Zurich Insurance Company Plc v Colin Richard Hayward
| Jurisdiction | England & Wales |
| Judge | Lady Justice Smith,Lord Justice Moore-Bick,Lord Justice Maurice Kay |
| Judgment Date | 27 May 2011 |
| Neutral Citation | [2011] EWCA Civ 641 |
| Date | 27 May 2011 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: B3/2010/1808 |
[2011] EWCA Civ 641
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CAMBRIDGE COUNTY COURT
HHJ JUDGE YELTON
REF: 9LS01076
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Maurice Kay,
Vice President of the Court of Appeal, Civil Division
Lady Justice Smith
and
Lord Justice Moore-Bick
Case No: B3/2010/1808
Mr Patrick Limb QC (instructed by Beachcroft LLP) for the Appellant
Mr Guy Sims (instructed by Hewitsons) for the Respondent
Hearing date: 16 March 2011
This is an appeal from the order made by HH Judge Yelton sitting in the Cambridge County Court on 19 July 2010. It raises the question of whether an action alleging that the settlement of an earlier personal injuries action was obtained by fraud should be struck out on the grounds that the issues are res judicata or that the action is an abuse of process because the defendant in that earlier action had alleged that the claimant was exaggerating his injuries for gain.
Factual background
In 1998, Colin Richard Hayward, the respondent to this appeal, was injured in the course of his employment with David S. Smith Packaging Limited (Smith). Smith carried employers' liability insurance with Zurich Insurance Company plc (Zurich). A claim against Smith was intimated and, although we have not been shown the details, there was clearly some correspondence and exchange of medical reports between solicitors for the parties. Liability remained in dispute. It appears that, at an early stage, Zurich and its solicitors became suspicious that Mr Hayward might be exaggerating his injuries and, in October 1999, they instructed enquiry agents to undertake video surveillance of him.
In 2001, Mr Hayward issued proceedings against Smith. In the particulars of claim, dated 11 September 2001, it was alleged that he had suffered a spinal injury involving damage to two dorsal vertebrae. He was suffering from continuing physical disabilities and was fit for only light work. He was also suffering from a depressive disorder of moderate severity. Attached to the pleading were two reports from Mr J Bracegirdle, an orthopaedic surgeon and one from a consultant psychiatrist, Dr R. O'Flynn. The schedule of loss claimed damages amounting to just under £420,000. This included a claim for loss of earnings on the basis that Mr Hayward was and would remain unfit for any work.
The defence dated 30 October 2001, drafted by counsel instructed by Beachcroft Wansbroughs, solicitors for Zurich, was commendably detailed. It admitted that the claimant had suffered a back injury but said that, in the light of video evidence obtained, it was not accepted that the injury was as bad as had been described in Mr Bracegirdle's report. It was alleged that the claimant was fit for full time work, although not work which entailed heavy lifting. In view of the claimant's lack of candour in relation to his physical condition, the defendant did not accept that his depressive state, as described, had been consistent, was continuing or would continue into the future. Paragraph 7 of the defence said: "The claimant has exaggerated his difficulties in recovery and current physical condition for financial gain".
By order dated 20 March 2002, the defendant was given leave to adduce the video surveillance evidence at trial.
In April 2002, the orthopaedic surgeons produced a joint report on which they were agreed. By this time they had both seen the surveillance videos. Mr Bracegirdle had accepted that Mr Hayward was not as badly disabled as had been described in his earlier reports. The doctors thought that the discrepancy between the first video surveillance and Mr Hayward's description of his symptoms 'needed clarification'. The doctors agreed on the extent of the continuing disability and the existence of some pre-existing degenerative changes in the spine which would have given rise to symptoms in any event by the age of 55. There was agreement as to Mr Hayward's working capacity; he was fit for part-time work which did not entail heavy duties. The psychiatric condition was accepted as genuine and attributable to the injury but its prognosis would depend upon the efficacy of treatment which Mr Hayward was to undergo.
In August 2002, liability was compromised on the basis of a 20% reduction for contributory negligence. In November 2002 a second interim payment was made, bringing the total interim payments to £12,500. In June 2003, the defendant paid £100,000 into court. This was in addition to the interim payments and also to a sum of about £22,000 payable to the Department for Work & Pensions for recovery of Social Security benefits. In effect his amounted to an offer of just under £135,000. The offer was not accepted at the time but, in October 2003, the claimant sought and obtained the defendant's agreement to take the money in court in settlement of the action. The settlement agreement was embodied in an order in the form of a Tomlin order. However, the terms of the agreement were disclosed to the judge making the order and the schedule in which they were set out was part of the order.
The current proceedings
There matters rested until 2005 when Mr and Mrs Ian Cox approached Smith to inform that company that they believed that Mr Hayward had acted dishonestly in connection with his claim against Smith. They had been living next door to Mr Hayward from June 2002 until October 2005. In essence they thought that by the time they knew him, there was nothing wrong with Mr Hayward but he was pretending that there was. They were referred to Zurich's solicitors and witness statements were prepared in which they described their association with Mr Hayward, explained the basis of their belief that he had acted dishonestly and described physical activities which they had seen him perform. They claimed to know that, from the time they knew him, Mr Hayward was capable of walking about quite easily and did so when at home; but he used two sticks when he went out because he was aware of the possibility of surveillance. If accepted, the evidence could demonstrate that Mr Hayward had made a complete recovery by mid-2002, over a year before settlement.
In early 2009, Zurich (standing in the shoes of Smith, as to which no point is taken), commenced an action against Mr Hayward alleging that the settlement of the claim had been obtained by false representations as to words and conduct. The particulars related to written representations made in his witness statements, in the particulars of claim (which had been accompanied by a statement of truth) and in the schedule of loss and also oral representations made to the medical experts. It was said that these representations were such as to induce Zurich to make a greater offer of settlement than it would otherwise have done and were intended to have that effect. It was said that Mr Hayward had made these representations fraudulently, knowing them to be untrue; alternatively, they were made implying his belief in them when he did not have such belief. Full particulars of that allegation were pleaded. Finally, it was alleged that, by reason of the said deceit and misrepresentations, the claimant, Zurich, had suffered loss and damage. It was estimated that Zurich had paid at least £72,000 more in damages than it would otherwise have done. Costs had also been increased.
Mr Hayward filed a defence in which his primary position was that Zurich had no cause of action because the cause of action had been compromised by the agreement embodied in the Tomlin order of October 2003. Without prejudice to that contention, the defence asserted that the admission of any fresh evidence would have to satisfy the rules in Ladd v Marshall [1954] 1 WLR 1489. Without prejudice to that contention, the defendant denied that he had misled Zurich by words or conduct. Further it was alleged that Zurich had clearly put Mr Hayward's good faith in issue during the first action, by its pleadings and by arranging video evidence. Therefore, in making the payment into court and settling the claim it had voluntarily compromised all the issues of bad faith.
Mr Hayward applied to the court to strike out the claim under CPR 3.4. It was said that the claim was an abuse of process. The issues were res judicata and the evidence on which the claimant sought to rely failed the test in Ladd v Marshall.
The application was heard by Deputy District Judge Bosman on 17 March 2010. The deputy district judge held that the form of the action (namely a freestanding action for damages for deceit and misrepresentation) was misconceived and the correct way for Zurich to litigate their complaint was to apply to set aside the Tomlin order on the ground of fraud. If the Tomlin order were set aside, the effect would be to reactivate Mr Hayward's original claim, giving rise to the possibility that he might recover more than the amount of the original settlement. If the claim were to be recast as an application to set aside the Tomlin order (as to which the deputy district judge was prepared to grant permission to amend), he was of the view that the claim should not be struck out. He said that there were two important and conflicting principles in play: the need for finality in litigation and the need for the court not to be misled. Largely in reliance on observations of this Court in Owens v Noble [2010] EWCA Civ 224, he held that the need for the court not to be misled would outweigh the need for finality in litigation. That was so, even in a case such as this where the defendant in the original action had pleaded exaggeration. The deputy district judge also held that the rules in Ladd v Marshall were not relevant in a new action, only where it was sought to introduce fresh evidence...
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