Hayward v Zurich Insurance Company Plc
| Jurisdiction | England & Wales |
| Judge | Lord Justice Underhill,Lady Justice King |
| Judgment Date | 31 March 2015 |
| Neutral Citation | [2015] EWCA Civ 327 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B3/2013/2789 |
| Date | 31 March 2015 |
[2015] EWCA Civ 327
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Cambridge County Court
His Honour Judge Moloney QC
Insert Lower Court NC Number Here
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Underhill
Lord Justice Briggs
and
Lady Justice King
Case No: B3/2013/2789
Guy Sims (instructed by Hewitsons LLP) for the Appellant
Jayne Adams (instructed by Dac Beachcroft Claims Ltd) for the Respondent
Hearing date: 3 December 2014
In June 1998 the Appellant suffered an accident at work in which he injured his back. In May 2001 he started proceedings against his employers, David S Smith Packaging Ltd. He claimed that his injury continued to cause him serious lumbar pain which restricted his mobility; that he had also in consequence developed a depressive illness; and that his ability to work was seriously impaired. His claim was supported by expert evidence from an orthopaedic surgeon, Mr John Bracegirdle. In his Schedule of Special Damages he claimed just under £420,000: that did not include damages for pain and suffering and some other unquantified losses.
The employers' defence was conducted by their insurers, the Respondent ("Zurich"). Liability was admitted at an early stage, subject to a 20% deduction for contributory negligence. As regards quantum, however, it was contended that the Appellant had exaggerated the consequences of his injury. Reliance was placed on video surveillance evidence ("the 1999 video") which appeared to show him doing heavy work at home. In the Defence, which was dated 30 October 2001, it was pleaded that:
"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 11 th June 2000, 20 th August 2000 and 26 th 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.)
On 3 October 2003, shortly before the issue of quantum was due to be tried in the Cambridge County Court, the parties reached an agreement, embodied in a Tomlin order, under which the employers (in practice Zurich) agreed to pay £134,973.11 in full and final settlement of the Appellant's claim.
About two years later the Appellant's neighbours, a Mr and Mrs Cox, approached the employers 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 entirely recovered from his injury at least a year before the settlement. They were referred to Zurich and gave full witness statements.
In February 2009 Zurich commenced the present proceedings against the Appellant in the County Court claiming damages for deceit. It was pleaded that the statements as to the extent of the Appellant's injury in the Particulars of Claim and Schedule of Loss, and 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 about the action being brought in the name of Zurich rather than the employers.
The Appellant applied to strike out the proceedings, or for summary judgment. 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: I return to this latter point in more detail below.
The Appellant's application was dismissed by the District Judge. His decision was reversed on appeal by HH Judge Yelton. However, on Zurich's further appeal to this Court (Maurice Kay, Smith and Moore-Bick LJJ) the decision of the District Judge was 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. The result was that the claim was enabled to proceed. Again, I will have to return some of the reasoning below, but at this stage I will only note that Moore-Bick LJ said, at para. 58 of his judgment:
"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 action came on for trial before HH Judge Moloney QC in the Cambridge County Court in November 2012. He heard evidence for Zurich from the solicitor and claims manager who were responsible for the conduct of the litigation, Ms Winterbottom and Mr Birkenshaw, from Mr and Mrs Cox, from Mr Sharp and from another orthopaedic surgeon, Mr Varley. The Appellant gave evidence together with three members of his family.
In due course a draft reserved judgment was circulated in which the Judge found that the Appellant had indeed dishonestly exaggerated the effects of his injury. I need not set out his reasoning, since the finding is not challenged before us. On that basis he went on to hold that the settlement agreement should be set aside. He addressed the issue of reliance as follows. At para. 2.5 of his judgment he dealt with the law. He said:
"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 (20 th 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...
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