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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Hayward v Zurich Insurance Company Plc [2015] EWCA Civ 327 (31 March 2015) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2015/327.html Cite as: [2015] EWCA Civ 327 |
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ON APPEAL FROM Cambridge County Court
His Honour Judge Moloney QC
Insert Lower Court NC Number Here
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE BRIGGS
and
LADY JUSTICE KING
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Appellant |
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- and - |
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ZURICH INSURANCE COMPANY PLC |
Respondent |
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(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Jayne Adams (instructed by Dac Beachcroft Claims Ltd) for the Respondent
Hearing date: 3 December 2014
____________________
Crown Copyright ©
Lord Justice Underhill :
"6. It is admitted that the Claimant suffered an injury to his back as a result of the accident. The Defendant relies on the medical reports of Mr Sharp dated 11th June 2000, 20th August 2000 and 26th November 2000. The view of the Claimant's ongoing physical condition from Mr Bracegirdle relied on by the Claimant is not accepted by the Defendant. As a result of video surveillance obtained Mr Sharp formed the view that the Claimant's disability was not as great as he had described and he was capable of working full time even if not with heavy lifting. In view of the Claimant's lack of candour in relation to his physical condition it is not possible to accept that his depressive state, as described, has been consistent, is continuing or will continue into the future.
7. The Claimant has exaggerated his difficulties in recovery and current physical condition for financial gain."
(The reference to "Mr Sharp" is to the employers' orthopaedic expert, Mr David Sharp.)
"If it is to succeed in its action Zurich will have to persuade the court that it was induced to agree to the settlement by fraud on the part of Mr.Hayward
, a task that may not prove easy, given the fact that it already knew enough to justify the service of a defence in the terms indicated earlier."
"Lastly, of course, it is necessary that the employer/Zurich should rely on the representations and suffer loss as a result. Here an interesting (and apparently unresolved) question of principle arises. In the ordinary case, sale of goods for example, reliance by the purchaser is effectively equivalent to his belief in the truth of the statement; if he believes the goods are as represented, he will be relying on the representation (and acting on it by his purchase) and if not, not. In the litigation context the position is different. In such a situation, the party to whom the representation is made is by no means likely to believe it to be true at the pre-trial stage. At the very least, statements made in the course of litigation will be viewed with healthy scepticism and weighed against the other material available. Often the other party will not be sure, even then, whether the statement is in fact true, and will mainly concern himself with how likely it is to be accepted by the court. Sometimes (a staged road traffic "accident" for example) the other party may actually be certain from his own direct knowledge that the statement is a deliberate lie. But even then he and his advisers cannot choose to ignore it; they must still take into account the risk that it will be believed by the judge at trial. This situation is quite different from a proposed purchase, where if in doubt one can simply walk away. For these reasons, it appears to me that the many dicta relied on by CH, to the effect that liability requires that the representation must be believed by the other party, are not applicable to a case like the present. The formulation adopted by the editors of Clerk and Lindsell (20th edn. 2010) at 18-34 fits the case better; "The claimant must have been influenced by the misrepresentation" (my emphasis)."
('CH' is a shorthand for the Appellant.) At para. 2.6 he applied that approach to the evidence. He said:
"I heard the evidence of Ms Winterbottom and Mr Birkinshaw respectively in 2003 Zurich's litigation solicitor and claims handler. Each was aware of the 1999 video and of the real possibility that this was a fraudulent claim. Each was frustrated by the reluctance of "their" expert, Mr Sharp, to produce a clear supplemental report saying that he now believed CH to have been shamming and to have sustained far less harm than was being claimed. Neither can be said to have believed the representations complained of to be true. But, if the law is as stated at 2.5 above, this does not matter provided the representations influenced them in their decision how much to pay CH in settlement. I am in no doubt that they did. They may not themselves have believed the representations to be true; but they did believe that they would be put before the court as true, and that there was a real risk that the court would accept them in whole or part and consequently make a larger award than Zurich would otherwise have considered appropriate. Acting in reliance on that belief (which, whether or not CH was truthful or honest, was the belief he and his advisers must have wanted them to form on the basis of the statements) they made the payment into court which led to the Tomlin Order settlement."
At para. 6.6, he gave his formal conclusion as follows:
"… although Zurich was aware at the time of the settlement of the real possibility of fraud here, CH had continued his deliberate misrepresentations even after the disclosure of the 1999 video, and those continuing misrepresentations did influence Zurich into agreeing a higher level of settlement than it would otherwise have made."
"If [the representee] did not trust what he was told but made his own inquiries about whether the statement was true, then he relied not on the statement, but on his own inquiries."
He referred to a statement to the same effect by Sir George Jessel MR in Redgrave v Hurd (1881) 20 Ch D 1, at p. 15. He submitted that Zurich had in the present case plainly decided to undertake its own investigations and not to rely on what it was told by the Appellant.
"It would be another matter if a person made a claim which he knew to be unfounded, and, by a compromise, derived an advantage under it: in that case his conduct would be fraudulent. If the plea had alleged that the plaintiff knew he had no real claim against the [defendant], that would have been an answer to the action."
(See also per Blackburn J at p. 452 and Mellor J at p. 453.) In fact in that case the analysis was in terms of absence of consideration – that is, that the forgoing of a bona fide but unfounded claim is good consideration for a payment made in settlement of it but not the forgoing of a fraudulent claim. But I do not think it makes any difference whether the compromise is challenged on the basis of absence of consideration or misrepresentation: the principle must be the same. Thus, in terms of the analysis above, while it may be fair to treat the defendant as having taken the risk of the claimant's statements in support of his claim being wrong, it will not – absent any indication to the contrary – be fair to treat him as having taken the risk of them being dishonest.
"In my judgment, the issue of fraudulent exaggeration is clearly raised in the pleadings and was clearly compromised in the Tomlin order. As already stated, it was specifically alleged that the then claimant "has exaggerated … his current physical condition": I see no material difference between that assertion and the allegation which [counsel] puts before the court to the effect that the evidence of Mr and Mrs Cox is such as to suggest that the claimant had fully recovered by the time of the settlement. The defendant in the first action put fraud into issue, and the claimant settled at a figure far less than his original claim. What Zurich now has is better evidence than they had at the time of the consent order, but on the principles set out above it seems to me that does not give them the right to have an issue reopened. They did not need to compromise in 2003 but having elected to do so it seems to me they are bound by it. The question of discretion in the court simply does not arise."
Although the Judge appears to have treated that conclusion as part of his reasoning on res judicata, it seems that in this Court Mr Sims relied on it as founding a more broadly-based estoppel. Both Smith LJ and Moore-Bick LJ rejected that argument. Smith LJ said, at para. 29:
"The judge was of the view that the allegation of fraud raised by Zurich in the present action was essentially the same as the defence of exaggeration which had been pleaded in the first action. He was also satisfied that that allegation had been compromised by the settlement. I can see that an allegation that a disability is being exaggerated for gain amounts to fraud and that that allegation of fraud is similar to the allegation now made in the second action. However, in my judgment it is not the same allegation. Nor do I consider that it is clear exactly what was compromised in the first action. For those reasons, I must respectfully disagree with the judge that the first allegation has created an estoppel in respect of the second."
She went on, at para. 30, to say that the parties had done no more than compromise the value of the claim and had reached no agreement "on the extent of Mr Hayward
's exaggeration or whether it was in fact fraudulent at all". Likewise Moore-Bick LJ said, at para. 60:
"A large part of Mr. Sims's argument depended on the broad submission that the issue of fraud had been "compromised" by Zurich in a way that gives rise to an estoppel. In my view, however, even accepting that Zurich can be treated as a party to the settlement agreement, that proposition calls for careful analysis. The settlement involved an agreement on the part of Zurich and its insured to pay a sum of money to Mr.Hayward
in consideration of his agreeing to abandon his claim and consent to a stay of the proceedings. Zurich did not consent to judgment and no decision was made on any of the issues raised in the action (apart from the admission that Mr.
Hayward
had suffered an injury of some kind). Neither side accepted the other's case in relation to the nature and degree of his injuries. I am not sure, therefore, what is meant by the expression "compromised the issue of fraud", other than that Zurich agreed to pay a sum of money to Mr.
Hayward
, despite the fact that it disputed his honesty. Nothing in the settlement agreement involved an admission on the part of Mr.
Hayward
that his claim was exaggerated or an admission on the part of David S. Smith or Zurich that it was genuine; nor did David S. Smith or Zurich agree to withdraw the allegation of exaggeration. It is difficult to see, therefore, how Zurich could be precluded by the agreement from raising the issue of Mr.
Hayward's honesty in another context, if it were to become relevant."
Arguably Smith LJ and Moore-Bick LJ do not put the point in quite the same way[5], but it is nevertheless clear that both decided, as a matter of ratio, that the fact that the employers had alleged deliberate exaggeration prior to the settlement did not preclude them from relying on it subsequently as a ground for rescission.
"41. … I can see the force of the point that the statements as to the effect of the Policy … did induce the Settlement, in the sense that they were a causative factor in the claimant and [the underwriter] agreeing on a settlement figure of around £200,000, rather than around £300,000.
42. However, I think the Judge effectively found that [the underwriter] merely treated the statements as contentions which he decide to assume were right for the purposes of the Settlement, and which he would thereafter investigate (as he did) with a view to obtaining compensation for the claimant. In effect, he chose to treat them as correct for the time being, without necessarily believing that they were accurate, … ."
That is not on all fours with the present case, but it does illustrate a rather similar distinction being applied.
Lord Justice Briggs
"the extent to which, if at all, it was in fact misled when it approved that agreement"
Lady Justice King
Note 1 I should say that it was not argued before us that the Judge’s reference at para. 6.6 of his judgment to the Appellant having continued his misrepresentations even after the disclosure of the 1999 video meant that any distinction could be drawn for the purpose of reliance between his initial exaggeration of the extent of his injuries and anything said subsequently. Nor in any event would such a distinction be sustainable.
[Back] Note 2 For convenience I refer to the party who might wish to have the agreement set aside as the defendant but of course in principle it could be the claimant. [Back] Note 3 There is perhaps some parallel with the Court’s willingness to recognise the validity of the settlement of a claim based on an illegal transaction, as in Binder v Alachouzos [1972] 2 QB 151.
[Back] Note 4 I note that that was also the view of Smith LJ in the earlier appeal: see para. 29 of her judgment. [Back] Note 5 Maurice Kay LJ identified a difference between the reasoning in the two judgments, which he thought it unnecessary to resolve; but what matters for present purposes is that the argument based on the effect of the agreement itself was rejected. [Back]