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Hayward v Zurich: View from Littleton

Alexander Robson writes for our monthly column “View from Littleton Chambers” in Tolley’s Employment Law Newsletter. This article first appeared in the May 2015 edition.
For most litigants, one of the few certainties in litigation is that a settlement, however grudgingly agreed, is dispositive: it achieves a final resolution. But what happens when information is discovered post-settlement which undermines the premise on which that agreement was reached?
Factual background
Hayward v Zurich concerned a workplace injury. The claimant claimed more than £420,000 in damages. In its defence, Zurich relied on video evidence showing, it said, that Hayward had exaggerated his current physical condition for financial gain. Settlement was reached in the sum of £135,000.
Two years later, the claimant’s neighbours reported suspicions that his claim was made dishonestly. They said that he had fully recovered before the settlement. Zurich brought a claim in deceit, based on fraudulent misrepresentation, seeking damages or rescission of the settlement agreement.
Hayward applied to strike out the claim. The settlement agreement previously reached by the parties estopped Zurich, he said, from revisiting the issues. That application was dismissed; and the dismissal was upheld by the Court of Appeal ([2011] EWCA Civ 641). The claim was allowed the claim to proceed to a full trial. The Court of Appeal noted that to succeed in the action for deceit, Zurich would “have to persuade the court that it was induced to agree to the settlement by fraud”. Given that Zurich “already knew enough to justify the service of a defence”, the Court of Appeal warned that this “may not prove easy”.
Zurich found further success at first instance. The court ordered repayment of approximately 90% of the settlement sum, the remaining 10% representing the amount found actually to be due to Mr Hayward in damages.

The decision of the Court of Appeal

Mr Hayward appealed to the Court of Appeal. He won. In summary the Court of Appeal held:
  • When parties choose to settle a claim, they are choosing to forego their right to a determination at trial. In any settlement, the amount the defendant is prepared to pay reflects his assessment of the risk that the claimant’s factual case will be upheld. By settling, he implicitly agrees not to later seek to reopen it on the basis that the claimant’s factual case was false.
  • It cannot be open to a party to seek to set aside a settlement on the basis that certain statements are subsequently found to be wrong. However, where there is dishonesty a different test applies: the court will not normally accept that a defendant has taken the risk, in settling a claim, that the claimant’s case is not just ill-founded but dishonest.
  • But the exact risk the defendant is to be treated as having accepted in entering into the settlement agreement will depend on the circumstances of the particular case. If it is clear that the defendant intended to settle despite the possibility that the claim was fraudulently advanced, there can be no reason in principle why he should not be held to his agreement, even if the fraud subsequently becomes demonstrable.
  • This decision may be unattractive and “stick in the throat”: it allowed the claimant to retain the reward of his dishonesty.
Nevertheless, a wider principle is at stake. Finality of settlement should be protected as a matter of public interest. Parties should not generally be entitled to unwind settlements when better evidence comes along later. To do so would “expose almost any settlement to subsequent attack if fresh evidence became available”; the courts should instead maintain a “robust disinclination to set aside contracts in settlement of litigation”.
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