Peers have agreed to a clause in proposed legislation that gives courts the power to dismiss personal injury claims where the claimant has been 'fundamentally dishonest'.
Clause 45 of the Criminal Justice and Courts Bill was moved in the House of Lords last night despite opposition from the Labour Party.
The clause, inserted after the bill was first laid, allows a court to dismiss a personal injury claim if it is satisfied the claimant has been 'fundamentally dishonest' in the course of the case - even if the claimant would still have been entitled to damages.
The clause adds that courts will make an exception only if the claimant would suffer 'substantial injustice', and that judges can order the claimant to pay costs incurred by the defendant.
Justice minister Lord Faulks told peers: 'The government simply do not believe that people who behave in a fundamentally dishonest way by grossly exaggerating their own claim or colluding should be allowed to benefit by getting compensation in spite of their deceit.'
Faulks said he believes the court will be able to apply the 'fundamental dishonesty' test and will still have the power to penalise claimants whose behaviour falls short of this threshold.
He dismissed a Labour amendment to apply a similar provision to defendants as they are not in an equivalent position to claimants.
'A defence which has no merit can be struck out,' said Faulks, 'and there are a number of ways in which a defendant who behaves dishonestly can be penalised - for example, through an adverse costs order or through action for contempt or fraud.'
Conservative peer Lord Hunt of Wirral, a partner at defendant firm DAC Beachcroft and chairman of the British Insurance Brokers' Association, attempted to amend the bill to remove the word 'fundamental', arguing that all dishonesty was fundamental by its nature.
Hunt said that advertisements for personal injury gave claimants the impression of 'free money' and argued that the 'have-a-go culture has infected our civil compensation system for far too long'.
He added: 'Claimants-and it is always claimants-see that there is no real penalty for trying on either that they have been injured at all or a deliberate exaggeration of the symptoms that they have suffered.'
After a third reading in the Lords the bill will go back to the Commons for consideration of amendments.