Hayward v Zurich Insurance Company plc – fraud unravels settlement agreement

redmans-blog-analysisIn the case of Hayward v Zurich Insurance Co Plc [2016] UKSC 48 the Supreme Court held that a settlement agreement that had been entered into between two parties could be set aside due to evidence of fraudulent conduct.

In 1998 Mr Hayward was injured in an accident at work and brought a claim for negligence against his employers. The case was dealt with on the employer’s behalf by its insurers, Zurich Insurance Company plc (“Zurich”). Liability in the case was agreed and the parties reached a settlement agreement in October 2003, shortly before the quantum hearing was due to be held. This settlement agreement stipulated that the employer (in practice Zurich) would pay £134,973.11 in full and final settlement of Mr Hayward’s claims.

In 2005 Mr Hayward’s neighbours (who had moved into their property in 2002) contacted Mr Hayward’s employers to inform them that they did not believe that Mr Hayward was being honest about the state of his injuries, and further informed them that they believed that Mr Hayward had recovered in full from his injuries at least a year before settlement was agreed. They gave witness statements to Zurich to that effect.

In 2009 Zurich commenced proceedings against Mr Hayward, claiming damages for deceit. Zurich argued that Mr Hayward’s witness statements, his statement of case in the Particulars of Claim, and his Schedules of Loss as to the extent of his injury contained fraudulent misrepresentations. The damages that were claimed by Zurich amounted to the difference between what the case had been settled for and what the case would have been worth if Mr Hayward had been telling the truth. The claim was later amended to state that Zurich was looking to set the compromise agreement aside rather than for an order for damages.

The case came to the Cambridge County Court in November 2012, with the Court finding that Mr Hayward had deliberately and dishonestly exaggerated the effects of his injuries during the court process. The judge also found that the settlement agreement had been entered into by Zurich on the reliance of false representations given by Mr Hayward, and that the settlement agreement should therefore be set aside. The judge found that Mr Hayward would have fully recovered from his injuries by October 1999 and handed down a judgment awarding Mr Hayward damages to the sum of £14,720. An order was also given that Mr Hayward must repay Zurich the sum of £136,110.45.

Mr Hayward appealed against the decision of the Court, arguing that the settlement agreement should not have been set aside. The Court of Appeal ruled in Mr Hayward’s favour, finding that Zurich had been aware at the time that the settlement agreement was entered into that Mr Hayward may have been exaggerating the extent of his injuries. Zurich appelaed to the Supreme Court on the grounds that, regardless of whether Zurich had believed in Mr Hayward’s representations regarding the effects of his injuries, it had been induced to enter into the settlement agreement as a result of these fraudulent representations.

The Supreme Court ruled in Zurich’s favour, holding that it was not necessary for Zurich to show that it believed that the (mis)representations made by Mr Hayward were true but that it merely had to show that it had been induced to enter into the settlement agreement by the misrepresentations (i.e. that the misrepresentations were a material cause for Zurich to enter into the settlement) and that these misrepresentations had caused them loss.

Chris Hadrill, a specialist employment solicitor at Redmans, commented on the case: “This is an important judgment by the Supreme Court in both the contexts of personal injury and employment law – if defendants to litigation can obtain clear and cogent evidence that the other side had misrepresented their case then this could lead to a challenge to any settlement agreement reached between the parties.”

The transcript of Hayward v Zurich Insurance Co Plc [2016] UKSC 48 can be found here