Fixed costs and fundamental dishonesty in personal injury claims

Part 45 CPR governs recoverable costs in a vast swathe of personal injury claims and all the indications are that the scope of fixed costs in personal injury claims is about to be expanded, to include all personal injury claims with a value of up to £100,000 which can be dealt with in a trial of up to 3 days.

In the personal injury claims I see, I am struck by how often a plea of fundamental dishonesty is raised: this could involve allegations that a claimant has lied to the medical experts (and everyone else) about the extent of their disability, or that they have put forward claims for losses which have no connection to their accident, or that they dishonest about the circumstances of the accident. Sometimes the defence raises an allegation of fraud, where the real issue may be whether the claimant has sustained an accident at all.

Despite such averments contained in the defence, many of these cases settle. It may be because the defence was well grounded, or it may be, because the innocent claimant does not relish the prospect of an unpleasant trial with her probity at stake.

But in those circumstances, where a case settles with the payment of damages by a defendant without a trial, is the claimant limited to the fixed costs prescribed by part 45 CPR or are they entitled to ask for standard basis or indemnity costs?

If the case proceeds to a Fast Track trial and the claimant comes unscathed through hostile cross examination, alleging that she is a liar and a cheat, is she entitled to standard or indemnity basis costs?

The answer is, as it so often is: it depends. But the resolution of the issue does not depend on whether a claim is fought to trial or not, although at trial it may be easier to ground the arguments.

Where a claim settles under a part 36 offer the court remains seised of the issue of costs. Rule 36.14 provides so far as is material:

(5) Any stay arising under this rule will not affect the power of the court—

(a) to enforce the terms of a Part 36 offer; or

(b) to deal with any question of costs (including interest on costs) relating to the proceedings.

Under rule 45.29J the court has power to make the following order:

(1) If it considers that there are exceptional circumstances making it appropriate to do so, the court will consider a claim for an amount of costs (excluding disbursements) which is greater than the fixed recoverable costs referred to in rules 45.29B to 45.29H.

(2) If the court considers such a claim to be appropriate, it may—

(a) summarily assess the costs; or

(b) make an order for the costs to be subject to detailed assessment.

(3) If the court does not consider the claim to be appropriate, it will make an order—

(a) if the claim is made by the claimant, for the fixed recoverable costs; or

(b) if the claim is made by the defendant, for a sum which has regard to, but which does not exceed the fixed recoverable costs,

and any permitted disbursements only.

It follows that when a claim settles by way of part 36 offer, a claimant can make an application to court for an order for assessed costs under rule 45.29J.

This is important, as it is by no means the case that every case involving allegations of dishonesty will be allocated to the Multi-track. In the case of Qader v Esure [2016] EWCA Civ 1109 the Court of Appeal noted:

18. The third example, and the one which led to these appeals, arises where a claim is properly started in the RTA Protocol but is met by an allegation in the defence that the claim has been dishonestly fabricated. Sometimes the allegation is simply that the claimant slammed on the brakes to cause the accident, and the issue simply requires the cross-examination of the drivers of the two cars, easily achievable within a one day fast track trial. But some cases involve the allegation of a sophisticated conspiracy to engineer a multi-car incident, the cross examination of numerous witnesses and the deployment of sophisticated engineering expert evidence about the collision. Furthermore, the consequences for a claimant of being found to have been party to the fraudulent contriving of a road traffic accident may well include the inability to obtain vehicle insurance in the future, criminal proceedings or punishment for contempt of court. Such proceedings are therefore inherently likely to be pursued and defended on the basis that no stone is left unturned, and therefore at very substantial cost.

Much of the caselaw involving the costs consequences of alleging unfounded dishonesty and fraud, concerns claimants who have made baseless allegations in the pursuit of a claim against a hapless defendant.

Thus a good example of indemnity costs being ordered where allegations of fraud were not pursued arises in the case of PJSC AeroflotRUssian Airlines v Leeds and others [2018] EWHC 1735 (Ch) where allegations of fraud were pursued up to the door of the court, before being discontinued. It was noted by Rose J as she then was:

48. The Defendants submitted that there are two bases on which the court should conclude that Aeroflot should pay costs on the indemnity basis. They first rely on the decision of David Richards J (as he then was) in Clutterbuck and Paton v HSBC plc & others [2016] 1 Costs LR 13 (‘Clutterbuck’) as authority for the proposition that where a claimant proceeds with allegations of serious dishonesty and fraud against a defendant and discontinues those claims without explanation, an order for indemnity costs should usually follow.

49. In Clutterbuck, simplifying a little, proceedings had been issued against 15 defendants claiming damages in tort for deceit and/or negligence. The 11th defendant served a defence and then issued an application to strike out the claim on the grounds that the particulars of claim disclosed no reasonable grounds for bringing the claim and/or that it was an abuse of the court’s process. The 11th defendant, his solicitors and counsel had prepared for the hearing of the strikeout application before David Richards J. The previous day the claimants had requested that the applications be taken out of the list. When the court refused to vacate the hearing, the claimant served on the 11th defendant notice of discontinuance of the entire proceedings. The hearing therefore proceeded as a hearing on the issue of whether the claimant should pay the 11th defendant’s costs on the indemnity basis. The judge concluded that the decision had already been taken to discontinue proceedings if the attempt to take the applications out of the list failed. The judge noted that the claim in deceit had been withdrawn without explanation and without apology.

50. David Richards J stated that the general proposition in relation to cases in which allegations of fraud are made is that if they proceed to trial and if the case fails then in the ordinary course of events the claimants will be ordered to pay costs on an indemnity basis. The court of course retains a complete discretion in the matter and there may well be factors which indicate, notwithstanding the failure of the claim of fraud, that indemnity costs are not appropriate. The underlying rationale is that the seriousness of allegations of fraud are such that where they fail they should be marked with an order for indemnity costs because in effect the defendant has no choice but to come to court to defend his position. In circumstances where, instead of the matter proceeding to trial and failing, the claimant serves a notice of discontinuance, thereby abandoning the case in fraud, it is appropriate for the court to approach the question of costs in the same way. David Richards J referred to the earlier case of Jarvis plc v PriceWaterhouseCoopers [2000] 2 BCLC 368. In that case a claimant had discontinued proceedings which had alleged that the company’s auditor had acted in bad faith. Lightman J held that where such an allegation was made and not substantiated, the court was amply justified in exercising its discretion to award costs on the indemnity basis. In that case, as in this, the proceedings were discontinued only at the very last moment and no reason was given.

53. In my judgment that is no basis for distinguishing Clutterbuck from the present case. On the contrary, the present case is stronger given that the allegations of fraud were pursued over eight years and the proceedings were prosecuted vigorously up to a few hours before the whole claim was abandoned the afternoon before the trial. I accept Mr Davenport’s submission that it would be going too far to refer to “the rule in Clutterbuck” as Mr Tregear did. But I respectfully consider that the approach in Clutterbuck is sound. Where a claimant makes serious allegations of fraud, conspiracy and dishonesty and then abandons those allegations, thereby depriving the defendant of any opportunity to vindicate his reputation, an order for indemnity costs is likely to be the just result, unless some explanation can be given as to why the claimant has decided that the allegations are bound to fail.

But the possibility of seeking indemnity costs is not limited to the context of an unfounded claim making strong allegations being pursued: similar considerations can arise where allegations of fraud are made by way of defence. In the case of Bank of Tokyo Mitsubishi UFJ Ltd and another v Baskan Gida Sanayi Ve Pazarlama AS and others [2009] EWHC 1696 (Ch) Briggs J, as he then was put the matter this way:

25. The final issue of principle is whether, in a case such as the present where allegations of the utmost gravity have been pursued wholly unsuccessfully, an award of indemnity costs depends upon a conclusion that those allegations were pursued unreasonably. In this context I was referred to three first instance cases: Three Rivers District Council v. Bank of Credit and Commerce International SA [2006] EWHC 816 (Com); National Westminster Bank Plc v. Rabobank Nederland [2007] EWHC 1742 (Com) and JP Morgan Chase Bank v. Springwell Navigation Corporation [2008]
EWHC 2848 (Com).

26. In my judgment those cases, together with the others summarised in the notes to CPR 44.4(3) on pages 1194 and following of Volume 1 of the 2009 White Book establish the following principles:

i) The court’s discretion to grant indemnity costs is not limited by any hard rules of exclusion.

ii) Nonetheless the primary considerations relevant to the award of indemnity costs are first, whether the conduct of the party against whom the order is sought is such as to take the case out of the norm, and secondly, whether that party’s conduct can properly be categorised as either deliberate misconduct, or conduct which is unreasonable to a serious degree.

iii) The bringing of a case alleging serious dishonesty may qualify for indemnity costs if on the material it can properly be categorised as speculative, weak, opportunistic or thin, if it is advanced on the basis of a constantly changing case, and if it is pursued on a very large scale without apology to the bitter end, including by hostile cross-examination, without constant regard to its
merits. Some combination of those factors may justify the view that the litigation has been unreasonably pursued.

27. It follows in my judgment that it is not enough for a party to assert simply that it has successfully fought allegations of the utmost gravity, regardless of the circumstances in which those allegations came to be made. Although a case in which such allegations are made may for that reason alone be out of the norm, especially a case of the present size and complexity, that is unlikely in itself to constitute a good reason for the award of indemnity costs.

28. To those conclusions on the issues of principle separating the parties I would add this. Whenever the court is asked to make some out-of-the-ordinary costs order in consequence of the alleged misconduct of the party against whom the application is made, the court must bear constantly in mind the conduct of the party making the application. I consider this to be so for two main reasons. The first is that the conduct  of the party making the application may have been, in some respect, a contributory cause of the conduct complained about. It may even lead to the conclusion that the conduct complained about, although unsuccessful, was nonetheless not unreasonable in the circumstances.

29. The second reason is one of common sense and justice. Penal costs orders (like all costs orders) lead to a financial adjustment between the parties, not to penalties in the nature of fines payable into the Consolidated Fund. Although there may be cases where the conduct criticised is such that a public example needs to be made of the guilty party, to an extent which overrides the practical justice of the matter between the litigants before the court, they are in my judgment likely to be the exception rather than the rule.

It follows that simple settlement of a case where fraud or dishonesty is alleged may not be enough to obtain indemnity costs. It may be enough to obtain an order for standard basis costs, given that the test of exceptional circumstances under rule 45.29J, is a lower hurdle than that contemplated by the case law noted above, which is primarily applicable to indemnity costs.

But where the defence of alleged dishonesty or fraud on the part of the claimant, can be demonstrated to be “speculative, weak, opportunistic or thin” either at the point of settlement or at trial, or is accompanied by hostile cross examination to the bitter end of a trial where the defendant loses, these factors may aggravate the situation sufficiently to justify an award of indemnity costs.

One thought on “Fixed costs and fundamental dishonesty in personal injury claims

  1. I suppose a Claimant could also allege fundamental dishonesty against a Defendant, arguing that the Defendant is denying all liability when they know that liability exists, or even that a Defendant allegation of fundamental dishonesty is in fact an act of fundamental dishonesty. In these cases the same costs consequences would presumably apply.

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