New Zealand: Can a settlement agreement ever be set aside?

Can a settlement agreement ever be set aside?

The UK Supreme Court has now clarified an uncertain area of law regarding deceit and misrepresentation in the context of settlement agreements, where fraud is suspected: Hayward v Zurich Insurance Company plc [2016] UKSC 48.

Background

Mr Hayward injured his back during an accident at work in 1998, and claimed he had suffered serious lumbar pain, restricted mobility and consequential depression. His employer's insurer, Zurich, disputed the seriousness of his injury based on a video showing Mr Hayward lifting heavy objects at home in 1999.

After Mr Hayward issued proceedings claiming £420,000, the parties reached an agreement in 2003, under which Zurich agreed to pay £134,973 in full and final settlement of Mr Hayward's claims. Two years later, Mr Hayward's neighbours informed the employer that his conduct and activities had led them to believe that he had recovered from his injury at least a year before settlement was reached.

Zurich then issued proceedings to set the settlement agreement aside on the grounds that Mr Hayward's fraudulent misrepresentations had induced it to enter into the settlement agreement.

The primary issue considered by the County Court, Court of Appeal and Supreme Court was whether the defrauded party's belief in the representation was a necessary ingredient for setting the agreement aside.

County Court

The County Court distinguished misrepresentation in the settlement context from other contexts using the following analogy:

In the ordinary case, reliance by the purchaser is effectively equivalent to his belief in the truth. If he believes the goods are as represented, he will be relying on the representation and acting on it by his purchase...This situation is quite different from a proposed purchase, where if in doubt one can simply walk away.

The Court emphasised that an insurer cannot walk away from a claim. The settlement agreement was set aside on the basis that while Zurich (as 'representee') may not have believed Mr Hayward's representations to be true, it 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 in part. Relying on that belief, Zurich made a larger settlement payment than it would otherwise have considered necessary to settle the claim.

The Court ordered Mr Hayward to repay the amount paid to him under the settlement agreement, less £14,720 (the amount he should have been paid for his injury).

Court of Appeal

The Court of Appeal disagreed with the County Court and held that while a party need not have blind faith in the truth of a representation in order to establish reliance, it must have given some credit to its truth and been induced into entering the agreement by a perception that it was true rather than false. It overturned the County Court's decision, stressing the finality of settlement agreements which would be seriously undermined and public policy favouring the encouragement of settlements.

Supreme Court

In agreement with the County Court, the Supreme Court unanimously held that the representee's state of mind is relevant to, but will not necessarily determine, the court's consideration of inducement to enter into a settlement agreement. The Court accepted that the situation is different in the settlement context, in which the insurer does not have the option of simply walking away if it does not believe the claimant's statements. The question is not what view the party itself takes, but what view a court may take in due course.

The Supreme Court also considered whether the fact that Zurich had already carried out its own investigations affected its claim that Mr Hayward had made misrepresentations that induced it to enter into the settlement agreement. It ultimately found that even if Zurich had a qualified belief in, or disbelieved, Mr Hayward's claims as a result of its own investigations, Zurich could still be induced to enter into the settlement agreement, particularly where Zurich's investigations were never going to uncover the evidence that subsequently came to light.

In order to establish whether there had been any loss, the Court considered what the position would have been if the full extent of the fraud had been known at the time of settlement. The Court held that as a matter of law, where the innocent party knows that a representation is false, it cannot succeed. However, it doubted whether this operated as a blanket rule. The Court used the example of a traffic accident, where the innocent party might know for a fact that a claim is fraudulent but still have to take into account the risk that a court will believe the lie. In such a case, as in this one, the claimant may well establish inducement on the facts.

The Court restored the order of the County Court, allowing Mr Hayward to keep the £14,720 that he should have been paid for his injury.

Comment

The implications of the UK Supreme Court's decision are significant. An insurer can now seek to reopen a settlement agreement if fraud can later be proven, even if it had done all it reasonably could do to investigate the claim before entering into the settlement agreement.

We anticipate that this decision will be welcomed by insurers in New Zealand as a persuasive authority for claims of misrepresentation in the insurance settlement context. We consider this will be of particular relevance in the health and life insurance sector, where claims are often based on self-reported symptoms.

We await with interest the decision of our own Supreme Court in Prattley Enterprises Ltd v Vero, considering whether an agreement to settle claims under a material damage policy can be set aside for mistake. We consider this will again come down to a balancing act between the public interest in protecting the finality of settlement agreements, and the parties' presumed intentions in achieving settlement. Where there have been fraudulent misrepresentations, the moral hazard would outweigh any interest in protecting the finality of a settlement agreement, and Hayward should remain persuasive authority in New Zealand for that proposition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Bethany Entwistle
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions