In this case the Supreme Court was asked to rule on whether a settlement could be set aside when one party later discovered proof of the other’s fraud.

In this case the Supreme Court was asked to rule on whether a settlement could be set aside when one party later discovered proof of the other’s fraud.

Following a workplace accident, Hayward claimed damages from his employer’s insurers, Zurich. Liability was admitted but quantum was disputed. Despite suspecting that Hayward had exaggerated his injuries, Zurich settled the claim before trial.

Several years later, a neighbour provided proof that Hayward had fully recovered from his injuries at least a year before the settlement date. Zurich brought a claim against Hayward for deceit because the settlement had been made on the basis of his fraudulent misrepresentations of his condition.

At first instance the judge found that the settlement should be set aside because of Hayward’s fraud. However, the Court of Appeal disagreed, saying that a settlement could only be set aside on the basis of a fraudulent misrepresentation if the other party had believed it to be true and had been induced to enter the settlement agreement by it. Here, Zurich had not only suspected but also asserted in litigation that Hayward was exaggerating his injuries.

The Supreme Court found that although Zurich did not believe Hayward’s representations, it was induced to enter into the settlement because of the risk that the court would accept them as true. It was not necessary to show that Zurich had believed the representations to be true, but rather to show that it had been influenced by them in its assessment of the claim’s value. Mere suspicion of fraud at the time of settlement would not prevent the setting aside of the settlement if definitive proof of fraud was later acquired.

The Supreme Court had to balance the principle that no one should benefit from their own fraud against the desirability of settlements being full and final. This decision provides comfort to insurers who suspect fraud but do not have the evidence to prove it, as they can compromise a claim and revisit it later if proof of fraud is acquired. It may also serve as a warning to dishonest claimants.