In Zurich Insurance Company PLC v Hayward [2011] EWCA Civ 641 the Court of Appeal held that Zurich was entitled to bring new evidence of fraudulent behaviour by an individual who was injured at work despite the fact that issues as to his good faith had already been raised in a prior action.

In 1998 Hayward was injured in the course of his employment with a company called David S Smith Packaging Company (Smith), which had taken out employers' liability insurance with Zurich. Hayward made a claim against Smith in 2001, alleging he had suffered severe spinal injuries and psychiatric problems which prevented him from working and claiming damages of £420,000. Having obtained video evidence, Smith alleged in its Defence that Hayward had exaggerated his injuries. Joint medical experts, having seen the video evidence, concluded that Hayward would be fit for part-time work which involved no heavy lifting. They also concluded that his psychiatric condition was genuine. On this basis, in October 2003 a settlement was reached, effected by a Tomlin Order*, whereby Smith paid Hayward around £135,000.

Subsequently, in 2005, two of Hayward's neighbours approached Smith stating that they believed Hayward had acted dishonestly, having seen him walking normally around the house in 2002. In 2009, Zurich commenced an action against Hayward alleging that the settlement of the claim had been obtained by false representations. Hayward then made an application to strike out the claim on the grounds of res judicata (ie, that the new claim raised an issue which had already been adjudicated upon) and on the grounds that the claim was an abuse of process. His Honour (HH) Judge Yelton struck out the claim on the grounds of estoppel by res judicata, on the basis that the original defence had pleaded that Hayward exaggerated his injuries, which, he held, amounted to an allegation of fraud. As such, the Tomlin Order had compromised any issue of fraud, which could not then be taken up by Zurich in a separate action. Having made this finding, there was no need to decide the issue as to whether the claim was an abuse of process.

The Court of Appeal reversed the decision of HH Judge Yelton and unanimously held that there was no estoppel by res judicata, although they differed on the precise reasoning for this finding. Lady Justice Smith stated that it was possible in principle for an estoppel by res judicata to be created by a Tomlin Order, although it would often be more difficult to determine precisely what issues had been compromised, as the terms of a Tomlin Order would not be made public. She continued that in the present case, the mere fact that Hayward's good faith was in issue in the first action was not sufficient to create an estoppel preventing the issue of fraud being raised in the subsequent action; the two allegations were not the same. Lord Justice Moore-Bick agreed that there was no estoppel by res judicata, but based his decision on the grounds that a Tomlin Order was not capable of creating such an estoppel.

As regards the issue of an abuse of process, the Court of Appeal held that although there was a strong public policy interest in the need for finality in litigation, this consideration did not weigh heavily in this case. There was no suggestion that Hayward was being harassed by repeated litigation and if he was found to have been honest in the second action, there could be a good case made that an order for indemnity costs against Zurich would be appropriate. Further, the competing public interest in the need to avoid the corruption of the administration of justice by the court being misled was a strong one, particularly where, as in this case, new evidence which had not been previously available had come to light."

*A Tomlin Order is a form of consent order which stays a claim on agreed terms that are set out in a schedule to the court order, which remains confidential between the parties and brings the dispute between the parties and the litigation to an end other than for the purpose of enforcement proceedings, if they are required.