An interesting development in the United Kingdom occurred last week where the Supreme Court in Hayward (Respondent) v Zurich Insurance Company plc (Appellant) [2016] UKSC 48 set aside a judgement for an injured worker many years after settlement of workplace injury claim because the insurer could prove - some years later - that the settlement was induced by the fraudulent conduct of the injured worker during the claim.

Two issues were explored:

Firstly, in order to set aside a compromise on the basis of fraudulent misrepresentation, to show the requisite influence by or reliance on the misrepresentation:

  1. must the defrauded representee prove that it was induced into settlement because it believed that the misrepresentations were true; [NO] or
  2. does it suffice to establish influence that the fact of the misrepresentations was a material cause of the defrauded representee entering into the settlement? [YES]”

As to (a) this was answered in the negative.

As to (a):

" 23. I am not persuaded that the authorities lead to any other conclusion. As stated above, the ingredients of the tort of deceit are not in dispute subject to one question, which is whether a claimant alleging deceit must show that he believed the misrepresentation. In my opinion the answer is no." per Lord Clarke (with whom Lord Neuberger, Lady Hale and Lord Reed agreed)

As to (b) this was answered in the positive.

As to (b):

"33. ... the text books strongly support the proposition that it is sufficient for the misrepresentation to be an inducing cause and that it is not necessary for it to be the sole cause: see eg Chitty on Contracts, 32nd ed, volume 1, para 7-37. See also, for example, Barton v Armstrong [1976] AC 104, where Lord Cross, delivering the majority advice of the Privy Council in a case involving duress by threats of physical violence, invoked, as an appropriate analogy, the treatment of contributing causes in fraud cases. He said at p 118G-H:

“If it were established that Barton did not allow the representation to affect his judgment then he could not make it a ground for relief. … If on the other hand Barton relied on the misrepresentation Armstrong could not have defeated his claim to relief by showing that there were other more weighty causes which contributed to his decision … for in this field the court does not allow an examination into the relative importance of contributing causes …”

Lord Hoffmann made much the same point in Standard Chartered Bank Ltd v Pakistan National Shipping Corpn Ltd (Nos 2 and 4) [2003] 1 AC 959, paras 15-16:

“if a fraudulent representation is relied upon, in the sense that the claimant would not have parted with his money if he had known that it was false, it does not matter that he also had some other negligent or irrational belief about another matter and, but for that belief, would not have parted with his money either. The law simply ignores the other reasons why he paid.”

Lord Hoffmann then quoted with approval the part of the advice of Lord Cross quoted above and added:

“This rule seems to me to be based upon sound policy.”

Finally, reliance is placed upon the decision of the High Court of Australia in Gould v Vaggelas (1984) 157 CLR 215, which was a case of deceit, where Wilson J said at p 236:

“The representation need not be the sole inducement in sustaining the loss. If it plays some part, even if only a minor part, in contributing to the course of action taken a causal connection will exist.” per Lord Clarke (with whom Lord Neuberger, Lady Hale and Lord Reed agreed)

And also:

"70. Some assistance may also be had from the judgment of Hobhouse LJ in Downs v Chappell [1997] 1 WLR 426, 433, where he said that for a plaintiff to succeed in the tort of deceit of deceit it is necessary for him to prove that (1) the representation was fraudulent, (2) it was material and (3) it induced the plaintiff to act to his detriment. He added that “As regards inducement, this is a question of fact” and that “The word “reliance” used by the judge has a similar meaning but is not the correct criterion.” (per Lord Toulson (with whom Lord Neuberger, Lady Hale and Lord Reed agreed)

Secondly, under what circumstances, if any, does the suspicion by the defendant of exaggeration for financial gain on the part of the claimant preclude unravelling the settlement of that disputed claim when fraud is subsequently established?

"48 ... As I see it, it is difficult to envisage any circumstances in which mere suspicion that a claim was fraudulent would preclude unravelling a settlement when fraud is subsequently established." per Lord Clarke (with whom Lord Neuberger, Lady Hale and Lord Reed agreed)

The decision is attached.