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Does fraud unravel all?

Hayward v Zurich Insurance Company Plc

“No Court in this land will allow a person to keep an advantage he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.”

So said Lord Denning in 1956. However, a recent case which is now poised to reach the Supreme Court brings into focus the extent to which fraud does unravel all, and is poised to have implications for parties who identify fraud after proceedings have been concluded.

In that case, the Supreme Court recently granted permission to appeal to Zurich Insurance Company after it contested a Court of Appeal decision from earlier this year. The case concerns the insurer’s attempt to overturn a decision which allowed a claimant to keep the proceeds of a settlement notwithstanding evidence later coming to light that he had been dishonest.

The claimant, Hayward, had claimed damages for back injuries following an accident at work. Although Zurich had obtained video surveillance which appeared to indicate that the claimant was exaggerating his injury, a settlement agreement was reached between the parties. Subsequent evidence emerged that the claimant had recovered entirely from his injuries a year before the settlement agreement had been concluded. As a result, Zurich commenced proceedings against Hayward, seeking damages for deceit. Its position was that it had settled the claim as a result of Hayward’s misrepresentations because it was concerned that Hayward would be believed in court, not least since its own expert was not fully persuaded that Hayward was being deceitful.

At first instance, the High Court cut Hayward’s damages to £14,720, but the Court of Appeal reinstated the original settlement of £135,000 on the basis that Zurich had entered into the agreement with its eyes open and because of the wider principle of finality of settlements.

The Supreme Court’s decision is poised to have implications for parties who identify fraud after proceedings have been concluded. In the meantime, it is clear that where a party is suspicious that it is being misled, it is safer to investigate that suspicion at the time rather than subsequently to seek to unravel any settlement in the event that suspicion proves to be true.