SUING A CLAIMANT WHO HAS ACCEPTED A PART 36 OFFER: THE PROFOUND PROBLEMS WHEN PLEADING FRAUD: YOU CAN’T “WAIT AND SEE”

There is an interesting history in the judgment of Mr Justice Saini in in Kasem v University College London Hospitals NHS Foundation Trust [2021] EWHC 136 (QB).  It is a case that is an object lesson in the stringent requirements that exist when a party is alleging dishonesty.

 

“These were attractively presented submissions but, in my judgment, the Judge was in error in permitting the fraud pleading to go forward. Even bearing in mind that one might call this a form of case management issue, I consider that the Particulars of Claim fail properly to comply with basic pleading requirements for a dishonesty and deceit case”

“… Counsel for the Trust sought to defend the pleading by arguing that the position as to the more precise nature of the fraud claim made would “crystallise” in the course of disclosure and following witness statements. That is not satisfactory. A clear and sustainable fraud case, if it is to be made at all, must be made at the time the Particulars of Claim seeking relief in deceit is settled. It is not an answer to say the case might become clearer or sustainable at a later stage.”

THE FACTS

The appellant Mr Kasem had brought an action for damages for personal injury against the Trust, alleging an injury to his shoulder. The Trust had made a Part 36 offer of £75,000 which Mr Kasem had accepted out of time. The Trust had not paid the £75,000. Instead the Trust issued proceedings against Mr Kasem arguing that it had been induced by fraudulent representations to offer him £75,000 in damages.

 

THE ACTION BROUGHT BY THE TRUST

The Trust’s claim was a common law deceit claim.
  1. Basing itself on information it says it acquired post-compromise, the Trust claims that Mr Kasem fabricated and/or exaggerated the impact of the allegedly negligent surgical procedure on him. In short, the Trust argues that Mr Kasem made a dishonest claim and obtained financial settlement of his claim vastly in excess of any true or legitimate claim. It has not paid the £75,000.00 and seeks damages for fraud against Mr Kasem.
  2. In support of its claim the Trust relies upon photographic evidence from social media which it says shows that Mr Kasem must have lied in his claim as regards quantum. That evidence is said to identify him undertaking a number of activities which are inconsistent with his claimed disability. This is said to be at odds with the claimed serious and continuing shoulder problems asserted by Mr Kasem to have been caused by the allegedly negligent surgical procedure.
  3. The legal nature of the Trust’s claim, and the relief sought, are at the heart of this appeal. The claim is a common law deceit claim but an averment at the start of its Particulars of Claim has caused part of the controversy in issue on appeal.
  4. At paragraph 4 of its original Particulars of Claim the Trust pleaded:
“For the avoidance of doubt the [Trust] does not seek, by way of remedy, to have the Notice of Acceptance set aside and/or to withdraw its Part 36 Offer. The [Trust] seeks damages in the tort of deceit, including on an exemplary basis, on account of the fraudulent misrepresentation.”

MR KASEM’S APPLICATION TO STRIKE OUT

Mr Kasem made an application to strike out the Trust’s claim.   The claim as originally drafted was struck out. However the judge gave permission that the Trust have permission to amend the claim and apply for reinstatement.

THE TRUST’S AMENDED CLAIM

The Trust amended its claim and was given permission to pursue its amended action.
9.                  An Application Notice dated 15 November 2019, accompanied by a draft amended Particulars of Claim, was in due course served by the Trust. The amendment removed paragraph 4 of the Particulars of Claim and replaced it with a plea which expressly sought a setting aside of the Part 36 compromise. The Trust did not however amend or further particularise the fraud claim which, as indicated above, was the subject of a separate complaint in Mr Kasem’s Application Notice of 28 June 2019.
10.              The Judge’s detailed judgment of 28 January 2020 on the Trust’s amendment application is the subject of this appeal. In summary, the Judge held that amendments were to be allowed on the basis that the Trust was not barred by the doctrine of affirmation from resiling from its original pleaded adoption of the compromise, and also that the pleas in fraud were sufficiently particularised to pursue a deceit claim. The Judge accordingly made an Order on 28 January 2020 granting the Trust permission to amend and she dismissed Mr Kasem’s application to strike out the Trust’s claim.

MR KASEM’S  APPEAL

Mr Kasem appealed against the decision to allow the Trust to amend.  He was given permission to appeal on one issue – the failure to particularise the Particulars of Claim.

THE JUDGMENT ON PARTICULARISATION

The judge allowed the appeal on the issue of particularisation. He held that the claim had not been properly pleaded.

 III.            The Particularisation Issue
  1. This is the sole ground on which Freedman J granted Mr Kasem permission to appeal. Freedman J explained that although one might consider this a case management issue (where an appeal court would defer to a first instance judge), there was a case with a real prospect of success that, as pleaded, the case in deceit was lacking in particularity.
  2. Before considering the Judge’s reasons for allowing the claim to proceed, I need to set out the precise pleaded case.
  3. Having first pleaded the nature of the claims made by Mr Kasem and some of evidence he had relied upon by way of quantum (which I assume was intended to be the case as to “representatations” for the tort ), the draft amended Particulars of Claim (which remained in this respect in the same form as the original) continued as follows in the material paragraphs:
“16. It is the position of the Claimant [the Trust] that:
  1. Substantively the Defendant [Mr Kasem] contrived to present fabricated and/or exaggerated heads of damage and accordingly fraudulently misrepresented the true level of his claim. Specifically it is alleged that the Defendant has fundamentally sought to mislead the Claimant and/or the Court in relation to his claim for personal injury and/or associated special damages in particular alleged lost income, credit card interest and loss of rental income; and
  2. Procedurally the Defendant has:
  3.             Failed to effect disclosure and/or deliberately effected misleading and/or incomplete disclosure of relevant documentation which he must have known was harmful to his case;”
  4.             Endorsed his statement with a Statement of Truth seeking to support claims which he knew were fabricated and/or exaggerated.
Particulars of the Claimant’s position
  1. The Claimant is now in receipt of evidence which confirms:
  2. The Defendant is not in truth suffering from physical symptoms to the extent alleged, for example:
  3.             On one occasion, whilst working at Virgin Gyms, social media confirms he assisted in the lifting of an individual into a swimming pool.
  4.             It has also been confirmed that the Defendant has, on at least one occasion, participated in boxing sparring, featuring on Youtube as part of, it seems, a promotional campaign.
  5. The Defendant has misled the Court about his social life. In addition to enjoying nine foreign holidays over a four year period from 2013, he also attended the Coachella Music Festival in July 2016.
  6. The Defendant is not impecunious. In addition to his foreign holidays, it is equally clear from the partial disclosure of bank statements that there are other accounts in the name of the Defendant. Specifically, they make reference to a transfer of £120,000.00 on 30 September 2014 to a separate account which remains undisclosed. The Defendant’s accounts also reveal that between February 2015 and February 2017 he paid £650 per month for rent on a property at WA11 1AR. It is inconceivable that this rent was for the sofa at his friend’s residence as he has alleged”.
  1. Before the Judge, it was argued on behalf of Mr Kasem that this was a deficient fraud pleading. Having directed herself to the relevant authorities on amendment and fraud pleadings, including CIP Properties (AIPT) Limited v Galliford Try Infrastructure Limited and others [2015] EWHC 1345, and Lipkin Gorman v Karpnale Ltd [1998] 1 WLR 1340, the Judge rejected this submission and gave the Trust permission to amend (but in reality to pursue this original pleaded case which had not been amended).
  2. The Judge’s reasons were as follows:
“50. This then leaves the outstanding aspect of the pleadings. The central thrust of Mr Daniels’ attack related to the inadequacy of the pleadings. He submitted that there are only two particularised allegations which, on their face, were insufficient to establish fraud and the other paragraphs were of a generic nature. Indeed, he went so far as to invite me to strike-out the proceedings, presumably under CPR 3.4, or to give summary judgment.
  1. In contrast, Mr Roberts submitted that the pleadings set out a clear case that the defendant fabricated or exaggerated the nature and extent of his claim for damages. He submitted the examples cited provide strong evidence to support the claimant’s case that it was induced to make the Part 36 offer.
  2. I have given careful consideration to the respective arguments and in so doing, I have considered the statements of Mr Navsaria, Ms Bagnall and, in fairness to Mr Daniels, given the absence of any further oral submissions, the proposed draft amended defence. Mr Navsaria attacks the focus of the pleadings on paragraph 22 onwards of his statement. In the main, the perceived deficiencies are maintained in the proposed amended pleading. Whilst there is a robust assault on the particulars of claim, I do not consider the claimant is required to set out each and every aspect, but such particulars so that the defendant knows the case it is expected to meet.
  3. I am satisfied that, in the words of May LJ in Lipkin Gorman v Karpnale Ltd [1998] 1 WLR 1340, that, ‘Where fraud or dishonesty is material, this must be clearly pleaded, if not explicitly, then in such terms that the reader of the pleadings can be left in no reasonable doubt that this is being alleged.’.
  4. I am satisfied that, standing back and considering the pleading as a whole, the defendant can be in no doubt as to the substance of the allegations as per paragraphs 3 and 16-18. I, accordingly, decline to strike-out the pleadings and/or grant summary judgment.”
  1. Counsel for Mr Kasem forcefully argued on appeal that the Judge failed to deal with his essential complaints (which I have summarised in para. [27] below). He relied upon Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] 2 AC 1(HL), and Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340 (CA), where May LJ observed at 1351H-1352A:
“… where fraud or dishonesty is material this must be clearly pleaded, if not explicitly, then in such terms that the reader of the pleading can be left in no reasonable doubt that this is being alleged. … where an element in the alleged fraud or dishonesty relied on is the other party’s knowledge of a given fact or state of affairs, this must be explicitly pleaded. It is ambiguous and thus demurrable, if fraud is relied on, to use the common “rolled up plea” that a defendant knew or ought to have known a given fact.”
  1. In terms of specific problems with the pleaded case, the following points of complaint were the focus of submissions on behalf of Mr Kasem before me (by reference to the paragraphs of the pleading I have set out above):
  2. i)Paragraph 16a, whilst suggesting that it is setting out specifics, is in fact generic in terms. Paragraph 16b is not an allegation of fraud, but a complaint about the manner in which the clinical negligence case was progressed.
  3. ii)Paragraph 17a refers to two minor incidents which it is suggested contradict the evidence in Mr Kasem’s witness statement but it does not particularise why this means he was fraudulent.
iii)                Paragraph 17b suggests Mr Kasem misled the Trust as to his social life in that he took a number of holidays. It is impossible to understand this in the absence of any explanation as to why this led to the Part 36 offer being made.
  1. iv)Paragraph 17c is an assertion that Mr Kasem was untruthful about his impecuniosity but again fails to set out how this led to the Part 36 offer being made or made in the sum that was accepted.
  2. v)Of particular concern is the use of the phrase “for example” in paragraph 17b which suggests the Trust intends to rely on further allegations which it has not particularised. That this is the intention is confirmed in paragraph 7b of the Trust’s skeleton argument below on the amendment application which stated:
“Further, it is inappropriate, within a Particulars of Claim, to recite each and every piece of evidence upon which the Claimant intends to rely. This would fly in the face of common sense. A pleading is there to set out the framework of the case, not provide a checklist which forewarns the Defendant for cross examination. It is worthy of note that in the substantive action, there would be no obligation on the Defendant NHS to plead fraud at all, per Howlett v Davies [2017] EWCA 1696.”
  1. In response, Counsel for the Trust supported the Judge’s reasons for permitting the case to proceed as pleaded. He argued that the issue of amendment was essentially a case management matter and relied upon the well-known principles set out in Wallbrook Trustee (Jersey) Limited v Fattal [2008] EWCA Civ 427. He also took me to Howlett v Davies and Anor [2017] EWCA Civ 1696, and Pinkus v Direct Line [2018] EWHC 1671. Counsel argued that these cases demonstrated a more flexible approach to allegations of fraud which did not require the type of particularity which was the subject of the complaints made on behalf of Mr Kasem. Both of these cases concerned qualified one way costs shifting (“QOCS”).
  2. Relying on the principles he drew from Howlett, in particular, Counsel for the Trust persuasively argued that the Particulars of Claim set out a clear case against Mr Kasem, namely that he has fabricated and/or exaggerated the nature and extent of his claim for damages. He said that the pleaded examples provide strong evidence to support the Trust’s contentions and this is despite the fact that Mr Kasem, in the original action, was in default of his disclosure obligations and as such, there will, almost certainly, be other evidence to support the Trust’s position. He also relied on the fact that the acceptance of the Part 36 Offer was out of time and when Mr Kasem was under considerable disclosure pressure. I refer to the procedural chronology in Section II above.
  3. In relation to Lipkin, Counsel for the Trust argued that Mr Kasem could be in no doubt or ambiguity as to what is being alleged. He submitted that the Judge in “standing back and considering the pleading as a whole” (Judgment, para. 54) not only adopted the correct test for assessment of the pleading (specific reference being made by the Judge to Lipkin), but then exercised her case management powers/discretion, to reach the conclusion that Mr Kasem could be in no doubt as to the substance of the allegations.
  4. These were attractively presented submissions but, in my judgment, the Judge was in error in permitting the fraud pleading to go forward. Even bearing in mind that one might call this a form of case management issue, I consider that the Particulars of Claim fail properly to comply with basic pleading requirements for a dishonesty and deceit case.
  5. In short, there is substantial force in the submissions made on behalf of Mr Kasem in relation to the nature of the case set out in paragraphs 15 and 16 of the draft amended Particulars of Claim, summarised above at para. [27].
  6. My more detailed reasons for this conclusion are below but I must begin with some basic principles.
  7. The starting point is to underline that in any common law deceit claim a claimant must plead and prove at least the following five matters with sufficient particularity:
  8. i)A representation of fact made by words or by conduct and mere silence is not enough;
  9. ii)The representation was made with knowledge that it was false, i.e. it was wilfully false or at least made in the absence of any genuine belief that it was true or made recklessly, i.e. without caring whether the representation was true or false;
iii)                The representation was made with the intention that it should be acted upon by the claimant, or by a class of persons which will include the claimant, in the manner which resulted in damage to him;
  1. iv)The claimant acted upon the false statements; and
  2. v)The claimant has sustained damage by so doing.
  3. See Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 at 211 and the helpful summary in Ludsin Overseas Limited v Eco3 Capital Limited [2013] EWCA Civ 413 at [77]. Equally helpful is the summary of the law and example of model deceit pleadings in Bullen, Leake and Jacob, Precedents of Pleadings (Nineteenth Edition 2020) at Section 58, pages 47-56. These cases and text were not cited to me but contain what I regard as uncontroversial principles.
  4. It is not enough to make a bare assertion of fraud when seeking to comply with these requirements. It is well-established that any allegation of fraud must be made clearly, unequivocally and with sufficient particularity so that the defendant understands the case made against him. It is of particular importance to underline in the context of the present appeal that the representation which is said to have been made fraudulently must be identified with precision.
  5. As explained by Lord Millett in Three Rivers District Council v Governor and Company of the Bank of England (No 3[2003] 2 AC 1(HL) at [186]:
“It is well established that fraud or dishonesty…must be distinctly proved; that it must be sufficiently particularised… The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him… this involves knowing not only that he is alleged to have acted dishonestly but also the primary facts which will be relied on at trial to justify the inference…this is only partly a matter of pleading. It is also a matter of substance”.
                   (My underlined emphasis)
  1. Those principles are not only well-established in case law but are also reflected in the CPR. See CPR PD 16, para.8.2(1) (requiring specific details of fraud and misrepresentations relied upon); the Admiralty and Commercial Courts Guide at C1.2, which provides that “full and specific details should be given of any allegation of fraud, dishonesty, malice or illegality” and that “where an inference of fraud or dishonesty is alleged, the facts on the basis of which the inference is alleged must be fully set out”; and the Chancery Guide at 2.8(1) to like effect.
  2. It is equally well-established that if a case alleging fraud or deceit (or other intention) rests upon the drawing of inferences about a defendant’s state of mind from other facts, those other facts must be clearly pleaded and must be such as could support the finding for which the claimant contends. In any event, if a case alleging fraud or deceit (or other intention) rests upon the drawing of inferences about a defendant’s state of mind from other facts, those other facts must be clearly pleaded and must be such as could support the finding for which the claimant contends. Useful guidance to this effect appears in Portland Stone Firms Limited v Barclays Bank plc [2018] EWHC 2341 at [25-32] and JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm) at [20].
  3. I do not accept that the cases Howlett v Davies and Anor [2017] EWCA Civ 1696, and Pinkus v Direct Line [2018] EWHC 1671 are relevant to the issues before me. The cause of action pursued before me is common law deceit. These two decisions are concerned with a very different issue. So, in Howlett, as explained by Newey LJ at [29-31], the issue was whether a trial judge can find that the QOCS regime had been displaced because of “fundamental dishonesty” without fraud having been alleged in terms in the insurer’s defence. He explained that the classic fraud authorities were of limited assistance on this issue. That was because, as Newey LJ observed, those authorities arose in situations where a claimant wished to maintain a claim that depended on a fraud. Such a person was required to clearly both allege it and prove it. The focus was not, as it was in the Howlett appeal, on what a defendant must plead and prove.
  4. By contrast, the appeal before me is concerned with what the Trust must plead and prove. The Trust’s entire claim depends on proving fraud. Nothing in Howlett seeks to undermine the well-established principles about pleading fraud which I have summarised above.
    1. Applying these principles, the Trust’s Particulars of Claim should in my judgment have contained at least the following:
    2. i)The precise representations made by Mr Kasem in the course of his civil claim (and whether they were express or implied);
    3. ii)The precise respects in which representations made by Mr Kasem were factually false;
iii)                The state of knowledge of the Trust at the point of making the Part 36 offer and how the Trust relied upon the representations;
  1. iv)The material received by the Trust subsequent to the acceptance of the Part 36 offer which showed that Mr Kasem had provided false information, identifying when such information was received and the precise respects in which the information subsequently received showed the falsity of the representations; and
  2. v)The facts relied upon to the effect that Mr Kasem made the representations knowing the same to be false and/or reckless as to the truth of the same.
  3. When one compares the contents of the crucial paragraphs 16 and 17 of the draft Amended Particulars of Claim (which I have set out above at para. [23]) to these basic requirements (and even taking the pleading as a whole), the amended pleading falls far short. I emphasise that the Trust was not required to plead evidence but rather the “primary facts” (adopting Lord Millett’s language in Three Rivers) under each of the heads I have identified in para. [42] above.
  4. The pleading suffers from a number of problems. I will identify five main problems. First, there is no obvious connection for example between the fact that Mr Kasem has been on holiday on a number of occasions (or that he attended a specific music festival at Coachella) with any false representation on his behalf. The pleader clearly has in mind some fact or inference which he will ask the Court to take into account or draw but has not explained what it is.
  5. Second, the reader of the draft pleading would be left puzzled by the suggestion that there had been some necessarily false earlier (unpleaded) representation given the fact that Mr Kasem had been seen on social media assisting in lifting someone into a swimming pool at Virgin Gyms.
  6. Third, the same goes for the fraud claim based on the fact that Mr Kasem has a “social life”. How this is said to establish relevant falsity of some earlier representation relied upon by the Trust in deciding to settle the claim with a Part 36 payment remains a mystery.
  7. Fourth, the Trust cannot use the language of “for example” (as it does) when alleging particulars of why a representation is false. That would be to drive a coach and horses through the pleading requirements and allow ambush in the course of trial. That is never permissible as a basis to allege fraud as part of a deceit claim.
  8. Fifth, in relation to reliance on representations, the pleaded case is also defective. All that is said is: “…in consequence of the foregoing the Claimant’s position is that it relied upon the foregoing misrepresentations to its detriment and suffered loss in consequence. Accordingly, the Claimant claims against the Defendant in the tort of deceit”. An explanation of the way in which the Trust relied upon the representations is making the specific Part 36 Offer is missing. Like other parts of the case, the reader is left guessing. It is clear that the Trust made an offer far below the claimed quantum of the claim. How did it then rely on what was said to have been represented as to the nature and scale of injury? One might consider that settling a £470,000.00 claim for just £75,000.00 suggests the Trust had not relied upon the truth and accuracy of the evidence of Mr Kasem as to his losses.
  9. In oral argument, Counsel for the Trust sought to defend the pleading by arguing that the position as to the more precise nature of the fraud claim made would “crystallise” in the course of disclosure and following witness statements. That is not satisfactory. A clear and sustainable fraud case, if it is to be made at all, must be made at the time the Particulars of Claim seeking relief in deceit is settled. It is not an answer to say the case might become clearer or sustainable at a later stage.
  10. Insofar as the Trust says (as it did in evidence and argument before the Judge) that it is not necessary for it to set out every allegation of fabrication and exaggeration in its pleading, I would reject the breadth of that submission. If the Trust is to argue that the fabrication or exaggeration of any specific matter establishes the falsity of a pleaded representation for the purposes of its common law claim, it is incumbent on it to plead that matter so that Mr Kasem knows the case he is to meet.
  11. I emphasise that this must be done in the pleading and not in evidence. Counsel for the Trust sought to explain in argument (using the boxing/sparring plea) how the fraud case in relation to that issue worked. But that is a case which needs to be set out in the pleading supported by a statement of truth.
  12. Finally, even applying the broad assessment invoked by the Trust as to whether Mr Kasem knows overall the case he is to meet, I do not consider that is established. The case is vague in the extreme. The case has been pleaded in the form of a complaint within section 57 of The Courts and Criminal Justice Act 2015 (which provides no cause of action in itself), as opposed to a deceit claim.
  13. For these reasons, which reflect to some extent the initial observations of Freedman J when granting permission to appeal on this ground, the Particularisation complaint under Ground 4 succeeds and the appeal is allowed.
  14. The Judge should have struck out the claim as pleaded and maintained in the draft amended Particulars of Claim.