Court allows insurer to raise "fundamental dishonesty" argument after claimant discontinued claim

The usual rule when a claimant discontinues its claim is that the claimant is liable for the defendant's costs. However, this case involved a personal injury claim and the qualified one-way costs shifting regime (QOCS) applied, which meant that the court's leave was needed to enforce a liability for costs against the claimant. There is an exception to QOCS, though, where the claim is found on the balance of probabilities to be "fundamentally dishonest". PD 44 para 12.4 provides that "where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4".

The defendant insurer in this case insured a driver who had collided with the claimant's car. The claimant alleged that she and her passenger had been injured in the accident. The insurer admitted the insured's negligence but alleged that the claimant had not had a passenger in her car. The claimant then discontinued her claim and the insurer appealed against a decision that the allegation that the claim was fundamentally dishonest should not be determined.

The judge held that the judgment below did contain an error of law, because it had wrongly decided that PD 44 para 12.4 required something exceptional in order to convince a court to allow further court time to consider a fundamental dishonesty allegation. In this case, it was held that "giving such a direction should be seen to be neither routine nor exceptional".

Many cases falling under the sub-section will involve relatively modest costs, but the court should recognise that there is a public interest in identifying false claims. Exercising the discretion afresh, the judge held that it was reasonable for the defendant to have the issue of fundamental dishonesty determined. In reaching this decision, she took into account, in particular, the very late stage at which the claim was discontinued and the complete absence of an explanation from the claimants.