If part of a claim is resolved within the portal then the portal costs are payable for that element and only the unresolved balance is subject to fixed costs and that was confirmed in the case of


Bewicke-Copley v Ibeh, Oxford County Court, 029YJ613, 4 June 2014


where most of the claim had been resolved in the portal leaving the balance, which was not resolved in the portal, as below the small claims limit.


The judge held that no costs were payable in relation to that balance as it was below the small claims limit and the solicitors had been paid in the portal for the resolved element.


All of this will be of greater significance once fixed costs cover everything up to £250,000.00.


The key point is that Fixed Costs are far from fixed.


Written by kerryunderwood

July 27, 2016 at 7:25 am

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In Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45   20 July 2016


the Supreme Court has held that where an insured lies in support of a claim but those lies do not affect the right of the insured’s recovery under the insurance policy, then the insurance company must pay out.


This decision has been widely misunderstood in relation to its application to the concept of fundamental dishonesty in personal injury claims, presumably by people who have not got as far as reading paragraphs 94 to 96 of the 55 page judgment.


Far from indicating a lax approach to fundamental dishonesty the case strongly suggests a very tough line indeed, that is that any dishonest exaggeration for financial gain, however small, amounts to fraud and therefore fundamental dishonesty, and therefore brings Section 57 of the Criminal Justice and Courts Act 2015 into play to overturn the whole award.


At paragraph 95 the Supreme Court points out, but does not seek to define, the “substantial injustice” exception.


Here the Supreme Court termed lies which made no difference “collateral lies” and held, by a 4 – 1 majority, that the fraudulent devices rule, which allows insurers to reject fraudulent claims, does not apply to such collateral lies.


Thus such a claim is not a fraudulent claim entitling the insurer to avoid it.


In relation to contracts of insurance concluded after 12 August 2016 the rule has been restated, and its other consequences defined, in Section 12 of the Insurance Act 2015. This ruling applies to that Act as that Act does not attempt to define what makes a claim fraudulent.

Contracts between insurers and their insured are contracts of utmost good faith. That principle does not apply to negligence actions against another party which is indemnified by insurance.


Here the insurers were seeking to avoid the claim, not the contract, and therefore the Supreme Court was not considering the issue of utmost good faith in its entirety.


It was accepted that even where a party is claiming against its own insurer the utmost good faith condition is modified in relation to the bringing of a claim, as compared with the entering into of the contract in the first place.


This case involved a cargo ship which ran into difficulty after its engine room was flooded. The owners deliberately lied in saying that the crew did not investigate an alarm call as the ship was rolling in heavy seas.


In fact the accident was caused during the voyage by sea water entering the engine room and was thus covered by the insurance policy, which remained valid, and so the lie was irrelevant.


The insured had made this false statement in the belief that it would fortify the claim and accelerate payment, as he was frustrated by the insurer’s delay.


The false statement was made once in one email to the insurer’s solicitors and was not persisted in at the trial.


The High Court sitting at first instance found as a fact that the lie was irrelevant to the merits of the claim but that the insurers were nevertheless entitled to repudiate the claim.


The Court of Appeal agreed but the Supreme Court overturned that finding, with Lord Clarke saying:-


“The critical point is that, in the case of a collateral lie… the  insured  is  trying  to  obtain  no  more  than  the  law  regards  as  his entitlement and the lie is irrelevant to the existence or amount of that entitlement. Such a lie is thus immaterial to the claim. As Lord Sumption puts it, the lie is dishonest but the claim is not.” (Paragraph 40).


Lord Sumption said that for a claim to be fraudulently exaggerated the insured’s dishonesty must be calculated to get him something to which he is not entitled.


The position is different where the insured is trying to obtain no more in law than his entitlement and the lie is irrelevant to that entitlement.


Here the lie was dishonest, but the claim was not. A policy of deterrence did not justify the application of the fraudulent claims rule in such a situation.

Note that if the lie had been a relevant one, for example a small exaggeration of the amount, then one email would have been enough to lose the whole claim. Personal injury lawyers take very careful note.


The obiter comments of Lord Mance in the Court of Appeal in


Agapitos v Agnew (The Aegeon) [2002] EWCA Civ 247;


that insurers could reject a claim because of collateral lies were rejected.


In fact even exaggerated claims against another person’s insurance company have traditionally been allowed by the courts in circumstances where they would have failed against the person’s own insurance company.


On the face of it that remains the law; any exaggerated claim against one’s own insurer would still be disallowed as a material lie is not a collateral lie, but a claim against someone else’s insurance company would be allowed to the extent of the true validity of the claim.


In other words you can “try it on” against someone else’s insurer and still win, but not your own insurer.


The Supreme Court recognized this, saying at paragraph 9:-


9. What matters for present purposes is the rationale of the rule, on which there is a broad consensus in the authorities. It is the deterrence of fraud. As Lord Hobhouse observed in

The “STAR SEA” [Manifest Shipping Co Ltd v Uni-Polari Insurance Company Ltd (The “STAR SEA”) [2003] 1 AC469] at paragraph 62,


“The logic is simple.  The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.”


The Supreme Court also recognized that this rule did not apply where the contract was not one of insurance, for example a negligence action in personal injury.


“10. Fraudulent insurance claims are a serious problem, the cost of which ultimately falls on the general body of policyholders in the form of increased premiums. But it was submitted to us that a forfeiture rule was not the answer to that problem. There was, it was said, little empirical evidence that the common law rule was an effective deterrent to fraud, and no reason to think that the problem was peculiar to claims on insurers as opposed to, say, claims in tort for personal injuries, the cost of which also falls ultimately on insurers and policyholders without there being any equivalent common law rule. Informational asymmetry is not a peculiarity of insurance, and in modern conditions may not even be as true of insurance as it once was. These points have some force. But I doubt whether they are relevant. Courts are rarely in a position to assess empirically the wider behavioural consequences of legal rules. The formation of legal policy in this as in other areas depends mainly on the vindication of collective moral values and on judicial instincts about the motivation of rational beings, not on the scientific anthropology of fraud or underwriting. As applied to dishonestly exaggerated claims, the fraudulent claims rule is well established and, as I have said, will shortly become statutory.”


Curiously the law has always been that any duty of good faith in the presentation of a claim ended with the commencement of proceedings even as between an insured and its own insurer.


Returning to the difference between a fraudulently exaggerated claim and a justified claim supported by collateral lies the Supreme Court had this to say:-


“25. In this context, there is an obvious and important difference between a fraudulently exaggerated claim and a justified claim supported by collateral lies. Where a claim has been fraudulently exaggerated, the insured’s dishonesty is calculated to get him something to which he is not entitled. The reason why the insured cannot recover even the honest part of the claim is that the law declines to sever it from the invented part. The policy of deterring fraudulent claims goes to the honesty of the claim, and both are parts of a single claim: Galloway v Guardian Royal Exchange (UK) Ltd[1999] Lloyd’s Rep IR 209, 213-214 (CA); Direct Line Insurance v Khan[2002] 1 Lloyd’s Rep IR 364; AXA General Insurance Ltd v Gottlieb [2005] 1 All ER (Comm) 445 (CA), para 31. The principle is the same as that which applies in the law of illegality. The courts will not sever an agreement affected by illegality into its legal and illegal parts unless it accords with public policy to do so, even if each part is capable of standing on its own: Kuenigl v Donnersmarck [1955] 1 QB 515, 537 (McNair J); Royal Boskalis Westminster NV v Mountain [1999] QB 674, 693 (Stuart-Smith LJ), 704 (Pill LJ).


  1. The position is different where the insured is trying to obtain no more than the law regards as his entitlement and the lie is irrelevant to the existence or amount of that entitlement. In this case the lie is dishonest, but the claim is not. The immateriality of the lie to the claim makes it not just possible but appropriate to distinguish between them. I do not accept that a policy of deterrence justifies the application of the fraudulent claim rule in this situation. The law deprecates fraud in all circumstances, but the fraudulent claim rule is peculiar to contracts of insurance. It reflects, as I have pointed out, the law’s traditional concern with the informational asymmetry of the contractual relationship, and the consequent vulnerability of insurers. It is therefore right to ask in a case of collateral lies uttered in support of a valid claim, against what should the insurer be protected by the application of the fraudulent claims rule? It would, as it seems to me, serve only to protect him from the obligation to pay, or to pay earlier, an indemnity for which he has been liable in law ever since the loss was suffered. It is not an answer to this to say, as Christopher Clarke LJ did in the Court of Appeal, that the insurer may have been “put off relevant inquiries or … driven to irrelevant ones”. Wasted effort of this kind is no part of the mischief against which the fraudulent claims rule is directed, and even if it were the avoidance of the claim would be a wholly disproportionate response. The rule, moreover, applies irrespective of whether or not the lie set a hare running in the insurer’s claims department. Nor is it an answer to say, as the courts have often said of fraudulently inflated claims, that the insured should not be allowed a one-way bet: he makes an illegitimate gain if the lie persuades, and loses nothing if it does not. This observation, which is true of fraudulently inflated claims, cannot readily be transposed to a situation in which the claim is wholly justified. In that case, the insured gains nothing from the lie which he was not entitled to have anyway. Conversely, the underwriter loses nothing if he meets a liability that he had anyway.”


Although the Supreme Court recognized the difference between claims against one’s own insurance company and claims against another party who is insured it said that “the two species of fraud clearly exhibit shared features” and “an unacceptably high level of fictitious and dishonestly inflated claims thus formed part of the background against which the proper ambit of the fraudulent claims rule falls to be considered.” (Paragraph 56).


Thus the Supreme Court clearly had in mind application of its judgment to so-called third party claims,  that is a claim by one party against another party, rather than its own insured.


Fundamental dishonesty, Section 57 and Qualified One-Way Costs Shifting


The Supreme Court set out three possible scenarios:-


  1. The whole claim is fabricated.


  1. There is a genuine claim, the amount of which has been dishonestly exaggerated.


  1. The entire claim is justified, but the information given in support of it has been dishonestly embellished, either because the insured was unaware of the strength of the case or with a view to obtaining payment faster and with less hassle.


Scenario 1: The whole claim is fabricated


In scenario 1 the insurer will win on liability and no special rules need apply.


Section 57


Section 57 of the Criminal Justice and Courts Act 2015 will not apply as that only comes into effect if the claimant wins on liability.


Qualified One-Way Costs Shifting


The starting point is that a losing claimant pays costs.


In personal injury cases that rule is abrogated in certain circumstances by CPR 44.13 – 44.17 of the Civil Procedure Rules dealing with Qualified One-Way Costs Shifting whereby a winning personal injury claimant recovers costs, but a losing claimant does not pay them.


However QOCS does not apply to a fundamentally dishonest claim, which obviously a fabricated claim would be.


This disapplication of QOCS in a lost, fundamentally dishonest claim simply restores the normal, default position,  that is that the losing claimant pays.


As scenario one is the only instance in which the case is lost it is the only one to which QOCS applies.
Thus this decision makes no difference whatsoever to the application of Qualified One-Way Costs Shifting.



Scenario 2: There is a genuine claim, the amount of which has been dishonestly exaggerated


Qualified One-Way Costs Shifting


The claim is genuine, but exaggerated and so is won and therefore QOCS does not apply.


Section 57


This is a classic scenario for Section 57 to apply. The claim is won on liability but has been dishonestly exaggerated.


Thus the win is overturned in a personal injury case, as Section 57 only applies to personal injury claims.


Nothing in this decision softens that approach. On the contrary the Supreme Court reinforces the view that any dishonest exaggeration of the amount claimed, however small, allows the insurer to avoid the claim.


Although the law relating to insurer and insured does not apply directly to claims against someone else’s insurance company it is inconceivable that the court would apply a different principle in personal injury claims where Parliament has enacted that if the claimant has been fundamentally dishonest then the whole claim is lost.


The only issue in relation to fundamental dishonesty is how the courts will interpret Parliament’s use of the word “fundamental”.


Clearly the slightest exaggeration, even of a few pounds in a £1 million claim, is dishonest. It remains unclear as to whether in such circumstances a court could rule that such an exaggeration was dishonest, but nevertheless not fundamentally dishonest, or strictly, as the law requires, whether the claimant was fundamentally dishonest.


On the face of it even a collateral lie involves the claimant in being dishonest, but maybe the courts will hold that such an irrelevant lie does not satisfy the “fundamentally” dishonest test and that the significance or otherwise of the lie goes to its fundamental nature.


At the time of writing the Supreme Court’s decision in


Hayward v Zurich Insurance Company plc – UKSC 2015/0099


is awaited. The Supreme Court hearing took place on 16 June 2016.


However here the Supreme Court appears to be anticipating its decision in that case.


The Court of Appeal in


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


held that any exaggeration for financial gain was fraudulent.


Here, in a different context, the Supreme Court held that any such exaggeration of the amount of a claim is indeed fraudulent.


It seems unlikely that “fundamentally dishonest” requires a higher threshold than “fraudulent”. Thus it is likely that the courts will take a hard line on any exaggeration of any kind, however small, if that exaggeration is for financial gain.

Section 57 is indeed likely to apply to an exaggeration of a very small part of the claim.




Scenario 3: Dishonesty which makes no difference to the claim.


Qualified One-Way Costs Shifting


QOCS does not apply as the case is won and QOCS only applies to cases that are lost or where there is a failure to beat a Part 36 offer.


Section 57


The Supreme Court has held that such exaggeration which makes no difference to the claim is not fraudulent, even though it is dishonest. The court said that the lie is dishonest but the claim is not.


Given that the test in Section 57 is whether the claimant is fundamentally dishonest, rather than the claim, it could be argued that Section 57 still applies in such a scenario and therefore the win would be overturned.


This part of the decision is the most important as far as Section 57 is concerned.


It leaves open the ability of the court to find that such dishonesty, which does not affect the amount of claim, is indeed dishonest but not fundamentally dishonest, thus leaving the claim intact, valid and won.


It is possible, but in my view unlikely, that even in such circumstances, where a non-personal injury claim would succeed even against one’s own insurers, the courts could hold that the claimant him or herself was being fundamentally dishonest even though the claim was not.


If that is the view that the courts take then the win is overturned.
Those who take the view that requiring the claimant to be fundamentally dishonest, rather than the claim, involves a higher threshold of dishonesty before the claim can be overturned, are, to adapt a phrase, fundamentally wrong.




Qualified One-Way Costs Shifting


There is no doubt that as far as QOCS is concerned the decision is of no relevance whatsoever.


Section 57


  1. An entirely fabricated claim is lost anyway and thus Section 57 does not apply.


  1. A claim exaggerated for financial gain is fraudulent and therefore is likely to be held to be made by the claimant being fundamentally dishonest and be disallowed in full under Section 57, however small the exaggerated amount is and however low a percentage it is of the genuine element of the claim.


  1. Exaggeration which does not affect the validity, nor the amount of the claim, while dishonest, is likely to be held not to mean that the claimant is fundamentally dishonest and therefore the claim will not be overturned under Section 57. However for the reasons set out above this is not certain.


Dishonest exaggerations that do not affect a claim.


Examples may include:-


  • The speed of the other vehicle;


  • an untrue statement that the other party had admitted liability;


  • an untrue statement that the other driver’s breath smelled of alcohol or that the other driver was aggressive, or whatever;


  • lying about who the driver was in the mistaken belief that the actual driver was not insured – see the Australian case of of


Tiep Thi Ho v  Australian Associated Insurance Ltd [2001] VSCA 48;


  • causing further damage to an already damaged door before photographing it and sending it to the insurers in a claim for theft consequent upon a forcible entry – see the Australian case of


GRE Insurance Ltd v Ormsby [1982] 29SASR 498 ;


  • a genuinely burgled householder unquestionably absent at the time lying about where he was to avoid domestic embarrassment (see paragraph 90 of the judgment);


  • fabricating an invoice for the genuine value of a stolen item where the original had been lost.


Anything other than a hard, bright line where there has been dishonesty seeking financial advantage would be almost impossible to apply.


Would a £5,000.00 exaggeration be okay on a £1 million claim but not a £10,000.00 claim?


Is there to be a permissible fraudulent percentage, that is it is okay to lie to the extent of say 10% of the value of the claim, but nothing more?


One analysis of Section 57 is that effectively it applies the insurer/own insured test to claims between parties where the claimant is not seeking recovery from its own insurer, but rather the other party, normally the other party’s insurance company.


It is hard to argue with the logic of the rule being the same in both cases.


It may be that the rule is too severe under Section 57, but if that is the case it is strongly arguable that it is also too severe between an insured and its own insurance company but that argument has been comprehensively rejected by the Supreme Court here, and indeed by all courts over a very long period of time.


Specific reference to Section 57


At paragraphs 94 and 95 of the judgment here the Supreme Court refers to Section 57 in the context of a scenario 2 cliam, that is one where the claim is genuine but there is dishonest exaggeration for financial gain.


At paragraph 94 the court said:-


“94. There  is  no  doubt  that  the  purpose  of  the  fraudulent  claims  rule  is  to discourage  fraud,  having  regard  to  the  particular  vulnerability  of  insurers. This rationale has frequently been reiterated. In Galloway v Guardian Royal Exchange (UK) Ltd [1990] Lloyd’s Rep IR 209, 214, it was expressed thus by Millett LJ at 214: “The making of dishonest insurance claims has become all too common. There seems to be a widespread belief that insurance companies are fair game, and that defrauding them is not morally reprehensible. The rule which we are asked to enforce today may appear to some to be harsh, but it is in my opinion a necessary and salutary rule which deserves to be better known by the public. I for my part would be most unwilling to dilute it in any way.” And in The Star Sea Lord Hobhouse said this at para 62: “The logic is simple.  The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing.” This latter formulation of the justification for the rule, which has often been repeated, gives rise to the commonly used shorthand that the fraudulent insured must not be allowed a “one-way bet”. It was the principal argument relied upon by the insurers in The Aegeon and in the present case for the inclusion of collateral lies within the rule.”


The Supreme Court then links this “own insurer” rule,  that is that any dishonesty of any kind which affects the value of the claim leads to the whole claim being forfeited, to Section 57:


“95. The need for such a rule, severe as it is, has in no sense diminished over the years. On the contrary, Parliament has only recently legislated to apply a version of it to the allied social problem of fraudulent third party personal injuries claims. Section 57 of the Criminal Justice and Courts Act 2015 provides that in a case where such a claim has been exaggerated by a “fundamentally dishonest” claimant, the court  is  to  dismiss  the  claim  altogether,  including  any  unexaggerated  part,  unless satisfied that substantial injustice would thereby be done to him. Parliament has thus gone further than this court was able to do in Summers v Fairclough Homes.”


Thus the Supreme Court seems to leave open as the only possible difference being the “substantial injustice” exception.


In paragraph 96, which follows that link the Supreme Court said:-


“96. Severe as the rule is, these considerations demonstrate that there is no occasion to depart from its very long-established status in relation to fraudulent claims, properly so called. It is plain that it applies as explained by Mance LJ in The Aegeon at paras 15 – 18. In particular, it must encompass the case of the claimant insured who at the outset of the claim acts honestly, but who maintains the claim after he knows that it is fraudulent in whole or in part. The insured who originally thought he had lost valuable jewellery in a theft, but afterwards finds it in a drawer yet maintains the now fraudulent assertion that it was stolen, is plainly within the rule. Likewise, the rule plainly encompasses fraud going to a potential defence to the claim. Nor can there be any room for the rule being in some way limited by consideration of how dishonest the fraud was, if it was material in the sense explained above; that would leave the rule hopelessly vague.” (My emphasis)


The Supreme Court’s assertion that any consideration of the extent of the dishonesty would leave the rule “hopelessly vague” must also apply to any attempt to interpret Section 57 in that way.


Contrary to what many assume, this decision undoubtedly envisages a clear, bright, and some would say hard, line in relation to the interpretation of fundamental dishonesty, or rather a fundamentally dishonest claimant, under Section 57.


You can order my Book on Qualified One-Way Costs Shifting, Section 57 and Set-Off by clicking here or from Amazon.


This book is updated on Kerry on QOCS: Book Update and Links  and the links provide the full judgment of all cases, statutes, statutory instruments etc.


To see a trailer of the book, including all the contents etc click here.




Section 57 of the Criminal Justice and Courts Act 2015 reads:-


“57         Personal injury claims: cases of fundamental dishonesty


(1)         This section applies where, in proceedings on a claim for damages in respect of personal injury (“the primary claim”)—


  • the court finds that the claimant is entitled to damages in respect of the claim, but


  • on an application by the defendant for the dismissal of the claim under this section, the court is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim.


(2)          The court must dismiss the primary claim, unless it is satisfied that the claimant would suffer substantial injustice if the claim were dismissed.


(3)          The duty under subsection (2) includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest.


(4)          The court’s order dismissing the claim must record the amount of damages that the court would have awarded to the claimant in respect of the primary claim but for the dismissal of the claim.


(5)          When assessing costs in the proceedings, a court which dismisses a claim under this section must deduct the amount recorded in accordance with subsection (4) from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant.


(6)          If a claim is dismissed under this section, subsection (7) applies to—


(a)          any subsequent criminal proceedings against the claimant in respect of the fundamental dishonesty mentioned in subsection (1)(b), and


  • any subsequent proceedings for contempt of court against the claimant in respect of that dishonesty.


(7)          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.


(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—


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


  • by a person other than the person who made the primary claim.


(9)          This section does not apply to proceedings started by the issue of a claim form before the day on which this section comes into force.”


Section 12 of the Insurance Act 2015 reads:-


“12. Remedies for fraudulent claims


  • If the insured makes a fraudulent claim under a contract of insurance –


  • the insurer is not liable to pay the claim,


  • the insurer  may  recover  from  the  insured any sums paid by the insurer to the insured in respect of the claim, and


  • in addition,  the  insurer  may  by  notice  to  the insured treat the contract as having been terminated with effect from the time of the fraudulent act.”


Please also see my related blogs:-








Written by kerryunderwood

July 26, 2016 at 7:30 am

Posted in Uncategorized


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Kerry Underwood

Before any claim is placed on any portal a senior lawyer should review it. Here are some reasons why. Non personal injury lawyers need to start getting to grips with portal and fixed costs concepts, which are not always straightforward.

A claim is placed on the portal and it subsequently becomes apparent that damages on a full liability basis exceed £25,000.00 but contributory negligence is almost bound to reduce it below that sum. Let us assume that it becomes apparent that the claim is £48,000.00 on a full liability basis but there is likely to be a finding of 50% contributory negligence.

By paragraph 1.2 (1) (a) of the RTA Portal, £25,000.00 is the “Protocol Upper Limit” if the accident occurred on or after 31 July 2013 and that is on a full liability basis, including pecuniary loss but excluding interest. Vehicle damage does not come within that limit but…

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Written by kerryunderwood

July 21, 2016 at 1:11 pm

Posted in Uncategorized

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