Does a defendant need to formally raise an allegation of fundamental dishonesty (‘FD’) in its pleaded case to obtain a finding of FD at trial? Since the Court of Appeal considered the issue in Howlett v (1) Davies (2) Ageas Insurance Limited and another  EWCA Civ 1696 many defendant practitioners have proceeded on the basis that a formal pleading is unnecessary provided that the claimant has had fair notice of a challenge to his or her honesty and an opportunity to deal with it. The case of Pinkus v Direct line  EWHC 1671 reinforced the above view. However three recent cases discussed below have revisited the issue and suggest a formal pleading may now be desirable in certain circumstances.
Mustard v Flower  EWHC 846 (QB)
In Mustard, the claimant claimed she sustained a complex brain injury when involved in a rear end shunt. Liability for the accident was not in issue. Whilst the Defence alleged the accident was incapable of causing a serious brain injury given the low speed and lack of damage to the defendant’s vehicle it stopped short of pleading fraud. In response to the claimant’s request that the defendant properly set out its case the defendant applied to amend its Defence at a CCMC to include the following paragraph:
“4.4 The Claimant’s accounts of the RTA and its immediate aftermath, and the nature and severity of her symptoms both before and after the accident have varied over time, are unreliable and are in issue. They have been exaggerated (or in the case of her pre-RTA history minimised) either consciously or unconsciously – the Third Defendant cannot say which absent exploring the issues at trial. In the event that the Court finds that the Claimant has consciously exaggerated the nature and/or consequences of her symptoms and losses, the Third Defendant reserves the right to submit that a finding of fundamental dishonesty (and the striking out of the claim pursuant to section 57 Criminal Justice and Courts Act and/or costs sanctions including the disapplication of QOCS) is appropriate.”
The claimant objected to the amendment. In the claimant’s view the italicised last sentence above amounted to an allegation of fraud unsupported by the evidence and for which there was ‘no reasonably credible material which establishes a case of fraud’ pursuant to Rule 9 of the Bar Standards Code of Conduct. The defendant meanwhile argued the pleading was necessary so that the claimant was not ‘ambushed’ at trial.
Master Davison refused to allow the italicised section of the proposed amendment, finding as follows at paragraphs 14-24 of the Judgment:
- Neither CPR 44.16 nor s.57 Criminal Justice and Courts Act 2015 identify any particular mechanism by which a defendant must seek a finding of FD. All that is required under s.57 is ‘an application by the defendant.’
- Such an application does not require any formal pleading and could be made orally and perhaps as late a stage as the defendant’s closing submissions.
- It would not be professionally proper for a defendant to allege fraud based upon a mere suspicion, or upon a mere prospect of how the evidence might turn out.
- The ‘contingent or provisional plea’ which was proposed was unnecessary and served no useful purpose. There was no need to ‘reserve the right’ to plead FD; it can be made without having foreshadowed it in a pleading.
- The plea, made on a contingent basis, had no real prospects of success on the evidence before the Court because the medical experts had not raised any issue of dishonesty and the claimant’s symptoms had a good ‘fit’ with the claimant’s medical history.
- The amendment would prejudice to the claimant. She would have to report the allegation of FD to her legal expenses insurers and this theoretically opened up the possibility of the insurers avoiding the policy ab initio. This at the very least added the burden of administration and costs. It also had grave implications for the claimant and would raise further fears and anxieties which at the present time had no proper basis.
- A defendant who does have proper basis for a plea of FD should ordinarily set that out in a statement of case or a written application ‘at the earliest opportunity’ but pleas of FD which were merely speculative or contingent were actively discouraged.
Whilst the Judgment reiterates that an allegation of FD can sometimes only follow oral evidence at trial it also condones the practice of some defendants who ‘reserve the right’ to allege FD at trial in the body of a Defence. It is understandable why this practice has emerged; it can be referred to at a later stage in order to argue the claimant has had fair notice of a challenge to his or her honesty pursuant to Howlett. However such ‘contingent or provisional’ pleadings were in Master Davison’s view otiose, professionally suspect and, in the context of an amended pleading, potentially prejudicial to a claimant.
Long v Elegant Resorts Limited  EWHC 1330(QB)
Master Davison’s approach in Mustard v Flower was specifically endorsed in Long. In this case the claimant brought an action for personal injury following an accident at work when he struck his head on a low part of a cellar ceiling. The claimant alleged the accident caused a Traumatic Brain Injury which led to a redundancy at work and depression. The defendant admitted liability but alleged the accident was no more than a commonplace bump to the head. No allegation of dishonesty was made in the Defence but the Counter-Schedule suggested the claimant had falsely represented that his redundancy was accident related. The Counter-Schedule did not go so far as using the words ‘fundamental dishonesty’ or refer to section 57 of the Criminal Courts and Justice Act 2015.
At trial in cross examination and closing submissions the defendant argued that the claimant had been dishonest to both his experts and the court with regards to his symptoms and their interrelation with his employment, and also that he had colluded in the preparation and delivery of witness evidence with his wife. The claimant objected to cross examination and submissions concerning dishonesty which had not been specifically pleaded. In considering the issue HHJ Pearce sitting as a Judge of the High Court held as follows:
“77. In my judgment, the court must be careful about drawing conclusions adverse to the honesty of a Claimant from evidence about peripheral issues, most particularly where the Defendant has not given adequate advanced warning of its intention to raise the particular issue. Indeed, having regard to the passage from Howlett v Davies referred to above, the court would doubtless consider preventing cross-examination in such circumstances, on the ground that fairly reaching a conclusion adverse to the Claimant and that therefore the cross-examination was inappropriate. This was the approach taken by HHJ Coe QC in paragraph 14 of her judgment in Pinkus v Direct Line  EWHC 1671 (QB) and it is one with which I agree. I would have been minded to apply the same principle to cross-examination on peripheral matters which a Claimant has understandably declined to investigate, having regard to the need to conduct litigation at proportionate cost.
In this case, the Defendant has adequately given notice of its intention to explore the circumstances of the Claimant’s redundancy. Ironically, the lack of investigation of this point has been arguably more on the Defendant side that it has been on the Claimant’s (at least insofar as evidence placed before the court is concerned), a point of some significance on this issue, as identified below. However, I see no unfairness in the Defendant having been allowed to explore the issue and thereafter seeking to draw an inference of dishonesty from the evidence, given that this is a central issue in the case… I am satisfied that, with the appropriate approach to the application of the burden of proof, as set out above, no injustice is done to the Claimant through the failure to raise this point more clearly or at an earlier point in time.”
The Judgment highlights that nothing in Master Davison’s approach in Mustard was inconsistent with Howlett and Pinkus. All that is required is that the Claimant has proper notice of any issue of dishonesty; the words ‘fundamental dishonesty’ do not need to be used. The Judgement is a warning however that defendants cannot expect to give ‘proper notice’ in cross examination itself. Had the issue of redundancy not been raised beforehand HHJ Pearce was clear he would have limited cross examination on the point. The Judgment suggests it will rarely be reasonable for a defendant to simply wait and see what evidence merges at trial and the fair notice envisaged in Howlett must be given in advance of trial where at all possible.
Covey v Harris  2211 (QB)
Finally, in Covey the claimant claimed £8.8. million resulting from whiplash injuries sustained in a road traffic accident. Liability was conceded. Approximately a month before trial the defendant applied to amend its Defence to include an allegation that the claimant was fundamentally dishonest in relation to both liability and quantum and had exaggerated her injuries. The claimant, relying on Mustard, opposed the amendment on the basis it was unnecessary, was late, and because it had no prospects of success.
Mr Bowers QC sitting as a deputy Judge of the High Court allowed the amendment and held as follows:
- Whilst an allegation of FD does not need to be pleaded “it seems in keeping with the overriding objective that the parties should know the liniments of the case they have respectively to meet in advance of the hearing” (para 4). Further, ‘it seems to me very sensible to plead it and indeed, to do so with the level of detail that has been pleaded here ’(para 13).
- The defendant was not required to formulate such a pleading until all supplementary expert reports commenting on the further disclosure and joint statements had been finalised.
- The pleading was not late given that the claimant herself had requested the defendant confirm whether a case of FD was to be run before trial, and so was aware of the possibility of a FD argument.
- There was no prejudice to the claimant. The avoidance of an insurance policy would only happen if the matter came out at trial without previous pleading.
Whilst at first glance the cases of Mustard and Covey reach inconsistent Judgments where a similar application to amend was made they can in fact be distinguished. Mr Bowers QC specifically drew attention to the positive pleading of FD made before trial in Covey as opposed to the ‘contingent’ pleading fraud in Mustard. Covey does suggest however, in Mr Bower’s view at least, that an allegation of FD should be properly set out in a statement of case if it is going to be in issue at trial.
Whilst there have been three reported cases on the issue in quick succession there is no cause for a complete tactical overhaul in the approach to pleading FD. The cases instead provide a welcome reminder of the following key principles:
- The cases of Howlett and Pinkus remain good law. The key question in every case is whether the claimant has been given adequate warning of, and a proper opportunity to deal with, a potential finding of fraud and the matters leading the Judge to it rather than whether a defendant has positively alleged fraud in its Defence.
- Resist the temptation to ‘reserve the right to pleaded fundamental dishonesty at trial.’ The wording is otiose, professionally suspect and arguably prejudicial to the claimant (Master Davison in Mustard).
- A fair challenge to the claimant’s credibility should not arise for the first time in cross examination and should properly have been raised beforehand (HHJ Pearce in Long).
- There remains no absolute requirement for an allegation of FD to be set out in a pleading. However the judicial tide seems to be turning in favour of the allegation being formally set out in a statement of case as opposed to a solicitor’s letter (Mr Bowers QC in Covey).
- The lateness of the pleading will always be a relevant factor in considering whether granting permission to amend a Defence. There is certainly merit in waiting until a claimant has nailed his or her colours to the mast by way of witness statements and expert reports before raising FD, particularly if it is a case involving video evidence. In Covey, an application to amend approximately 1 month before trial was held to provide the claimant with plenty of time.
- Whilst there is no reason why in theory an application to amend the Defence cannot be heard on the eve of trial (as happened in the case of Brint v Barking, Havering and Redbridge University Hospitals NHS Trust  EWHC 290 (QB)) last minute applications should be avoided if at all possible as they may lead to an argument the claimant has been unfairly prejudiced.