Hayward v Zurich Insurance Co Plc
Citations:  UKSC 48;  AC 142;  3 WLR 637;  4 All ER 628;  2 CLC 246;  Lloyd’s Rep IR 84;  CILL 3865.
The defendant suffered an injury at work. He claimed substantial compensation from his employer. The employer suspected that the defendant exaggerated his injuries, but initially could not prove it. They agreed to settle the claim for a third of the amount claimed.
The employer’s insurers later acquired proof that the defendant had recovered entirely from his injuries a year before the settlement. The insurer sued the defendant for damages in the tort of deceit. They sought to rescind the settlement agreement.
At first instance, the High Court held that there was an actionable deceit. This meant that the insurers could rescind the contract. Without the deceit, the defendant would have been paid only a ninth of what he originally claimed. The defendant was ordered to pay back the difference. On appeal, the Court of Appeal held that the contract was not rescinded, because the insurers did not rely on the defendant’s representations when reaching the settlement agreement. This was because the insurers never fully believed the defendant’s claims. The insurers appealed.
- Did the insurers rely on the defendant’s misrepresentations?
The Supreme Court held in favour of the insurers. The defendant’s misrepresentations caused the insurers to pay out the settlement. This was the case even though the insurers did not believe that what the defendant was saying was true. This was enough to make out an actionable deceit. The Supreme Court restored the decision of the High Court judge.
This Case is Authority For…
An action for deceit based on misrepresentation requires the claimant to show:
- That the defendant made a materially false misrepresentation;
- That this representation was intended to induce, and did induce, the contract;
- That this caused the claimant loss.
However, this does not mean that the claimant must believe that the representation is true. The misrepresentation only needs to be a material cause of the contract. It need not be the only cause.
Lord Clarke explained that in practice, it may be difficult to prove that the misrepresentation was a material cause if the claimant does not believe it. However, it does not make it impossible. In this case, the fact that the misrepresentations convinced the insurer that the defendant would succeed at trial, so the settlement was worth making, established inducement.
Lord Clarke stated that if the defendant intended to induce the contract using misrepresentations, this is evidence that the claimant was so induced. This is sometimes referred to as a presumption of inducement.
Lord Clarke noted that the authorities are not entirely clear on how to rebut the presumption. Some cases say that the defendant must show that the misrepresentation ‘played no part at all’ while others say it must not have played a ‘real’, ‘determinative’ or ‘substantial’ part. Lord Clarke did not resolve the matter, simply saying that it is difficult to rebut the presumption.
The person receiving the misrepresentation is not under a duty to exercise any care or diligence in believing or investigating the statement. The fact that the claimant carries out their own investigations does not necessarily mean that they did not rely on the misrepresentations. As Lord Clarke put it:
‘Qualified belief or disbelief does not rule out inducement, particularly where those investigations were never going to find out the evidence that subsequently came to light.’