The Criminal Justice and Courts Act 2015 (the Act) received royal ascent on 12 February.
After several amendments during its life as a Bill, the sections of the Act that have been introduced of relevance to personal injury claims are sections 57 to 61. Their incorporation into the Act is as a result of the Government being concerned by the ever increasing cost of fraudulent and grossly exaggerated personal injury claims and the knock-on effect that these have had on insurance premiums.
Figures released by the Association of British Insurers in May 2014 revealed that the value of fraudulent insurance claims uncovered by insurers in 2013 rose to a record £1.3bn, an increase of 18% from 2012. Insurers detected a total of 118,500 bogus or exaggerated insurance claims - the equivalent of a staggering 2,279 claims each week.
It is hoped that the Act will assist in bucking this trend.
The previous position (which will continue to apply to all claims issued before commencement of the Act since it does not have retrospective affect) is set out in the Supreme Court decision of Summers v Fairclough Homes. This case confirmed that the court did have available to it the power to strike out the entirety of a claim, including any award for genuine injury, where a claimant grossly exaggerated the extent of his injury. However, this power was said to be limited, only to be exercised in very exceptional circumstances.
Indeed, in Summers itself, the fact that the claimant fabricated the extent of his injury in an attempt to increase the value of his claim to £840,000 from the £88,000 eventually awarded was not sufficient to see the claim struck out, even though the court accepted that the claimant had acted dishonestly.
The new position under s.57 of the Act is that in any personal injury claim where the court finds the claimant is entitled to damages, but is satisfied on the balance of probabilities that the claimant has been “fundamentally dishonest” in relation to the claim as a whole, the court must dismiss the claim entirely unless it is satisfied that the claimant would suffer “substantial injustice” as a result.
It remains up to the courts to determine what “fundamentally dishonest” means as it has not been defined by the Act. This is likely to become a rich area for dispute and concerns were raised over the use of this phrase when the Bill was being debated in Parliament. Dishonesty is (strictly speaking) not something of which there can be varying degrees. You have either been dishonest or you haven’t. However, by adding the word “fundamentally” something more is clearly required. In Gosling v Screwfix (when considering the April 2013 QOCS provisions) the court held that fundamental dishonesty was dishonesty that went to the “whole or a substantial part of the claim”. Something that was “incidental” or “collateral” to the claim was not sufficient. Whilst guidance will no doubt be given as to its interpretation, it appears that each case will turn on its own facts.
It is also worth highlighting that the court needs only be satisfied on the balance of probabilities that a claimant is fundamentally dishonest. Once fundamental dishonesty is established, the court must strike out the entirety of the claim unless the claimant would suffer substantial injustice.
“Substantial injustice” has also not been defined and it is therefore again going to fall to the courts to determine. No doubt in time we will see many cases dealing with this issue. Some sympathy will have to be had for those claimant solicitors who are blindsided by their client and find themselves pleading “I know that my client has been fundamentally dishonest but…”
An additional change is that s.57 applies to both the claimant’s own claim and any related claim. As such, a claimant who dishonestly assists with a third party’s related claim will have his own claim struck out, even if his own claim was brought honestly.
The Act therefore takes a much more robust approach to dishonesty than that set out in Summer, whose claim would likely have been struck out under s.57 (unless he could prove that it would lead to a substantial injustice).
So what are the cost consequences of such a dismissal? s.57(4) states that the court must place a value on what a claimant would have been awarded in the absence of a strike out and s.57(5) states that a claimant will only be liable to a defendant for any costs that exceed the amount of this valuation.
A claimant will therefore (to some extent) indirectly receive his “genuine” damages which will in effect be set off against the defendant’s costs.
The purpose of s.57(5) is to ensure that the sanctions against the claimant are proportionate, and to prevent a defendant, who has in fact been negligent notwithstanding the claimant’s behaviour, from avoiding all culpability.
It is noted that this new provision appears to be in conflict with CPR 44.16 (which was introduced along with the Qualified One Way Cost Shifting (QOCS) provisions in April 2013), which states that orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.
The Government was also concerned that some law firms were helping to encourage exaggerated or fraudulent personal injury claims by offering inducements such as free gifts or increased payments to potential claimants in return for their business. As such s.58 of the Act has been introduced to prohibit such practice.
The Act does not create a criminal offence or a civil right of action, but empowers the relevant governing bodies to take action against those found to be in breach. For solicitors such action could include being struck off.
The introduction of s.57 of The Criminal Justice and Courts Act 2015 is a welcome development in the fight against fraudulent and exaggerated claims. Claimants will now be forced to come to court with clean hands or face the risk of losing out on damages to which they are genuinely entitled. Defendants will also feel more empowered to fight such claims on the basis that a claimant can no longer expect to be able to vastly exaggerate a claim and remain a winner.
The idea put forward by some commentators that s.57 will encourage defendants to plead fraud on the basis that there is the potential to achieve a huge windfall is in our opinion misguided. It will remain up to defendants to prove fundamental dishonesty. Regardless of the potential windfall, unless there is sufficient evidence to support an assertion of fundamental dishonesty, an insurer is unlikely to agree to fund a potentially risky and expensive trial and genuine claimant’s should have nothing to fear.
However, the Act is by no means perfect. The question as to what exactly “fundamentally dishonest” and “substantial injustice” means remains unanswered. As such a defendant who has evidence that a claimant has been dishonest will still have to go into a trial uncertain as to the effect of the claimant’s dishonesty on the outcome.