The matter of Howlett & Howlett v Davies & Ageas Insurance Limited  EWCA Civ1696 was heard in the Court of Appeal on 30 October 2017, by Lord Justices Lewison, Beatson, and Newey. This was a claim involving a road traffic collision resulting in alleged personal injuries. It was appealed from the County Court at Swindon on the basis that the District Judge was not at liberty to make a finding of fundamental dishonesty where this had not been specifically pleaded. This decision had the effect of dis-applying QOCS under CPR 44.16, meaning that the Claimants would no longer benefit from QOCS protection and would be liable for the entirety of the Defendants' costs. The Claimants appealed this decision and His Honour Judge Blair QC agreed with the findings of the District Judge. The Claimants subsequently appealed to the Court of Appeal.
Facts of the case
The Claimants, Mrs Lorna Howlett and her son, Justin, were travelling in a vehicle with Ms Penelope Davies, the First Defendant. The Claimants alleged that Ms Davies reversed out of her driveway and collided with a stationary unoccupied vehicle. The Claimants submitted that they suffered personal injuries as a result of the First Defendant's negligence.
A defence was served by Ageas, Ms Davies motor insurer, denying that an accident had occurred and in the alternative, submitting that, if a collision had indeed incurred, that it was a low velocity impact. Ageas raised 12 separate points of fact in support of its denial; this included the lack of damage caused to the third party vehicle, the lack of cooperation from Ms Davies (including refusal to inspect her vehicle), the number of accidents that the Claimants had been involved in within the previous 4 years (and failures to disclose these to the medical expert), the discrepancies with witness accounts and the unlikely circumstances of the incident generally. The defence did not assert a positive case of fraud at this stage but it did require the Claimants to prove their case in light of the various points noted against it. Additionally, at paragraph 11, it stated:
“Should the court find any elements of fraud to this claim, the Second Defendant will seek to reduce any damages payable to the Claimants to nil together with appropriate costs orders therein."
The matter was allocated to the fast track and proceeded to trial. At the start of the trial the Claimants made an application to strike out the defence on the basis that the insurer must either plead an allegation of fraud or accept that the accident happened; they submitted that the insurer could not “sit on the fence”. It was further submitted that, as the insurer had not specifically pleaded fundamental dishonesty, the court could also not make a finding in this regard.
The outcome at County Court
The District Judge considered that not one part of the stories explained by the Claimants provided him with any confidence that the accident took place as described, or at all. The claim was dismissed.
He went on to consider the issue of dishonesty and referred to the case of Vogon International Ltd v Serious Fraud Office  EWCA Civ 104. In this case there was no submission by the Defendant that the Claimant was opportunistic, let alone dishonest and there was equally no cross-examination to this effect or any indication that the Judge was considering making a finding of this kind. This could be distinguished from the current circumstances given that, whilst fundamental dishonesty had not been pleaded, it had been very clear throughout proceedings, and particularly the trial, that the Claimants’ honesty was in question. Consequently the Claimants had been provided with ample notice and the District Judge considered it reasonable to make a finding of fundamental dishonesty.
The meaning of fundamental dishonesty
The Court of Appeal referred to the matter of Gosling v Hailo where His Honour Judge Moloney QC suggested that the correct approach is to distinguish between basic dishonesty and dishonesty that is fundamental to the claim. He considered that, for the purpose of the QOCS rules, it is only intended that costs liability should arise where the dishonesty is fundamental to the claim. Therefore, a Claimant should not be penalised for being dishonest in relation to a minor element (such as a head of damage), but only where the dishonesty goes to the very root of the claim. Neither the Claimants nor the Defendants took issue with this approach.
The Claimants’ case at Court of Appeal
The Claimants referred the Court to CPR PD 44, para 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.
The Claimants submitted that these provisions envisage that any allegation of fundamental dishonesty will have been raised in pleadings, in advance of the trial. It is on that basis that the Claimants considered that the Judge was not able to find that they had been fundamentally dishonest.
The Court of Appeal’s comments
The Court initially considered the matter of Kearsley v Klarfeld  EWVA Civ 1510 where Brooke LJ commented that the court was puzzled by the emerging practice of alleging fraud in low velocity impact claims and found that there was no requirement to put forward a substantive case of fraud, provided that the facts on which the Judge was invited to infer were fully set out. The Court also considered obiter comments provided by Davis LJ in the matter of Hussain v Amin  EWCA Civ 1456 regarding “hybrid" defences in road traffic claims; this is where an insurer would suggest that an accident had been staged however did not go on to fully raise allegations of fraud.
The Defendant provided four reasons as to why an insurer might be apprehensive of raising fully-fledged allegations of fraud:
- The insurer lacks direct knowledge of the relevant events
- Lawyers' professional obligations mean they may be reluctant to allege fraud
- A case is more likely to be allocated to the multi-track if fraud is alleged resulting in an inevitable increase in costs
- Where a trial judge finds that fraud has not been proved, he may find in favour of the Claimant without fully considering whether the Claimant has made out his case
The Court appreciated these points however commented that the burden of proof remains with the Claimant to prove its case, regardless of whether fraud is indeed alleged.
Turning back to the issue at hand, the Court commented as follows:
“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 his pleadings will not necessarily bar a judge from finding a witness to have been lying: in fact, judges must regularly characterise witnesses as having been deliberately untruthful even where there has been no plea of fraud.”
The Court also considered the Claimants’ assertion that they were not cross-examined at trial on the basis that their claim was dishonest. The Court noted that, whilst the term dishonesty was not strictly raised, it was clear that the veracity of the Claimants' account was subject to challenge. Consequently the Court of Appeal agreed that the Claimants knew that matters of dishonesty and exaggeration would be considered and the Claimants’ appeal was dismissed.
This is clearly a favourable outcome for third party insurers and Defendants alike; it is now clear that it is not necessary for a party to put forward a strict allegation of fundamental dishonesty for the court to make a finding in this regard. The current case law implies that it is now only necessary to question the veracity of the evidence; this happens regularly in a significant number of claims and therefore, a large majority of claims could be open to a finding of fundamental dishonesty. This could open the floodgates and provide significant uncertainty for the Claimants. A Court may erroneously decide that a genuine Claimant is providing false evidence and make a finding of dishonestly. Consequently the writer queries whether an honest Claimant can really be assured that QOCS will indeed be applied. Whilst it is clearly preferable that disingenuous claims are discouraged, this judgment may also mean that access to justice has again suffered as a result.