High Court rules on Section 57 Fundamental Dishonesty: dishonesty can contaminate the entire claim

Sinfield v London Organising Committee for the Olympic and Paralympic Games (in Liquidation) [22.01.18]

The High Court provides clarification and guidance on the meaning of fundamental dishonesty under Section 57 of the Criminal Justice and Courts Act 2015 (Section 57) – confirming that Section 57 is a tool in the defendant’s armoury that carries real bite.

Background

In September 2012, the claimant, a company director and volunteer at the London Olympic and Paralympic Games, suffered an accident causing long term disability.

Liability was admitted in full and the defendant’s insurers, Aviva, made an interim payment and a Part 36 offer. Proceedings were issued and in his schedule of loss, the claimant claimed that prior to the accident he had looked after his two acre garden with his wife but, following the accident, they had to employ a gardener. The gardening claim amounted to 42% of his total claim for special damages.

The claimant disclosed gardening invoices from October 2012 onwards. However, the defence team were suspicious of these and deployed fraud intelligence, which allowed evidence to be obtained from the gardener who confirmed he had been the claimant’s gardener for many years prior to the claimant’s accident. The gardener further confirmed he had never invoiced the claimant for his gardening services and that the disclosed invoices were not his. He provided a statement to this effect which was disclosed on mutual exchange of statements.

The defendant withdrew its Part 36 offer and successfully applied to amend its defence pleading fundamental dishonesty. In a subsequent statement the claimant admitted his first statement was badly worded since, whilst he had employed a gardener before the accident, he did so out of choice whereas post-accident that choice had been removed and he had to employ the gardener. The claimant admitted creating the gardener’s ‘invoices’ himself.

The trial judge found the claimant did have an element of a genuine gardening claim but its presentation was “muddled, confused and careless”. He found the claimant had dishonestly created false invoices and had been dishonest in his first statement but that dishonesty did not contaminate the entire claim and he awarded damages.

The defendant appealed the decision.

Decision

The judgment of Mr Justice Julian Knowles is the first reported High Court decision on the interpretation of fundamental dishonesty under Section 57. He states:

“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, 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.

………

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.”

Knowles J went on to say that where an application is made under Section 57 to dismiss a claim for fundamental dishonesty:

  • The Judge should consider whether the claimant is entitled to damages for the claim.
  • If he is, the Judge should then determine whether the claimant has been fundamentally dishonest.
  • If he is, the entire claim must be dismissed, including any genuine element of the claim, unless the claimant satisfies the Judge he would suffer substantial injustice if his claim was dismissed.

In finding for the defendant and dismissing the claim, Knowles J held:

  • The claimant had knowingly made dishonest misrepresentations in his schedule of loss which could have resulted in the defendant’s insurers paying out far more than they could properly, on honest evidence, have been ordered to pay.
  • The fact that the greater part of the claim may have been genuine is neither here nor there where the court finds fundamental dishonesty.

Comment

This is the first High Court decision on the meaning of fundamental dishonesty under Section 57 and will now become the leading authority. The court has usefully confirmed that whilst dishonesty is a subjective state of mind, the standard by which the law determines whether a state of mind is dishonest is an objective one.

By setting out his definition of fundamental dishonesty, Knowles J has provided helpful guidance not only in relation to Section 57 but also with regards to CPR 44.16 (which relates to a claimant losing costs protection under the QOCS provisions).

Both applications of fundamental dishonesty are helpful for defendants, but this judgment also clearly shows that Section 57 carries the real bite, since the entire claim will be dismissed (unless the claimant proves substantial injustice) with the claimant paying the defendant’s costs, less the amount the he would otherwise have received in genuine damages.

Kennedys acted for the defendant (and appellant) in this case.