QOCS and fundamental dishonesty II

Assuming that the issues have been sufficiently telegraphed to the putatively dishonest party, how is fundamental dishonesty to be defined? Perhaps the starting point is to consider the latest formulation of what would be dishonesty in a recent decision of the Supreme Court that of Ivey (Appellant) v Genting Casinos (UK) Ltd Crockfords [2017] UKSC 67 where the court put it in these terms:
48. Where it applies as an element of a criminal charge, dishonesty is by no means a defined concept. On the contrary, like the elephant, it is characterised more by recognition when encountered than by definition. Dishonesty is not a matter of law, but a jury question of fact and standards. Except to the limited extent that section 2 of the Theft Act 1968 requires otherwise, judges do not, and must not, attempt to define it: R v Feely [1973] QB 530. In this it differs strikingly from the expression “fraudulently”, which it largely replaced, for the judge did define whether a state of mind, once ascertained as a matter of fact, was or was not fraudulent: R v Williams [1953] 1 QB 660. Accordingly, dishonesty cannot be regarded as a concept which would bring to the assessment of behaviour a clarity or certainty which would be lacking if the jury were left to say whether the behaviour under examination amounted to cheating or did not. The issue whether what was done amounts to cheating, given the nature and rules of the game concerned, is likewise itself a jury question. The judge in the present case applied himself to the question whether there was cheating in exactly this jury manner. He directed himself that it is ultimately for the court to decide whether conduct amounted to cheating and that the standard is objective. In so directing himself he was right.
Lord Hughes then explained how dishonesty had been treated in the seminal case of Ghosh:
54. A significant refinement to the test for dishonesty was introduced by R v Ghosh [1982] QB 1053. Since then, in criminal cases, the judge has been required to direct the jury, if the point arises, to apply a two-stage test. Firstly, it must ask whether in its judgment the conduct complained of was dishonest by the lay objective standards of ordinary reasonable and honest people. If the answer is no, that disposes of the case in favour of the defendant. But if the answer is yes, it must ask, secondly, whether the defendant must have realised that ordinary honest people would so regard his behaviour, and he is to be convicted only if the answer to that second question is yes.
In civil proceedings the test of dishonesty was described in these terms:
62. Dishonesty is by no means confined to the criminal law. Civil actions may also frequently raise the question whether an action was honest or dishonest. The liability of an accessory to a breach of trust is, for example, not strict, as the liability of the trustee is, but (absent an exoneration clause) is fault-based. Negligence is not sufficient. Nothing less than dishonest assistance will suffice. Successive cases at the highest level have decided that the test of dishonesty is objective. After some hesitation in Twinsectra Ltd v Yardley [2002] UKHL 12; [2002] 2 AC 164, the law is settled on the objective test set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378: see Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37; [2006] 1 WLR 1476, Abou-Rahmah v Abacha [2006] EWCA Civ 1492; [2007] Bus LR 220; [2007] 1 Lloyd’s Rep 115 and Starglade Properties Ltd v Nash [2010] EWCA Civ 1314; [2011] Lloyd’s Rep FC 102. The test now clearly established was explained thus in Barlow Clowes by Lord Hoffmann, at pp 1479-1480, who had been a party also to Twinsectra:
“Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant’s mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards. The Court of Appeal held this to be a correct state of the law and their Lordships agree.”
He then began to explain why this test might need to be changed:
63. Although the House of Lords and Privy Council were careful in these cases to confine their decisions to civil cases, there can be no logical or principled basis for the meaning of dishonesty (as distinct from the standards of proof by which it must be established) to differ according to whether it arises in a civil action or a criminal prosecution. Dishonesty is a simple, if occasionally imprecise, English word. It would be an affront to the law if its meaning differed according to the kind of proceedings in which it arose. It is easy enough to envisage cases where precisely the same behaviour, by the same person, falls to be examined in both kinds of proceeding. In Starglade Properties Leveson LJ drew attention to the difference of test as between civil cases and criminal cases, and rightly held that it demanded consideration when the opportunity arose. Such an opportunity is unlikely to occur in a criminal case whilst Ghosh remains binding on trial judges throughout the country. Although in R v Cornelius [2012] EWCA Crim 500 the opportunity might have arisen before the Court of Appeal, Criminal Division, it did not do so because there had been in that case no false representation of which the honesty needed to be examined; moreover, there is some doubt about the freedom of that court to depart from Ghosh in the absence of a decision from this court.
Lord Hughes then held:
74. These several considerations provide convincing grounds for holding that the second leg of the test propounded in Ghosh does not correctly represent the law and that directions based upon it ought no longer to be given. The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
Two decisions of the High Court each given on appeal, are often cited when the court has to look to deploy these concepts on the facts of an individual case. Although decided in the context of section 57, rather than the QOCS rules, they are worth noting.
The first is London Organising Committee of the Olympic and Paralympic Games in Liquidation v Haydn Sinfield [2018] EWHC 51 (QB) where Knowles J stated int the first of several paragraphs of significance:
60. Picking up on a point made by the judge in Menary, the drafter of s 57 sought to draw several distinctions from CPR r 44.16: it is the claimant who the court must find dishonest, rather than the claim. Further, rather than permitting the defendant to recover all of his costs, the court is required to assess the claimant’s ‘genuine’ damages and deduct that figure from the defendant’s costs. As to the first point, however, it will be rare for a claim to be fundamentally dishonest without the claimant also being fundamentally dishonest, although that might be a theoretical possibility, at least.
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.
64. Where an application is made by a defendant for the dismissal of a claim under s 57 the court should:
a. Firstly, consider whether the claimant is entitled to damages in respect of the claim. If he concludes that the claimant is not so entitled, that is the end of the matter, although the judge may have to go on to consider whether to disapply QOCS pursuant to CPR r 44.16.
b. If the judge concludes that the claimant is entitled to damages, the judge must determine whether the defendant has proved to the civil standard that the claimant has been fundamentally dishonest in relation to the primary claim and/or a related claim in the sense that I have explained;
c. If the judge is so satisfied then the judge must dismiss the claim including, by virtue of s 57(3), any element of the primary claim in respect of which the claimant has not been dishonest unless, in accordance with s 57(2), the judge is satisfied that the claimant would suffer substantial injustice if the claim were dismissed.
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.
The second decision which is worthy of consideration not so much for establishing points of principle but for being an example of how a decision on fundamental dishonesty, is very much a matter for the trial judge, akin to that of the role played by a jury, is that of Yip J in Edward Wright v Satellite Information Services Limited [2018] EWHC 812 (QB) where she observed in respect of schedules of loss which of course must be verified by a statement of truth:
27. It seems to me that the importance of the schedule of loss is frequently overlooked. This is, or should be, the document that draws together the presentation of the claim. It ought to be presented in an accessible and easy to follow format. The fact that the schedule of loss is required to be supported by a statement of truth highlights the need for it to be readily understandable by the claimant. It also sets out the claim for the defendant and for the trial judge who will come to the case afresh and ought to be able to follow the case from the schedule. This means that it should not simply be a series of calculations. It needs to be supported by sufficient narrative to explain the case being presented by the claimant.
28. With the exception of the claim for loss of earnings the schedule in this case did not serve that purpose. I note that the Claimant said in cross-examination that he regarded the schedule as similar to a set of accounts prepared by an accountant that he would sign in reliance upon the professional expertise of the drafter. I have some sympathy with that position given the format of the schedule here. However, that is not the right approach. Claimants will be fixed with knowledge of and taken to have certified the truth of the contents. It is very important that lawyers draft the schedule in such a way that the facts to which the client is attesting are clear. Failing to do so is failing in their duty both to the client and to the court.
In the event the appeal failed:
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 judge’s approach cannot be faulted. He reminded himself at paragraph 93 of the judgment that the court should not give in to the temptation to find inadvertent rather than deliberate exaggeration and must not shrink from making findings of dishonesty. I can see no proper basis for interfering with the judge’s findings.
39. There are four grounds of appeal. They must be read in the context of the introduction set out in the application for permission. That introduction made it clear that the appeal was focused upon the judge’s substantial rejection of the care claim and the contention that he was wrong then in failing to find fundamental dishonesty. That is the basis upon which permission was granted. I do not consider that any of the grounds are properly arguable when the judgment is viewed in its proper context by reference to the evidence before the judge. Essentially, they amount to an impermissible attempt to overturn the trial judge’s decision which the Appellant does not agree with.
In summary, perhaps like the elephant, the most important point to note is that fundamental dishonesty is something to be recognised rather than defined; something that goes beyond exaggeration, or overemphasis, and which crosses the line into deceit.

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