“SUBSTANTIAL INJUSTICE” AND FUNDAMENTAL DISHONESTY: WE’LL KNOW IT WHEN WE SEE IT BUT WE DON’T SEE IT HERE: JUDGE’S DECISION NOT TO IMPOSE USUAL PENALTIES OVERTURNED ON APPEAL

In Woodger v Hallas [2022] EWHC 1561 (QB) Mr Justice Julian Knowles overturned a decision of the Circuit Judge that the usual principles of a finding of fundamental dishonesty should not apply to the claimant.  The judgment involves a consideration of what is meant by “substantial injustice”. It was concluded that there was no satisfactory definition, the judges would know it when they saw it. However it did not apply simply because a dishonest claimant would not recover damages.

“Counsel on this appeal were unable to refer me to any case which has defined the meaning of ‘substantial injustice’. I was not wholly surprised by that. To paraphrase US Supreme Court Justice Potter Stewart in Jacobellis v Ohio 378 US 184, 197 (1964), county court judges will generally, ‘know it when they see it’. But in this case, for the reasons I have given, I have concluded that the judge was wrong.”

THE CASE

The claimant was involved in a road traffic accident. Liability was admitted.   The judge found the claimant to have been fundamentally dishonest but applied the “substantial injustice” test. He awarded the claimant some heads of damage but declined to award damages in relation to loss of earnings and associated matters where the claimant had been dishonest.

THE DEFENDANT’S SUCCESSFUL APPEAL

The defendant appealed against the failure to apply the usual penalties following a finding of substantial injustice.

Substantial injustice

1. 1. With respect to this very experienced judge, for the substance of the reasons advanced by Mr Sasse, I am satisfied that the judge was wrong not to have dismissed the entire claim once he had rightly found the Claimant to have been fundamentally dishonest. In my judgment there was no proper or adequate basis for the judge’s finding that it would be substantially unjust to dismiss the entire claim.

1. 1. The starting point is that s 57 only comes into play where the court finds that a claimant is genuinely entitled to some damages (s 57(1)(a)). Hence, in every case where the court goes on to find fundamental dishonesty ex hypothesi the claimant will stand to lose their genuine damages. But Parliament has provided in express terms that that should be so, subject to the question of substantial injustice. I quoted the Hansard material in Sinfield, [61], which makes that clear.

1. 1. I thus reiterate what I said in Sinfield, [65], which I quoted earlier and which was endorsed by HHJ Sephton QC in Iddon, [98], namely that substantial injustice must mean something more than the claimant losing their genuine damages.

1. 1. In light of this, it seems to me that the judge’s reasoning, in particular in [60], cannot stand. The two expressed reasons for finding substantial injustice were that part of the claim was genuine; and that others had provided past care. Neither reason is sufficient. The first reason is in conflict with Sinfield and Iddon and the plain purpose of s 57. The second reason is difficult to reconcile with s 57(2) which makes clear it must be the claimant – and not anyone else – who would suffer substantial injustice.

1. 1. None of Mr Davy’s four reasons for seeking to uphold the judge’s finding, set out above, admirably advanced though they were, even if they can be teased out of, or implied into, the judge’s judgment, seem to me to be sufficient. I have already dealt with the third point (regarding care). With respect to the first two points, I accept that the Claimant did indeed suffer serious injuries. But they were not the most serious and he had made a substantial recovery. The fourth point, regarding the need for a liable defendant to be seen to pay damages, was also advanced in Iddon and rejected at [101].

1. 1. In Iddon, [103] the judge approached the question of substantial injustice by balancing on the one hand, the nature and extent Mrs Iddon’s dishonesty, and on the other the injustice to her of dismissing her whole claim, and came down in favour of dismissal on the basis that the former outweighed the latter. Mr Sasse commended this approach and commented that the judge had not undertaken any balancing exercise.

1. 1. Taking the same approach to this appeal, even on the assumption that there was some injustice to this Claimant (which I have found there was not), the same conclusion follows. The sustained nature of his dishonesty; the length of time for which it was sustained; and his involvement of others all make his dishonesty so serious that it would have outweighed any injustice to him.

1. 1. Counsel on this appeal were unable to refer me to any case which has defined the meaning of ‘substantial injustice’. I was not wholly surprised by that. To paraphrase US Supreme Court Justice Potter Stewart in Jacobellis v Ohio 378 US 184, 197 (1964), county court judges will generally, ‘know it when they see it’. But in this case, for the reasons I have given, I have concluded that the judge was wrong.

1. In my judgment the judge should have dismissed the entire claim and awarded the Defendant its costs of the action (subject to s 57(4) and (5), which I will discuss in a moment).

THE APPEAL JUDGE THEN INCREASED THE PERSONAL INJURY AWARD

One consequence of the decision was that the personal injury award was increased. The trial judge had declined to award damages in relation to earnings.  These were reinstated on appeal. This was significant because the award is then set off against the claimant’s liability to pay costs.

1. 1. I come now to the question of the damages figure. The reason I do so is because of s 57(4) and (5) which require the court, when dismissing a claim: (a) to record the amount of damages that it would have awarded to the claimant in respect of the primary claim but for the dismissal of the claim; and (b) when assessing costs to deduct the amount so recorded from the amount which it would otherwise order the claimant to pay in respect of costs incurred by the defendant. Thus, in light of the findings that I have made, my order must comply with these provisions. This means that the proper amount of damages needs to be determined.

1. 1. I need not finally determine whether the judge had the power to do as he did by reducing the damages as he did. I would prefer to leave that for a case where it properly arises for determination and there has been full and detailed argument about it.

1. 1. I am clear, because the claim should have been dismissed under s 57(2), that the appropriate figure for the purposes of s 57(4) is the judge’s initial figure of £74,460. That is the figure he would have awarded the Claimant but for his fundamental dishonesty, and that that is the right figure follows from the plain meaning and effect of s 57(4). That, accordingly, is the figure he should have deducted from any costs award against the Claimant, pursuant to s 57(5).

Conclusion

1. 1. The appeal is allowed; and the entirely of the Claimant’s case is dismissed under s 57(2) on the grounds of fundamental dishonesty. The judge was wrong not to have so concluded. The Defendant will have its costs of the action subject to s 57(4) and (5). I invite the parties to draw up an order reflecting the terms of this judgment, including costs of the appeal.