Settlements & Finality

by Richard Tymkiw on April 13, 2015

Richard Tymkiw

When might it be right to re-open, or indeed set aside, an earlier compromise approved by a Court of law?

It is settled law that anyone who has been misled into making a commercial compromise of a legal dispute because of knowingly dishonest statements is able (once the truth is discovered) to apply to have that compromise set aside: this is the legal remedy known as rescission.

This is precisely what the Defendant Insurers Zurich (“Z”) sought to achieve in the recently reported case of Hayward v. Zurich Insurance Company Plc [2015] EWCA Civ 327

Mr. Hayward (“H”) claimed compensation for an accident at work.  The claim was made against his employer, David S. Smith Packaging Ltd., and Z.

Liability was admitted.  However Z disputed H’s evidence in his legal papers and witness statement: not only did Z allege that H had exaggerated his disabilities but went so far as to contend that his claims had been dishonestly advanced.  In effect Z accused H of making up deceitful claims for compensation.

The stated value of H’s claim came to about £420,000.

H issued legal proceedings against his employers.  Before trial Z chose to settle the claim at an amount approaching one third of what H wanted: £134,973.11.  The settlement was approved by the Court in a form called a Tomlin Order.  This was the compromise agreement.

Some time later Z learned from H’s neighbours of new evidence which gave succour to the contention that H had indeed grossly exaggerated his injuries and their effects.

Z issued fresh legal proceedings: this time they wanted the Compromise Agreement (Tomlin Order) set aside on the basis of H’s deceit.

At the first time of asking Z’s case was struck out.

However on Appeal it was reinstated.

The new case went to trial.  Z succeeded in their claim.  The Court accepted that the Tomlin Order had been founded upon H’s fraudulent misrepresentations (that is statements going to the severity of his injuries which it could now be shown he knew at the time were quite untrue).

Z asked for and were granted rescission.  They had succeeded.  H’s award was reduced to £14,720 and he was ordered by the Court to repay the balance to Z.

H then appealed.  His case came before the Court of Appeal.

H succeeded in his claim to restoration of the original Compromise Agreement and kept all of his compensation.

In arriving at their decision the Court of Appeal emphasised the following:

(i)            There had been no true reliance by Z upon H’s evidence of his injuries.  Z had chosen to dispute that evidence in the original claim.  It followed that Z could not be said to have been misled or deceived.  Z at arriving at their settlement had chosen not to test the truth or otherwise of H’s evidence.

(ii)           The doubts and suspicions held by Z were factors which had clearly been taken into account by Z in deciding whether and upon what terms H’s claims should settle.  Such factors were undoubtedly reflected within the quantum of the settlement which was two thirds lower than the value of which H had put upon his claims.

(iii)          Important principles were at stake:

(a)  The need to uphold the sanctity of commercial settlements reached by warring parties faced with a series of contested questions and disputes;

and equally

(b)  The need to achieve and maintain certainty and finality as a matter of legal policy.

The principles set forth at (iii) (a) and (b) were succinctly put in the leading judgment of Lord Justice Underhill and I respectfully quote therefrom:

it is in any case sufficiently apparent that the Defendant (Z) intended to settle notwithstanding the possibility that the claim was fraudently advanced, either generally or in some particular respect…. there can be no reason in principle that he should not be held to his agreement even if the fraud subsequently becomes demonstrable”

and

“It may stick in the throat that the Claimant (H) can retain the reward of his dishonesty but the Defendant (Z) will have made the deal with his eyes open to the possibility of fraud and there is an important public interest in the finality of settlements.”

and

“It is important to recall the very particular context in which the reliance is said to occur – that is, that the contract in issue is a settlement agreement and the misrepresentations relied on comprised the very allegations advanced as part of the claim being settled.”

Z, having settled H’s claims although possessed of serious and substantial doubts as to whether he was telling the truth, were accordingly bound by their decision.  There was no lawful nor proper basis upon which any Court should or would be persuaded to interfere.

In summary, parties who elect to settle doubtful claims with their eyes wide open are not entitled to try and revisit or reopen them later in the day, merely because better evidence might subsequently come along.