Thakkar (& Others) v (1) Mican & (2) AXA Insurance UK PLC [2024] EWCA Civ 552

This is a very significant decision by the Court of Appeal on the question of whether a claimant who has been accused by a defendant of bringing a personal injury claim that is fundamentally dishonest should be awarded indemnity costs against that defendant if the allegation of fundamental dishonesty fails.

On 18th May 2017 the Claimants and Mr Mican were involved in a road traffic accident. The Claimants said that Mr Mican drove his van into their car. Mr Mican said that the Claimants’ car pulled out from a parked position into the side of his van. Axa were Mr Mican’s insurers.

The collision was witnessed by a Mr Patel who was not known to nor related to any of the parties. On 27th December 2017 an investigator instructed by Axa called Mr Patel’s home. He was not there, but the investigator told Mr Patel’s uncle that Mr Patel was a witness and might be accused of fraud. Later that day the investigator telephoned Mr Patel and asked for telephone mandates to search his phone records to which he agreed. The investigator did not tell him about the earlier message or mention the possibility of fraud. When the investigator rang him again the next day, Mr Patel’s uncle had told him about the accusation of fraud. Mr Patel decided not to co-operate anymore.

At the CCMC in July 2021 the Defendants sought permission to amend their defence to allege fundamental dishonesty. The judge refused permission for the various amendments. She said that in road traffic cases it was often the case that the parties’ accounts were entirely different. That was what the court was faced with day in and day out. She said this was an absolutely standard road traffic accident which for reasons that slightly baffled her the Defendants’ solicitors had decided to label as fundamentally dishonest.

The same judge conducted the trial in April 2022. She found in favour of the Claimants and did so largely on the basis of the evidence of the witness, Mr Patel. She did not expressly address any suggestions of fraud and dishonesty. She addressed and resolved the issues on the basis that the case was one of a straightforward road traffic accident claim. She did not find that Mr Mican had lied. She simply found the recollection of the Claimants and of Mr Patel more reliable than his.

At the end of the case the Claimants’ counsel applied for indemnity costs to be awarded against the Defendants on the basis that the allegation of fundamental dishonesty had been maintained by the Defendants at trial and because the Claimants had had this allegation hanging over them for a long time.

The judge rejected the Claimants’ application. She accepted that the case had none of the hallmarks of the sort of fundamentally dishonest claims that the court saw all too frequently, and she wondered whether parliament had intended that that “blunt tool”  should be used in a case like this. She said that before QOWCS with its exception of fundamental dishonesty had been introduced this was the sort of case where the court would simply hear the evidence and decide who was telling the truth. She said that it would be sad if public spirited people like Mr Patel were deterred from coming forward as witnesses because of worries of being accused of fraud. She also thought that the raising of fundamental dishonesty had caused both parties to incur far more costs than were necessary. She hoped that Axa and other insurers would use their resources in a more targeted fashion.  In the end, however, she did not think that the Defendants’ conduct met the test for an award of indemnity costs.

The Claimants appealed the judge’s refusal to award indemnity costs. In July 2022, Richard Smith J dismissed the Claimants’ appeal concluding that the judge had not misdirected herself and was entitled to exercise her discretion in the way that she did.

The Claimants appealed again to the Court of Appeal. There were three main grounds to their appeal. Firstly, the trial judge misdirected herself as to the test to be applied when considering indemnity costs. Secondly, that her refusal to award indemnity costs was a decision that no reasonable judge could have reached. Thirdly, that in commercial and chancery cases there was a presumption that indemnity costs would be awarded when allegations of fundamental dishonesty failed.

Lord Justice Coulson took the third ground first. At paragraph 19 of the judgment he helpfully summarised the principles (with applicable authorities) for an award of indemnity costs:

1. The discretion to award indemnity costs is a wide one and must be exercised taking into account all the circumstances of the case, including but not limited to the conduct of the paying party.
2. In order to obtain an order for indemnity costs, the receiving party must surmount a high hurdle. They must be able to demonstrate “some conduct or some circumstance which takes the case out of the norm.” That is the critical requirement. While it is preferable for the judge expressly to apply the test of “out of the norm”, the use of the word “exceptional” may be consistent with the judge having applied the appropriate principles.
3. To the extent that the application is based on the paying party’s conduct, it is necessary to show such conduct was “unreasonable to a high degree” in order to recover indemnity costs, but it is not necessary to go so far as to demonstrate “a moral lack of probity or conduct deserving of moral condemnation” on the part of the paying party.
4. Merely because the conduct in question may happen regularly in litigation does not mean that such conduct cannot also be “out of the norm”. In Lord Justice Coulson’s view the word “norm” was not intended to reflect whether what occurred was something that happened often, so that in one sense it might be seen as “normal” but was intended to reflect something outside the ordinary and reasonable conduct of proceedings.

At paragraph 20 of the judgment Lord Justice Coulson reiterated that since a judge has such a wide discretion when it comes to costs, the courts have repeatedly made it clear that the court should avoid going beyond the CPR to identify rules, default positions, presumptions, starting points and the like when addressing costs disputes.

Lord Justice Coulson accepted that there were many cases where a claim that had been found to be dishonest the judge would very often award indemnity costs against the claimant.

This case involved the opposite situation: allegations of dishonesty had been made which failed. In this situation was there a default position or a presumption that the party who made those allegations was liable to pay the other side’s costs on an indemnity basis?

At paragraphs 22 to 25 of the judgment Lord Justice Coulson considered four High Court decisions where the question of the award of indemnity costs had been considered in cases where allegations of dishonesty had been made but failed. Those cases made it clear that that there was no default position or a presumption that the party who made those allegations was liable to pay the other side’s costs on an indemnity basis. Each case would depend on the circumstances of the particular case, and the judge retained a complete and unfettered discretion. The default position was always that standard costs would be assessed and paid, unless the party seeking indemnity costs could demonstrate why they were appropriate in all the circumstances. He thought that any other conclusion would fetter the court’s broad discretion in respect of costs in any given case and would create rules which could not be found in the CPR. The third main ground of appeal was therefore rejected.

Having considered the submissions that had been made to the judge and her ex tempore judgment, Lord Justice Coulson rejected the first main ground of appeal. He was satisfied that the judge had applied the right test and had given adequate reasons for her decision not to make an indemnity costs order against the Defendants. He also rejected the second main ground of appeal that the judge’s decision not to award indemnity costs was a perverse decision that no reasonable judge could have made. This was not a situation where the judge had to balance on the one hand all the factors in favour of a particular course of action and all the factors against that same course of action. Here the judge had to decide whether the high hurdle as explained in the authorities had or had not been reached. Although she was aware that there were some factors that pointed in favour of making an indemnity costs order in the end the necessary high hurdle for making that order had not been crossed.

The Claimants’ appeal was consequently dismissed. There is a sting in the tail to Lord Justice Coulson’s judgment however. Although he found that the trial judge had come to a decision which she was entitled to come to in the exercise of her discretion he said at paragraph 28 of the judgment that nothing he said was intended to detract in any way from the statement of the obvious. Because the making of a dishonest claim would very often attract an indemnity costs order against a claimant a failed allegation of dishonesty would very often lead to the making of an indemnity costs order against the defendant on the simple basis of “what is sauce for the goose is sauce for the gander”. “A defendant who makes allegations of this kind therefore runs a very significant risk that, if the allegations fail, indemnity costs will be awarded against them.”

27th Jun 2024

Krishma Patel

Call 2012