Fundamental Dishonesty - to plead or not to plead?

12 Apr 2021

Further to the judgment dated 12 April 2021 of Master Davison in the well reported case of Mustard v Flower & Ors [2021] EWHC 846 (QB), this article discusses whether a defendant could reserve the right to plead fundamental dishonesty as a contingency in their defence. 

Claire Collins, lead Partner and Lindsey Bartling, Associate, in BLM London’s Catastrophic Injury/Large Loss team represent the third defendant, Direct Line Group (DLG), in this case. 

The Issues

In this case the third defendant at the request of the claimant had amended their defence to plead inter alia: 

“In the event that the Court finds that the Claimant has consciously exaggerated the nature and/or consequences of her symptoms and losses, the Third Defendant reserves the right to submit that a finding of fundamental dishonesty (and the striking out of the claim pursuant to section 57 Criminal Justice and Courts Act and/or costs sanctions including the disapplication of QOCs) is appropriate.” 

The claimant objected to the above paragraph and invited the Master to refuse the third defendant permission to rely upon it; arguing that a pleading of fundamental dishonesty has to be reported to Legal Expenses insurers and opens up a theoretical possibility of them avoiding the policy ab initio. This would evidently have huge costs implications for the claimant and her legal team. 

The claimant also argued that the third defendant should be refused permission to rely upon a sentence referring to the claimant’s “exaggeration of her symptoms”. 

The Judgment

Master Davison heard legal argument from Marcus Grant for the claimant and William Audland QC for the third defendant. 
Drawing from the judgments of Newey LJ in Howlett (1) Davies (2) Ageas Insurance Limited [2017] EWCA Civ 1696 and HHJ Coe in Pinkus v Direct Line [2018] EWHC 1671 he found that there is no requirement on a defendant to allege fraud or fundamental dishonesty in its pleadings prior to trial.

Master Davison considered the amended defence and found that the third defendant can, if appropriate, make the application without having  foreshadowed it in a pleading. He found that  applications, even at as late a stage as the defendant’s closing submissions at trial, could be made orally for dismissal of a claim pursuant to section 57(1) of the Criminal Justice and Courts Act 2015. He concluded that it was open to the trial judge to make a finding of fundamental dishonesty whether it has been specifically pleaded or not.

In their overall assessment of fairness, when entertaining any such submissions, the trial judge must have consideration as to adequate warning and sufficient notice to a claimant, together with a proper opportunity to deal with issues raised. A fact underlying the decision is that sometimes neither the defendant nor the judge may be in a position to make any conclusions about a party’s honesty until that party has given evidence and been cross – examined. 

In relation to the issue of exaggeration, the Master found that the defendant’s amended pleading clearly set out that it sought to explore certain issues at trial, but could not yet say whether such exaggeration was conscious or unconscious. 
The claimant’s objection to  this pleading was dismissed; to do otherwise would potentially lead to an invitation to the trial judge to limit the defendant’s cross-examination and would be plainly unfair. Having established a respectable body of evidence of exaggeration (and minimisation) the defendant was entitled to explore those issues at trial together with the claimant’s motivations.

What this means for you

Master Davison quite rightly noted that the profession regards a pleading of fraud as serious and must not do so without reasonably credible material. He emphasised that it would not be appropriate to allege fraud or fundamental dishonesty based upon mere suspicion or upon a mere prospect. This is a factor underlying the authorities, and his judgment reaffirms to parties that neither the defendant nor the judge may be in a position to make any conclusions about a party's honesty until that party has given evidence and been cross-examined.

This judgment will have significant implications for claimants seeking to raise “ambush” at trial. 

A claimant and their legal team will need to consider very carefully whether they are happy to proceed to trial with the real risk of significant costs consequences when there is no requirement for a defendant to plead or put them on notice of a suspicion of fraud or fundamental dishonesty beforehand. 

 

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Claire Collins

Claire Collins

Partner,
London


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