2021-07-02

Fundamental dishonesty – no need to play your hand

In this blog post, Michael Bickerstaffe takes a look at the formalities of challenging fraudulent claims, pre and post litigation.

There has been much comment recently about the decision of Mustard v Flower but the reality is that the judgment did not bring anything new, but simply re-stated the position regarding steps a defendant must take (and need not take) in order to secure a finding of fundamental dishonesty.

...it is open to the trial judge to make a finding of fundamental dishonesty whether that has specifically been pleaded or not…an "application by the defendant for the dismissal of the claim" pursuant to section 57(1) of the 2015 Act does not require any particular formality.
Master Davison, 12 April 2021

This is a quote from Mustard. This case addresses the content of a compensator’s pleading in order to allow a judge to make a finding of fundamental dishonesty at trial.

The premise is straightforward - provided you have put the claimant on notice of the issues you intend to cross examine them upon at trial, a fundamental dishonesty finding can be made by a judge. That is of course the case in relation to anything you want to put to a party at trial. Aside from this there are no other formalities or specific wording required in a pleading.

In another recently reported case of Long v Elegant Resorts Ltd, similar issues were addressed. Interestingly, Mustard was heard before this case but reported afterwards and yet the judge reached the same conclusion.

Whilst it remains the case that an allegation of fundamental dishonesty can be strategically valuable, it is not formally required to secure a finding of fundamental dishonesty at trial. Much is being made by claimants’ representatives of the refusal by the Judge to allow the defendant to include a fraud warning in the amended defence. However it should be noted that the court’s permission was only required because it was an amended defence and the main reason for this given by the judge was that it was not necessary. The other considerations referenced by the Judge were that there was no reasonable prospect of a finding of fundamental dishonesty and that the claimant would have had to put her legal expenses insurer on notice of the pleading.

The consequence of this decision is that defendants should avoid making throwaway or casual fraud warnings but there is no absolute barrier to including this content in defences – the question for defendants is whether it adds anything to the defence.

The position was summed up nicely in this blog written in May 2019:

You do not necessarily have to plead that a claim or claimant is dishonest or that a specific finding will be sought in the claim. It will depend on the specific facts of the case and the strategy for the claim.

Careful consideration, based on the fraud issues in play, is key. A pleading that is lacking, or does not give a claimant sufficient notice of what to expect at trial, may be challenged.

What about pre-litigation?

The above thinking and the legal position is also useful for compensators seeking to challenge fraudulent claims before litigation.

There are occasions where the evidence is so compelling that a compensator may be in a position to make such an allegation pre-litigation. Compensators have always had to weigh the benefits of a full fraud response (in an attempt to persuade the claimant or his solicitors to abandon the claim) against the risk of allowing a claimant to tailor their evidence. That remains the case, but there are additional factors to take into account.

Before making a fraud allegation pre-litigation, compensators will also need to consider whether that fraud allegation can or should be made in a subsequence defence and the effect of any inconsistency between the two. It is also notable that the whiplash reforms force a motor compensator’s hand on an allegation of fundamental dishonesty as for motor claims pursued through the OIC Portal compensators will need to make the allegation in order to remove the claim from the portal process. Conversely, as things stand, they will not need to make that allegation in litigation.

A strategic approach to a repudiation for fraud, with a full appreciation of the bigger picture, is the best way to ensure that fraudulent claims are deterred effectively.

Kennedys’ fraud team covered some of these issues in the webinars entitled ‘Challenging fraudulent claims webinar - 17 December 2020’ and ‘Fraud - Malingering - 15 June 2021’ found here under the heading ‘Defendant personal injury/Fraud’.