With the advent of fundamental dishonesty and QOCS many parties allege fraud in the hope of a claim or defence being struck out and their full costs recovered. When sitting as a Judge I often hear many personal injury cases where fraud is alleged. For some Defendant firms, it has become almost the norm to allege fundamental dishonesty in almost every road traffic accident case. However, the dangers of alleging fraud and then failing at trial should not be forgotten. Fraud is not to be alleged lightly. Some lawyers seem to think they may as well “have a go” in almost every case. But bear in mind that a party may well face an order for indemnity costs at the end of the trial if that allegation fails.
The general position is that where allegations of fraud are made and they proceed to trial and the case fails, then in the ordinary course of events the Defendant (as is often the accuser; but it may well be the Claimant in some cases) would be ordered to pay costs on an indemnity basis. This relates to the losing party’s conduct under CPR r.44.
The starting point is that the Court always retain discretion in respect of costs as per CPR r.44.2. Pursuant to CPR r.44.4, the Court can consider conduct generally. See cases such as Three Rivers DC v Bank of England  EWHC 816 (Comm) for conduct which passes this threshold and takes a case outside of the norm to warrant such orders for indemnity costs.
It has long been held appropriate for the court to approach the discontinuance of fraud proceedings in the same way. For example, the case of Clutterbuck v HSBC Plc  EWHC 3233 (Ch) per David Richards J at  and . The underlying rationale of that approach is that where such serious allegations fail an order for indemnity costs is appropriate as the other party has no choice but to come to court to defend its position.
A more recent case of Natixis SA v Marex Financial Ltd  EWHC 2549 highlights the same point in stark terms. In that case it was held the starting point is that an order for indemnity costs is the appropriate order where fraud is alleged and lost at trial.
The Court of course may depart from that starting point, but it will depend on the circumstances. The stronger cases for indemnity costs will be where there are issues of publicity involved and the allegations of fraud fail. Or where there were ill conceived allegations, or little evidence and they were aggressively pursued and then lost at trial.
The party against whom a fraud allegation is made should consider sending a letter during litigation to the accuser setting out that if the allegation of fraud is pursued and lost, then indemnity costs will be claimed at the end of the trial. Such letters are helpful at trial in arguments about costs. A party can then say they warned the other side, and it was ignored.
Ultimately pleading fraud can be a useful and essential tool for many parties; and in no way should proper allegations of fraud be deterred by the risk of indemnity costs. However, parties would be well advised to remember the grave consequences of failed fraud allegations which will likely come with a hefty price tag.
This article was written by Gemma Witherington. First published in our Clinical Negligence and Personal Injury Newsletter.
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