Natasha Partos writes on Hayward v Zurich Insurance Company PLS [2016] UKSC 48

Articles | Tue 30th Aug, 2016

Landmark Decision on fraud and re-opening settlement agreements:

Hayward v Zurich Insurance Company PLS [2016] UKSC 48

On 27th July 2016 Lord Clarke handed down the decision of the Supreme Court in Haywood v Zurich Insurance Company.

The case originated in 1998 when Mr Hayward suffered from an injury whilst at work. He made a personal injury claim against his employer, seeking £419,000 odd in damages. In October 2003 the parties entered into a consent agreement in the form of a Tomlin Order in which Zurich, the employer’s insurance company, agreed to pay Mr Hayward £134,973.11 in full and final settlement of the claim.

In 2005 Mr Hayward’s neighbours approached Zurich and disclosed their belief that Mr Hayward had dishonestly misrepresented the seriousness of his injuries and had recovered from his injuries least a year before the settlement agreement had been signed.

As a consequence, in February 2009 Zurich commenced proceedings against Mr Hayward for damages for deceit. After 4 day trial in November 2012 the Judge at first instance found that Mr Hayward had deliberately misrepresented his injuries to the Defendant and that Zurich had relied upon these misrepresentations when it entered into the settlement agreement in 2005. The Judge determined that the settlement agreement should be set aside and Mr Hayward’s damages were reduced to £14,720.

Mr Hayward appealed the decision on the basis that the settlement agreement should not have been set aside. The Court of Appeal allowed the appeal and made findings that the Defendant’s belief in the truth of the misrepresentation was a relevant consideration in its claim of fraudulent misrepresentation.  In turn on the 16th June 2016 Zurich appealed to the Supreme Court.

The parties agreed that to succeed with a claim for fraudulent misrepresentation Zurich was required to show that Mr Hayward had made a materially false representation which was intended to, and did, induce Zurich to act to his detriment. The Court was asked to consider whether Zurich could claim it had been induced into the settlement agreement by Mr Hayward’s misrepresentation in circumstances where it had set out its suspicions of the truth of the misrepresentation before the settlement.  

Lord Clarke disagreed with the Court of Appeal’s analysis that Zurich’s belief of the misstatement was a ‘necessary ingredient of the test’. Lord Clarke confirmed that ‘qualified belief or disbelief does not rule out inducement, particularly where those investigations were never going to find out the evidence that subsequently came to light’. The issue of belief may go to the issue of inducement however in cases such as this one, the Court reflected that an integral part of case analysis demands that a party not only considers its own belief of the truth but also what view a Court may form based on the available evidence.  

Based on the facts of this case Zurich had entered into the settlement agreement before becoming appraised of the true nature of Mr Hayward’s injuries. Mr Hayward failed to rebut the presumption that Zurich had not been induced by his fraudulent misstatement and therefore the Appeal was allowed.

Lord Clarke confirmed that while there is a public interest in encouraging parties to settle disputes, settlement agreements are not immune from reassessment in the light of a finding of fraud. He concluded ‘it is difficult to envisage any circumstance in which suspicion would preclude unravelling a settlement when fraud subsequently established’.

Comment: This decision is important as a matter of policy and it also provides two areas of practical guidance to those of us involved in personal injury work.  

Firstly, Defendants should plead their case in full, including fraud if it is relied upon, at the outset. If a case settles and fraud is later established in light of evidence that was not available to the Defendant at the time of the inducement, the Defendant does not have to show that it wholly believed in the truth of the misrepresentations upon which it relied.

Secondly, settlement agreements are not immune from review when fraud is later proven by new evidence, which despite reasonable investigation was not available at the time of the settlement. Therefore, Claimants beware, settlement agreements are not the end of the road if fraud is later uncovered.

This case is good news for Defendants and yet another example of the robust approach that the Courts adopt with fraudulent claims.

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