Hayward: fraudulent inducement unpicks the settlement

The two substantive judgments of Lords Clarke and Toulson today in Zurich v Hayward have reset considerations of settlement, inducement and new evidence. The Supreme Court has held, unanimously, that the law should permit a party (in this case, the insurer) to rescind an earlier settlement of a personal injury claim because of fraudulent inducement. Sarah Hill, our head of fraud, analysed the decision here.

Colin Hayward fraudulently exaggerated the value of his employer’s liability claim which arose from an accident in 1998. Despite misgivings about the basis of the claim, Zurich went on to strike a settlement in 2003, having done (according to Lord Clarke) “as much as it reasonably could to investigate the accuracy and ramifications of Mr Hayward’s representations”.

Further, and again according to Lord Clarke, “In Sharland v Sharland Baroness Hale observed of Smith v Kay that it indeed held that a party who has practised deception with a view to a particular end, which has been attained by it, cannot be allowed to deny its materiality or that it actually played a causative part in inducement.”

What does this rather arid and legalistic passage mean? It means that Hayward’s fraud unravelled all. Hence the Supreme Court allowed Zurich’s appeal and set aside the settlement that had been induced by his fraud.

It is worth noting – as we have done previously – that the Court of Appeal had very reluctantly reached the opposite conclusion, as illustrated by Briggs LJ saying he “would gladly have embraced any sound basis for upholding the trial judge’s decision to strip the Appellant of the grossly inflated amount which he received upon the settlement of his fraudulently exaggerated claim”.

But the Supreme Court has now identified precisely the sound legal basis that the Court of Appeal was unable to find. Its judgment today is grounded in the law of misrepresentation and inducement, and the rationale is clearly captured in what Lord Toulson said at paragraph 71 (the emphasis has been added):

Mr Hayward’s deceitful conduct was intended to influence the mind of the insurers, not necessarily by causing them to believe him, but by causing them to value his litigation claim more highly than it was worth if the true facts had been disclosed, because the value of a claim for insurers’ purposes is that which the court is likely put on it. He achieved his dishonest purpose and thereby induced them to act to their detriment by paying almost ten times more than they would have paid but for his dishonesty. It does not lie in his mouth in those circumstances to say that they should have taken the case to trial, and it would not accord with justice or public policy for the law to put the insurers in a worse position as regards setting aside the settlement than they would have been in, if the case had proceeded to trial and had been decided in accordance with the corrupted medical evidence.

This passage is surely a “model of clarity and cogency”; adopting the phrase which Lord Toulson himself used to describe the earlier decision of Judge Moloney QC who had found for the insurers.


About the Author

akAlistair Kinley is BLM’s Director of Policy & Government Affairs.

Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.

He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).

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