A big case for 2016

This year the Supreme Court is going to be deciding on a very important issue: should insurers be allowed to bust open a settlement agreement?

In Hayward v Zurich, the defendant insurer reached a £135,000 settlement deal in a workplace personal injury claim – despite suspecting that it was an exaggerated claim due to video evidence it had obtained.

But after the settlement was done and dusted, the insurers were contacted by the claimant’s neighbours, who told them that the claimant had in fact recovered from his injuries at least a year before the settlement.

Zurich are now attempting to take a crowbar to the settlement chest and bust it back open – and the issue is going all the way up to the Supreme Court.

Last year, the appeal court took the view that the settlement could not be set aside – and an important factor was that the insurers already had some indication that the claim had been exaggerated.

As Lord Justice Briggs said: ‘The true principle is that the equitable remedy of rescission answers the affront to conscience occasioned by holding to a contract a party who has been influenced into making it by being misled or, worse still, defrauded by his counterparty.

‘Thus, once he discovers the truth, he must elect whether to rescind or to proceed with the contract.

‘It must follow that, if he already knows or perceives the truth by the time of the contract, he elects to proceed by entering into it, and cannot later seek rescission merely because he later obtains better evidence of that which he already believed, still less if he merely repents of it.

‘This seems to me to be a fortiori the case where, as here, the misrepresentation consists of a disputed claim in litigation, and the contract settles that claim.

‘Nor is there anything contrary to conscience in holding a person to a contract made in order to deal with the risk that a statement which he believes to be untrue and even fraudulent may nonetheless persuade someone else, even a judge.

‘The contract is made with his eyes open about the probable untruth of the statement. His contract is a form of risk management, and there is no reason why he should be enabled to walk away from it merely because that risk later diminishes or disappears.’

He added: ‘To extend the law of rescission… would have the most unfortunate consequences. The first would be that it would become almost impossible to compromise a whole swathe of litigation if settlements were vulnerable to being set aside in this manner.

‘Apprehension by one party that his opponent may persuade the trial judge of matters which he denies, and disbelieves, is an everyday characteristic of litigation, and a healthy driver towards settlement, as every mediator knows.

‘If the principle contended for were correct, almost any litigant could say that he was influenced to settle a case for more than it was worth because of a fear that the judge might believe his opponent, even though he did not.

‘To be able to treat as an actionable misrepresentation the opponent’s statement of his case merely because of such an everyday apprehension would expose almost any settlement to subsequent attack if fresh evidence became available…

‘The public policy which encourages settlement of litigation would be gravely undermined if, in effect, dissatisfaction on either side led, with or without later forensic research, to the settlement being impugned on the ground that the opponent’s case contained a misrepresentation which, without being believed, influenced the terms of settlement.’

He continued: ‘In that context I accept that fraud stands in a different category but not if, as here, the settlement compromised an allegation of fraud already on the pleadings’.

Whether the Supreme Court will agree with Lord Justice Briggs’ analysis, we will find out this year.

In the meantime, any claimants who may have been less than truthful about the extent of their injuries when settling their claim are advised to stay on good terms with their neighbours.

Rachel Rothwell is editor of Litigation Funding