Paul Mertens reviews the recent decision of Howlett v Davies [2017] EWCA Civ 1696, the first case in which the Court of Appeal has considered the approach to “fundamental dishonesty” as an exception to Qualified One-Way Costs Shifting (QOCS) under CPR 44.16(1).

Background

Howlett v Davies was a fairly commonplace PI claim arising from a road traffic accident in 2013. The claimants were alleged to be passengers in a car driven by the defendant, which collided with a parked vehicle. They claimed general damages and associated losses.

The defendant’s insurer, Ageas Insurance Limited, resisted the claim and entered a Defence in which it said it did “not accept that the index accident occurred as alleged, or at all“. The claimants were therefore put to strict proof that they were involved in an accident. The Defence then went on to set out a number of facts / contentions which Ageas suggested undermined the claimants’ claims, and although a positive case of fraud was not alleged, the claimants were required to “prove their case” against that backdrop. Ageas’ position was that by raising these contentions, it had complied with the guidance given in Kearsley v Klarfeld [2005] EWCA Civ 1510 to the effect that a defendant is required to “set out fully 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 sustained” (per Brooke LJ at §45).

The case was allocated to the fast track and proceeded to a trial before a Deputy District Judge. At the start of that trial, the claimant’s counsel made an application to strike out the Defence on the basis that Ageas was not entitled to ‘sit on the fence’ and was either required to plead a positive case of fraud, or accept that the accident occurred as alleged. The DDJ refused that application and the case proceeded to a contested trial that, in the event, took four days to complete.

The decision at first instance

Having heard closing submissions in which the defendant submitted that the court should have “no hesitation in finding… that there was no such accident“, the DDJ ruled that he did not believe the evidence of the claimants and did not have “any confidence that the accident as described by them…happened as described or at all“.

The DDJ rejected the claimant’s counsel’s submission that the case had not been advanced on the basis that the claims were dishonest, noting in particular that the issue of honesty had (if nothing else) been brought into issue by the claimant’s counsel having asked one of the claimants in re-examination, whether the evidence she had given had been honest.

Accordingly, the DDJ considered that the claimants had been given every opportunity to defend themselves against the allegation that their claims were dishonest and accordingly concluded that their claims were “fundamentally dishonest” within the meaning of CPR 44.16(1). Accordingly, enforceable costs were awarded against the claimants as an exception to QOCS.

The claimants appealed against the judgment on costs, but this was dismissed by HHJ Blair QC. The claimants therefore brought a second appeal to the Court of Appeal.

The Court of Appeal’s judgment

In determining the appeal, the Court of Appeal (Lewinson, Beatson and Newey LLJ) considered the correct approach to a finding of “fundamental dishonesty” within CPR 44.16 and having reviewed the now well-known judgement of HHJ Moloney QC in Gosling v Hailo (Cambridge CC, 29^th April 2014) (sometimes referred to as Gosling v Screwfix Direct Ltd), endorsed the learned Judge’s analysis as “common sense“.

The Court then went on to consider whether it had been open to the DDJ to make such a finding, bearing in mind the content of the defendant’s pleaded case and the defendant’s counsel’s cross-examination of the claimants; the appellants arguing that dishonesty needed to be both pleaded and put to the relevant witnesses.

In dismissing the appeal, the Court of Appeal analysed the content of the Defence and held that the defendant had complied with CPR 16.5 by setting out it’s own version of events.he Court also considered that the contentions raised in the Defence had been in compliance with the Court’s guidance in Kearsley v Klarfeld.

The Court acknowledged that there were understandable reasons why defendants were slow to advance a positive case of fraud: notably, that they lack direct knowledge of events, are bound by their lawyer’s professional obligations, and, in many cases, there is a sense that if the fraud is not made out then judgment is more likely to be entered for the claimant without a sufficient analysis of whether the claim has been made out.

In the Court’s judgment, there was no requirement to plead “fundamental dishonesty” in the Defence and it was open to a Judge at the conclusion of a trial to consider such a finding. As the Court stated:

“The key question in such a case would be whether the claimant had 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.”

In explaining the rationale for this decision, the Court explained that there was force in HHJ Blair QC’s statement in the earlier appeal, that if:

“…one does not have to plead a claim for an award of costs on the indemnity basis (as opposed to the standard basis), …why would one have to expressly plead this more remote stage of the costs determination exercise, namely for an order for the enforcement of an adverse costs order?”

Dealing with the question of whether it had been put to the claimants that their evidence was dishonest, the Court accepted the DDJ’s indication that it had been plain that the claimants’ honesty had been in issue, both in the way that the cross-examination had been carried out and in the way that he had addressed things in his opening remarks.

The appeal was therefore dismissed and the DDJ’s finding of fundamental dishonesty upheld, with costs to be paid by the claimants as an exception to QOCS.

Analysis

The importance of this case is that, for the first time, the Court of Appeal has expressly endorsed the approach to “fundamental dishonesty” set out in Gosling v Hailo. This will be a reassurance to practitioners and to the judiciary, who have been applying those principles for the last three years.

Although the Court did not seize the opportunity to comment on whether HHJ Maloney QC’s analysis was also the correct approach to take when considering an application under s.57 Criminal Justice and Courts Act 2015, there is no reason to think that a different analysis would apply.

Howlett v Davies has therefore given much-needed weight to the approach to be taken in cases of “fundamental dishonesty”, as well as providing useful guidance on what needs to be pleaded and put to witnesses in cases where there are suspicions about the veracity of the claimant’s account.s the Court summarised (at §39):

“…where a witness’ honesty is to be challenged, it will always be best if that is explicitly put to the witness. There can then be no doubt that honesty is in issue. But what ultimately matters is that the witness has had fair notice of a challenge to his or her honesty and an opportunity to deal with it. It may be that in a particular context a cross-examination which does not use the words “dishonest” or “lying” will give a witness fair warning. That will be a matter for the trial judge to decide. Secondly, the fact that a party has not alleged fraud in his pleading may not preclude him from suggesting to a witness in cross-examination that he is lying. That must, in fact, be a common occurrence.”