New legislation introduces important changes relating to dishonesty in PI claims.

The Criminal Justice and Courts Bill is currently before parliament and expected to become law by January 2015. Clauses 49 to 53 deal with personal injury claims, with the whole claim defeated if there is any fundamental dishonesty.

Fundamental dishonesty

Clause 49(1)(b) requires a court to dismiss the whole of a personal injury claim if it is satisfied, on the balance of probabilities, that the claimant has been fundamentally dishonest in relation to the primary claim or a related claim, that is in relation to any part of the claim.

So fundamental dishonesty in relation to, for example, an aspect of future special damages means that the whole case, including the general damages claim, is lost. Likewise, an exaggeration of symptoms, if that is held to be fundamental dishonesty, means that a client loses the whole claim, including the claim for his written-off vehicle caused by the other party’s negligence.

Clause 49(3) makes it clear that this ‘includes the dismissal of any element of the primary claim in respect of which the claimant has been dishonest’.

Dismissal of the claim is mandatory unless the court is satisfied ‘that the claimant would suffer substantial injustice if the claim were [sic] dismissed’. Thus the claim is lost completely. The court cannot find in favour of the claimant but reduce or eliminate damages, subject to the ‘substantial injustice’ exception above.

The court must record the amount of damages it would otherwise have awarded – clause 49(4). Any costs order made against the claimant must take into account the foregone damages. So, if the defendant’s costs are £30,000 and damages would have been £20,000, then a claimant pays the balance of £10,000 to the defendant.

The bill applies to fixed recoverable costs cases as well as all other personal injury cases. Fundamental dishonesty is not defined, and nor is substantial injustice.

Clause 49(8) is the definition section, and reads:

(8) In this section:

‘claim’ includes a counter-claim and, accordingly, ‘claimant’ includes a counter-claimant and ‘defendant’ includes a defendant to a counter-claim;

‘personal injury’ includes any disease and any other impairment of a person’s physical or mental condition;

‘related claim’ means a claim for damages in respect of personal injury which is made –

(a) in connection with the same incident or series of incidents in connection with which the primary claim is made, and

(b) by a person other than the person who made the primary claim.

The provisions are retrospective in the sense that they apply to causes of action arising before the act comes into force; but the provisions do not apply when proceedings are issued before the day on which this section comes into force.

As none of us know how these draconian and unprecedented provisions will be applied, solicitors should do everything possible to issue proceedings on all matters before the implementation date, which is likely to be April 2015. Clearly, cases in the filing cabinet now will be affected if proceedings are not issued before the due date.

Issuing proceedings is defined as ‘proceedings started by the issue of a claim form’, and so the matter being in the portal prior to implementation day does not succeed in avoiding the new sanctions. Solicitors need to give enough time for the matter to go through the portal process and drop out if not settled, and then for substantive proceedings to be issued.

The provision is similar to section 26 of the Civil Liability and Courts Act 2004 in the Republic of Ireland.

Extra risk

Make no mistakes about the huge extra risk this imposes on claimants’ solicitors. A case previously unlosable on liability – for example, a person injured while travelling as a passenger – will now lose on liability if they are fundamentally dishonest in relation to any part of the claim.

A good solicitor should be able to spot liability and causation issues and take the case on with their eyes open, but spotting what might just be mild exaggeration is impossible.

Clause 49 alone justifies a 100% success fee in every case, and solicitors may now take the view that 35% of damages is the appropriate fee from the client, rather than the more usual 25%. Remember that it is only the success fee, not overall solicitor and own client costs, that are limited to 25%.

Clause 49 will cause major problems in relation to after-the-event insurance. A case where there was no liability risk, but rather just a part 36 risk, will now have a liability risk. A case where liability has been admitted will now be lost on liability at a quantum hearing if the court finds that there has been fundamental dishonesty in relation to any part of the claim.

A claim is brought. Liability is admitted. Past specials are agreed and paid at £40,000. Generals are agreed and paid at £30,000. There is a dispute about future loss of earnings and that issue goes to court, and the judge finds that the claimant had an unrealistic view of his future career prospects and has been fundamentally dishonest in his future loss of earnings claim. Bang goes the whole award, and the claimant must refund the £70,000. Admissions in personal injury cases are now meaningless.

Satellite litigation will not begin to describe what will happen; it will be constellation litigation.

Issue before the madness

It was pointed out in the debate in the House of Lords on 23 July 2014 that the whole clause is designed to do substantial injustice – that is, a claimant with a good claim has the whole claim dismissed because of ‘fundamental dishonesty’, whatever that means, in relation to one part of the claim.

Lord Marks said: ‘… the subsection works against the interests of justice, or certainly risks doing so, in two ways. The first is by imposing a presumption in favour of dismissal, subject to a modest saving provision that, frankly, is difficult to understand.

‘…The saving subsection “unless it is satisfied that the claimant would suffer substantial injustice, if the claim were dismissed”, is very difficult to understand. On one view of justice, and the view of justice which appears to be intended by the proponents of the clause, if there is dishonesty, it is not unjust for the whole claim to go.

‘If that is the meaning, how does the saving provision come in at all? If, on the other hand, it means that the interests of justice seem broadly to require the claimant still to get some of his damages, does that amount to a duty to dismiss, or is it merely a power to dismiss, which is what my amendments are directed to?

‘The second area where I believe there is a risk that justice will not be done is that the clause as it stands allows for no middle course – no way of allowing a judge to reduce the damages rather than dismiss the claim, where a reduction in damages is really what is required to do justice between the parties.’

Quite. Lord Marks also posited the question as to whether, for example, claiming five bus fares when only one was incurred requires the whole claim to be disallowed in what could be a very serious injury case.

Lord Beecham asked why this provision was being brought in only for personal injury claims and not, for example, for breach of contract claims, professional negligence claims and so forth.  

It was also pointed out that in cases of catastrophic injury – which is where the point is most likely to be taken by defendant insurers – the losing party is likely to be the taxpayer, who will have to pay for the

care of a seriously injured person where the injuries have been caused by a defendant tortfeasor which has got off scot-free, or rather the insurance company has got off scot-free.

So the burden passes from an insurance company to the taxpayer.

Either the legal world is going mad, or I am.

Inducements

Clauses 50 to 53 of the Criminal Justice and Courts Bill, currently before parliament, introduce rules against inducements to bring personal injury claims, and are largely uncontroversial.

Clause 50 applies to regulated persons, which includes solicitors, and makes it unlawful to offer an inducement to make a personal injury claim, but not if the benefit is related to the provision of legal services in connection with the claim. Clause 51(4) provides that no criminal offence is created, and that breach of the clause does not give rise to a right of action for breach of statutory duty.

Clause 50(4) gives the lord chancellor power to make regulations as to what is classed as the provision of legal services, including provision about benefits relating to:

(a) fees to be charged in respect of legal services;

(b) expenses;

(c) insurance.

Such regulations are to be made by way of statutory instrument (clause 53).

So offering a discount, or a ‘no win, no fee’ agreement, or offering to pay disbursements or cover adverse costs and so forth do not amount to inducements. An inducement is an offer of a benefit that is intended to encourage the person to make a claim or to seek advice about making a claim, or which is likely to have that effect (clause 50(2)).

A benefit may be an inducement regardless of when or how the offer is made, when it is received, whether it is subject to conditions or whether the benefit is to be received by a third party (clause 50(3)).

Clause 51 provides that the appropriate regulator, the Solicitors Regulation Authority in the case of solicitors, must ensure that it has in place appropriate arrangements for monitoring and enforcing the restrictions in clause 50, and empowers the regulator to make rules and allows those rules to provide for any penalty that the regulator could impose for any other breach.

The net effect of this is that the SRA can make offering an inducement a disciplinary offence resulting in a solicitor being struck off. Clauses 51(5) and (6) allow the regulator to make rules which reverse the burden of proof, which means that if it considers the offer an inducement, then it is for the solicitor to show that it was for some other reason.

Clause 52 is an interpretation section. Between them, these clauses are an all-embracing prohibition on inducements in personal injury cases. The clauses received all party support in parliament and will become law.

Clause 58(3) of the bill provides that where a court makes a wasted costs order under section 51(6) of the Senior Courts Act 1981 it must inform the approved regulator, that is the SRA in the case of solicitors, and the Director of Legal Aid Casework if it is a legal aid case.

Kerry Underwood is senior partner at Underwoods

  • This article first appeared in the October issue of Gazette sister publication Litigation Funding.