Hayward v Zurich Insurance Company Plc

JurisdictionEngland & Wales
JudgeLord Clarke,Lady Hale,Lord Reed,Lord Toulson,Lord Neuberger
Judgment Date27 July 2016
Neutral Citation[2016] UKSC 48
Date27 July 2016
CourtSupreme Court
Zurich Insurance Company plc

[2016] UKSC 48


Lord Neuberger, President

Lady Hale, Deputy President

Lord Clarke

Lord Reed

Lord Toulson


Trinity Term

On appeal from: [2015] EWCA Civ 327


Patrick Limb QC Jayne Adams QC

(Instructed by DAC Beachcroft Claims Ltd)


Guy Sims

(Instructed by Hewitsons LLP)

Heard on 16 June 2016

Lord Clarke

(with whom Lord Neuberger, Lady Hale and Lord Reed agree)


In April 2012 the Supreme Court considered a case called Summers v Fairclough Homes Ltd [2012] UKSC 26, [2012] 1 WLR 2004, where the facts were strikingly similar to those here. In that case, as in this one, the claimant suffered an injury at work which was caused by the negligence or breach of duty of his employer. In each case the employer was either held liable (in Summers) or admitted liability (here) as to 80%, the claimant accepting that he was 20% to blame. In each case the claimant dishonestly exaggerated the extent of the consequences of the injury. In Summers the claimant originally claimed damages of over £800,000 but was awarded a total of just over £88,000 on the basis of the true facts, which came to light after undercover surveillance evidence showed that his account of the consequences of his injuries had been grossly and dishonestly exaggerated. In the instant case, the claimant, Mr Colin Hayward, claimed £419,316.59 (exclusive of promotion prospects but discounted for loss of ill health pension). He was ultimately awarded £14,720 after a trial before His Honour Judge Moloney QC ("the judge"). The reason for the reduction was again partly as a result of undercover surveillance and other evidence that showed that Mr Hayward's claim had been grossly and dishonestly exaggerated.


In Summers the issue was what remedies were available to the employer and its insurers, whereas in the instant case the issue arises out of a settlement agreement reached between the parties on 3 October 2003, the accident having occurred on 9 June 1998. The agreement was made shortly before the issue of quantum was due to be tried and was incorporated in a Tomlin Order. The employer's case was conducted on its behalf by its liability insurer, Zurich Insurance Company Plc ("Zurich"), which is the appellant in this appeal. The employer (in practice Zurich) agreed to pay £134,973.11, inclusive of CRU of £22,473.11, in full and final settlement of Mr Hayward's claim.


The Tomlin order was in familiar terms as follows:



All further proceedings in this action be stayed, except for the purpose of carrying such terms into effect. Liberty to apply as to carrying such terms into effect.


The claimant accepts in settlement of his cause of action herein the sum of £134,973.11.

4. Upon payment by the defendant of the several sums and costs before mentioned, they be discharged from any further liability to the claimant in relation to the claim herein."


In 2005, Mr Hayward's neighbours, Mr and Mrs Cox, who had lived next door to him since June 2002, approached the employer to say that they believed that his claim to have suffered a serious back injury was dishonest. From their observation of his conduct and activities, they believed that he had recovered in full from his injury at least a year before the settlement. They were referred to Zurich and made full witness statements to that effect.


In February 2009 Zurich commenced the present proceedings against Mr Hayward claiming damages for deceit. Zurich pleaded that both written statements made by Mr Hayward or on his behalf, and his statements of case in the Particulars of Claim and the Schedule(s) of Loss as to the extent of his injury, as well as his accounts given to the medical experts, constituted fraudulent misrepresentations. Damages were claimed equivalent to the difference between the amount of the settlement and the damages that should have been awarded if he had told the truth. The claim was subsequently amended to claim in the alternative rescission of the settlement agreement and the repayment of the sums paid under it.


No point has been taken in reliance upon the fact that the action was brought in the name of Zurich rather than the employer. Mr Hayward applied to strike out the proceedings, or for summary judgment in his favour. He contended that the Tomlin Order created an estoppel per rem judicatam and/or by record, alternatively that the action was an abuse of the process because the issue of fraud had been compromised by the settlement. Deputy District Judge Bosman refused to strike out the claim, although he directed Zurich to amend the claim to seek an order that the compromise be set aside rather than an order for damages. Although it was pleaded in the original defence to Zurich's claim that Zurich must satisfy the test in Ladd v Marshall [1954] 1 WLR 1489, that contention was not ultimately pursued following the hearing before the DDJ. His decision was reversed on appeal by Judge Yelton.


Zurich appealed to the Court of Appeal (Maurice Kay, Smith and Moore-Bick LJJ) and the decision of the Deputy District Judge was unanimously restored: see [2011] EWCA Civ 641. It was held that the settlement gave rise to no estoppel of any kind and that the action was not an abuse of process. It was further held that the fact that Zurich had alleged deliberate exaggeration prior to the settlement did not preclude them from relying on it subsequently as a ground for rescission. In the result, the claim proceeded. I note in passing that Moore-Bick LJ said at para 58:

"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."

The trial

The trial came before the judge in the Cambridge County Court in November 2012. He heard evidence for Zurich from Zurich's solicitor (Ms Winterbottom) and its claims manager (Mr Birkenshaw), who were responsible for the conduct of the litigation, from Mr and Mrs Cox and from Mr Sharp, who was the orthopaedic expert instructed on behalf of Zurich. Mr Hayward gave evidence together with three members of his family and also called evidence from Mr Varley, who was the orthopaedic surgeon instructed on his behalf.


Mr Hayward denied any suggestion that his condition was anything other than genuine or that there was any element of exaggeration. He maintained throughout that he was a seriously disabled individual whose disability arose from the original accident and was such that, ever since, he had not been able to work or carry out normal activities of daily living without assistance. As with the first series of witness statements, Mr Hayward signed the appropriate statements of truth setting out in detail the extent of his disability and presented himself to the medical experts on that basis.


Following a four-day trial, the judge found that Mr Hayward had deliberately and dishonestly exaggerated the effects of his injury throughout the court process. Of Ms Winterbottom and Mr Birkenshaw, the judge said (at para 2.6 of his judgment quoted in full below) both that: "[n]either can be said to have believed the representations complained of to be true" and that "[t]hey 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". The judge further found that, although Zurich was aware at the time of the settlement of the real possibility of fraud, Mr Hayward had continued his deliberate misrepresentations even after the disclosure of the 1999 video, and that those continuing misrepresentations influenced Zurich into agreeing a higher level of settlement than it would otherwise have done. The judge therefore set aside the compromise.


It followed that the issue of quantum in the original action remained to be tried. That issue was heard on 6 September 2013 and, having found that Mr Hayward had made a full recovery from any continuing physical disability by October 1999, the judge thereafter handed down a judgment awarding Mr Hayward damages in the modest sum of £14,720, which was about 10% of the settlement figure. An order was made in the later action directing him to repay the sum paid under the settlement less that amount, namely £97,780, interest of £34,379.45 and £3,951 adjustment for CRU.

The appeal to the Court of Appeal

Mr Hayward appealed to the Court of Appeal against the decision that the settlement should be set aside but did not appeal against the judge's assessment of quantum or (contingent on whether the settlement was set aside) against the order for re-payment. Moreover, the judge's findings of fact were not challenged. To my mind, as appears below, this is a critical factor in this appeal.


The appeal was heard by Underhill, Briggs and King LJJ. They agreed that the appeal should be allowed. Substantive judgments were given by Underhill and Briggs LJJ. Although King LJ agreed with both judgments, I do not read their reasoning as quite the same.


In his para 9 Underhill LJ set out para 2.5 of the judge's judgment, where he said that the judge addressed the issue of reliance and dealt with the law. Para 2.5 is in these terms:

"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...

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