Fraud unravels settlement agreement after 13 years
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The Supreme Court handed down judgement yesterday in the matter of Zurich -v- Hayward, confirming that a settlement agreement reached in 2003 in relation to a personal injury claim should be set aside now that fraud by the Claimant could be proven.
In 1998 Mr Hayward suffered an accident at work and alleged that this had caused him an ongoing back injury leaving him unable to work full time, and resulting depression.
The Defendant's insurers, Zurich, at the time had suspected that Mr Hayward was exaggerating the extent of his injuries to the point where they submitted video evidence and alleged fraudulent exaggeration in their Defence. However, Mr Hayward maintained his position. Following expert discussions, the Claimant's orthopaedic expert expressed the view that Mr Hayward had suffered a back injury which had accelerated the effects of degenerative changes to the spine by 15 years, whereas the Defendant's orthopaedic expert believed that the period of acceleration was just 5 years. Shortly before trial in 2003, the parties agreed settlement in the sum of £135,000 reflecting a loss of earnings claim of somewhere between the two.
In 2005, neighbours of Mr Hayward approached his employer to advise that they believed that Mr Hayward had been dishonest and that he had in fact fully recovered from his injuries at least a year before the settlement. The employer reported this to their Zurich, who subsequently commenced proceedings for fraud against Mr Hayward. They claimed damages in the sum that Mr Hayward had been over-compensated or alternatively an order that the settlement agreement should be set aside.
It has long been established that where fraud is established after a settlement has been reached, this will "undo" the settlement agreement if the Defendant has relied upon the claimant's fraudulent misrepresentation. This would apply where the Defendant knows nothing of the fraud at the time of settlement and therefore the settlement is reached without the possibility of fraud being taken into account.
In this case however, as well as continuing to deny any exaggeration, the issue put forward by Mr Hayward was essentially that because the Defendant had made it clear that fraud was suspected at the time, and had included such an allegation in their Defence, the compromise agreement reached included compromise of the possibility of fraud and therefore the settlement was binding and should not be set aside.
In 2012, the court at first instance found in Zurich's favour and that Mr Hayward had in fact fraudulently exaggerated the extent of his injuries, such that he had recovered by 1999. The court reassessed the value of the claim at £14,720.
Mr Hayward appealed on the basis that the possibility of fraud had been accounted for in the original settlement and that this should therefore remain binding. No further appeal on the finding of fact was made. In 2015, the Court of Appeal overturned the decision in Mr Hayward's favour. This was on the basis that Zurich had suspected fraud when the compromise was reached and therefore did not rely upon the misrepresentation by Mr Hayward, and also in the interest of the need for finality of compromise agreements. Zurich appealed to the Supreme Court.
Yesterday, in a unanimous verdict by all five Supreme Court judges, the Court held that the settlement agreement should be set aside. The fact that Zurich had suspected fraud did not mean that they had not relied on Mr Hayward's assertion that he had an ongoing and debilitating injury. The damages award is therefore reduced to £14,720 and Mr Hayward is presumably required to repay the additional monies that he has received, most likely together with considerable legal costs.
From Zurich's point of view, presumably there was a risk that the Court would accept Mr Hayward's evidence and this would have been factored in to settlement considerations. In addition the Court held that in those circumstances, the suspicion of fraud could not preclude the settlement agreement being undone – if it did, this would surely lead to a rather bizarre result whereby a Defendant could ask for a settlement to be set aside if they had voiced no suspicion of fraud prior to settlement, but not if they had voiced suspicion and investigated accordingly.
For Claimants and Defendants alike in personal injury and clinical negligence cases, this judgement could have very far reaching implications. Insurers are more likely to continue to investigate cases where fraudulent exaggeration is suspected, even after a settlement agreement has been reached. Fraudulent Claimants may find themselves faced with having to repay compensation that they may well have already spent, as well as having to pay for substantial Defendant legal costs.
The importance of being honest
As a claimant clinical negligence solicitor I always impress on clients the need to give a true and honest account of the circumstances of their claim, the extent of their injuries and the impact that these have upon their day-to-day lives. Claimants are required to sign a Statement of Truth when filing pleadings, witness statements or a Schedule of financial loss, and these present opportunities to remind them of their obligation of truth to the court. This case could though present a further sharp reminder of the need for full and frank disclosure before any settlement is agreed.
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