“You know you’re lying, and I know you’re lying, but…”

Misrepresentation is a complex area of law, but in its simplest form it relates to one party inducing another to enter into an agreement by making false claims. As a familiar example, if you buy a car from a garage that claims the vehicle has been fully checked over and is in perfect working order, you can seek to return the vehicle and get a refund on the basis of misrepresentation if the car breaks down two miles down the road and all those claims turn out to be false. If you had simply bought the same car for the same price without the garage saying anything, then going back might be more of a problem – whilst there are still statutory protections for consumers, the buyer bears responsibility for checking out the suitability of the goods.

What happens, though, if the misrepresentation isn’t fooling anyone, but the other party makes the deal anyway? The courts recently heard an appeal in the case of Zurich Insurance Company Plc v Hayward [2016] All ER (D) 138 (Jul) where this was the case. Hayward had been injured at work, and the insurer, Zurich, stepped in for his employer to deal with his claim. During the claim, the insurer received evidence showing the claimant undertaking strenuous activity at home, contrary to what had been claimed about the extent and longevity of his injuries. However, in the end the insurer still made a settlement deal with the claimant, paying over around £135,000 to dispose of the case.

Some time later, Hayward’s neighbours apparently contacted his former employer with persuasive evidence that Hayward was entirely fit and well a year before the settlement agreement was entered into, and the insurer sought to overturn the settlement agreement on the basis of misrepresentation. Hayward’s defence to their claim was that they had never believed his story anyway, so were not reliant on his representations when entering into it. He argued that in order to be induced by representations, the other party must be persuaded by them; Zurich entered into the settlement agreement with open eyes and should not be allowed to renege on it, despite his deception.

The question arises: why did they make the deal at all? As Hayward himself advanced, just because the insurer had strong suspicions about the honesty of his claims did not mean that the court would have agreed with them. Fraud is a serious issue and judges can be very slow to accept that a claim (or defence) is a deliberate lie. It’s hard to know exactly what factors Zurich’s legal team were balancing, but Hayward had definitely suffered some level of injury, and would receive some amount of compensation, and the sum in the agreement likely represented a commercial decision to save on costs and dispose of the matter.

The judicial decision in Zurich’s appeal was unanimously in Zurich’s favour. The court held that there is no separate requirement for belief in order to show misrepresentation. In this case, Zurich had doubts about Hayward’s statements about his injuries, but subsequently discovered that he had exaggerated far more than they had believed at the time. The court decision was that neither qualified belief nor an absence of it rules out reliance on misrepresentation. Courts are traditionally slow to find fraud, but once found, the fraudster is unlikely to meet with a sympathetic reception at court. Hayward’s award was brought down to around £15,000 and he was ordered to repay the difference.

Adrian Czajkowski

Adrian Czajkowski

Adrian Czajkowski
Legal Executive
Commercial Dispute Resolution Team
0113 227 9296

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