A collateral lie, what exactly is it? It is an untruth, but one which does not affect the overall validity of the claim made, so said the Supreme Court in a case involved a Dutch cargo ship, which ran into difficulty after its engine room was flooded. The crew falsely said they could not investigate an alarm, because the ship was rolling in heavy seas. However, the accident was caused by bad weather, so this lie was irrelevant, it was ruled.

The judge at first instance found that the lies from the ships crew amounted to a "fraudulent device" and thus invalidated the claim. The Court of Appeal upheld the initial judgement, but that has now been overturned by the Supreme Court who found that it is OK to tell a "collateral" lie on an insurance claim. All interesting stuff to those who provide After the Event insurance.

In giving Judgment, Lord Mance said: "The critical point is that, in the case of a collateral lie….the insured is trying to obtain no more than the law regards as his entitlement, and the lie is irrelevant to the existence of that entitlement. Such a lie is immaterial to the claim."

The implications of this ruling could be far reaching, affecting household, travel and motor policy claims.

On the subject of telling "lies” the thorny subject of "fundamental dishonesty” rumbles on. It would seem that Claimant PI practitioners are receiving correspondence from Defendant lawyers on a regular basis where this is raised, even in claims where liability has been conceded. Perhaps Defendants are raising "fundamental dishonesty” as a matter of routine, in the hope of capturing the minority of claims which are deemed to be "fundamental dishonesty”? Cast the net wide in the hope of capturing a dishonest claim. Maybe that approach is justified.

From an ATE insurance perspective, Defendants have been reluctant in the past to actively pursue such allegations as they know perfectly well that if such a finding of fraud is made, the Claimant will lose the benefit of ATE cover and the Defendant would be unlikely to recover any costs in any event. Instead, they tend to raise the argument, indirectly.

But disbelieving the Claimant does not mean a claim was fundamentally dishonest. Who says so? His Honour Judge Freedman does!

In the original fast-track trial of Nesham v Sunrich Clothing, the District Judge ruled that on the balance of probabilities the Claimant could not prove that the Defendant had breached the duty of care that was owed to him so the claim failed. QOCS should have applied but the Defendant then sought to accuse the Claimant of being a liar and that he was fundamentally dishonest.

It could be suggested that a losing party in a PI claim must have been lying. Lawyers will often find that parties give varying accounts of how an accident may have occurred. However, HHJ Freedman held on appeal that "merely because an account of an accident has been rejected does not, to my mind, equate to fundamental dishonesty”.

HHJ Freeman added "Up and down the country on a daily basis, judges are being asked to decide whose account of a road traffic accident is more reliable ….And it is the experience of everybody who litigates in this field that drivers involved in an accident will give different and contrary versions of accidents to the extent of not just which lane they were in, but where they came from, the route they had taken and so forth… which may not constitute dishonesty, far less fundamental dishonesty.”

The Defendant was ordered to pay the Claimant’s costs of the appeal! A few more of these sensible decisions and hopefully Defendants will start to pick and choose the cases to run these arguments on with a little more thought. By all means go after those Claimants who grossly falsify and exaggerate their evidence for personal gain, but if a lie has no material effect to the overall validity of the claim made, is it worth pursuing the argument?

Sadly it still remains the case that Defendants can be reluctant to specifically plead fundamental dishonesty as they are well aware that an After the Event Insurance policy will not cover such findings. Sometimes they want to have their cake and eat it!