SWITCH FROM LEGAL AID TO CONDITIONAL FEE AGREEMENT UNREASONABLE EVEN WHERE SIMMONS v CASTLE UPLIFT NOT IN PLAY

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

XDE v North Middlesex University Hospital Trust [2019] EWHC 1482 (QB) (12 June 2019)

the Queen’s Bench Division held that it was unreasonable for a claimant in a clinical negligence case to switch funding from legal aid to a Conditional Fee Agreement, even where the Simmons v Castle uplift was not in play, and upheld the Master’s decision to disallow recovery of the success fee and after the insurance premium.

Here the legal aid certificate had a costs limit of £55,480 at the prescribed legal aid hourly rates of £70 for a solicitor, £50 for junior counsel and £90 for senior counsel.

The claimant’s solicitors applied for an increase of the total, but that was refused unless and until the solicitors prepared a report dealing with various matters raised by the Legal Services Commission.

The claimants had the legal aid certificate discharged and switched to a Conditional Fee Agreement.

This case differed from ones such as

Surrey v Barnet and Chase Farm Hospitals Trust and others [2018] 1 WLR 5831

in that the Conditional Fee Agreement was entered into in October 2012, that is before the 10% damages uplift was announced in the case of Simmons v Castle, so the loss of that uplift caused by entering into a pre – 1 April 2013 Conditional Fee Agreement, could not be a factor, as it was in Surrey and other cases.

Nevertheless, the switch was held to be unreasonable.

By accepting a legal aid contract the claimant’s solicitors were bound by the rules of the Legal Services Commission and those rules included keeping the case within the legal aid budget and failure to do so did not justify a switch to a Conditional Fee Agreement.

The solicitors also failed to make a properly constituted application in time for an increase in the budget.

FIXED COSTS: NO ESCAPE

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

In

Hammond v SIG plc & Subsidiary Companie [2019] EWHC B7 (Costs)

the Master held that where a matter was started in one of the portals and subsequently resolved by the claimant accepting a defendant’s Part 36 offer of £36,500, the claimant was entitled to fixed costs, and not standard basis costs.

Although the decision was only given on 11 June 2019, the hearing took place on 12 March 2019, before the decision in

Ferri v Gill [2019] EWHC 952 (QB) ,

but in a postscript to this judgment, the Master said that his decision was consistent with Ferri v Gill, which had held that the exceptional circumstances provision was a “high bar”.

Here, the claimant had sent a Letter of Claim to the defendant stating that she would not be submitting the claim via the portal, due to its value, but did subsequently submit the claim on the portal at the request of the defendant insurance company.

Liability was not admitted and so the matter exited the portal and the claimant issued Part 7 proceedings and a defence was filed and subsequently the claimant accepted the defendant’s Part 36 offer of £36,500.

The claimant argued that she was entitled to costs on the standard basis as she had started her claim by way of a Letter of Claim and had not started it on the portal, albeit that she had subsequently lodged it on the portal.

In the alternative, the claimant argued exceptional circumstances under CPR 45.29J.

The Master held that a Letter of Claim was not sufficient to start a claim; if that were the case then all claimants could avoid fixed costs by sending a Letter of Claim before submitting the claim on the portal.

In any event fixed costs apply to cases which “no longer continue” in the portal, irrespective of where they started.

The facts did not amount to exceptional circumstances under CPR 45.29J.

Interestingly, both counsel, including the successful counsel Sarah Robson –  an expert in this field – could only trace one case where exceptional circumstances under CPR 45.29J were held to apply, and that was a first instance decision of a District Judge in a claim which had started in the portal, but settled for £350,000.

 

Please also see my blog –

ESCAPING FIXED COSTS: FOUR NEW CASES

JUDICIAL REVIEWS: NO ORAL HEARING RE APPEAL LAWFUL

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

But Court Of Appeal Suggests Courts And Tribunals (Online Procedure) Bill Is Unlawful

In

Siddiqui, R (on the application of) v Lord Chancellor and others [2019] EWCA Civ 1040 (10 May 2019)

the Court of Appeal was considering the lawfulness of the change to the Civil Procedure Rules in 2016 which removed the right to an oral hearing for people seeking permission to appeal to the Court of Appeal against a refusal of permission to apply for judicial review.

The procedure now is that when permission is sought from the Court of Appeal to appeal against a refusal of permission to apply for judicial review, the Court of Appeal may refuse leave to appeal on the papers, without the appellant having the right to have that decision reconsidered at an oral hearing.

Here, the Court of Appeal itself conducting an oral hearing in relation to leave to appeal against refusal of permission to apply for judicial review, accepted that there were likely to be some cases in which permission to appeal was refused on the papers, but where permission would have been granted if an oral hearing had taken place and that in some of those cases the appeal would ultimately have been successful.

The issue here was whether the change in the appeals procedure, brought about by an amendment of CPR 52.5, which prevented such cases from proceeding, was incompatible with Article 6 of the European Convention on Human Rights, or with the common law right of access to justice.

The changes were introduced, not because anyone thought there was any merit in them, but rather to reduce the increasing workload of the Court of Appeal which was leading to significant delays in that court.

Here, the Court of Appeal Judge held that those delays caused injustice and therefore a balance had to be struck between the rule change and the need to reduce delays.

The court said that whilst everyone was entitled to a fair trial, including a fair hearing of an appeal, the case law of the European Court of Human Rights showed that this did not mean that an oral hearing was required at every contested stage of civil proceedings.

The court considered that it was a legitimate and proportionate rule change and therefore was not incompatible with Article 6, nor with the common law right of access to justice.

Consequently the judge dismissed the application for leave to appeal to the full Court of Appeal.

Even before 2016 there was not an absolute right to an oral hearing; if, on the papers, the judge had stated the application to be “totally without merit” there was no right to have that refusal reconsidered at an oral hearing.

The new CPR 52.5(1) removed the right to an oral hearing, providing that where an application for permission to appeal is made to the Court of Appeal, the Court of Appeal will determine the application on paper without an oral hearing except as provided for under paragraph (2) which reads:

“(2) The judge considering the application on paper may direct that the application be determined at an oral hearing, and must so direct if the judge is of the opinion that the application cannot be fairly determined on paper without an oral hearing.”

CPR 52.8 provides that if the single judge considers that there is merit in the application that judge, instead of granting permission to appeal, can decide the matter by granting permission to apply for judicial review so that the matter goes to a hearing at first instance, rather than going to a substantive appeal which might then lead to a reference back to the court of first instance.

One of the points made by counsel for the applicant was that the rule change had been made partly because of complaints by users of the Commercial Court in the delay in appeals being heard from that court by the Court of Appeal, and that very many of the litigants in the Commercial Court are foreign, with neither party having any connection with England and Wales.

Consequently applicants for judicial review were being denied justice for the convenience of commercial litigants who have no connection with this jurisdiction.

This is an increasingly important issue, given the fact that the domestic criminal and County Court systems are close to collapse.

Interestingly, given the highly controversial proposal to have lower value claims decided online, currently proceeding through Parliament in the Courts and Tribunals (Online Procedure) Bill, the Court of Appeal here said:

“The position as to an oral hearing at first instance, as it seems to me, is likely to be materially different.”

That comment was not necessary in relation to this case, as there had been a full oral hearing at first instance in the original application for permission to apply for judicial review.

Here, the Court of Appeal had considered the common law right of access to justice and considered the Employment Tribunal fees case of

 R (Unison) v Lord Chancellor [2017] UKSC 51 .

As everyone is entitled to an oral hearing at first instance at present,  the only reason for this statement can be a warning by the Court of Appeal to the government and Parliament that it may well find any restriction on oral hearings at first instance, as proposed in the Courts and Tribunals (Online Procedure) Bill, to be unlawful.

Significantly the court also quoted from

 R (Refugee Legal Centre) v SSHD [2005] 1 WLR 2219 

where the court said that the executive “is not entitled to sacrifice fairness on the altar of speed and convenience, much less of expediency, and whether it has done so is a matter for the courts.”

 

Watch this space.

SECURITY FOR COSTS: TWO NEW CASES

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

Substantial Obstacles To Enforcement Of Costs In Russia Justified Security For Costs

In

PJSC Tatneft v Bogolyubov and others [2019] EWHC 1400 (Comm) (5 June 2019)

the High Court of Justice Business and Property Courts of England and Wales Commercial Court(QBD) – a snappy title – ordered a claimant company incorporated in the Russian Federation, to provide security for the defendants’ costs under CPR 25.13(2)(a).

 

The Legal Basis for an Order for Security for Costs

 

CPR 25.13 provides, in part, as follows:

(1)  The court may make an order for security for costs under rule 25.12 if –

(a)  It is satisfied, having regard to all the circumstances of the case, that it is just to make such an order; and

(i)  one or more of the conditions in paragraph (2) applies

…

(2)  The conditions are –

(a)  the claimant is –

(i)  resident out of the jurisdiction; but

(ii)  not resident in a Brussels Contracting State, a State bound by the Lugano Convention, a State bound by the 2005 Hague Convention or a Regulation State, as defined in section 1(3) of the Civil Jurisdiction and Judgments Act 1982 .”

 

As Tatneft is a Tatarstan company, Tatarstan being part of the Russian Federation, it was common ground that the condition in 25.13(2)(a) was met.

However, the court’s discretion must be exercised in a manner which is not discriminatory for the purposes of Articles 6 and 14 of the European Convention for the Protection of Human Rights and Fundamental Freedoms – see

Nasser v United Bank of Kuwait [2002] 1 WLR 1868.

The principles were set out in paragraphs 62 – 64 of that judgment, repeated here in paragraph 7.

The evidential threshold in such cases was set out in paragraphs 73, 77, 79 and 86 of the Court of Appeal’s judgment in

Bestfort Developments LLP v Ras Al Khaimah Investment Authority [2016] EWCA Civ 1099 

set out by the court here at paragraph 8.

Detailed guidance as to the jurisdiction to order security for costs was given by the Court of Appeal in

Danilina v Chernukhin [2018] EWHC 39 (Comm)

and the relevant parts of that judgment are set out by the court here at paragraphs 10 and 11 of its judgment.

The judge held that there was a real risk of substantial obstacles to enforcement in Russia satisfying the test in

Nasser v United Bank of Kuwait [2002] 1 WLR 1868.

This was based on:

(i) evidence of recent enforcement rates in Russia;

(ii) the absence of any enforcement treaty between the UK and Russia;

(iii) “a non-fanciful risk” that the issue of “reciprocity” ,the usual basis for enforcement of English judgments in Russia, might not be established in the context of a costs award in this case particularly as no case in which the English courts have enforced a Russian costs-only judgment had been identified;

(iv) a 2004 Russian Federation Information Letter stating that rulings of foreign courts on “interim measures”, such as costs orders, would not be recognised and enforced in Russia;

(v) a “non-fanciful” risk that a Russian enforcement court might apply the public policy exception under Arbitrazh Code, Art. 244(1) in an expansive way;

(vi) sanctions imposed by the Russian government, which contributed to the risk of non-enforcement of a costs order for public policy reasons there being a real risk that the defendant might become subject to sanctions; and

(vii) overall, points (iii) to (vi) each represented a real risk of substantial obstacles to enforcement and, in light of points (i) and (ii), the position was “clear”.

This conclusion conformed with Danilina v Chernukhin [2018] EWHC 39 (Comm).

The judge was not persuaded by the Russian Federation’s attempt to oppose the application, based on CPR 25.13(2)(a)(ii), on the basis that it had assets in Switzerland and Cyprus.

The judge did not accept that, if a non-Convention resident has assets within the CPR 25.13(2)(a) zone, in the absence of lack of probity, no security can be ordered referring to

Texuna International Ltd v Cairn Energy plc [2004] EWHC 1102 (Comm) (paragraphs 27 and 28).

Here, there was a real risk that the assets within the zone would not be available or sufficient, and the judge concluded that, where the Nasser condition was met, the Russian Federation was able to put up security and had not pointed to any possible prejudice; and the defendant would potentially be prejudiced without security, it was just to order security for the entirety of the defendant’s costs.

 

Security For Costs As Sanction

In

Alba Exotic Fruit Sh Pk v MSC Mediterranean Shipping Company S.A. [2019] 6 WLUK 77 (Comm) (3 June 2019)

the High Court of Justice Business and Property Courts of England and Wales London Circuit Commercial Court dismissed the defendant’s application to strike out the claim under CPR 3.4(2)(b) or (c),  and dismissed the defendant’s application for security for costs under CPR 25.12, but required the claimant to provide the defendant with security for costs by way of sanction for failing to apply to fix the Case Management Conference for four years and seven months.

Thus the court imposed security for costs as a sanction for a long delay in progressing proceedings, in circumstances where the judge acknowledged that an order for security was not justified under CPR 25.12.

Following service of the defence, the claimant should have applied to the court for a Case Management Conference within 14 days in accordance with Practice Direction 59.7.2.

However, it failed to do so and did not take substantive steps in the proceedings for nearly four years.

Following the claimant’s service of a notice of change of solicitor and an application to amend its Particulars of Claim, the defendant applied to strike out the claim, and for security for costs.

The High Court Judge considered that, although the claimant’s delay applying to fix the Case Management Conference was inordinate and inexcusable, it had not resulted in serious prejudice to the defendant, and did not mean that a fair trial was no longer possible.

The judge therefore refused to strike out the claim as an abuse of process under CPR 3.4(2)(b).

Following the guidance in

Walsham Chalet Park Ltd (t/a Dream Lodge Group) v Tallington Lakes Ltd [2014] EWCA Civ 1607,

regarding the application under CPR 3.4(2)(c), the judge applied CPR 3.9 to decide on a sanction for the claimant’s failure to comply with Practice Direction 59.7.2.

The judge emphasised the need for a proportionate response to the default, considering strike out to be too draconian where the defendant could have applied to fix the Case Management Conference itself, and where he had found that a fair trial was still possible.

Although the risk of the defendant being unable to enforce a costs award against the claimant, an Albanian company, was not sufficiently serious to justify an order for security for costs under CPR 25.12, it was a fair and proportionate sanction to impose for the claimant’s serious default, which had delayed and increased the costs of the litigation.

The judgment contains a detailed analysis of the law in relation to striking out, a sanction that the court declined to impose in this case.

LEGAL OMBUDSMAN: TIME TO SCRAP IT

In December 2018 the Legal Ombudsman admitted that complaints about lawyers were taking six months even to be looked at.

In the previous year it missed its time targets every single month.

In its 2017/2018 Annual Report the Legal Ombudsman reported that it resolved just 9% of cases within 90 days, against its own – hardly demanding – target of 60%.

63% of cases were resolved within six months, against the target of 90%.

7% of cases were not resolved within a year.

The irony of a body that fines solicitors for performing vastly better than it does itself is beyond parody.

I have always strongly opposed the concept of Ombudsmen as they undermine the rule of law as people think it is part of the judicial system.

The Legal Ombudsman should be scrapped forthwith and £12.3 million that it costs each year should be spent on patching up the courts, which are literally falling apart – I mean the buildings and not the system – although that is as well.

THE STATE OF OUR COURTS: BY THE LORD CHIEF JUSTICE

Extracts from Press Conference given by the Lord Chief Justice: Lord Burnett

“It really is not reasonable to expect court staff, judges or court users to attend court buildings which are in a terrible state: water coming through the ceilings for example; jurors having to wear hats and coats in the winter; lifts that do not work; air conditioning that does not work so that courts have to be stopped in the heat of the summer.”

 

“It is well known that there is a huge backlog in maintenance in the court estate, a huge backlog which, as I indicated when I gave evidence to the Justice Select Committee, will cost hundreds of millions of pounds to sort out, but it has to be sorted out because it is not reasonable to expect anybody operating in the system to operate in those sorts of conditions.”

 

“The total cost for Her Majesty’s Courts and Tribunal Service, including all judicial remuneration, in gross terms is about £1.7 billion a year. It nets down for various reasons to £1.6 billion and then much of it is paid for by fees of about £700 million a year. So the cost is actually rather less than a billion pounds a year, and that doesn’t take into account the other income that comes from what we do, but which we see nothing of I hasten to add, which is the income from fines and so on.”

 

“So the rule of law underpins everything that goes on in society, an efficient and functioning court service is absolutely crucial to stability and to prosperity and it’s interesting that if one looks around the world at the moment, there is an increasing recognition that a functioning, efficient court service which maintains the rule of law is absolutely vital for inward investment.”

DEATH, PORTALS AND LITIGATION

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Hilton v Proudfoot and Another, Middlesbrough County Court, Claim No E03 YX 717, 15 April 2019

the court held that fixed costs do not apply to a claim where a person starts a claim in the portal but then dies, causing it to be excluded by virtue of Paragraph 4.5 of the Road Traffic Accident portal (Paragraph 4.3 of the Employers ‘Liability/Public Liability portal).

The same logic would apply to a situation where a claim is brought by someone who then loses capacity, or becomes bankrupt.

Paragraph 4.5 of the RTA portal provides:

“This Protocol does not apply to a claim—

(1) in respect of a breach of duty owed to a road user by a person who is not a road user;

(2) made to the MIB pursuant to the Untraced Drivers’ Agreement 2003 or any subsequent or supplementary Untraced Drivers’ Agreements;

(3) where the claimant or defendant acts as personal representative of a deceased person;

(4) where the claimant or defendant is a protected party as defined in rule 21.1(2);

(5) where the claimant is bankrupt; or

(6) where the defendant’s vehicle is registered outside the United Kingdom”

 

Paragraph 4.3 of the EL/PL portal is in similar terms:

 

“4.3  This Protocol does not apply to a claim—

(1) where the claimant or defendant acts as personal representative of a deceased person;

(2) where the claimant or defendant is a protected party as defined in rule 21.1(2);

(3) in the case of a public liability claim, where the defendant is an individual (‘individual’ does not include a defendant who is sued in their business capacity or in their capacity as an office holder);

(4) where the claimant is bankrupt;

(5) where the defendant is insolvent and there is no identifiable insurer;

(6) in the case of a disease claim, where there is more than one employer defendant;

(7) for personal injury arising from an accident or alleged breach of duty occurring outside England and Wales;

(8) for damages in relation to harm, abuse or neglect of or by children or vulnerable adults;

(9) which includes a claim for clinical negligence;

(10) for mesothelioma;

(11) for damages arising out of a road traffic accident (as defined in paragraph 1.1(16) of the Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents).”

 

There is no authority on the point. The only former portal cases known to be excluded from fixed costs are those subsequently allocated to the multi-track – see Qader v ESure [2016] EWCA Civ 1109.

The judge observed that the portal expressly provides that it, and therefore fixed recoverable costs, should not apply to claims brought by the personal representatives, that is that they should not be subject to the “swings and roundabouts” of fixed costs cases.

This is presumably because of the potential additional complexity and expense of such claims.

The court also stated that it would be illogical if the applicable costs regime depended upon chance, that is whether the claim had been lodged the day before the injured person died, rather than just after.

While the deceased was the claimant in the portal, he was not the claimant in the Part 7 proceedings; that was the personal representative, who could not have brought the claim in the portal, due to Paragraph 4.5.

 

“35. Secondly, where the claimant in a Part 7 claim dies the claim cannot continue unless the personal representatives apply to the court for permission to amend the claim form and be added as a party. Although the cause of action survives after the injured party’s death it can only be pursued by the personal representatives if they become claimants pursuant to CPR 19.

36. I see no reason why the same logic should not apply to claims within the Protocol, namely that the claim cannot be pursued because the claimant is dead although the cause of action survives for the benefit of the estate. However, in contrast to CPR Pt.19 the Protocol contains no express mechanism for amending the claim to add or substitute an executor as claimant.

37. I consider that the defendant is right to point out that the claimant under the Protocol is the person starting the claim under the Protocol. However, in my judgment, that is precisely why the claim cannot continue under the Protocol, namely because MH is no longer able to pursue it. The only way that the surviving cause of action can be pursued is by a new claimant, the personal representative, who was not entitled to bring a claim under the Protocol.

38. Further, even if the CPR provisions on amendment are imported into the Protocol the doctrine of “relation back” would prevent the personal representatives being substituted for MH. If, on amendment, the claim is deemed to have been commenced by the personal representatives from the outset then such a claim cannot proceed under the Protocol by reason of 4.5.

39. Finally, if it is necessary to do so, I consider that a purposive construction should be applied to 4.5 such that it prevents personal representatives proceeding with Protocol claims after the claimant’s death in order to prevent the arbitrary costs consequences that would follow if the defendant’s submission was correct.

40. Therefore, I am satisfied that this is not a claim that has exited the Protocol. MH’s claim within the Protocol has effectively been stayed or otherwise terminated by his death. This claim by the personal representative is a fresh claim to enforce the same cause of action which could not be brought within the Protocol and therefore the FCR does not apply to it.

41. However, in my judgment it would plainly be unjust for costs to be awarded on the standard basis whilst MH’s claim was proceeding within the Protocol. At that stage there was nothing “out of the ordinary” about the claim and FRC represent the reasonable and proportionate costs for the work carried out at that stage.”

Consequently, the court ordered fixed recoverable costs up until the claimant’s death and standard costs thereafter.

I am grateful to Alex Littlefair of counsel, who represented the successful claimant, for information concerning this case.

 

Suing the Estate When Probate Is Not Taken Out

When someone wishes to sue the estate of a person who has died, then, if probate has been granted, it is the executors or administrators who must be sued, but, in relation to nearly half of deaths in the United Kingdom, probate is not taken out.

The Probate Service publishes a document which sets out the procedure for finding out whether a Grant of Probate or Letters of Administration has been granted.

The situation is governed by CPR 19.8(2) to (5) which reads as follows:

“(2) Where a defendant against whom a claim could have been brought has died and –

(a) a grant of probate or administration has been made, the claim must be brought against the persons who are the personal representatives of the deceased;

(b) a grant of probate or administration has not been made –

(i) the claim must be brought against ‘the estate of’ the deceased; and

(ii) the claimant must apply to the court for an order appointing a person to represent the estate of the deceased in the claim.

(3) A claim shall be treated as having been brought against ‘the estate of’ the deceased in accordance with paragraph (2)(b)(i) where –

(a) the claim is brought against the ‘personal representatives’ of the deceased but a grant of probate or administration has not been made; or

(b) the person against whom the claim was brought was dead when the claim was started.

(4) Before making an order under this rule, the court may direct notice of the application to be given to any other person with an interest in the claim.

(5) Where an order has been made under paragraphs (1) or (2)(b)(ii) any judgment or order made or given in the claim is binding on the estate of the deceased.”

 

The rules do not say when the application should be made but obviously it must be made before service, and therefore it makes sense to apply when issuing.

There is then the issue of who that application should be served upon.

Generally, this will be the proposed representative of the estate, but if this cannot be agreed, or it is unclear who it should be, then the court will determine the representative for the estate.

PART 36: THE DIRTY BAKER’S DOZEN: 13 NEW CASES

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

There have been no fewer than 12 major decisions on Part 36 this year.

Here they are.

 

1. Error Of Law To Consider How Much Offer Beaten By

In

JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB)

the Queen’s Bench Division of the High Court, overturning a decision of Master McCloud, held that the amount by which a claimant beat its own Part 36 offer is irrelevant in considering whether it was unjust to make the additional 10% uplift on damages under CPR 36.17(4)(d), and to take that matter into account is an error of law.

Here the claimant served a bill of costs for £615,751 and then made a Part 36 offer to accept £425,000 and on assessment beat her offer by £7,000.

The Master awarded the sums provided for in CPR 36.17(4)(a)-(c) but held that it would be unjust to award the additional amount, that is the uplift on damages or, in this case, costs, under CPR 36.17(4)(d).

It was that decision which was overturned here by the High Court.

The High Court upheld the Master’s finding that, when considering injustice, the court may find it unjust to award some of the CPR 36.17(4)(a) – (d) bonuses, but not others.

In relation to the uplift the High Court said, in very clear terms, that it was not open to judges to take into account the amount by which a Part 36 offer had been beaten as this risked reintroducing the policy in

Carver v BAA Plc [2008] EWCA Civ 412,

which had been expressly reversed by Parliament.

Taking into account the large size of the 10% uplift relative to the margin by which the offer was beaten was an error of law. This additional amount was meant to include a penal element when a claimant had made an offer which it matched or beat, and looking at it as a bonus was an error of law.

The lack of disclosure in costs proceedings was irrelevant, and to consider the same was an error of law. Any pre-issue or pre-disclosure Part 36 offer in substantive proceedings would involve the same lack of disclosure.

The High Court also said, obiter, that the decision of Master Friston, not under appeal here, in

White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs) (28 May 2019)

where he said there was a power to award a lower percentage than the 10% prescribed by CPR 36.17(4)(d) was wrong, and that the clear language of CPR 36.17(4) makes it clear that the 10% uplift in damages is all or nothing.

That  finding, and a similar finding in

Bataillion v Shone [2015] EWHC 3177 (QB)

are wrong.

Here the High Court adopted in full the reasoning set out in my blog

SUCCESSFUL PART 36 CLAIMANT DENIED UPLIFT – A MAD DECISION

in relation to the fact that the 10% uplift must be all or nothing, the court here adopted the reasoning in my blog

UNJUST TO AWARD DAMAGES UPLIFT WHERE OFFER DEALT ONLY WITH HOURLY RATES ON ASSESSMENT

This follows the Court of Appeal, in the case of

Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754 (03 May 2019)

adopting the reasoning in my blog –

PART 36: WHEN IS A CLAIM NOT A CLAIM?

All of these decisions, and plenty more, are dealt with in my blog

PART 36: THE DIRTY BAKER’S DOZEN: 13 NEW CASES

 

The relevant parts of CPR 36.17 read as follows:

 

“Costs consequences following judgment

36.17 –

(1) … this rule applies where upon judgment being entered –

(a) …

(b) judgment against the [paying party] is at least as advantageous to the [receiving party] as the proposals contained in a [receiving party’s] Part 36 offer.

….

(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.

…

(4) … where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, order that the claimant is entitled to –

(a) interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period starting with the date on which the relevant period expired;

(b) costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired;

(c) interest on those costs at a rate not exceeding 10% above base rate; and

(d) provided that the case has been decided and there has not been a previous order under this sub-paragraph, an additional amount, which shall not exceed £75,000, calculated by applying the prescribed percentage set out below to an amount which is –

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs –

Amount awarded by the court Prescribed percentage

Up to £500,000 10% of the amount awarded

Above £500,000 10% of the first £5000,000 and (subject to the limit of £75,000) 5% of any amount above that figure.

(5) In considering whether it would be unjust to make the orders referred to in paragraphs (3) and (4), the court must take into account all the circumstances of the case including –

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated; and

(e) whether the offer was a genuine attempt to settle the proceedings.

(6) Where the court awards interest under this rule and also awards interest on the same sum and for the same period under any other power, the total rate of interest must not exceed 10% above base rate…”

 

2. Offer Including Terms As To Costs Is Not A Valid Part 36 Offer

In

Knight & Anor v Knight & Ors (Costs) [2019] EWHC 1545 (Ch) (17 June 2019)

the Chancery Division of the High Court held that a purported Part 36 offer which attempted to limit costs was not a valid Part 36 offer.

The court set out the terms of the offer in paragraph 3 of its judgment:

“The offer

3. The letter of 27 July 2017 is headed “Part 36 Offer: Without Prejudice Save As to Costs”. The substance of the letter reads as follows:

“Following Monday’s failed mediation (in respect of which privilege is not waived) we are instructed to make the following offer.

 The offer is made pursuant to CPR Part 36. As such, if it is not accepted within the relevant period (see below) but is (without having been withdrawn) later accepted then your client will be liable to our clients’ costs. If Administrators succeed in obtaining a greater sum at trial then your clients will be liable to our clients costs on the indemnity basis and with interest thereon at a rate not exceeding 10% above base rate together with the additional sum set out in CPR 36.17(4)(d).

 The offer is to pay, from the net proceeds of sale of Close Court, the sum of £35,000. This sum is inclusive of your clients’ costs, which we understand to be under £20,000. The offer also excludes any payment by your client of our clients’ costs, which as you also know are around £30,000.

 The remainder of the net proceeds will be paid to our client as the administrators of Steven Knight’s estate.

 Pursuant to CPR Part 36:

• The relevant period means a period of not less than 21 days from the date of this offer.
• The offer is made in respect of the whole claim over the net proceeds of Close Court

This offer will remain open until it is expressly withdrawn but the court’s permission will be required to accept it where any of 36.11(3) applies.””

The defendants’ solicitors responded to that letter, also marked “Without Prejudice Save As to Costs” saying that the offer “does not make sense in accordance with Part 36, as it refers to the sum of £35,000 being inclusive of our clients’ costs…”

This exchange took place before proceedings were issued and therefore before the form of the future proceedings, if any, was known, and before it was known who would be the claimant and who would be the defendant.

For example, the claimant could have been a stakeholder under CPR Part 86, brought by the conveyancing solicitors in whose client account the funds were still sitting or, as in fact it turned out to be, a claim brought by one set of claimants to the fund against the other and in those circumstances who was the claimant and who was defendant depended upon who initiated the claim.

At trial the judge decided that the net sale proceeds of £204,000 belonged beneficially to the claimant, who had thus clearly beaten its own offer and the issue now concerned the costs consequences of that set of facts.

The defendants argued that the offer was not a valid Part 36 offer, as it contained terms as to costs.

The defendants relied on the decisions of the Court of Appeal in

 

Mitchell v James [2004] 1 WLR 158,

and

French v Groupama Insurance Co Ltd [2011] 4 Costs LO 547, [2012] CP Rep 2 .

 

In Mitchell the claimants offered to settle proceedings on the basis that each party bear its own costs and the Court of Appeal held that that could not be capable of being a Part 36 offer.

In the French case the defendant relied on offers made before proceedings were issued to cover the entirety of the claimant’s claims, “inclusive of interest and costs”.

The court there also held that such an offer, inclusive of costs, could not be a Part 36 offer.

The claimants held that notwithstanding these authorities a person making a Part 36 offer may still include terms in the offer which limit payment of its own costs by the paying party.

The claimant relied on the decision of the High Court in

Proctor & Gamble Co v Svenska Celluslosa AB SCA [2013] 1 WLR 1464 .

In that case the claimant made a Part 36 offer including the terms that the claimant would be liable for the defendants’ costs up to the date of acceptance and the judge held that it was open to a claimant making a Part 36 offer to agree to forsake its entitlement to costs on acceptance of the offer and instead to pay the defendant its costs, and therefore the claimant’s offer was complied with Part 36.

Here, the High Court held that even if Proctor & Gamble applied on the facts, the court could not follow it as it contradicted the Court of Appeal authority in Mitchell and French and indeed the claimant’s offer here was “ materially indistinguishable” to that in French.

In the Proctor & Gamble case the judge considered the decision of the Court of Appeal in

F & C Alternative Investments (Holdings) Ltd v Barthelemy (No 3) [2013] 1 WLR 548 .

The F&C case involved an offer to settle which had been deliberately and expressly stated to be “outside the terms of Part 36”.

Nevertheless, the successful party sought to apply Part 36 by analogy to get the consequences that flow from a Part 36 offer, and Part 36 itself says that the court must take into account any non-Part 36 offer.

In F & C the Court of Appeal held that there was no reason or justification for extending Part 36 beyond its express ambit and said:

“[63] … in my view it is not permissible wholly to discount a number of failures to comply with the requirements of CPR Part 36 as the merest technicality. Perhaps there can be de minimis errors or obvious slips which mislead no one: but the general rule, in my opinion, is that for an offer to be a Part 36 offer it must strictly comply with the requirements.”

The court when on to say here

“It is, however, to be noted that Mitchell v James was not cited to the Court of Appeal in F & C Alternative Investments nor to Hildyard J in Proctor & Gamble. On the other hand, French v Groupama was briefly discussed, albeit in a different connection, by Davis LJ (at [65]) in the Court of Appeal in F & C Alternative Investments (but was not cited to Hildyard J in Proctor & Gamble).”

In Proctor & Gamble the court said:

“47. In my view, the issue in the F & C case was really whether an offer accepted not to be within Part 36 could be given, by analogy, the same consequences as would have followed if it had been compliant and intended to be so. Here, the issue is whether CPR 36.2(2), and thus the gateway to CPR 36.10 and 36.14, is to be so strictly construed that it requires (by rule 36.2(2)(c)) the offer made to provide for the defendant to be liable for the claimant’s costs even if the claimant expresses his offer to be a Part 36 offer, but as part of that offer, agrees to forsake that entitlement and instead pay the defendant his costs. Put another way, I do not accept that it is impossible for a claimant to comply with Part 36 unless he requires to be paid his costs and such payment to be made within a period of not less than 21 days.

48. As it seems to me, such a strict construction would tend to undermine a central objective of Part 36, identified by Davis LJ himself as being to encourage claimants to make sensible offers and provide an inducement to defendants to accept them lest otherwise they be exposed to the consequences provided. That objective would be advanced, not undermined, by reading CPR36.2(2)(c) as requiring a claimant who seeks his costs to specify a period of not less than 21 days within which the defendant will be liable to pay them, but not as mandating that the claimant must seek costs and make payment of them a condition of his offer.

49. I do not myself see why such a purposive approach to construction should not be available in the context of Part 36, as it is in the context of statutes and contracts and other instruments (subject, of course, to well-known limitations). Nor do I see that such an approach is precluded by the judgment of Davis LJ in F & C: this is not a matter of applying Part 36 by analogy; and the strict compliance required is of the statutory provision properly, and, if appropriate, purposively, construed.”

Here the court said that it understood the court in Proctor & Gamble to be saying that it is still possible to comply with Part 36 by including in the offer a terms as to costs, provided that that term reduced the burden on the paying party that would otherwise be imposed as a consequence of accepting the Part 36 offer, rather than increasing it.

In other words if the person making the offer was giving a concession to the paying party, then that did not invalidate the Part 36 offer.

The court here held that that was an incorrect statement of the law and was inconsistent with the decisions of the Court of Appeal in both the  Mitchell and French cases and “Accordingly, I hold that this offer is not a Part 36 offer, and therefore does not have the costs consequences of such an offer.”

Here, obiter, the court rejected the defendant’s argument that the claimant’s offer was not compliant with Part 36 in any event, because when made, the format of the future proceedings was unknown and it was uncertain whether the party making the offer would be the claimant or defendant.

The court said that once proceedings were issued, then whether a party was the claimant or the defendant would affect the consequences flowing from the offer, as Part 36 provided for different consequences depending on whether the person making the offer was the claimant or the defendant.

The court when on to say, obiter, that had Part 36 applied, then the claimants would have got the costs consequences under CPR 36 as the judgment which the claimants obtained was more advantageous to the claimants than the proposals contained in their offer.

However, the sum of £204,000 being the net proceeds of the sale of the property held by the conveyancing solicitors, was not a “sum of money awarded” in CPR 36.17(4)(a) nor a “sum awarded to the claimant by the court” as per CPR 36.17(4)(d).

Rather, what the court had ordered was that the ownership of an asset belonged to the claimant and this was based on trustee – beneficiary relationship and not a debtor – creditor one.

Consequently, had Part 36 applied, enhanced interest under CPR 36.17(4)(a) would not have been awarded and the additional amount under CPR 36.17(4)(d) would have been calculated by reference to the costs awarded to the claimant, and not by the value of the property of £204,000.

That followed from the terms of CPR 36.17(4)(d) which states in part:

“… an amount which is

(i) the sum awarded to the claimant by the court; or

(ii) where there is no monetary award, the sum awarded to the claimant by the court in respect of costs…”

Thus, here, the court found that there was no “monetary award”.

The court also rejected the claimants’ argument that the defendants’ failure to accept a non-Part 36, but reasonable, offer should mean that the claimants should get indemnity costs as though they had made a valid Part 36 offer.

“31. …A mere failure to accept a reasonable offer is not enough. That happens every day of the week, with both parties acting reasonably and in accordance with the advice that they are receiving from their professional advisers. So if the matter is to be taken “out of the norm” there must be something more, something which prompts the court to visit the paying party with a special mark of condemnation. I see nothing of that kind here. In my judgment it is appropriate to order the defendants to pay the claimant’s costs on the standard basis.”

Comment

This decision, correct in every respect in my view, is another illustration of the complexity of Part 36.

It also reinforces the point that part is making and what they think of Part 36 offers should use the standard form N242A and never depart from it.

I see a huge number of apparently Part 36 offers made in emails, which are simply not compliant with Part 36.

When it comes to Part 36, reinventing the wheel is a very dangerous thing to do.

 

3. Part 36 Covers Subsequent Claims: Hertel Distinguished

In

Calonne Construction Ltd v Dawnus Southern Ltd [2019] EWCA Civ 754

the Court of Appeal upheld the validity of a defendant’s Part 36 offer relating to an unpleaded counterclaim and which provided for interest at 8% a year after the expiry of the relevant period for accepting the Part 36 offer.

Here, the defendant in proceedings made an early Part 36 offer taking into account a counterclaim which it said it had, but which had not been pleaded at that stage.

The offer also made a specific claim for interest at 8% a year.

The offer read:

 

“WITHOUT PREJUDICE SAVE AS TO COSTS

OFFER MADE PURSUANT TO CPR PART 36

As you are aware, we are in the process of preparing our client’s defence and counterclaim which will be filed on 3rd March 2017. . .

. . . We are therefore, authorised by our client to make your client, the following offer to settle under Part 36 (“the Offer”).

This Offer is intended to have the consequences set out in Part 36 of the Civil Procedure Rules. In particular, your client will be liable for our client’s costs up to the date of notice of acceptance which must be in writing (“Notice of Acceptance”), in accordance with CPR 36.11, if the offer is accepted within 21 days (“the Relevant Period”).

This offer will remain open for a period of 21 days from the date of receipt of this letter.

Terms of the Offer

Our client is willing to settle the whole of your client’s claim contained within the claim number HT2016000331, together with the counterclaim which our client will shortly be issuing within the same proceedings:

1. You pay to our client the sum of £100,000 (“the Settlement Sum”) payable within 14 days of service of the Notice of Acceptance.

2. The Settlement Sum does not include costs and, as mentioned above, your client will be liable to pay our client’s costs on the standard basis, to be assessed if not agreed, up to the date of service of Notice of Acceptance if this Offer is accepted within the Relevant Period.

3. The Settlement Sum is inclusive of interest until the relevant period has expired. Thereafter, interest at a rate of 8% per annum will be added.

. . .”

The defendant subsequently served its defence and counterclaim.

The claimant failed at trial to match the defendant’s Part 36 offer and the claimant also lost part of its claim, but the defendant failed in some of its allegations.

Consequently the trial judge ordered the claimant to pay 75% of all of the costs of the defendant, on the standard basis up to expiry of the relevant period, and on the indemnity basis thereafter.

The trial judge rejected the claimant’s contention that the Part 36 offer was invalid as it included an as yet unpleaded counterclaim. The Court of Appeal upheld that ruling.

Given the breadth and reach of Part 36, the claimant’s contention was, on the face of it, hopeless.

However the claimant’s argument was supported by the fairly obviously wrong decision in

Hertel & Anor v Saunders & Anor [2018] EWCA Civ 1831

which I deal with in detail in my blog – PART 36: WHEN IS A CLAIM NOT A CLAIM?

Here the trial judge said that he was bound by, or must pay attention to, the Court of Appeal decision in  AF v BG [2009] EWCA Civ 757 which had not been cited in the Hertel case.

In AF v BG the Court of Appeal held that it did not matter that a counterclaim had not yet been pleaded as Part 36 specifically sanctions an offer before the commencement of proceedings.

“So the fact that the counterclaim had not been formulated or pleaded does not of itself matter.”

Although the Court of Appeal here distinguished Hertel, it is safe to say that Hertel is no longer to be regarded as good law.

In any event it related to the old CPR 36.10(2) which is no longer in the Civil Procedure Rules, and the replacement similar provision must now be interpreted as here in the Calonne case.

Comment

In my blog – PART 36: WHEN IS A CLAIM NOT A CLAIM? I described the Hertel decision as “a strange decision to put it mildly.”

I am glad that the Court of Appeal now agrees.

Interest

The Court of Appeal also held that the inclusion of a term as to interest after the end of the relevant period for accepting the Part 36 offer did not render it invalid.

Here the interest rate was 8%.

However, the Court of Appeal said that it would still be a valid offer if the rate was 25%, or 200%.

An offeror in those circumstances may find that the judgment was not more advantages than the offer and thus lose the Part 36 benefits.

Furthermore the offeree could make its own Part 36 offer in the same terms, without the offending rates of interest.

“It seems to me therefore, that there is no reason whether of policy or otherwise which renders an offer invalid for the purposes of Part 36 if it includes provisions as to interest after the expiration of the Relevant Period. After all, as Flaux LJ pointed out in the course of argument, there is nothing wrong with a party making a Part 36 offer expressed as a specified sum which includes interest during the Relevant Period calculated on the basis of a particularly high rate. He just has to take the consequences when it comes to be determined whether the offer has been “beaten”.”

 

4. Unjust for Consequences to Be Triggered

In

Invista Textiles (UK) Ltd & Anor v Botes & Ors [2019] EWHC 1086 (Ch)

the Chancery Division of the High Court held that it was unjust to apply the costs consequences of Part 36 in circumstances where the claimant should not get all of the pre-Part 36 costs.

The case concerned the production of documents, and other matters, and the claimant was held to have lost on most matters and the Trial Judge ordered the claimants to pay the defendants 71% of costs to be assessed.

Nevertheless the claimants had beaten their own Part 36 offer.

Had the defendants accepted the offer, then they would have been liable for all of the claimants’ costs up to that point, as acceptance of a Part 36 offer is all or nothing as far as costs are concerned.

If it was otherwise, no certainty would be achieved and Part 36 would become largely pointless.

“41. Looking at it another way, if I stand at June 2018 and ask what would a court have ordered in terms of costs if the outcome of the case had been the same as the terms of that offer, would the costs order have been the defendants paying all or at least the majority of the claimants’ costs in those circumstances? The answer is a clear no. That demonstrates why this is very different from a low financial offer in a case purely about a sum of money. In my judgment, this is another factor to take into account.

42. Now, Invista says what the defendants should have done was come back and negotiate such as by offering a drop-hand on costs (that is no order as to costs). Now, after the Part 36 offer was made, as I have said, the defendants did come back and say that the relief was acceptable but not the costs and the parties did exchange further offers. The main point made repeatedly by the claimants is that the claimants offered to drop hands on costs, ie each party would bear its own, and the claimants criticise the defendants for not accepting it. In my judgment, there is no substance to this criticism. The refusal by the defendants to accept that they should shoulder the burden of all their costs of all these proceedings was legitimate in the circumstances and has been vindicated by the judgment.

43. Pulling all this together, I recognise that the hurdle is a formidable one. Nevertheless I find it would be unjust to enforce any of the consequences on the defendants. That is looking at all the circumstances. However, in particular, in my judgment, in the context in which it was made and given its terms, the Part 36 offer itself was not a genuine offer to settle. In fact, if anything, I think the offer has proved to be a barrier to settlement of this dispute because since the offer was made and not accepted and then the admissions were made, the claimants seem to have been approaching this case as if they were entirely protected as to costs.”

The judge, effectively reviewing his own decision due to errors of fact in relation to the first decision, upheld his original finding that the claimant do pay 71% of the defendants’ costs to be assessed.

There is no new law here and CPR 36.17(4) provides that the court must order the additional Part 36 benefits unless it considers it unjust to do so.

 

5. Unjust to Award Damages Uplift Where Offer Dealt Only With Hourly Rates On Assessment

In

White & Anor v Wincott Galliford Ltd [2019] EWHC B6 (Costs) (28 May 2019)

the Senior Courts Costs Office was considering the situation where a receiving party in provisional assessment costs proceedings purported to make a Part 36 offer, simply on the hourly rates, which the court subsequently allowed.

The claimants argued that they had beaten their Part 36 offer and consequently the amount of the the hourly rate, and therefore the entire profit costs, should attract the 10% damages uplift.

Here matters were resolved by way of provisional assessment and in accordance with CPR 47.15(5) the costs of the assessment cannot exceed £1,500 plus VAT and court fees, and that applies even where the receiving party has beaten its own Part 36 offer.

This follows from the case of

Lowin v W Portsmouth & Co [2017] EWCA Civ 2172 ,

where the Court of Appeal distinguished its own reasoning in the case of

Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 .

The Lowin case dealt only with the amount of costs and did not deal with the issue of the 10% uplift on damages under CPR 36.17(4)(d).

Essentially the paying party said that the offer related only to the hourly rates and not the bill of costs in total, and that could not be within the spirit or purpose of Part 36.

The receiving party said that Part 36.2(3) clearly states that Part 36 offer may be made “in respect of the whole, or part of, or any issue that arises…”.

The receiving party drew an analogy with a party in substantive proceedings making a Part 36 offer in relation to a single head of loss, rather than the whole claim.

Here the Master, one might think somewhat surprisingly, held that this was a valid Part 36 offer and then applied the test of justness under CPR 36.17(4) which provides:

“(4) Subject to paragraph (7), where paragraph (1)(b) applies, the court must, unless it considers it unjust to do so, …”.

The Master found that it was unjust.

The reasons are far from convincing, to put it mildly.

The Master said that although Part 36 was intended to be used to allow a party to gain tactical advantage, “the court must guard against it being used for the purposes of mere gamesmanship.”

I, for one, cannot see any meaningful difference between “tactical advantage” and “mere gamesmanship”.

The Master also said that the court should take into account its own resources and effectively said that if a Part 36 offer would not save the court time, then it would be unjust to allow the 10% damages uplift.

I have not seen that in the Act, Civil Procedure Rules or case reports.

The Master also said, consistent with his previous view, that he had the power, not exercised here, to allow a partial uplift on damages, and not a straight “all or nothing” 10%.

As he did not do so here, that is obiter, but again is at odds with the clear wording of CPR 36.17, which as I have pointed out before, uses the term “not exceeding” in CPR 36.17(4)(a) and (c), relating to interest, but does not contain those words in CPR 36.17(4)(d) in relation to the 10% uplift.

The ultimate decision is correct.

If a party was able to get the Part 36 consequences simply by beating the hourly rate, or an item of work, then as pointed out by the paying party here a receiving party could receive a 10% uplift on everything by, for example, simply beating a time claimed of 24 minutes for a tiny piece of work.

In another scenario the receiving party could put forward an hourly rate, and match or beat it, and then get the full uplift on an enormous bill of costs.

It would be the equivalent of having a costs budget which said:

“We are going to charge £200 an hour, but we are not going to tell you how much work we will do. Please agree the budget.”

In substantive proceedings it is the equivalent of making an offer “In relation to loss of earnings” without stating the amount, or “In relation to lots of painkillers costing £1 a packet, but I don’t know how many packets I will buy, or have bought.”

Although this was not a Solicitors Act 1974 assessment, that Act arguably does not allow a challenge to the hourly rate, but concentrates on the amount of work done, whether it was properly and necessarily done, and by whom it was done.

My view here is that the true position was this was not an offer under Part 36 of the Civil Procedure Rules but was a good old fashioned Calderbank offer.

 

6. Late Acceptance of Part 36 Offer Not Exceptional Circumstances In Fixed Costs Case

In

Parsa v Smith and Another Case Nr C84YX807, unreported

the Queen’s Bench Division of the High Court upheld a decision of a Circuit Judge that late acceptance of a claimant’s Part 36 offer, just one week before trial, in a fixed costs case did not amount to “exceptional circumstances” under CPR 45.29J justifying an escape from fixed costs.

The Court of Appeal’s decision in

Hislop v Perde [2018] EWCA Civ 1726

that a claimant was not entitled to indemnity costs on a defendant’s late acceptance of a Part 36 offer in fixed costs cases did not consider the exceptional circumstances provision, as it was not argued in that case.

Here, the High Court also held that the claimant’s application to escape fixed costs was not an “interim application” and therefore did escape fixed costs, meaning that the successful defendant got £1,712.10 for that application.

Comment

Why not just pass a law saying injured people should never sue?

Oh, sorry, this Scrag End Parliament – it does not deserve the term Rump – has done just that in the Civil Liability Act.

See my blog – ESCAPING FIXED COSTS: THREE NEW CASES

 

7. Interest When Claimant Matches Own Part 36 Offer

In

AssetCo Plc v Grant Thornton UK LLP [2019] EWHC 592 (Comm) (22 February 2019)

the Business and Property Court of England and Wales Commercial Court, part of the Queen’s Bench Division of the High Court, considered the consequences in relation to interest when a claimant matches or beats its own Part 36 offer at trial.

Here the claimant at trial obtained judgment for over £22 million, having made two Part 36 offers, one for £10 million and one for £17.5 million, both of which were clearly beaten.

The judgment reviews the authorities and the Commercial Court Guide.

On the facts here the court awarded an interest rate of 5% above LIBOR (The London Inter-bank Offered Rate), with 2% above LIBOR being the compensatory rate, and the additional 3% being enhanced interest pursuant to CPR 36.17(4)(a).

The court held that it was not appropriate here to award enhanced interest on costs, which were already on the indemnity basis.

 

8. Additional Amount Does Not Attract Interest

In

FZO v Adams & Anor [2019] EWHC 1286 (QB) (23 May 2019)

the Queen’s Bench Division of the High Court held that interest is not payable on the 10% damages uplift prescribed by CPR 36.17(4)(d) when a claimant matches or beats its own offer at trial.

Although this case involved the maximum uplift of £75,000, the interest issue was not decided on that point, that is that the addition of interest would have caused the maximum to be exceeded.

Consequently if the uplift is say, £50,000, no interest is payable, even though the total would not exceed the maximum of £75,000.

CPR 36.17(4)(a) provides for interest to be paid “on the whole or part of any sum of money (excluding interest) awarded at a rate not exceeding 10% above base rate for some or all of the period starting at the relevant date”.

The claimant here submitted that that was widely drawn and included the additional payment as well as the basic judgment sum.

If it was intended that interest should be excluded from the payment, then the rule would say so and this is consistent with CPR 36 which is intended to encourage offers to settle by claimants.

The defendants argued that the additional amount is not a “sum awarded” as it does not feature in the court’s judgment and that the words “ additional” and “amount” clearly show that this is a further financial sanction to  be paid by the unsuccessful defendant in addition to the enhanced interest on the damages, costs on the indemnity basis and enhanced interest on costs to which the claimant is entitled.

To award enhanced interest on this sum will be to impose a sanction on a sanction, and to do that the rule would have to be drafted to make it clear.

The High Court accepted the defendant’s interpretation and noting that where interest is payable consequent to any other paragraph of CPR 36.17(4) on any amount, it is specifically stated.

 

9. Claimant Cannot Accept Part 36 Offer Once Claim Struck Out

In

Devoy-Williams v Hugh Cartwright and Amin [2018] EWHC 2815 (Ch) 5 October 2018

the Chancery Division of the High Court held that once a claim had been struck out the claimant could not accept a Part 36 offer made by the defendant.

The High Court also said that the existence and potential acceptance of a Part 36 offer should not be a factor influencing the decision as to whether the court should grant relief from sanctions:

“I agree with the judge that the Part 36 offer could not be some form of a trump card. As the judge said at paragraph [74], the claim was struck out and it was not for the judge to grant relief so that the Part 36 offer could be accepted, thereby thwarting the purpose and effect of an Unless Order that had been breached.”

This was a professional negligence action against solicitors and an Unless Order was made against the claimants requiring disclosure by 21 October 2016 and in default of that disclosure the claim would be struck out.

The defendant made a Part 36 offer on 10 October 2016 and the claimants sought to accept it on 1 November 2016, that is 11 days after the deadline for failure to comply with the Unless Order.

The court held that the action was no longer extant and therefore it was not possible for the Part 36 offer to be accepted.

This follows the decision in

 Joyce v West Bus Coach Services Limited [2012] EWHC 404

 

10. No Power to Order Payment on Account After Part 36 Offer has been accepted

In

Finnegan v Frank Spiers (t/a Frank Spiers Licensed Conveyancers) [2018] EWHC 3064 (Ch) (27 June 2018)

the Chancery Division of the High Court held that the court has no power to order a payment on account of costs where a party has accepted a Part 36 offer.

The claimant accepted the defendant’s Part 36 offer and issued an application for an interim payment on account of costs.

The District Judge held that there was no power to make such an order and the Chancery Division upheld that decision.

By CPR 44.9(1) acceptance of a Part 36 offer deems that a standard basis costs order has been made.

CPR 44.2(8) provides that where the court has ordered a party to pay costs, it may order an amount to be paid on account before the costs are assessed.

Here the court held “that the place to find the court’s ability to make a payment on account order after acceptance of a Part 36 offer is in Part 36 itself. It is absent from there. There is no reason in my judgment, to read rule 44.2(8) to make a payment on account applicable when a Part 36 offer is accepted”. (Paragraph 30)

The court distinguished the case of

Barnsley v Noble [2012] EWHC 3822

where the court held that it had power to order a payment on account following discontinuance.

This was because the rule on discontinuance preserved the court’s discretion as CPR 38.6 provides that a claimant who discontinues is liable for costs “unless the court orders otherwise”.

There is no such discretion in Part 36.

CPR 44.9(1) reads:

“(1) Subject to paragraph (2), where a right to costs arises under –

(a) rule 3.7 or 3.7A1 (defendant’s right to costs where claim is struck out for non-payment of fees);

(a1) rule 3.7B (sanctions for dishonouring cheque);

(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted); or

(c) rule 38.6 (defendant’s right to costs where claimant discontinues),

a costs order will be deemed to have been made on the standard basis.”

 

11. Successful Part 36 Claimant Denied Uplift – A Mad Decision

This mad decision was overturned by the High Court on Monday 24 June 2019.

Here  is the High Court’s judgment overturning the decision. That decision is JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2019] EWHC 1582 (QB).

In

JLE (a child by her mother and litigation friend, ELH) v Warrington & Halton Hospitals NHS Foundation Trust [2018] EWHC B18 (Costs)

a High Court Master held that the Part 36 bonuses should be considered separately, so that it may be just for the claimant to get some of the advantages, but unjust to get others.

This was an assessment of the claimant’s costs in a clinical negligence case, and thus the effective party was the claimant’s solicitor in the costs proceedings.

The claimant’s bill totalled £615,751.51 and the claimant made a Part 36 offer of £425,000, including interest, which offer was not accepted.

The Master assessed the costs at £421,089.16, but with interest this came to £431,813.05, that is £6,813.05 more than the claimant’s offer on a submitted bill of £615,000, that is the offer was beaten by around 1% of the value of the bill.

It was accepted that the fact that it was only the interest that meant that the claimant beat its own offer was irrelevant.

The defendant contended that the issue of whether it was unjust to award the additional 10% – around £43,000 – should be considered separately to the other Part 36 bonuses and the Master agreed.

The Master held that it was appropriate to disallow the 10% uplift under CPR 36.17(4)(d) as it was disproportionate to the margin by which the offer was beaten.

This is in spite of the clear definition of “more advantageous” in CPR 36.17(2) as “better in money terms by any amount, however small”.

CPR 36.17(4) provides that where a claimant matches or beats its own Part 36 offer, unless it considers it unjust, it must order the defendant to pay:

• interest on the sum awarded;
• costs on the indemnity basis from expiry of the relevant period;
• interest on those cost;
• an additional amount of 10% of the first £500,000 awarded and 5% of any amount above that, subject to a maximum of £75,000.

 

Comment

An absurd anti-claimant decision, not the first by this Master, who was responsible for the Mitchell relief from sanctions fiasco.

It is simply inconceivable that the Master, or any other judge, would have applied the principle the other way around.

Thus a defendant makes a Part 36 offer of £50,000, and the trial judge awards £50,000, so the claimant has failed to beat the defendant’s Part 36 offer.

Imagine a judge saying that as it was so close it would be disproportionate to disallow the claimant’s costs from expiry of the offer and disproportionate to award the defendant its costs from expiry.

The sums in issue there will generally be far greater than 10% of the damages, so why is that not disproportionate?

Furthermore the paying party here had its remedy – had it made a Part 36 offer of say £450,000, then the claimant would have failed to beat it and would have been penalized in costs.

It should be noted that this was a costs assessment – there is no question of the defendant not being liable, as may occur in a substantive case, the issue was simply how much the defendant had to pay.

The Master lists that the case is considered, but absent from them is the key case of

Carver v BAA Plc [2008] EWCA Civ 412

where the Court of Appeal held that the claimant, who beat the defendant’s Part 36 offer by just £51, had not really won the case on Part 36 as beating a Part 36 offer by such a small amount was not deemed to be more advantageous on the facts given the trauma etc. of going to court.

I was highly critical of that decision, and said that solicitors should ensure that their clients gave evidence to say how much they enjoyed going to court, and it was not traumatic at all and indeed the whole experience of giving evidence made it more advantageous than settling.

My irony, as ever, was lost on some, but not Parliament which intervened and statutorily overturned the Court of Appeal’s decision in Carver and introduced the test set out above, that for the result to be more advantageous all it requires is for it to be better in money terms, by any amount, however small.

Thus this decision follows a Court of Appeal decision, which was not cited to the court, and which has been overturned by Parliament.

This is not a situation where the courts need to interpret the will of Parliament, but rather Parliament has told the courts that they must not interpret Part 36 in the way that the court did in Carver and in the way that this Master has.

This judgment is hopelessly wrong and, like some other Part 36 judgments of the judiciary, threatens to undermine the whole Part 36 regime.

It is worse than that. Parliament went further and CPR 36.17(5) sets out five factors which the court must take into account in considering whether it would be unjust to make the orders referred to in 36.17(4).

Those circumstances are:

(a) the terms of any Part 36 offer;

(b) the stage in the proceedings when any Part 36 offer was made, including in particular how long before the trial started the offer was made;

(c) the information available to the parties at the time when the Part 36 offer was made;

(d) the conduct of the parties with regard to the giving of or refusal to give information for the purposes of enabling the offer to be made or evaluated;

(e) whether the offer was a genuine attempt to settle proceedings.

None of these applied here. True it is that the court must take into account all the circumstances including those matters, which does not prevent the court from considering other matters.

However the Civil Procedure Rules are riddled with references to proportionality, and had Parliament, or the Civil Procedure Rules Committee, wished proportionality to be a factor in determining whether it was unjust to give the bonus, then Parliament would have said so.

At CPR 36.17(4)(d)(ii) the rules set out the percentage uplift that must be awarded. These figures are mandatory and not a maximum.

Contrast the wording of CPR 36.17(4)(a) and (c) where the words “not exceeding 10%” are used, which clearly gives the court a discretion to award a lower percentage.

That is not the case with CPR 36.17(4)(d)(ii), where a flat percentage is given, with no discretion for the court to award less.

The very fact that as far as costs are concerned a successful Part 36 gets indemnity costs – see CPR 36.17(4)(b), where proportionality cannot apply, demonstrates the absurdity of introducing proportionality into the Part 36 regime, and in any event the courts have, time and again, stated that Part 36 is a self-contained scheme not subject to the ordinary law.

The uplift on damages is a key part of the incentive on claimants to make Part 36 offers, and this was introduced by primary legislation, that is section 55 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, and not by secondary legislation or rule changes, and the rules set out above implemented an Act of Parliament, and it was not simply a question of Parliament approving changes to the Civil Procedure Rules by way of a statutory instrument.

In February 2019 the government published its Post Implementation Review of Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and at chapter 6 discusses changes to Part 36 offers to settle.

The opening paragraphs of the review read:

“Part 36 of the Civil Procedure Rules (CPR) was introduced to encourage early settlement through a ‘carrot and stick’ approach to ensure all parties have an interest in agreeing to early settlement.

 

Section 55 of the LASPO Act made relatively minor statutory changes including provision for recovery of an additional sum by a claimant where a defendant fails to beat the claimant’s offer. This was accompanied with a rule change to reverse the effect of Carver v BAA to clarify that ‘most advantageous’ meant by any amount, no matter how small.”

 

The review then goes out to set out, at paragraph 126, that many lawyers for claimants took the view that the 10% enhancement is not sufficiently high to make a meaningful difference or to be a decisive factor determining whether to settle and that the additional costs of a trial could exceed this enhancement, limiting the impact of any uplift.

Thus some respondents to the review suggested that the uplift should be increased to 20% and that the uplift cap of £75,000 should be raised.

This decision is close to being a contempt of Parliament, save that it appears that all of the parties, their lawyers and the judge were unaware of the legislative history in this matter.

 

12. Validity of Offers Excluding Interest

In

Horne v Prescot (No.1) Ltd [2019] EWHC 1322 (QB) (24 May 2019)

the Queen’s Bench Division of the High Court held that a Part 36 offer which excluded interest on costs was a valid offer.

Here, the claimant offered to accept £82,000 “exclusive of interest” and also stated that the offer did not include the costs of assessment.

The claimant was awarded £91,807.06, excluding the costs of assessment itself, on assessment and thus beat its offer, but the defendant submitted that an “exclusive of interest” offer could not be a valid Part 36 offer.

At first instance, the Master held that it was valid and here the High Court upheld that decision, holding that interest on costs is fundamentally different from interest on damages.

A bill of costs does not include interest as interest is ordinarily payable from the date of judgment until payment of the costs, under the Judgments Act 1838, without the need to claim it in detailed assessment proceedings.

Consequently, the offer was rightly described as relating to the whole of the claim in the detailed assessment proceedings and there was no severable part of the claim concerning interest.

Practice Direction 47.19 states that a settlement offer, whether made under Part 36 or otherwise, should specify whether or not it is intended to be inclusive of, among other things, interest and so it was sensible for the solicitors here to specify that the offer excluded interest and doing so did not invalidate the offer.

The court recognised the dangers in going “off script” when making an offer which the offeror wants to be a Part 36 offer, but there was no case law to the effect that including additional words which did not conflict with the mandatory requirements of a Part 36 offer invalidated it.

In any event CPR 36.5(4) did not use the word “must” and therefore was not mandatory.

The decision effectively overrides that in

 Ngassa v The Home Office & Anor [2018] EWHC B21 (30 November 2018)

where the Master held that such an offer, in an identical scenario, was not a valid Part 36 offer.

The Court of Appeal will be considering the same issue in November 2019 in the case of King v City of London Corporation.

 

13. Withdrawn Part 36 Offer Leads to No Order for Costs

In

Britned Development Ltd v ABB AB & Anor [2018] EWHC 3142 (Ch) (14 November 2018)

the Chancery Division of the High Court made no order for costs in a matter where the claimant had been awarded damages but was unsuccessful in much of its claim, which would of itself have led to a 40% reduction in costs.

However, the defendant had made a Part 36 offer which the claimant failed to beat, but the offer had been withdrawn prior to judgment and so the usual automatic Part 36 consequences did not apply, that is the defendant did not get its costs from the date of expiry of the offer.

However, such an offer is a factor to be taken into account in the assessment of costs under CPR 44.

In no circumstances the court found that it would be unjust for the defendant to pay any of the claimant’s costs and so it made no order for costs.

 

14. Withdrawal Of Original Offer

This scenario is the real facts of an ongoing case.

In a personal injury claim the defendant made a Part 36 offer of £75,000 in April 2018.

In January 2019 the defendant made a revised Part 36 offer of £25,000 and was granted permission to serve an amended defence pleading fundamental dishonesty.

The revision to the Part 36 offer was made by amending the original form N242A, crossing out the figure of £75,000 and inserting the figure of £25,000 and crossing out the previous date of April 2018 and redating the offer 7 January 2019.

The provision allowing 21 days for acceptance remained as in the original Part 36 offer and this revised offer of £25,000 was accepted within 21 days.

The claimant argues that costs are payable up to the date of acceptance in January 2019, on the basis that the claimant is entitled to rely on the clear wording of the revised Part 36 offer and the fact that it was accepted within 21 days.

Had the defendant not wished to pay costs up to the date of acceptance, then the defendant should have made Calderbank offer to that effect.

That was the effect of the decision in

Ballard v Sussex Partnership NHS Foundation Trust [2018] EWHC 370 (QB).

The defendant argues that that case is not relevant because it relates to a withdrawn offer, rather than a revised offer and refers to the case of Burrett v Mencap Limited 14 May 2014,  where an offer was varied, rather than withdrawn, although in that case the variation was deliberately silent as to the time limit for acceptance and so when accepted the costs consequences ran from the original offer, rather than the revised one.

Burrett v Mencap Limited was in any event decided under the Civil Procedure Rules in force in 2014 and in April 2015, CPR Part 36 was extensively revised and new CPR 36.9 and 36.17 filled the gap identified in Burrett, which was in any event a first instance decision of a District Judge.

What Part 36 says, in difficult language, is that if the offer is revised by improving it, then the offeree, that is the claimant in this case, has 21 days from that revised offer to accept it.

That makes sense. Otherwise a defendant could make a ridiculously low offer of say £2,000 at the outset of the case, knowing full well that it will never be accepted, but subsequently make a perfectly acceptable offer of say £100,000 years later, but with the benefit of the offer being treated as being made at the beginning, with the defendant getting all of its costs from the date of expiry of the unacceptably low offer.

However, Part 36 is silent as to what happens the other way around, that is when an offer is revised downwards and then accepted.

It may be that this was never envisaged, as obviously the starting point would be that if a claimant is not prepared to accept, as here, an offer of £75,000, then why should it accept an offer of £25,000?

That would suggest that the clock does indeed run from the time of the first offer, and again there is logic in that.

After all, if an offer is revised downwards from £75,000 to £25,000, then all the claimant has to do to avoid the Part 36 consequences is to beat that offer of £25,000, whereas before revision the claimant would have had to beat the offer of £75,000.

Thus although the offer is much less attractive on the face of it in a normal case, the risks to the claimant are very much lower.

If the original offer is not withdrawn by the new offer, then the old offer remains capable of acceptance, which on the face of it is absurd, but the courts have consistently held that Part 36 is a self-contained code which is not subject to the usual rules of contract.

For example, as a matter of contract, a counter-offer amounts to a rejection of the original offer, but that is not the case with Part 36.

Thus if a claimant makes a Part 36 offer of, say, £30,000, and a defendant counter-offers at £20,000, that is not a rejection of the claimant’s Part 36 offer, which remains open for acceptance by the defendant, in contrast with the position in contract at common law.

Either the second offer must operate as a withdrawal of the initial offer, or the initial offer must still be open for acceptance.

It must indeed be one or the other, and the defendant’s contention that neither applies, must be wrong.

Could the claimant in these circumstances accept the original offer and argue that he is in entitled to £75,000?

That may encourage the defendant to agree that the true position is that that original offer has been withdrawn, which should then make it a simple matter of an acceptance of the subsequent offer of £25,000 in the usual way, with the usual costs consequences following, as though the original offer had never been made, and of course that is the effect of a withdrawn offer.

What CPR 36.17(7) actually says is:

“(7)

Paragraphs (3) and (4) do not apply to a Part 36 offer—

(a) which has been withdrawn;

(b) which has been changed so that its terms are less advantageous to the offeree where the offeree  has beaten the less advantageous offer;

(c) made less than 21 days before trial, unless the court has abridged the relevant period.”

(8)

Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)”

Thus the costs consequences do not apply to a Part 36 offer which has been withdrawn.

Obviously, that is an issue in this scenario but the defendants are saying that the offer has been revised and not withdrawn.

CPR 17(7)(b) provides that the costs consequences do not apply to a Part 36 offer:

“which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;”

What Part 36.17(7)(b) deal with is the position where the claimant beats that less advantageous offer, and so in this case that would involve achieving more than £25,000.

The rest of 36.17(7) is not relevant here.

There is a further problem with CPR 36.17(7) in that it clearly envisages, as a different concept, an offer which has been withdrawn – CPR 36.17(7)(a) – and an offer which has been changed so that its terms are less advantageous to the offeree… – CPR 36.17(7)(b).

If the effect of any downwards revised offer is to withdraw the original offer, then (a) appears to be otiose, as the circumstances in (b) would constitute the withdrawal of the original offer in any event.

Thus the claimant should accept the original offer.

That would of course be a late acceptance meaning that the client would not get costs from the date of expiry of the original offer, and would have to pay the defendant’s costs from the expiry of the original offer to date.

However, given that the difference between the two offers is £50,000, it is likely that both the client and the solicitors would be very much better off accepting that original offer.

Comment

Best just to toss a coin on all Part 36 matters.

Saves court time.

 

 

TRIBUNALS: A GUIDE TO ALL TRIBUNALS, THEIR JURISDICTION, AND THE PATH OF APPEAL

COURT OF APPEAL, COURT OF SESSION, COURT OF APPEAL (NI)

 

Employment Appeals Tribunal (Great Britain)

President: Mr Justice Choudhury

Employment Tribunal (England and Wales)

President: Employment Judge Brian Doyle

Employment Tribunal (Scotland)

President: Employment Judge Shona Simon

UPPER TRIBUNAL AND FIRST TIER TRIBUNAL PRESIDED OVER BY SENIOR PRESIDENT: THE RT. HON. SIR ERNEST RYDER

 

UPPER TRIBUNAL

Administrative Appeals Chamber

President: Mrs Justice Farbey

(First instance jurisdiction: forfeiture cases and safeguarding of vulnerable persons. It has also been allocated some judicial review functions.)

Also hear appeals from: PAT (Scotland),

PAT (NI) (‘assessment’ appeals only),

MHRT (Wales),

SENT (Wales)

Tax and Chancery Chamber

President: Mr Justice Tony Zacaroli

(First instance jurisdictions: Financial Services and Markets and Pensions Regulator.)

Hears appeals from: Taxation Chamber

and from the Charity jurisdictions in the General Regulatory Chamber. It has also been allocated some judicial review functions.

Immigration and Asylum Chamber

President: Mr Justice Peter Lane

Lands Chamber

President: Mr Justice David Holgate

 

FIRST TIER TRIBUNAL

War Pensions and Armed Forces Compensation Chamber

Acting President: Judge Sehba Storey

England and Wales appeals only

Social Entitlement Chamber

President: Judge John Aitken

Jurisdictions:

Social Security and Child Support, * (Great Britain)

Asylum Support,** (United Kingdom)

Criminal Injuries Compensation (Great Britain)

*Except NHS charges in Scotland

**No onward right of appeal

Health, Education and Social Care Chamber

President: HHJ Phillip Sycamore

Jurisdictions:

Mental Health, Special Educational Needs and Disability,

Care Standards, Primary Health Lists (England and Wales) 

General Regulatory Chamber

President: Judge Alison McKenna

Jurisdictions include:

Charity (onward appeals to Tax &Chancery), (England and Wales)

Consumer Credit, Estate Agents, (United Kingdom)

Transport (Driving Standards Agency Appeals), (Great Britain)

Information Rights, (United Kingdom)

Claims Management Services, (England and Wales)

Gambling, (Great Britain)

Immigration Services, (United Kingdom)

Environment (England and Wales)

Tax Chamber

President: Judge Greg Sinfield

Jurisdictions include:

Direct and indirect taxation, MPs Expenses (United Kingdom)

Immigration and Asylum Chamber

President: Judge Michael Clements

Immigration and Asylum (United Kingdom)

Property Chamber

President: Judge Siobhan McGrath

Residential property, Agricultural lands & drainage,

Land Registration (onward appeals to Tax Chancery) (England and Wales)

 

Updated on 5 February 2019

FUNDAMENTAL DISHONESTY: THE MEGA-BLOG

This blog runs to 40 pages and brings together many of my other writings on the issues of Fundamental Dishonesty, and is up to date as at Tuesday 11 June 2019.

These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

Fundamental Dishonesty

CPR 44.16(1) reads:

“(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.”

There has been extensive case law on the meaning of fundamental dishonesty, but cases are inevitably fact sensitive and not a lot can be drawn from them.

CPR 44.16(1) applies where a claimant has lost the case, and a costs order is made in the usual way, and what a finding of fundamental dishonesty does is to allow the defendant, with the permission of the court, to enforce that costs order.

By definition, it will be the court which has made the ruling of fundamental dishonesty, and therefore it can be assumed that a court will always give permission to enforce the costs order in those circumstances.

Quite separately, section 57 of the Criminal Justice and Courts Act 2015 applies to a claimant who would otherwise have won, but is found to be fundamentally dishonest in relation to any part of the claim or a related claim.

In those circumstances the win is overturned and the claimant is ordered to pay the defendant’s costs, but subject to a reduction from those costs of the damages that the claimant would have been awarded on the genuine part of the claim.

Thus the concept of fundamental dishonesty under section 57 comes into play when the claimant has won, and the concept of fundamental dishonesty under CPR 44.16(1) comes into play when the claimant has lost.

As set out above, little can be drawn from the individual cases, save that, unsurprisingly, the courts are interpreting fundamental dishonesty in the same way under section 57 as under CPR 44.16(1).

 

Section 57 of the Criminal Justice and Courts Act 2015

Section 57

There is a very obvious overlap between Qualified One Way Costs Shifting and Section 57 of the Criminal Justice and Courts Act 2015 in that fundamental dishonesty defeats QOCS protection and also means that the whole of a personal injury claim must be dismissed, even if liability is admitted.

Thus fundamental dishonesty causes an otherwise successful claim to be lost; it also causes the claimant in an unsuccessful claim to lose the protection of QOCS.

Section 57 of the Criminal Justice and Courts Act 2015 came into force on 13 April 2015 by virtue of The Criminal Justice and Courts Act 2015 (Commencement No. 1, Saving and Transitional Provisions) Order 2015 (SI 2015 no. 778).

The key provision is Section 57(1)(b) which 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.

Commencement

Under section 57(9) this section does not apply to proceedings started by the issue of a claim form before the date on which this section comes into force. As we have seen it came into force on 13 April 2015 and therefore if proceedings were issued on or before 12 April 2015 the Act does not apply.

Note that issuing proceedings is defined as “proceedings started by the issue of a claim form” and therefore the matter being in the portal prior to 13 April 2015 does not succeed in avoiding the new sanctions. In that sense the provisions are retrospective in that they apply to causes of action arising before the Act came into force, if proceedings were not issued prior to 13 April 2015.

Thus any unissued personal injury claim and any personal injury claim issued on or after 13 April 2015 is caught by the Act. The date of service of the proceedings is irrelevant. Thus a claim issued in, say, March 2015 but not served until say, May 2015 is not affected by the Act.

Effect

Sections 57(1) and (2) require a court to dismiss a personal injury claim where the claimant is entitled to damages in respect of the claim if 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.

Section 57(1)(b) says “on an application by the defendant…” However if the court suspects fundamental dishonesty it could invite the defendant to make such an application, or exercise its power to dismiss the claim as an abuse of process. A court which may have felt reluctant in the past to utilize such a draconian power may feel empowered, or even required, by section 57 to take such a course of action.

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.”

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.

Related claim

A related claim is a claim for 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 (section 57(8)).

Substantial injustice

Dismissal of the whole 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, or a penalty in costs. “Substantial injustice” is not defined.

Costs

If the court dismisses the claim it must record the amount of damages that it would have awarded to the claimant in respect of the primary claim, but for the dismissal of the claim (section 57(4)).

When assessing costs the court must then deduct the notional amount of damages from the amount which it would otherwise have ordered the claimant to pay in respect of the defendant’s costs (section 57(5)).

Thus if the defendant’s costs are £30,000.00 and the damages would have been £20,000.00, then the claimant pays the balance of £10,000.00 to the defendant.

Given that by definition there has been a finding of fundamental dishonesty it follows that an order for costs will almost certainly be on the indemnity basis.

The Act applies to Fixed Recoverable Costs cases as well as all other personal injury cases.

It also applies to small claims track matters, which will be significant when the personal injury small claims limit goes up from £1,000.00 to £5,000.00 in RTA matters, and £2,000 in other cases, on 6 April 2020.

Definitions

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

“(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.”

Thus it will be seen that the key terms, that is “fundamental dishonesty” and “substantial injustice” are not defined.

The Oxford English Dictionary defines “dishonest” as “now, fraudulent, thievish, knavish.”

Criminal Proceedings

Section 57(6) and (7) are curious provisions which read:-

“(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

(b) 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.”

I take this to mean that the fact that the claimant has lost her or his damages, and paid costs, is a mitigating factor in the criminal proceedings which the sentencing court must take into account.

Problem Areas

1.Uncertainty as to how courts will interpret “fundamental dishonesty” – see “Fundamental Dishonesty”- for an analysis of the case law so far in the context of QOCS disqualification.

2.Uncertainty as to how courts will interpret “substantial injustice” – see below.

3.Proportionate or issue-based costs orders – does the claimant have to pay the defendant’s costs, even if say 90% of those costs were incurred in fighting the allegations of negligence or causation or whatever on which the claimant won without being fundamentally dishonest where the fundamental dishonesty is in relation to say a small part of special damages which took up only a small amount of court and lawyer time?

4.Split trials – claimant wins on liability but there is a finding of fundamental dishonesty. There then has to be another full trial on quantum, even though the claimant has lost, in order to determine the amount that the claimant would have got had he or she won, that is but for Section 57, so that that sum can be knocked off of the costs payable to the defendant as required by Section 57(5).

5.Interplay with Part 36 and QOCS.

Risk Assessment

Section 57 imposes a significant extra risk upon those acting for claimants. A case previously unlosable on liability, for example a person injured whilst travelling as a passenger, will now be lost if the claimant is fundamentally dishonest in relation to any part of the claim.

As we have seen there is no definition of fundamental dishonesty, but in a different context the Court of Appeal in

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

suggested that exaggeration amounts to fraud, and on the basis that fraud is at least as difficult a threshold to overcome as fundamental dishonesty, then exaggeration amounts to fundamental dishonesty, causing the previously unlosable claim to be lost.

I deal with Hayward in detail in Fundamental Dishonesty below. It is being appealed to the Supreme Court. The case reference is UKSC 2015/0099. At the time of writing it has not been listed.

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.

Success Fee and Charge to Client

Section 57 alone justifies a 100% success fee in every case, something unconsidered and not drawn to the Court of Appeal’s attention in the recent case of Herbert v HH Law Ltd [2019] EWCA 527, and solicitors may now take the view that 35% or 40% of damages is the appropriate fee from the client, rather than the more usual 25%, especially if self-insuring in relation to adverse costs.

Note that it is only the success fee, not the overall solicitor and own client costs, that is limited to 25% of damages.

After-the-Event Insurance

Section 57 causes 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 a liability has been admitted can 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 special damages are agreed and paid at £40,000.00. General damages are agreed and paid at £30,000.00. 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 her or his future career prospects and has been fundamentally dishonest in the future loss of earnings claim.

Bang goes the whole award and the claimant must refund the £70,000.00, although will be given credit for it in relation to adverse costs.

Admissions in personal injury cases are now meaningless.

After-the-event insurance policies are bound to exclude liability where a client is found to have been fundamentally dishonest.

Self-Insurance

Solicitors are allowed to agree with clients to cover the risk of adverse costs, that is to satisfy any costs order made against their client – see Sibthorpe and Morris v Southwark London Borough Council (Law Society intervening) [2011] EWCA Civ 25.

Such a benefit to the client entitles solicitors to charge a higher rate but this must not be a direct insurance premium. Thus solicitors may charge an increased hourly rate and cap all charges to the client, at say 30%, 35% or 40% or whatever of damages rather than the more usual 25%.

There is a duty not to exploit one’s client and there is of course the market.

Solicitors need to take care in the wording of the retainer and in the funding agreement to ensure that they are not liable if the client is found to be fundamentally dishonest in either a section 57 context or a QOCS context.

Bad enough that the solicitor will receive no fee from the other side in what was apparently a dead cert case but to be liable for the other side’s costs due to one’s own client’s fundamental dishonesty is a step too far.

Client Care Letter Wording

Irrespective of the insurance arrangements clients must be warned in very clear terms of the consequences of exaggerating any aspect of the claim.

Here is the suggested wording:-

Add to “Your Responsibilities”:-

“You will not exaggerate any part of your claim.”

Below that I advise the following in bold:-

“Please note that in a personal injury claim any inaccuracy or exaggeration by you or on your behalf in relation to any part of the claim will lead to the whole claim being thrown out with you being ordered to pay the other side’s costs. This will happen even if you have already won your claim. For example if the court finds that the accident was the other party’s fault but you exaggerate your injuries or the amount that you have spent then your claim would be lost. You will then be responsible for my firm’s costs as well as the other side’s costs. Such conduct on your behalf will invalidate any insurance policy.”

This statement has a readability score of 61.7 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

I advise that all clients be seen by a senior lawyer at least for the purposes of explaining the effect and meaning of fundamental dishonesty and also for discussing funding. Obviously a careful attendance note should be made.

Although the client has to sign a Statement of Truth in relation to their statement I suggest a following separate statement to be signed by the client in the following terms:-

“I have read and understood the statement that I have made. I have had any parts that I was unsure about explained to me and I confirm that the statement is true and correct in every respect. I understand that anything wrong in my statement may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 63 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

In relation to the Schedule of Special Damages I suggest the following be signed separately by the client:-

“I have read and understood my Schedule of Special Damages. I understand that these are expenses that I have actually paid or am liable for. I have had any parts that I was unsure about explained to me. I confirm that the Schedule of Special Damages is true and accurate in every respect. I understand that any inaccuracy in my Schedule of Special Damages may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 64.5 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

The above statement can be adapted for a Schedule of Future Loss.

In relation to medical evidence I advise the following:-

“I have read and understood my Medical Report. I have had any parts that I was unsure about explained to me. I confirm that the report is true and accurate in every respect. In particular I have been supplied with an explanation of the medical terms and I understand all of them. I understand that any inaccuracy in the Medical Report may lead to my whole claim being thrown out and me being ordered to pay the other side’s costs as well as my own solicitor’s costs and expenses.”

This statement has a readability score of 61 on the Flesch-Kincaid readability scale meaning that it is easily understood by 13 to 15 year olds.

The above wording can be adapted for any other reports obtained.

Solicitors may wish to have the client care statements in any Conditional Fee Agreement.

Substantial Injustice

Dismissal of the whole claim is mandatory unless the court is satisfied “that the claimant would suffer substantial injustice if the claim were dismissed.” (section 57(2)).

It appears that this is an all or nothing provision, that is that the court must either dismiss the whole of the claim on the ground of fundamental dishonesty or, if the substantial injustice exception is made out, treat the claim as though section 57 did not exist.

In other words there appears to be no power to disallow say half of the claim. The wording of section 57(2) is:-

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

Had Parliament intended the courts to have power to reduce the award but not extinguish it altogether one would have expected Parliament to say so, for example with wording such as:-

“The court must dismiss the whole of the primary claim, unless it is satisfied that the claimant would suffer substantial injustice if the claim was dismissed, in which case it shall make such order as it thinks fit, including awarding the claimant a percentage of what would have been awarded absent fundamental dishonesty.” Or whatever.

Level of Burden of Proof re Substantial Injustice

In relation to fundamental dishonesty the court has to be “satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim.” (Section 57(1)(b)).

The level of burden of proof is not specified in relation to substantial injustice:

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

This causes problems. One would expect the burden of proof to be on the balance of probabilities as the proceedings in question are civil proceedings. The counter argument is that in relation to fundamental dishonesty the Act specifically states that the burden of proof is that of the balance of probabilities, whereas here it is not so specified.

The counter counter-argument is that Parliament needed to make it clear that in relation to fundamental dishonesty – essentially a criminal concept – the civil, not criminal burden of proof applies. The criminal burden of proof is generally expressed as proving beyond reasonable doubt, a much higher burden than the civil one of the balance of probabilities.

As the name suggests the Criminal Justice and Courts Act 2015 is largely a criminal statute. Nevertheless section 57 is headed:-

“Civil proceedings relating to personal injury”

and is dealing primarily with civil proceedings, although section 57(7) does deal with criminal proceedings.

On balance, but not beyond reasonable doubt, my view is that the balance of probabilities is the appropriate test in relation to substantial injustice.

What might be covered?

It was pointed out in the debate in the House of Lords on 23 July 2014 that the whole section is designed to do substantial injustice, that is a claimant with a good claim has the whole claim dismissed because of “fundamental dishonesty” 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.”

This supports my view set out above, that it is all or nothing once a finding of fundamental dishonesty is made.

Lord Marks also asked 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.

No example was given in Parliament of what might amount to substantial injustice.

Children’s cases

If a litigation friend exaggerates on behalf of a child claimant a court might find fundamental dishonesty but also that to dismiss the claim would cause substantial injustice to the innocent child claimant.

Claimants lacking capacity

A court might take the same view in relation to fundamental dishonesty by a litigation friend acting for an innocent claimant lacking capacity.

Loss of huge award

It remains to be seen whether fundamental dishonesty in relation to a minor part of a claim, triggering a loss of millions of pounds to a catastrophically injured claimant would indeed mean that claimant gets nothing or whether the court would find that such a disproportionate penalty would indeed cause substantial injustice to the claimant.

Cost to state

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 tax-payer 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 has its insurance company.

 

Fundamental Dishonesty and Costs Proceedings

It is trite law that costs belong to the client and that assessment proceedings, although almost invariably in personal injury claims for the benefit of the lawyers only, are in the names of the parties.

Does that mean that fundamental dishonesty during the assessment proceedings can lead to the dismissal of the whole claim? On the face of it that is the case. However that may be one of the instances where a court would find that it would cause substantial injustice to deprive a claimant of all of her or his damages, no doubt already paid to the client, due to the solicitor’s fundamental dishonesty in claiming costs.

In the unlikely scenario that the client is involved in the fundamental dishonesty in claiming costs then it is likely that the client would indeed lose all of their damages.

An unanswered question is whether fundamental dishonesty in a bill of costs gives the court the power to disallow all of the claimant’s costs. Arguably the court has that power anyway under its very wide discretion in relation to costs but section 57 undoubtedly strengthens that discretionary hand of the court if there is any fundamental dishonesty in relation to the bill of costs.

It should be noted with care by those putting forward bills of costs that the Hayward case, discussed above, equates exaggeration with fraud and therefore fundamental dishonesty.

Many paying parties would contend that virtually every claimants’ bill of costs is exaggerated and therefore is fundamentally dishonest.

 

CPR 44.16(1)

Fundamental Dishonesty

The term fundamentally dishonest is used in section 57 of the Criminal Justice and Courts Act 2015 and in relation to QOCS in CPR 44.16(1) and is extensively referred to in Practice Direction 44 in relation to QOCS but is nowhere defined in the Act, Explanatory Notes, the Civil Procedure Rules or the Practice Direction. This is in spite of the fact that section 57(8) of the Criminal Justice and Courts Act 2015 is a definition section but chooses not to define this term, which is by far the most important one.

CPR 44.16(1) reads:

“(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.”

In fact the term originated in CPR 44.16(1) which became law in April 2013,before Parliament  enacted section 57 of the Criminal Justice and Courts Act 2015.

Under CPR 44.16(1) the burden of proof is that of the balance of probabilities, just as it is in section 57(1)(b) of the Criminal Justice and Courts Act 2015.

Note also that even though the disqualification from QOCS under CPR 44.16(1) requires there to be a finding that the claim is fundamentally dishonest it remains within the discretion of the court as to whether to allow enforcement of the costs order as it is dependent upon “the permission of the court”.

Under section 57 the court has no such discretion; dismissal of the claim is mandatory unless the substantial injustice exception is found.

Having said that it is hard to conceive of a situation where the court has found fundamental dishonesty and makes a costs order as it is bound to do, but then refuses permission for the successful defendant to enforce that order.

Indeed it is hard to envisage circumstances where the court will not also order those costs to be paid and enforced on the indemnity basis. Practice Direction 44, section II, dealing with Qualified One Way Costs Shifting covers fundamental dishonesty at paragraph 12.4 in these terms: –

“12.4

In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –

(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;

(b) where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;

(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;

(d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.”

That Practice Direction is not without its problems. Paragraph 12.4 (d) suggests that the court may deny QOCS protection in relation just to the costs attributable to the claim having been found to be fundamentally dishonest, but that is a discretion so the court, which has to make a full costs order in any event, may order the unsuccessful claimant to pay all of the defendant’s costs.

Thus fundamental dishonesty has a different effect on different types of case:

The claimant wins

If the claimant wins but is found to be fundamentally dishonest in relation to any part of the claim, or a related claim, then that win is overturned and the claimant is ordered to pay the defendant’s costs, but subject to a reduction from those costs of the damages that the claimant would have been awarded on the genuine part of the claim.

The claimant loses

The court makes an order in the successful defendant’s favour as in any other type of case but then has a discretion as to whether to allow enforcement of that order at all, and if so whether in full or in part.

In both scenarios, that is a win or a loss, the court has a discretion as to whether to order costs on the standard basis or on the indemnity basis, but given that by definition there has been a finding of fundamental dishonesty it is hard to see any reason not to award costs on the indemnity basis.

 

In

Summers v Fairclough Homes Ltd [2012] UKSC 26

the Supreme Court held that a court had the power to strike out a claim in its entirety in the event of fraud, but that that power should only be exercised in very exceptional circumstances. It has rarely been used.

Under the principles of this case a claimant would generally receive the genuine element of a claim even if a court found that s/he had dishonestly claimed other losses. This case is in a sense a forerunner of Section 57 of the Criminal Justice and Courts Act 2015. Here the Supreme Court said, at paragraph 1:-

“The principal issues in this appeal are whether a civil court (“the court”) has power to strike out a statement of case as an abuse of process after a trial at which the court has held that the defendant is liable in damages to the claimant in an ascertained sum and, if so, in what circumstances such a power should be exercised.”

There was no doubt that the claimant had had an accident which was the defendant’s fault but the trial judge found that he had exaggerated his symptoms to the extent of being fraudulent and had deliberately lied to those preparing medical reports.

At paragraph 33 of its judgment the Supreme Court said:-

“33. We have reached the conclusion that, notwithstanding the decision and clear reasoning of the Court of Appeal in Ul-Haq, the court does have jurisdiction to strike out a statement of case under CPR 3.4(2) for abuse of process even after the trial of an action in circumstances where the court has been able to make a proper assessment of both liability and quantum. However, we further conclude, for many of the reasons given by the Court of Appeal, that, as a matter of principle, it should only do so in very exceptional circumstances.”

Interestingly at paragraph 45 the Supreme Court said:-

“It was submitted that an ascertained claim for damages could only be removed by Parliament and not by the courts. We are unable to accept that submission. It is for the court, not for Parliament, to protect the court’s process. The power to strike out is not a power to punish but to protect the court’s process.”

Parliament has clearly taken a different view from the Supreme Court in passing Section 57.

Most interestingly of all the Supreme Court considered the role of the European Convention on  Human Rights in the context. Specifically the Supreme Court accepted that a judgment is a possession within the meaning of Article 1 Protocol 1 of the European Convention on Human Rights and that the effect of striking out a claim for damages would be to deprive someone of that possession, which would only be permissible if “in the public interest and subject to the conditions provided for by law…”

The Supreme Court said that the State has a wide margin of appreciation in deciding what is in the public interest but that is subject to the principle of proportionality – Pressos Compania Naviera SA v Belgium (1995) 21 EHRR 301 Paras 31 to 39.

“48. It is in the public interest that there should be a power to strike out a statement of case for abuse of process, both under the inherent jurisdiction of the court and under the CPR, but the Court accepts the submission that in deciding whether or not to exercise the power the court must examine the circumstances of the case scrupulously in order to ensure that to strike out the claim is a proportionate means of achieving the aim of controlling the process of the court and deciding cases justly.”

The court then went on to say, at paragraph 49:-

“The draconian step of striking a claim out is always a last resort, a fortiori where to do so would deprive the claimant of a substantive right to which the court had held that he was entitled after a fair trial. It is very difficult indeed to think of circumstances in which such a conclusion would be proportionate. Such circumstances might, however, include a case where there had been a massive attempt to deceive the court but the award of damages would be very small.” (My italics)

In

Akhtar and Khan v Ball, Walsall County Court, Unreported, 10 July 2015, Claim number A23YJ132

the two claimants were found to be fundamentally dishonest and the claims were dismissed, QOCS was dis-applied and the claimants were ordered to pay the defendants £3,000.00 exemplary damages on the defendant’s counterclaim for deceit and costs on the indemnity basis.

The court found the claimants to be “complicit in a criminal conspiracy to defraud” Royal and Sun Alliance Insurance plc.

The dismissal of the claims was because they were not made out, rather than under section 57 of the Criminal Justice and Courts Act 2015.

Husband and wife Parveen Akhtar and Mohammed Khan sought damages for personal injury following a road traffic accident when Rebecca Ball, a teacher insured by Royal and Sun Alliance, collided with the rear of a vehicle being driven by Mrs Akhtar.

It was alleged that Mr Khan was a front seat passenger.

The court dismissed both claims, finding that there had been no passenger and that the collision was at such a low speed that it could not have caused the injuries alleged.

The judge added:

“Even if I felt that there had been an accident which had actually caused Mrs Akhtar some injury, I would consider it appropriate to adopt the approach approved as acceptable in some cases by the Supreme Court in Summers v Fairclough Homes Ltd [2012] UKSC 26 as permitting a court to dismiss or strike-out an otherwise bona fide substantive claim because of the fraud in which that claimant has engaged in the course of the litigation to pursue another false claim.” (Paragraph 36).

Other cases

In Gosling v Screwfix and Another, Cambridge County Court, 29 March 2014, unreported, HHJ Moloney QC found the claimant to be exaggerating both his ongoing pain and the limitations to his mobility following an anthroplasty operation to his knee. This followed a “frankly devastating surveillance video.”

In considering whether this amounted to fundamental dishonesty the judge said that:-

“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 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.” (Paragraph 45).

The judge rejected the contention that fundamental dishonesty could only be found where “the dishonesty went to the root either of liability as a whole or damages in their entirety.” (Paragraph 49).

Here the claimant was found to be fundamentally dishonest as the dishonesty related to a “very substantial element of his claim” both in respect of general damages and damages for future care.

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.

In

Alpha Rocks Solicitors v Alade [2015] EWCA Civ 685

the Court of Appeal overturned a decision of the judge striking out the claim by solicitors to recover their costs; the judge had found that the bills were fraudulently exaggerated and mis-stated.

The strike out was on the basis of an abuse of the process of the court – CPR 3.4(2)(b) under the inherent jurisdiction of the court.

No oral evidence was called and the decision was made on the basis of written evidence and the documents.

The court quoted from Summers v Fairclough Homes [2012] 1 WLR 2004 where the Supreme Court approved the decision in Masood v Zahoor (Practice Note) [2009] EWCA Civ 650 and where they had refused to strike out, after a trial on Quantum, a massively overstated personal injury claim.

Here the Court of Appeal found that the judge had, in spite of repeated warnings to himself, conducted a mini fraud trial without hearing any witnesses. He decided that the solicitor was lying and that other witnesses were untruthful without them being cross-examined. The Court of Appeal found that to be a most unsatisfactory state of affairs.

Comment

This, and other similar decisions, suggest that the Court of Appeal and the Supreme Court will not be comfortable with Section 57 of the Criminal Justice and Courts Act 2015 which requires a court to strike the matter out even after judgment has been given in the Claimant’s favour if there is fundamental dishonesty.

Paragraph 704(C) of the Code of Conduct of Barristers states that a barrister should not draft a document containing any allegation of fraud “unless he has clear instructions to make such an allegation and has before him reasonably credible material which as it stands establishes a prima facie case of fraud”.

In

Medcalf v Mardell the House of Lords said:-

“…the requirement is not that counsel should necessarily have before him evidence in admissible form but that he should have material of such character as to lead responsible counsel to conclude that serious allegations should properly be based upon it.”

It will be interesting to see if guidance is given to counsel on raising fundamental dishonesty, either in the context of section 57 or Qualified One-Way Costs Shifting.

 

Fundamental Dishonesty: No Need for Damages Hearing

In

Patel v Arriva Midlands Ltd & Anor [2019] EWHC 1216 (QB) (14 May 2019)

the High Court dismissed a claimant’s personal injury claim on the ground of fundamental dishonesty, without the matter going to a quantum hearing, that is a hearing to decide the level of damages.

Here, the claimant was involved in a collision with a bus in January 2013 and then had a heart attack and his condition apparently deteriorated to the point where he was significantly disabled.

The claimant won the claim with a finding of 40% contributory negligence and the defendant’s insurers then applied to dismiss the claim before it went to a damages hearing, on the ground that it was fundamentally dishonest, as required by section 57 of the Criminal Justice and Courts Act 2015.

Experts had found the claimant in bed, mute and unresponsive and unable to move his hands, arms or legs, but with no apparent neurological reason, and they concluded that he was either feigning his disability, or had a subconscious conversion disorder.

However, the defendant secretly recorded the claimant over several days, showing him walking unaided, talking and engaging with what was going on.

One expert changed his view and said that the disability was feigned and that the claimant’s son, acting a Litigation Friend, had been deceitful, and the Judge accepted this evidence and said that even if the claimant’s condition changed from day to day, this should still have allowed him to correct the untrue information in the reports of the expert.

The claimant submitted that it was impossible for the court to find fundamental dishonesty without hearing all of the evidence, and that it should wait until after the damages hearing, a contention rejected by the judge:

“The claimant’s dishonesty has substantially affected the presentation of his case which potentially adversely affected the defendant in a significant way, and so that the claimant has been fundamentally dishonest.”

 

Comment

Spot on. However, we need to extend the fundamental dishonesty provisions to defendants in personal injury cases.

It is very simple – here is the draft of a new Section 57A:

“In any personal injury claim where the court finds the defendant to have been fundamentally dishonest, the court shall increase by 100% the total damages and costs awarded to the claimant.”

Indeed, there is a compelling case to extend the fundamental dishonesty provisions to all civil and employment cases, for both parties.

Interestingly the same Judge – Her Honour Judge Melissa Clarke sitting as a judge of the High Court on 14 May 2019, held in

ATB Sales Ltd v Rich Energy Ltd & Anor [2019] EWHC 1207 (IPEC)

that it was not necessary to plead fraud or dishonesty, provided that the facts upon which an inference of dishonesty may be based are pleaded.

For all intents and purposes the courts now treat dishonesty, fundamental dishonesty and fraud as meaning the same thing, which must be right.

 

QOCS, Discontinuance And Strike-Out

In

Shaw v Medtronic Corevalve LLC & Others [2017] EWHC 1397 (QB)

the Queen’s Bench Division of the High Court refused to set aside a Notice of Discontinuance and refused to give permission to Defendants to enforce a Costs Order in a Qualified One-Way Costs Shifting case.

The discontinuance did not amount to an abuse of process and although there were elements of the claim outside the ambit of QOCS protection, they were either not pleaded, or were de minimis and would not have added to the costs of the action.

Previously the court had set aside permission to the Claimant to serve the First and Third Defendants out of the jurisdiction and the claim against the Fourth Defendant was struck out and the Claimant then discontinued against the Fifth Defendant.

Now, the Claimant sought permission to amend the Particulars of Claim against the Second Defendant, who was the one remaining Defendant.

The First, Third and Fifth Defendants applied for leave to enforce the Costs Orders made against the Claimant.

The judge refused permission to the Claimant to amend against the Second Defendant and then struck out the claim against that Defendant.

Thus the position in relation to claim was:

First Defendant:             Service set aside

Second Defendant:         Struck out

Third Defendant:            Service set aside

Fourth Defendant:          Struck out

Fifth Defendant:             Discontinued.

 

CPR 44.15 reads:

“Exceptions to Qualified One-Way Costs Shifting where permission not required

44.15 Orders for costs made against the claimant may be enforced to the full extent of such orders without the permission of the court where the proceedings have been struck out on the grounds that –

(a) the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b) the proceedings are an abuse of the court’s process; or

(c) the conduct of –

(i) the claimant; or

(ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.”

In relation to the First and Third Defendants, the claim had not been struck out, even though the judge held that the Claimant had disclosed no reasonable grounds for bringing the proceedings and had said that had the Claim Form been served within the jurisdiction, he would have struck the claims out as having no reasonable grounds.

However, as the claim was served outside the jurisdiction the appropriate remedy was to set aside service.

Neither had the claim been struck out against the Fifth Defendant – it had been discontinued.

Thus CPR 44.15(1)(a), relating to strike-out, could not apply in relation to any of these three Defendants.

Setting aside discontinuance   

The Fifth Defendant sought an order setting aside the Notice of Discontinuance, so as to allow the court to consider striking out the claim on the basis that the Claimant had no reasonable grounds for bringing the proceedings.

That would have the effect of bringing the matter back within the CPR 44.15(1)(a) exception to QOCS.

The judge refused, saying that:

“… the Claimant had a right to discontinue under CPR rule 38.2. It was a proper use of that power, and to be encouraged, for the Claimant to recognise … that her claim against the Fifth Defendant was not sustainable and to discontinue that claim (Paragraph 53).”

The court recognised that it had power under CPR 38.4 to set aside a Notice of Discontinuance and the authorities suggested that that should only be done if there had been an abuse of process in serving the Notice of Discontinuance.

The rule itself is silent as to when the power should be exercised.

The judge held that the facts here were not an abuse of process “or anything sufficient to justify setting aside the Notice of Discontinuance (Paragraph 58).”

The court left open the possibility that servicing Notice of Discontinuance to avoid the claim being struck out on the no reasonable grounds basis, and thus triggering disqualification from QOCS protection, could be an abuse of process justifying the setting aside of the Notice of Discontinuance, but that was not the position here.

 

Case Law

Fundamental Dishonesty: Supreme Court Indicates Hard Line: Versloot Considered

In

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

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).

26. 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.

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

3. 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.

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.

 

Summary

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.

2. 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.

3. 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

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.

 

Hard Line Taken in Three Cases

There have been three recent and important High Court decisions in relation to how the fundamental dishonesty test under section 57 of the Criminal Justice and Courts Act 2015 should be applied.

That section requires a court to dismiss an otherwise valid personal injury claim if the claimant has been fundamentally dishonest in relation to the claim unless the claimant would suffer substantial injustice if the claim was dismissed.

It only applies to cases issued on or after 13 April 2015 and covers counterclaims as well.

The full text of section 57 and the Explanatory Notes are set out at the end of this piece.

In

Ivey v Genting Casinos Limited (trading as Crockfords Club) [2017] 3 WLR 1212

the Supreme Court restated the common law test for dishonesty, holding that while dishonesty is a subjective state of mind, the standard by which the law determines whether that state of mind is dishonest is an objective one, and that if by ordinary standards a defendant’s mental state is dishonest, it is irrelevant that the defendant judges by a different standard.

In

Razumas v Ministry of Justice [2018] EWHC 215 (QB)

the Queen’s Bench Division of the High Court dismissed a personal injury claim under section 57 of the Criminal Justice and Courts Act 2015.

The claimant brought a clinical negligence claim against the Ministry of Justice concerning treatment whilst he was a prisoner, maintaining that there had been a failure to diagnose a tumour leading to his leg being amputated.

The claimant lied about seeking treatment, which raised the issue of whether the claim should be dismissed under the fundamental dishonesty provisions of section 57.

However, there is an exception if the claimant would suffer “substantial injustice” if the claim was dismissed.

The claimant submitted that his dishonesty fell short of being fundamental, as the lies were barely significant in the context of the case and also that he would suffer substantial injustice because of the gross disproportion between the lies and the effect of depriving him of the award of damages.

The High Court held that fundamental dishonesty was made out as the admitted dishonesty was part of the potential success of the claim and had substantially affected presentation of his case.

The High Court also held that something more than the loss of damages was required before there could be substantial injustice, as the whole point of section 57 was to remove damages and any other result would “cut across what [section 57] is trying to achieve.”

The court here referred to

Howlett v Davies and Ageas Insurance Ltd [2017] EWCA Civ 1696

where the Court of Appeal approved the following passage of the County Court judgment in

Gosling v Hailo 29 April 2014

“44. 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.

45. 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.”

The court here also considered

London Organising Committee of the Olympic and Paralympic Games v Haydn Sinfield [2018] EWHC 51 (QB)

in which Mr Sinfield suffered an injury for which the Organising Committee was liable but where he dishonestly claimed gardening expenses, supported by fake invoices.

There the court dismissed the whole of the claim, relying on section 57 and said

“62. In my judgment, a claimant should be found to be fundamentally dishonest within the meaning of s 57(1)(b) if the defendant proves on a balance of probabilities that the claimant has acted dishonestly in relation to the primary claim and/or a related claim (as defined in s 57(8) ), and that he has thus substantially affected the presentation of his case, either in respects of liability or quantum, in a way which potentially adversely affected the defendant in a significant way, judged in the context of the particular facts and circumstances of the litigation. Dishonesty is to be judged according to the test set out by the Supreme Court in Ivey v Genting Casinos Limited (t/a Crockfords Club) , supra.

63. By using the formulation ‘substantially affects’ I am intending to convey the same idea as the expressions ‘going to the root’ or ‘going to the heart’ of the claim. By potentially affecting the defendant’s liability in a significant way ‘in the context of the particular facts and circumstances of the litigation’ I mean (for example) that a dishonest claim for special damages of £9000 in a claim worth £10 000 in its entirety should be judged to significantly affect the defendant’s interests, notwithstanding that the defendant may be a multi-billion pound insurer to whom £9000 is a trivial sum.”

Here the court concluded:

“212. I gratefully adopt the test set out by Julian Knowles J and ask myself first: Did Mr Razumas act dishonestly in relation to the primary claim and/or a related claim? To this the answer must be yes. He has one main claim, and the dishonesty went to one route to succeed on it in full. Has he thus substantially affected the presentation of his case, either in respect of liability or quantum, in a way which potentially adversely affected the defendant in a significant way? Again the answer must be yes. The argument which he advanced went to an entire factual section and pleaded occasion which would have entitled relief on the main claim. Thus the first part, fundamental dishonesty is made out.

213. I do not consider that there could be any way out for Mr Razumasvia the argument on substantial injustice. It cannot in my judgement be right to say that substantial injustice would result in disallowing the claim where a claimant has advanced dishonestly a claim which if established would result in full compensation. That would be to cut across what the section is trying to achieve.

214. In the Sinfield case Julian Knowles J had no difficulty in dismissing this argument in the context of a dishonesty which went only to part of the quantum claimed. At [89] he stated that it was plain from section 57(3):

“….something more is required than the mere loss of damages to which the claimant is entitled to establish substantial injustice. Parliament has provided that the default position is that a fundamentally dishonest claimant should lose his damages in their entirety, even though ex hypothesi, by s 57(1), he is properly entitled to some damages. It would render superfluous s 57(3) if the mere loss of genuine damages could constitute substantial injustice.”

215. This, it seems to me, must be right. Something more is required. That something more is not made out here and so, if there were a claim it would fail at this stage.”

In

London Organising Committee of the Olympic and Paralympic Games (In Liquidation) v Sinfield [2018] EWHC 51 (QB)

the Queen’s Bench Division of the High Court overturned the County Court’s award of damages and dismissed the claimant’s personal injury claim due to fundamental dishonesty under section 57 of the Criminal Justice and Courts Act 2015 in exaggerating the costs of gardening following his injury.

The claimant was injured whilst working as a volunteer at the 2012 Olympic Games and the defendant admitted liability.

The High Court said that the fact that the greater part of the claim was genuine is “neither here nor there.”

If something has “substantially affected the presentation of his case, either in respects of liability or quantum, in a way which potentially adversely affected the defendant in a significant way” then it amounts to fundamental dishonesty requiring the whole claim to be dismissed.

The claimant falsely claimed that he had spent thousands of pounds employing a gardener to manage his two acre garden after the accident.

The trial judge had said that he needed “evidence of weight” before finding dishonesty and held that the proper inference was that the claimant was “muddled, confused and careless” about the gardening claim, but that that did not contaminate the entire claim.

Here the High Court overturned that finding.

The gardening claim represented about 28% of the overall damages claim, but the false element was around 11% of the claim.

The trial judge had found that the claimant was not fundamentally dishonest within the meaning of section 57, but if he was wrong about that “it would be substantially unjust for the entire claim to be dismissed when the dishonesty relates to a peripheral part of the claim and the remainder of the claim was honest and genuine.”

Here the High Court said

“65. Given the infinite variety of circumstances which might arise, I prefer not to try and be prescriptive as to what sort of facts might satisfy the test of substantial injustice. However, it seems to me plain that substantial injustice must mean more than the mere fact that the claimant will lose his damages for those heads of claim that are not tainted with dishonesty. That must be so because of s 57(3). Parliament plainly intended that sub-section to be punitive and to operate as a deterrent. It was enacted so that claimants who are tempted to dishonestly exaggerate their claims know that if they do, and they are discovered, the default position is that they will lose their entire damages. It seems to me that it would effectively neuter the effect of s 57(3) if dishonest claimants were able to retain their ‘honest’ damages by pleading substantial injustice on the basis of the loss of those damages per se. What will generally be required is some substantial injustice arising as a consequence of the loss of those damages.”

Section 57 Criminal Justice and Courts Act 2015

“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”)—

(a) the court finds that the claimant is entitled to damages in respect of the claim, but

(b) 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

(b) 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—

(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.

(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 57: Personal injury claims: cases of fundamental dishonesty

“502. Section 57 provides that in any personal injury claim where the court finds that the claimant is entitled to damages, but on an application by the defendant for dismissal is satisfied on the balance of probabilities that the claimant has been fundamentally dishonest in relation to either the claim itself (the primary claim) or a related claim, it must dismiss the primary claim entirely unless it is satisfied that the claimant would suffer substantial injustice as a result. A related claim is defined in subsection (8)as one which is made by another person in connection with the same incident or series of incidents in connection with which the primary claim is made. Subsection (3)makes clear that the requirement to dismiss the claim includes the dismissal of any element of the primary claim in respect of which the claimant has not been dishonest.

503. Subsection (4) requires the court to record in the order for dismissal the amount of damages that it would otherwise have awarded. This will be relevant in the event of an appeal and in determining what the claimant should pay the defendant in costs. It will also be relevant for the purposes of any criminal proceedings or proceedings for contempt of court which may be brought against the claimant in relation to the same behaviour.

504. Subsection (5) provides that when assessing costs in the proceedings, a court which dismisses a claim under this section must deduct the amount recorded in the order under subsection (4) from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant. For example, if the amount of damages which the court records that it would have awarded but for the dismissal of the claim were £50,000, and the amount that the court would otherwise order the claimant to pay in respect of the defendant’s costs was £100,000, the claimant could not be ordered to pay the defendant more than £50,000 in total.

505.Subsections (6) and (7) deal with the relationship between an order dismissing the claim and any subsequent proceedings against the claimant for contempt of court or criminal prosecution, and provide for the court hearing the latter proceedings to have regard to the order dismissing the claim when sentencing the claimant or otherwise disposing of the proceedings. It is intended that this will enable the court to ensure that any punishment imposed in those proceedings is proportionate.

506. In addition to defining a related claim, subsection (8) defines “personal injury” for the purposes of the section as including any disease and any other impairment of a person’s physical or mental condition, and provides for the definition of “claim” and related terms to cover counter-claims.

507. Subsection (9) provides that the section does not apply to proceedings started by the issue of a claim form before the date on which the section comes into force.”

 

Fundamental Dishonesty and Section 57

In

Molodi v Cambridge Vibration Maintenance Service (1) and Aviva Insurance Limited (2) [2018] EWHC 1288 (QB)

the High Court allowed the defendant’s appeal and held that the claim be dismissed on the ground that the claimant had been fundamentally dishonest within the meaning of Section 57 of the Criminal Justice and Courts Act 2015.

This was a road traffic accident and there was no doubt that the defendant was responsible for the accident – see paragraph 4 of the appeal judgment.

However, the claimant lied about various matters, including stating that he had only one previous claim, whereas he had had between five and seven previous claims, the duration of his symptoms, the cost of repairs to his vehicle, the need for physiotherapy sessions and the length of time off work.

The trial judge, in finding for the claimant, appears to have been influenced by the poor quality of legal staff involved in such cases:

“I have hardly seen a Claim Notification Form in the last number of years where the detail of the accident as I found it on the evidence, often on objective evidence, is properly recorded in the Claim Notification Form. The process itself is often, because of its nature, littered with inaccuracy, partly because the forms are filled out by relatively lowly junior people in the office who are not qualified, partly because they do not take sufficient care over setting out the details and sometimes as they type it up they make mistakes. I see it in almost every case. The fact that there is no mention made of the right hand does not of itself concern me. The other injuries are broadly referred to.”

The fact that fraud had not been pleaded did not prevent the court from making a finding of fundamental dishonesty – see

Kearsley v Klarfeld [2005] EWCA Civ 1510:

“There is no substantive obligation on the Defendant to plead fraud so long as his reasons for resisting the claim are clearly stated in accordance with CPR 16.5.”

The High Court also quoted from the Court of Appeal’s decision in

Howlett v Davies[2017] EWCA Civ 1696

“31. 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 its pleadings will not necessarily bar a judge from finding a witness to have been lying: in fact, judges must regularly characterise witnesses to have been deliberately untruthful even where there has been no plea of fraud. On top of that, its seems to me that where an insurer in a case such as the present one, following the guidance given in Kearsley v Klarfeld, 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, assuming that the relevant points had been adequately explored during the oral evidence, to state in his judgment not just that the claimant has not proved his case but that, having regard to matters pleaded in the defence, he has concluded (say) 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 has 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.”

Here the High Court was clearly influenced by “the problem that fraudulent or exaggerated whiplash claims have presented for the insurance industry and the courts.”(Paragraph 44).

The High Court set out detailed guidance as to what courts should expect to see in genuine whiplash claims:

“44. Before considering the particular issues in this case, it is also pertinent to recognise the problem that fraudulent or exaggerated whiplash claims have presented for the insurance industry and the courts. This was recognised in March 2018 when the Ministry of Justice published a Civil Liability Bill which aims to tackle insurance fraud in the UK through tougher measures on fraudulent whiplash claims, proposing new, fixed caps on claims and banning the practise of seeking or offering to settle whiplash claims without medical evidence. The problem of fraudulent and exaggerated whiplash claims is well recognised and should, in my judgment, cause judges in the County Court to approach such claims with a degree of caution, if not suspicion. Of course, where a vehicle is shunted from the rear at a sufficient speed to cause the heads of those in the motorcar to move forwards and backwards in such a way as to be liable to cause “whiplash” injury, then genuine claimants should recover for genuine injuries sustained. The court would normally expect such claimants to have sought medical assistance from their GP or by attending A & E, to have returned in the event of non-recovery, to have sought appropriate treatment in the form of physiotherapy (without the prompting or intervention of solicitors) and to have given relatively consistent accounts of their injuries, the progression of symptoms and the timescale of recovery when questioned about it for the purposes of litigation, whether to their own solicitors or to an examining medical expert or for the purposes of witness statements. Of course, I recognise that claimants will sometimes make errors or forget relevant matters and that 100% consistency and recall cannot reasonably be expected. However, the courts are entitled to expect a measure of consistency and certainly, in any case where a claimant can be demonstrated to have been untruthful or where a claimant’s account has been so hopelessly inconsistent or contradictory or demonstrably untrue that their evidence cannot be promoted as having been reliable, the court should be reluctant to accept that the claim is genuine or, at least, deserving of an award of damages.”

In overturning the trial judge’s finding, the High Court said that the judge had “adopted a much too benevolent approach to evidence from a claimant which could be demonstrated to be inconsistent, unreliable and, on occasions, simply untruthful.”

The High Court also stressed the importance of the accuracy of the medical report in whiplash cases:

“46. The medical evidence is at the heart of claims for whiplash injuries. Given the proliferation of claims that are either dishonest or exaggerated, for a medical report to be reliable, it is essential that the history given to the medical expert is as accurate as possible. This includes the history in relation to previous accidents as this goes to fundamental questions of causation: whether, if there are ongoing symptoms, those are attributable to the index accident or to previous accidents or to some idiopathic condition of the claimant. Furthermore, the knowledge that a claimant has been involved in many previous accidents might cause a medical expert to look rather more closely at what is being alleged on the incident occasion to see whether the claimant is being consistent and whether his reported injuries are in accordance with the reported circumstances of the accident. Once, as here, the Claimant could be shown to have been dishonest in respect of a fundamental matter and then to have maintained that dishonesty through his witness statement and into his evidence before the Court, it is difficult to see how the Learned Judge could have accepted any other part of the Claimant’s evidence or the medical report itself – and, without these, there was nothing left.”

The High Court upheld the defendant’s submission that the claimant had been fundamentally dishonest and that the claim should therefore be dismissed.

It went further and said that the trial judge should have dismissed the claim on the basis that the claimant had failed to prove his case that any injury occurred, even though the defendant admitted primary liability for the accident.

 

Section 57 Fundamental Dishonesty Appeal

In

Wright v Satellite Information Services Ltd [2018] EWHC 812 (QB)

the Queen’s Bench Division of the High Court was hearing an appeal against the decision of a Circuit Judge awarding the claimant in a personal injury action damages of £119,165.02.

The defendant appealed on the basis that the claim should have been dismissed under section 57 of the Criminal Justice and Courts Act 2015 on the basis that the claimant had been fundamentally dishonest.

The defendant did not dispute any of the findings of fact made by the trial judge but stated that:

“the Learned Judge, having found that the Claimant’s claim for the cost of care was not established, was wrong as a matter of law not to find that he had therefore been dishonest in his presentation of this element of the claim and that such dishonesty was ‘fundamental’ to the integrity of the claim within the meaning of section 57 of the Criminal Justice and Courts Act 2015.”

Here liability had been admitted but quantum remained in issue and fell to be determined by the court.

It was the defendant’s case that covert video surveillance demonstrated that the claimant was far less disabled than he claimed and that he had deliberately and dishonestly exaggerated his claim.

The judge held that the claimant was not guilty of dishonesty, still less dishonesty of a fundamental nature.

The judge went on to say that had he found that the claimant had been fundamentally dishonest then he would have held under section 57(2) that the claimant would not have suffered substantial injustice if the claim was dismissed.

That conclusion was not challenged by the claimant and therefore the only issue on the appeal was whether the judge was wrong to find, on the balance of probabilities, that claimant had not been fundamentally dishonest.

Here claim for future care had been pleaded in excess of £73,000.00, but the trial judge allowed just £2,100.00 to cover the provision of some care following future surgery.

The trial judge, whose reasoning the High Court upheld, found that the claimant’s evidence was not untruthful, but rather a proper interpretation of the evidence did not support the assessment of the care expert.

The High Court held that this was essentially a challenge to the trial judge’s findings of fact.

Here the High Court then gave some useful guidance on the court’s task in dealing with an application under section 57.

“38. The first stage for the court when considering an application under section 57 is to decide whether, on a balance of probabilities, the defendant has established that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim. The judge was not satisfied that this was the case. On the facts and the evidence presented to him, it cannot be said that this was not a decision open to him. The issue of dishonesty is akin to a jury question. In the case of a civil trial before a judge alone, it is a matter for the trial judge who has seen and heard all the evidence unless some material flaw in approach or his analysis can be identified.”

 

The relevant part of section 57 of the Criminal Justice and Courts Act 2015 reads:

 

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

(a)   the court finds that the claimant is entitled to damages in respect of the claim, but

(b)  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.”

 

Comment

The guilty party in this case was clearly the expert, as recognised by the court.

Nevertheless, lawyers must be increasingly wary of simply putting forward expert evidence without any real analysis of the truth of that evidence.

This has been a long standing problem, but the introduction section 57 makes it a much more serious issue.

Clearly here the High Court was right not to interfere with the findings of fact of the trial judge, but one may consider that the claimant was a little fortunate at first instance.

 

QOCS, Fundamental Dishonesty and Discontinuance

In

Alpha Insurance A/S v Roche and Roche [2018] EWHC 1342 (QB)

the Queen’s Bench Division of the High Court held that the Circuit Judge should have allowed the defendant’s allegation of fundamental dishonesty to be heard in circumstances where the claimants had discontinued the day before trial.

The starting point on discontinuance in a QOCS case is no different from a claimant losing the case –  there is a costs order in the defendant’s favour in the usual way, but generally it cannot be enforced unless certain circumstances set out in CPR 44.13 to CPR 44.17, dealing with QOCS, applies.

The Practice Direction accompanying CPR 44  provides at 12.4 that:

“(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;”

The Circuit Judge refused the defendant’s application on the ground that a further hearing would involve “a disproportionate use of limited and precious court resources, given the amount of time and court resources that have already been devoted to the pursuit of this case”.

The Circuit Judge went on to find that “there is nothing…which suggests that there is any particular exceptional quality about this particular case that should cause me to give further directions and to set aside further court time to allow this particular isolated issue of dishonesty to be ventilated.”

The High Court found that that constituted an error of law as there is no requirement in the Practice Direction of exceptionality.

The High Court pointed out that if a case is settled, rather than discontinued, then the Practice Direction does specifically require that there be exceptional circumstances before there is a hearing in relation to alleged fundamental dishonesty.

The Circuit Judge appears to have exercised his discretion on the failure to understand the law, and consequently had erred in law, allowing the High Court to set the decision aside.

On discontinuance the court has an unfettered discretion which requires it to weigh all relevant considerations in accordance with the overriding objective and there is no presumption either way, that is that the court will generally direct determination of the issue of fundamental dishonesty, nor that it will generally not make such a direction.

The High Court had this to say:

“18. The provision has been introduced expressly to allow issues of fundamental dishonesty to be determined after discontinuance. Inevitably, this involves the allocation of further court resources to a case in which the claim is no longer being pursued. It will not be uncommon for such cases to involve relatively modest costs. However, in considering proportionality, it does need to be recognised that there is a public interest in identifying false claims and in claimants who pursue such claims being required to meet the costs of the litigation.”

Two factors which weighed heavily in the balance for the High Court were the very late stage at which the claim was discontinued and the complete absence of any explanation from the claimants, in a case where the defendant had admitted negligence but had alleged that the second claimant’s claim was fraudulent.

Thus this would have brought Section 57 of the Criminal Justice and Courts Act 2015 into play had the matter gone to a contested hearing.

As the case was discontinued, that ceased to be an issue, as the claimants lost the case in any event, and the issue here was fundamental dishonesty for the purpose of depriving the claimants of the protection of QOCS.

The High Court said:

“However, where liability is not disputed save for the allegation of fundamental dishonesty and where the matter is close to trial, I believe some explanation can reasonably be expected.”

MOTOR INSURERS’ BUREAU MUST COVER VEHICLE BEING DRIVEN OFF ROAD

In

Motor Insurers’ Bureau v Lewis [2019] EWCA Civ 909 (05 June 2019)

the Court of Appeal upheld the decision of the High Court that the Motor Insurers’ Bureau (MIB) was liable to indemnify the driver of a vehicle that was being driven off road, that is on private land.

Here the claimant was struck by an uninsured vehicle while he was walking on private land and he obtained judgment against the driver and the key issue was whether the MIB was liable.

The Court of Appeal upheld the High Court’s decision that the MIB is an emanation of the state and therefore EU Directive 2009/103/EC had direct effect against it and the MIB was therefore liable to indemnify the claimant at least to the extent of the minimum cover of €1 million.

PART 36: VALIDITY OF OFFERS EXCLUDING INTEREST

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Horne v Prescot (No.1) Ltd [2019] EWHC 1322 (QB) (24 May 2019)

the Queen’s Bench Division of the High Court held that a Part 36 offer which excluded interest on costs was a valid offer.

Here, the claimant offered to accept £82,000 “exclusive of interest” and also stated that the offer did not include the costs of assessment.

The claimant was awarded £91,807.06, excluding the costs of assessment itself, on assessment and thus beat its offer, but the defendant submitted that an “exclusive of interest” offer could not be a valid Part 36 offer.

At first instance, the Master held that it was valid and here the High Court upheld that decision, holding that interest on costs is fundamentally different from interest on damages.

A bill of costs does not include interest as interest is ordinarily payable from the date of judgment until payment of the costs, under the Judgments Act 1838, without the need to claim it in detailed assessment proceedings.

Consequently, the offer was rightly described as relating to the whole of the claim in the detailed assessment proceedings and there was no severable part of the claim concerning interest.

Practice Direction 47.19 states that a settlement offer, whether made under Part 36 or otherwise, should specify whether or not it is intended to be inclusive of, among other things, interest and so it was sensible for the solicitors here to specify that the offer excluded interest and doing so did not invalidate the offer.

The court recognised the dangers in going “off script” when making an offer which the offeror wants to be a Part 36 offer, but there was no case law to the effect that including additional words which did not conflict with the mandatory requirements of a Part 36 offer invalidated it.

In any event CPR 36.5(4) did not use the word “must” and therefore was not mandatory.

The decision effectively overrides that in

 Ngassa v The Home Office & Anor [2018] EWHC B21 (30 November 2018)

where the Master held that such an offer, in an identical scenario, was not a valid Part 36 offer.

The Court of Appeal will be considering the same issue in November 2019 in the case of King v City of London Corporation.

RELEVANT FILING SYSTEMS, PROPORTIONATE SEARCHES AND PRIVILEGE UNDER DATA PROTECTION ACT

In

Dawson-Damer and others v Taylor Wessing LLP and others [2019] EWHC 1258 (Ch) (17 May 2019)

the High Court held that the first defendant, a firm of solicitors, was required to search paper files, maintained before the implementation of its electronic filing system, for the claimants’ personal data.

They were a “relevant filing system” for the purposes of section 1(1) of the Data Protection Act 1998.

The first defendant must also search the personal electronic storage spaces of its current employees, where it had not produced evidence to support claims that these searches would be disproportionate.

However, as the data concerned a trust governed by Bahamian law, the claimants had no automatic right to disclosure of legal advice concerning the trust, and the first defendant was entitled to rely on the legal professional privilege exemption where applicable.

This judgment contains guidance on the meaning of “relevant filing system” under the Data Protection Act 1998, which is consistent with the recent ECJ decision in

Tietosuojavaltuutettu v Jehovan todistajat – uskonnollinen yhdyskunta (Case C-25/17) EU:C:2018:57

and rejects the restrictive interpretation in

Durant v Financial Services Authority [2003] EWCA Civ 1746. 

It shows the need to provide evidence if claiming that subject access compliance is disproportionate.

Although decided under the Data Protection Act 1988, repealed and replaced by the Data Protection Act 2018, the law remains the same in this regard and this decision applies to the new Act.

 

Underwoods Solicitors act for Crowe UK LLP, Liquidators in the Cambridge Analytica case

MY DAD

MY DAD

My Dad died a year ago today, Christmas Eve 2011.

He was 96 and died in his sleep and had been in good physical health and perfect mental health until a week earlier.

Dad fought in the Second World War, landing on D-Day, and was decorated before being shot and seriously wounded during the Allied advance through Holland. He was not expected to survive but in fact lived for another 67 years and virtually never had a day off work.

Dad was a lifelong socialist and Queens Park Rangers supporter and was born in Shepherd’s Bush and saw his first match at Loftus Road in the 1920’s and continued to go to QPR matches until he was in his 90’s. We had a 90th birthday party for him in a box at Loftus Road. I was taken to my first QPR game at White City, when aged 6.

A polite and mild-mannered man, Dad was unwaveringly honest and principled, refusing private medical treatment and refusing to have Sky – or anything Murdoch related – in the house.

He and Mum, who died on New Year’s Day two years earlier, were married for 69 years.

People sometimes refer to a parent as being a moral compass. It was only when Dad died that I realized the full meaning and truth of that.

So Christmas and New Year are inevitably tinged with sadness at present, but also with gratitude for the lives lived.

I miss Dad every day.

 

SUING UNKNOWN DEFENDANTS – UPDATED

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

 

For another detailed analysis of this decision, and the case law generally in relation to Motor Insurers’ Bureau cases please see the article by Dr Nicholas Bevan, Legal Consultant and Trainer, which appeared here  in New Law Journal on 15 March 2019 under the heading Principle v Process.

You will see that Nicholas Bevan thinks the decision is plain wrong.

In

Cameron v Liverpool Victoria Insurance Co Ltd [2019] UKSC 6 (20 February 2019)

the Supreme Court considered the issue of suing an unnamed defendant, holding that the key questions were the basis of the court’s jurisdiction over parties, and in what circumstances such jurisdiction could be exercised against unnamed people.

The court distinguished between cases involving identifiable, but unnamed, defendants, such as squatters, and unidentified defendants such as hit and run drivers, where it is not possible to locate or communicate with the defendant.

Subject to any specific statutory provision to the contrary, it is essential that any form of alternative service can be expected to bring the proceedings to the defendant’s attention.

An exception might apply for other statutory schemes, but was not justified in the context of the Motor Insurers’ Bureau scheme under Part VI of the Road Traffic Act 1988 as

• it is expressly based on the principle that the only direct liability of the insurer to the victim is to meet a judgment against the motorist;

• ordinary service on the insurer would not constitute service on the driver; authority could only be contractually conferred on behalf of the policy-holder, and here that was not the driver;

• alternative service on the insurer could not be expected to reach the driver, so was equivalent to no service.

A person who is not only anonymous, but cannot be identified with any particular person, cannot be sued under a pseudonym or description unless service of the claim form can be effected or properly dispensed with.

That result is not inconsistent with the Sixth Motor Insurance Directive 2009/103/EC.

Here is the Supreme Court’s own Press Summary:

 

Background To The Appeal

On 26 May 2013, the respondent, Ms Bianca Cameron, was injured when her car collided with a Nissan Micra. It is not in dispute that the incident was due to the negligence of the driver of the Micra. The registration number of the Micra was recorded, but the driver made off without stopping or reporting the accident to the police and has not been heard of since. Mr Naveed Hussain, the registered keeper, was not the driver and has declined to identify the driver. He has been convicted of failing to disclose the driver’s identity. The car was insured under a policy issued by the appellant, Liverpool Victoria Insurance Co Ltd, to a Mr Nissar Bahadur, whom the company believes to be a fictitious person. Neither Mr Hussain nor the driver was insured under the policy to drive the car.

Ms Cameron initially sued Mr Hussain for damages. The proceedings were amended to add a claim against Liverpool Victoria Insurance for a declaration that it would be liable to meet any judgment against him. The insurer served a defence, denying liability on the ground that there was no right to obtain a judgment against him as there was no evidence that he was the driver. Ms Cameron then applied to amend her claim form and particulars of claim. She sought to substitute for Mr Hussain, as defendant, “the person unknown driving vehicle registration number Y598 SPS who collided with vehicle registration number KG03 ZJZ on 26 May 2013.”

District Judge Wright dismissed that application and entered summary judgment for the insurer. HHJ Parker dismissed Ms Cameron’s appeal. On further appeal, the Court of Appeal allowed the appeal by a majority (Gloster and Lloyd Jones LJJ, Sir Ross Cranston dissenting). The majority considered that the court had a discretion to permit an unknown person to be sued whenever justice required it and that an alternative right of claim against the Motor Insurance Bureau (“MIB”) was irrelevant. Sir Ross Cranston would have dismissed the appeal in light of the alternative right to an MIB claim.

Liverpool Victoria Insurance appealed to the Supreme Court in relation to two issues: (1) the power to issue or amend the claim form and (2) the compatibility of the Road Traffic Act 1988 (“the 1988 Act”) with the Sixth Motor Insurance Directive (2009/103/EC).

Judgment

The Supreme Court allows the appeal. The Court of Appeal’s order is set aside and that of District Judge Wright is reinstated. Lord Sumption gives the lead judgment, with which all the Justices agree.

Reasons For The Judgment

Part VI of the Road Traffic Act 1988 applies in this appeal. Section 145 requires there to be an insurance policy against third party risks “in relation to the use of the vehicle” by the particular driver, while section 151(5) requires the insurer to satisfy any judgment falling within section 151(2), subject to certain conditions. Under section 151(2)(b), an insurer who has issued a policy in relation to the use of a vehicle is liable on a judgment, even where it was obtained against an uninsured driver. [3]

The MIB has entered into agreements with the Secretary of State to compensate third party victims of road accidents not even covered by section 151(2)(b). This means victims suffering personal injury or property damage caused by (1) uninsured vehicles and (2) drivers who cannot be traced. Clause 4(d) of the 2003 Untraced Drivers Agreement (“the 2003 Agreement”) is applicable in Ms Cameron’s case. [4]

It is a fundamental feature of the statutory scheme of compulsory insurance in the UK that it does not confer on victims a direct right of recovery against an insurer for the underlying liability of the driver. The only direct right against the insurer is the right to require it to satisfy a judgment against the driver, under section 151, once the driver’s liability has been established in legal proceedings. Consistent with this approach, the 2003 Agreement assumes that judgment cannot be obtained against the driver if he cannot be identified, and therefore the only recourse is against the MIB, not the insurer. [5, 22]

The general rule remains that proceedings may not be brought against unnamed parties, as is implicit in the limited exceptions contemplated by the Civil Procedure Rules (“CPR”) [9]. The main exceptions are: (1) possession actions against trespassers, (2) actions and orders where some of the wrongdoers were known so they could be sued both personally and as representing their unidentified associates and (3) the wider jurisdiction recognised in Bloomsbury Publishing Group Plc v News Group Newspapers Ltd [2003] 1 WLR 1633 (Ch) [10].

The key distinction is between two classes of unnamed defendant cases: (1) anonymous defendants who are identifiable but whose names are unknown and (2) defendants, such as in most hit and run drivers, who are not only anonymous but cannot even be identified. In category (1), defendants are described in such a way that it is at least possible to locate or communicate with them, and to determine whether they are the person described in the claim form. In category (2), this is not possible. [13]

This appeal is not directly concerned with service – it is about the issue or amendment of the claim form – but the legitimacy of issuing or amending can be tested against the possibility of service [14]. An identifiable but anonymous defendant can be served, if necessary by CPR r.6.15 alternative service [15]. Interim injunction cases can fall in category (1), because the process of enforcing the injunction will sometimes be enough to bring the proceedings to the defendant’s attention, as in Bloomsbury [15]. However, an unknown person is not identified simply by referring to past actions [16]. Proceedings against such a person (in category (2)) offend the fundamental principle of justice that a person cannot be made subject to the jurisdiction of the court without having such notice of the proceedings as will enable a fair hearing [17-18]. While CPR r.6.15 permits alternative service, the mode of service should be such as can reasonably be expected to bring the proceedings to the defendant’s attention [20-21].

Applying these principles to the present appeal, alternative service against an unidentifiable person referred to in the proceedings only by a pseudonym or description cannot be justified. In particular, ordinary service on the insurer would not constitute service on the driver, and alternative service could not be expected to reach the driver of the Micra. Nor would it be appropriate to dispense with service under CPR r.6.16 in a case where it could not be shown that the defendant knew of the proceedings. [21-26]

As to the EU law issue on the Sixth Motor Insurance Directive, the Supreme Court considers no point on the Directive arises because: (1) Ms Cameron is not trying to assert a direct right against the insurer for the underlying wrong (her claim is for damages from the driver) and (2) it is consistent with the Directive to require a claim against the MIB, not the insurer, in this class of case [27-30].

COURT RIGHT SUMMARILY TO DISMISS GENERIC OBJECTIONS IN SOLICITOR-CLIENT ASSESSMENT

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

Ainsworth v Stewarts Law LLP [2019] 2 WLUK 407 (26 February 2019)

The High Court held that the Senior Costs Judge was entitled summarily to dismiss the appellant’s challenge to the solicitors’ profit costs of work done on documents, totalling £64,000.

The solicitors’ costs breakdown contained three schedules itemising their work on documents; specifying, for each item, the date, work, time spent and fee earner.

The appellant’s points of dispute stated that all schedule entries were disputed, citing significant fee earner duplication and excessive time spent.

The appellant reserved his position in relation to making further and more detailed representations at court.

The High Court noted that CPR 46.10 governed the procedure for solicitor-client detailed assessment, but was silent on the form and content of points of dispute.

However, Practice Direction 47.8.2 relating to detailed assessment required them to be “short and to the point”, to follow Precedent G and to identify specific points, concisely stating the nature and grounds of dispute.

Here, the Master had been entitled to conclude that neither the solicitors nor the court knew the case that the solicitors had to meet on the individual items.

Because of this, the parties were not on an equal footing, the hearing would at best have been adjourned part-heard, and costs consequences would have ensued.

The Master’s decision summarily to dismiss the appellant’s objections was a robust but proportionate response where the appellant’s points of dispute failed to further the overriding objective.

Under the old Costs Practice Direction, the provisions about the form and content of points of dispute were incorporated by reference in the provisions relating to solicitor-client assessment, which is not the case now.

However, the judge did not need to decide this issue, having focused, instead, on case management and the overriding objective.

WRITTEN SUBMISSION FROM THE ASSOCIATION OF HER MAJESTY’S DISTRICT JUDGES TO THE JUSTICE COMMITTEE OF THE HOUSE OF COMMONS

I set out below extracts from the written submissions of the Association of Her Majesty’s District Judges to the Justice Committee of the House of Commons, and I also give links to two of Gordon Exall excellent blog posts on this and related matters.

We provide examples of the practical impact of court closures on courts of different sizes throughout the country. It is clear to us that these practical implications were not properly thought through or given proper weight before courts were closed.

Video hearings are going to be far less likely than first envisaged by HMCTS. Ad hoc arrangements have demonstrated the problematic issues that are now to be addressed in formal pilots in Birmingham and Manchester. Used correctly, they could provide a useful additional resource but not a full substitute for hearings in person.

Paperless systems are not an end in themselves but require ease of navigation and use which does not exist at present.

There is a need for continuous independent and robust evaluation particularly concerning access to justice at key stages. This could perhaps be best conducted through academic studies. Until now, assessments have almost exclusively concentrated on financial savings to be made which although important, should not outweigh access to justice in a civilized society.

– see Written Submission From The Association Of Her Majesty’s District Judges

 

Executive Summary

11. Birmingham Civil and Family Justice Centre is held out as a flagship of the Court of the Future project with expenditure of £8.1m. Despite this vast expense the majority of hearing rooms in the building including courtrooms still record proceedings on primitive cassette machines with only a minority having digital recording equipment.

13. One objective of Reform is to reduce and where possible, eradicate the use of paper files. However that cannot be an end in itself if it leads to inefficiencies and inadvertently obstructs or denies access to justice.

14. Various pilots in Family for paperless working have commenced but are in their early stages. Most presently rely on paper bundles for hearings to be produced by the parties despite the documents being filed and stored electronically. No pilot has yet been able to produce an e-bundle and the equivalent software used in crime has not been extended to civil or family generally. Swansea has been chosen as a pilot area for private and public law children applications as they have had a local tri borough portal system funded by the local authorities for some time. Our members report this to be an excellent idea in theory but causes havoc when the system is down (which is frequently the case ). It also lacks sophistication. It is excellent to find a document that isn’t in the paper bundle However, it is not easy to navigate around and does not allow a user to flick from page to page yet alone document to document. Neither can you bookmark or make notes on it. Its use therefore cannot be contemplated for trial purposes without having a paper bundle. Whereas represented parties can produce paper bundles LIPs will find this more difficult and the burden will fall upon court staff to carry out this time-consuming task.

15. Members report similar experiences in Birmingham for the specialist Financial Remedy Court pilot where the Casefinder software tool in use is not fit for the purpose. It is really only an electronic storage system at present. We are very far from a true ebundle. Neither the public nor professions have direct access to the Casefinder system so this does not provide any aid to access to justice. It may have been of benefit as a cost and space saving exercise to HMCTS but it has not speeded up process nor hearings and cannot be the final solution.

18. More than half of the budget of £1.1bn has already been spent for limited tangible benefit. Court closures and huge reductions in staff numbers with more to come have led to a stark deterioration in the service with no immediate sign of the promised technology being delivered. We have serious concerns shared by the National Audit Office that the money will run out before the programme can be completed. This is compounded by the extension of the programme from 4 years to now 7 years with no extra funding.

19. If the service centres cannot cope and the back room staff at the courts are pared back to the bare minimum then chaos and complete inefficiency will ensue, with the effect of reduced access to efficient and timely justice – on the ground it is completely apparent that the best staff have left / are looking to leave because they feel the picture is bleak and all that experience is lost, with a wing and a prayer that the “new” or less capable staff (Service centre or Court based) will be able to work at a high level of competence and efficiency.

20. If the IT does not work or suffers from outages of the type recently encountered, the same will apply. There is no immediately available alternative.

21. If the digital-based system of record is compromised, the result would be catastrophic, with no paper-based backup or similar contingency in place leading to adjournments until records can be retrieved from a central back-up facility.

22. If the judges are not properly and comprehensively trained on a programmed mandatory and regular basis, as opposed to the somewhat ad hoc and optional training currently provided, the same will apply. Likewise, proper support must be in place within the Courts at which judges sit so that issues that arise can be quickly resolved.

23. HMCTS appointed Digital Support Officers (DSO’s) at every Court are not IT experts, but HMCTS staff who have undergone minimal training to be available 25% of their working day. They are often unable to resolve issues and have to telephone external help (or ask the Judge to do so). This leads to time consuming circular references to different providers. Meanwhile equipment cannot be used and work including hearings are disrupted. The use of DSOs is perceived as trying to provide a solution “on the cheap”, a false economy when the intended role of IT is so crucial.

24. If proposed new arrangements for listing and scheduling are not properly managed centrally to cope with local requirements, again chaos and prejudice to timely and efficient access to justice ensues.

26. Our experience is that large numbers of the public attend at Courts and far prefer to be able to see someone in person, as opposed to speaking to someone over the telephone. Many of these persons are vulnerable parties and benefit greatly from face to face support. The majority cannot afford to instruct solicitors or barristers to represent them, and therefore being able to access effective support is crucial if they are to be able to access justice and present their case before the Court.

37. The loss of HMCTS experienced staff is of considerable concern to us, as the Courts are increasingly reliant on agency staff who have little knowledge of how the Court system works. An added difficulty is that as Court staff are paid less than almost every other government department, they (and agency staff), often leave after a short period of time to take up appointment with another government department at a higher salary (often for undertaking an easier and less challenging job) All of this contributes to delays and mistakes being made by inexperienced court staff which inevitably does impact upon access to justice.

46. The use of video link for hearings poses difficulties that threaten access to justice. If using their own equipment there is a risk of the hearings being recorded by litigants in person and then uploaded onto You Tube or some other website or other persons being present at the hearing that the Judge is unaware of. Open justice requires that justice is seen to be done and is not happening behind closed doors. The majority of cases before the Courts are held in public. The main exception being children cases which are held in private, and where the concern is to protect the identity of the child. To preserve open justice, Judges continue to sit in open court even when dealing with video hearings (where members of the public can sit in Court and observe the proceedings).

 

 

District Judge Richard Lumb

Senior Vice President

Association of Her Majesty’s District Judges

Birmingham Civil and Family Justice Centre

 

See related matters by Gordon Exall:

CLOSING COURTS: MORE MADNESS AND MAYHEM FROM HMCTS: CLOSING MORE COURTS & NO PROPER RESEARCH (BUT THEY’VE PAID £30 MILLION TO “CONSULTANTS” SO EVERYTHING WILL BE FINE

and

“THE COURT REFORM PROGRAMME IS MARKED BY RECKLESSNESS AND LACK OF FORESIGHT”: VIEWS FROM THE FRONT LINE: MORE RESPONSES TO THE JUSTICE COMMITTEE .

EXTENDING FIXED RECOVERABLE COSTS IN CIVIL CASES: THE JACKSON PROPOSALS: CONSULTATION ENDS 6 JUNE 2019

This is the government Consultation Paper dealing with the proposal to introduce fixed recoverable costs for virtually all civil claims with a value of £100,000 or less.

As it stands, this is due to come in on 6 April 2020, and thus is likely to affect cases in your cabinet, or on your computer, now.

The consultation ends this Thursday 6 June 2019.

In view of its importance, the whole document is set out here.

PART 36: WITHDRAWAL OF ORIGINAL OFFER

The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

This scenario is the real facts of an ongoing case.

In a personal injury claim the defendant made a Part 36 offer of £75,000 in April 2018.

In January 2019 the defendant made a revised Part 36 offer of £25,000 and was granted permission to serve an amended defence pleading fundamental dishonesty.

The revision to the Part 36 offer was made by amending the original form N242A, crossing out the figure of £75,000 and inserting the figure of £25,000 and crossing out the previous date of April 2018 and redating the offer 7 January 2019.

The provision allowing 21 days for acceptance remained as in the original Part 36 offer and this revised offer of £25,000 was accepted within 21 days.

The claimant argues that costs are payable up to the date of acceptance in January 2019, on the basis that the claimant is entitled to rely on the clear wording of the revised Part 36 offer and the fact that it was accepted within 21 days.

Had the defendant not wished to pay costs up to the date of acceptance, then the defendant should have made Calderbank offer to that effect.

That was the effect of the decision in

Ballard v Sussex Partnership NHS Foundation Trust [2018] EWHC 370 (QB).

The defendant argues that that case is not relevant because it relates to a withdrawn offer, rather than a revised offer and refers to the case of Burrett v Mencap Limited 14 May 2014,  where an offer was varied, rather than withdrawn, although in that case the variation was deliberately silent as to the time limit for acceptance and so when accepted the costs consequences ran from the original offer, rather than the revised one.

Burrett v Mencap Limited was in any event decided under the Civil Procedure Rules in force in 2014 and in April 2015, CPR Part 36 was extensively revised and new CPR 36.9 and 36.17 filled the gap identified in Burrett, which was in any event a first instance decision of a District Judge.

What Part 36 says, in difficult language, is that if the offer is revised by improving it, then the offeree, that is the claimant in this case, has 21 days from that revised offer to accept it.

That makes sense. Otherwise a defendant could make a ridiculously low offer of say £2,000 at the outset of the case, knowing full well that it will never be accepted, but subsequently make a perfectly acceptable offer of say £100,000 years later, but with the benefit of the offer being treated as being made at the beginning, with the defendant getting all of its costs from the date of expiry of the unacceptably low offer.

However, Part 36 is silent as to what happens the other way around, that is when an offer is revised downwards and then accepted.

It may be that this was never envisaged, as obviously the starting point would be that if a claimant is not prepared to accept, as here, an offer of £75,000, then why should it accept an offer of £25,000?

That would suggest that the clock does indeed run from the time of the first offer, and again there is logic in that.

After all, if an offer is revised downwards from £75,000 to £25,000, then all the claimant has to do to avoid the Part 36 consequences is to beat that offer of £25,000, whereas before revision the claimant would have had to beat the offer of £75,000.

Thus although the offer is much less attractive on the face of it in a normal case, the risks to the claimant are very much lower.

If the original offer is not withdrawn by the new offer, then the old offer remains capable of acceptance, which on the face of it is absurd, but the courts have consistently held that Part 36 is a self-contained code which is not subject to the usual rules of contract.

For example, as a matter of contract, a counter-offer amounts to a rejection of the original offer, but that is not the case with Part 36.

Thus if a claimant makes a Part 36 offer of, say, £30,000, and a defendant counter-offers at £20,000, that is not a rejection of the claimant’s Part 36 offer, which remains open for acceptance by the defendant, in contrast with the position in contract at common law.

Either the second offer must operate as a withdrawal of the initial offer, or the initial offer must still be open for acceptance.

It must indeed be one or the other, and the defendant’s contention that neither applies, must be wrong.

Could the claimant in these circumstances accept the original offer and argue that he is in entitled to £75,000?

That may encourage the defendant to agree that the true position is that that original offer has been withdrawn, which should then make it a simple matter of an acceptance of the subsequent offer of £25,000 in the usual way, with the usual costs consequences following, as though the original offer had never been made, and of course that is the effect of a withdrawn offer.

What CPR 36.17(7) actually says is:

“(7)

Paragraphs (3) and (4) do not apply to a Part 36 offer—

(a) which has been withdrawn; 

(b) which has been changed so that its terms are less advantageous to the offeree where the offeree  has beaten the less advantageous offer;

(c) made less than 21 days before trial, unless the court has abridged the relevant period.”

(8)

Paragraph (3) does not apply to a soft tissue injury claim to which rule 36.21 applies.

(Rule 44.2 requires the court to consider an offer to settle that does not have the costs consequences set out in this Section in deciding what order to make about costs.)”

Thus the costs consequences do not apply to a Part 36 offer which has been withdrawn.

Obviously, that is an issue in this scenario but the defendants are saying that the offer has been revised and not withdrawn.

CPR 17(7)(b) provides that the costs consequences do not apply to a Part 36 offer:

“which has been changed so that its terms are less advantageous to the offeree where the offeree has beaten the less advantageous offer;”

What Part 36.17(7)(b) deal with is the position where the claimant beats that less advantageous offer, and so in this case that would involve achieving more than £25,000.

The rest of 36.17(7) is not relevant here.

There is a further problem with CPR 36.17(7) in that it clearly envisages, as a different concept, an offer which has been withdrawn – CPR 36.17(7)(a) – and an offer which has been changed so that its terms are less advantageous to the offeree… – CPR 36.17(7)(b).

If the effect of any downwards revised offer is to withdraw the original offer, then (a) appears to be otiose, as the circumstances in (b) would constitute the withdrawal of the original offer in any event.

Thus the claimant should accept the original offer.

That would of course be a late acceptance meaning that the client would not get costs from the date of expiry of the original offer, and would have to pay the defendant’s costs from the expiry of the original offer to date.

However, given that the difference between the two offers is £50,000, it is likely that both the client and the solicitors would be very much better off accepting that original offer.

 

Comment

Best just to toss a coin on all Part 36 matters.

Saves court time.

JUDICIAL REVIEW COSTS CAPPING APPLICATION SHOULD HAVE INCLUDED NOTICE OF INHERITANCE

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

In

R (Harvey) v Leighton Linslade Town Council [2019] EWHC 760 (Admin) (15 February 2019)

the High Court held that a claimant in judicial review proceedings should have disclosed a prospective inheritance when applying for a Judicial Review Costs Capping Order .

The High Court limited the claimant’s cost liability to £4,000 in a Judicial Review Costs Capping Order when it gave permission for her claim, concerning the defendant council’s consultation on local market fees, to proceed.

The claimant’s supporting financial information mentioned her Employment and Support Allowance not that her father had recently died and she stood to receive a share of his estate.

The defendant became aware of the legacy shortly before the substantive hearing.

The claimant provided copies of the will and grant of probate to the defendant.

At that time, the defendant’s costs were around £26,000.

The court dismissed the claim and upheld the defendant’s application to set aside the Judicial Review Costs Capping Order.

The High Court accepted that the claimant had acted in good faith and had not deliberately failed to mention the potential inheritance and wanted to avoid costs liability if this would be funded by her inheritance, and if this would have adversely affected her benefits claim.

Citing

R (Corner House Research) v Secretary of State for Trade and Industry [2005] CLR 455,

the High Court said that the term “financial resources” in sections 88 and 89 of the Criminal Justice and Courts Act 2015 included resources “which may not be immediately available at the time of the application and may not be immediately in the applicant’s hands”.

This included the prospective inheritance.

The claimant had failed to give full and frank disclosure in this respect.

The High Court considered that may well have issued a Judicial Review Costs Capping Order even if it had known of the inheritance.

It set aside the Judicial Review Costs Capping Order and made a fresh one for £20,000.

INSOLVENCY ROUND-UP LATEST

This piece, in slightly different form, first appeared on the Practical Law Dispute Resolution Blog.

 

Insolvency and Companies Court (ICC): New ICC Interim Applications Court

On 25 April 2019 the Chancery Guide was updated to include a new chapter on the Insolvency and Companies List including information, at paragraphs 25.28 to 25.30, on the operation of the new Insolvency and Companies Court (ICC) Interim Applications Court at the Rolls Building, which came in to being in January 2019.

The Guidance states:

“The ICC Interim Applications Court takes place on Thursdays, Fridays and every other Monday. The ICC Judges’ listing officer (Claire Prosser) should be contacted in the event that an urgent application needs to be heard on any other day. She will seek to accommodate a hearing. The ICC Interim Applications Court will run in the same way as the High Court Judges’ Interim Applications Court, which is not affected by the introduction of this list. It is intended that the list will be used to hear applications for:

1. an injunction to restrain presentation of a petition to wind up a company or to restrain advertisement of such a petition
2. an administration order
3. an appointment of a provisional liquidator
4. search and seizure orders pursuant to section 365 of the Insolvency Act 1986
5. an appointment of an interim receiver pursuant to section 286 of the Insolvency Act 1986
6. validation orders
7. other applications that are urgent, such as those made pursuant to section 125 of the Companies Act 2006.

Parties appearing in the ICC Interim Applications Court should report to the ICC Judges’ clerks on the first floor before 10:30. The ICC Judges will work from hard copy documents and not from CE-file. Accordingly, in addition to the usual lodged bundles, any additional documents such as skeleton arguments or late-provided documents (whether or not they are also filed via CE-file) should be made available in hard copy, either via ICC Listing or to the ICC Judges’ clerks on the first floor in the normal way. [Added in Chancery Guide version only: Bundles and skeleton arguments should be delivered by 10am on the day prior to the hearing.] Applications with a time estimate of more than two hours (including pre-reading time, judgment and consequentials) are generally not suitable for the ICC Interim Applications Court.”

 

Can German Court Decide Claim Already Rejected from Proof by English Administrators?

In

Bundeszentralamt Für Steuern (Being the Federal Central Tax Office of the Federal Republic of Germany) v Heis & Ors [2019] EWHC 705 (Ch) (22 March 2019)

the High Court considered whether to stay appeals against the rejection of three proofs submitted in the special administration of MF Global UK Ltd, so as to allow the underlying claims to be dealt with in the German courts.

The stays were sought by the creditors who argued that the German Tax Court is a better forum to determine the German legal and public policy issues involved.

The decision considers the limits to the principle that all matters going to the valuation of claims in an English insolvency process should be dealt here.

The court also considered in detail the scope of the common law rule against double proof, and how to reconcile conflicting case law.

The court granted a stay in the English litigation over the German Tax Authority’s claim so that it could be litigated in the German courts.

This stay was made conditional on undertakings by the German Tax Authority that it would drop its claim if the German courts were unable to hear it or the claim was invalid in German law.

The German Tax Authority also had to use its best endeavours to ensure the claim was dealt with expeditiously in Germany.

The court refused a stay in the English litigation over another creditor’s two contingent claims, finding in part that the rule against double proof made it unlikely that the first contingent claim would be admissible in the special administration in any event.

The second contingent claim should also continue to be dealt with in the English courts as, among other reasons, it should be possible to address the English legal issues separately from the German issues, and this would provide a large saving for creditors.

 

Bankruptcy Not Annulled Where Petition Not Properly Served

In

Ardawa v Uppal & Anor [2019] EWHC 456 (Ch)

the Chancery Division of the High Court held that a judge could not retrospectively make an order for substituted service of a bankruptcy petition.

However, despite the proceedings not being properly served, the bankruptcy was not set aside.

Here the claimant served a statutory demand on the defendant seeking payment of costs and that demand was served by posting it through a letterbox, but in fact the defendant no longer lived at that house, as he had moved out.

A bankruptcy petition was issued based on a failure to comply with the notice, which had not been properly served.

The process server stated that he could not find an address for service, but while all of this was going on, the claimant and defendant were in regular contact in relation to childcare arrangements.

Eventually the process server placed the petition through the letterbox of the house where the statutory demand had been served.

The defendant argued that a bankruptcy petition has to be served personally, whereas here service took place through a letterbox.

The court made an order of a substituted service.

Here, the High Court held that there was no jurisdiction to make such an order for substituted service retrospectively.

Unlike a statutory demand, a bankruptcy petition must be served personally unless the court makes an order to the contrary – see  6.14IR.

Thus any order must be prospective and not retrospective.

6.14(2) states that “the court… may order substituted service to be effected in such manner as it thinks just”.

That is a future event, and not a past event.

The judgment contains a detailed consideration of the relevant Civil Procedure Rules and the relevant Insolvency Rules.

CPR 3 did not give a general power to authorise substituted service as it starts with the words “except where these Rules provide otherwise….”, and the rules do provide otherwise in relation to bankruptcy petitions.

Here the High Court held that there is no inherent jurisdiction of the court to authorise substituted service.

Nevertheless, in spite of the improper service of the bankruptcy petition, and the fact that there is no power retrospectively to make an order for substituted service, the court here did not annul the bankruptcy order.

The court held that this was a matter of discretion where there had been a procedural irregularity, as here.

The High Court, in exercising its discretion not to annul the bankruptcy petition, considered the fact that this was an undisputed debt arising from orders in court proceedings between the parties, which the bankrupt had failed to pay.

It was also undisputed that the bankrupt had the means to pay that debt and that he was aware of both the statutory demand and the bankruptcy petition at the time and had lied about his place of residence.

He was deliberately seeking to evade service.

In those circumstances the High Court held that this was not a case where it was appropriate to annul the bankruptcy order.

 

Enforcement of Adjudicator’s Decision Refused as It Would Distort Company Voluntary Arrangement

In

Indigo Projects London Ltd v Razin and another [2019] EWHC 1205 (TCC) (17 May 2019)

the Technology and Construction Court declined to enforce an adjudicator’s decision due to Indigo’s Company Voluntary Arrangement, finding that to do so would interfere with the Company Voluntary Arrangement supervisors’ accounting exercise to calculate the balance due between Indigo and its creditors.

This was because the payment to Indigo ordered by the adjudicator might have to be repaid, and the operation of set-off arrangements in the Company Voluntary Arrangement would cause a loss to the Razins.

A key feature was that Indigo’s Company Voluntary Arrangement was entered into after the adjudicator’s decision and after the enforcement application had been made.

However, the judge felt that because the adjudicator’s decision related to a payment that was, for all intents and purposes, an interim payment in circumstances where the Razins had not submitted a pay less notice, known as a “smash and grab” adjudication, the adjudicator had not carried out a determination of the parties’ claims and cross-claims.

This was something the Company Voluntary Arrangement supervisors would do for the first time as part of the Company Voluntary Arrangement.

This decision should be considered alongside previous authorities, such as

Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd,Cannon Corporate Ltd v Primus Build Ltd [2019] EWCA Civ 27

and

 Westshield Ltd v Whitehouse and another [2013] 3576 EWHC (TCC).

 

Directors’ Administration Appointment by Electronic Filing Out Of Court Hours Is Valid

In

Wright and others v HMV Ecommerce Ltd and another [2019] EWHC 903 (Ch)

the High Court considered the validity of a purported appointment of administrators where directors of a company filed a notice of appointment electronically out of usual court opening hours.

The court held that the filing was either not in breach of paragraph 8.1 of the Practice Direction – Insolvency Proceedings July 2018, which was ambiguous; or alternatively was a breach or defect, but one that did not invalidate the purported appointment.

Any non-compliance with paragraph 8.1 of the Practice Direction – Insolvency Proceedings 2018 was capable of being remedied by order or declaration of the court under paragraph 104 of Schedule B1 to the Insolvency Act 1986, rule 12.64 of the Insolvency (England and Wales) Rules 2016 SI 2016/1024, and Part 3 of the Civil Procedure Rules.

 

Company in Liquidation Cannot Commence Adjudication

The Court of Appeal heard two appeals together concerning the interplay between construction adjudication and the insolvency regimes.

In

Michael J Lonsdale (Electrical) Ltd v Bresco Electrical Services Ltd [2018] EWHC 2043 (TCC)

the High Court had granted an injunction preventing an adjudication from proceeding because the referring party was in liquidation.

In

Primus Build Ltd v Cannon Corporate Ltd [2018] EWHC 2143 (TCC)

the High Court had enforced an adjudicator’s decision and, despite the referring party’s Company Voluntary Arrangement, declined to grant a stay of execution.

Both first instance decisions were upheld.

The Court of Appeal noted that the “unspoken suggestion” in the appeal was that, since the judgments gave rise to markedly different outcomes, one of them must be wrong.

This was not the case. Just because a company was in a Company Voluntary Arrangement did not mean that summary judgment should be refused or a stay of execution should be granted.

Each case would turn on its own facts.

Conversely, if a company was in insolvent liquidation, to allow an adjudication to continue would be “an exercise in futility”.

While an adjudicator had theoretical jurisdiction to deal with the adjudication, it was of no practical use if the court would inevitably grant an injunction to prevent the adjudication from continuing.

This indicated a general incompatibility between the adjudication and insolvency regimes.

Given the facts in Primus v Cannon, the judgment also deals with the applicable principles on waiver and the nature of general and specific reservations to challenge the adjudicator’s jurisdiction.

Unsurprisingly, the judge concluded that while a general reservation may be undesirable, it may be effective, but not if, as here, it was “so vague… as to be ineffective”.

A party cannot word it in such a way “simply to try and ensure that all options (including ones not yet even thought of), could be kept open”.

 

Underwoods Solicitors act for Crowe UK LLP, Liquidators in the Cambridge Analytica case