When should a defendant plead fraud? Alice Dobbie considers the recent decision of Mustard v Flower  EWHC 846
June 24, 2021
Summary: defendants are not entitled to plead fraud speculatively or contingently. But that in no way restricts a defendant’s freedom to explore fraud at trial if it is suspected. If (non-speculative) grounds for fraud arise mid-trial, a defendant may apply for a fraud finding without ever having prefigured this allegation in a defence or having made the application for such a finding in writing.
The claimant made a claim for personal injury following a road traffic accident. She alleged that she had suffered a subtle brain injury. The key experts were in neurology, neuropsychology, neuropsychiatry, neuroradiology and audiovestibular medicine.
The defendant was concerned that the claimant had consciously or unconsciously exaggerated her symptoms and therefore that she might have been fundamentally dishonest. Accordingly, the defendant sought permission to amend its defence to add the following: “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 is appropriate”.
The court’s decision
The application was refused. The defendant was not allowed to foreshadow in its defence the potential making of an application that the claimant had been fundamentally dishonest.
There is no particular mechanism by which a defendant must seek a finding of fundamental dishonesty
Neither section 57 of the Criminal Justice and Courts Act 2015 nor CPR 44.16 provide a prescriptive form for a defendant’s application for a finding of fundamental dishonesty. This is consistent with:
- Howlett v Davies  EWCA Civ 1696: fundamental dishonesty can be raised at trial even if it has not been pleaded in the defence.
- Pinkus v Direct Line  EWHC Civ 1671: issues raised in the course of trial which go to credibility must be put to a claimant, even if they have not been pleaded in advance.
Accordingly, an application for a finding of fundamental dishonesty can be made orally at as late a stage as a defendant’s closing submissions.
Fairness dictates that a claimant must be given a proper opportunity to respond to dishonesty allegations
In a case where conclusions about a party’s honesty need to be reserved until that party has given evidence and been cross-examined, then dishonesty allegations must be put in cross-examination. Accordingly, a defendant cannot be required to have made an allegation prior to the trial in order to make an application under section 57.
Contingent or provisional allegations of fundamental dishonesty serve no purpose
Because a defendant can put allegations without foreshadowing them in a pleading, there is no purpose in “reserving a right” to make a submission of fundamental dishonesty. An application under section 57 is not a “right”, and even if it were, there would be no need to “reserve” it.
A plea of fundamental dishonesty is not to be taken lightly because it causes prejudice to a claimant
A plea of fundamental dishonesty has to be reported to a claimant’s legal expenses insurers. It opens up a theoretical possibility of the insurers avoiding the policy ab initio. It has grave implications for a claimant.
Where cogent grounds exist for an allegation of fundamental dishonesty, it must be pleaded at the earliest reasonable opportunity.
But speculative or contingent allegations of fundamental dishonesty should not be pleaded. Instead, if grounds arise for such allegations in the course of a trial (as is common when credibility is in issue), they should be put to the party at that point.
This decision it is a wholly positive development for defendants and insurers in fundamental dishonesty case law. Without encroaching on the ‘cards on the table’ approach, it affirms a defendant’s entitlement to keep an open mind about possible dishonesty. It means that if matters develop during a trial, such that a mere suspicion of fraud crystallises into something evidence-based, then a defendant is entitled to put fraud to a party and make an application for a fraud finding, even though such an allegation was not pleaded in advance.
Finally, this case confirms that conscious exaggeration is dishonest. This drives the final nail into the coffin of Smith v Ashwell (see here for a discussion of that case).
You can view the full judgment of Mustard v Flower  EWHC 846 here.