Hayward v Zurich [2005] Court of Appeal.

1 May 2015 | Comment


Leon Lloyd takes a look at the case of Hayward v Zurich [2015] and the recent changes to the Civil Procedure Rules affecting Part 36.

Hayward v Zurich [2005] Court of Appeal. 

The outcome of this appeal has been eagerly awaited. Zurich had sought to reopen a case where substantial damages had been paid on the basis that the original claim was overstated and inflated.

Over £420,000 had been claimed for a workplace injury. Zurich relied on video evidence in support of their contention that the claimant “exaggerated his difficulties in recovery and current physical condition for financial gain”. The parties settled by way of a Tomlin order for some £135,000, just before the quantum trial.

Crucially Zurich had, within its original pleadings, raised positive arguments that the case was exaggerated and artificially over-inflated and, against this, the matter was compromised and settled prior to the quantum hearing. Some two years later a neighbour reported to Zurich that the claimant had dishonestly pursued his claim and in fact had recovered before settlement. Unsurprisingly Zurich sought repayment of a proportion of the claimant’s damages.

The Court of Appeal stated it would not be right to allow the case to be reopened in this manner.  Zurich had entered into a settlement agreement with the claimant with their eyes open.  Had they had any doubts over the claimant’s honesty they should have put him to the test at trial.

The Court of Appeal suggested that the claim was compromised as a pure risk management exercise and to allow the settlement to be rescinded would make future settlements almost impossible to agree as no settlement would ever be final.

At the root of the Court of Appeal’s decision is the question as to whether Zurich were induced into the contract as a result of being misled or misrepresented of the facts by the claimant.  They were not; they positively pleaded fraud and later compromised the claim.  If better evidence had now come before them they cannot undo what is done.

Observations

I dare say it would be a different result had the claimant’s misrepresentation not been known to them at the time of compromise.

Whilst this decision may stick in the throat of many it shows us that each case will be decided upon its own merits where a party has its eyes open to the risks of compromise the court will be reluctant to undo this.

When looking to compromise any claim it is always wise to consider the effective use of Part 36. With this in mind I thought it prudent to consider some recent changes.

Part 36

From April 6, the rule applying to Part 36 of the Civil Procedure Rules has changed.

Key changes

One of the key changes affects withdrawing or varying offers during the “relevant period”.    We will of course remember that previously offers could not be withdrawn or varied during the relevant period without the court’s permission.  After April 6 the offeree may withdraw or vary the offer without court permission.  However, the offeree may still accept the original offer up to the expiry of the relevant period.

Should the offeror wish to amend or prevent the offer being accepted in the relevant period he will need to apply to the court and show, either; there has been a change of circumstances since making the original offer or if it is in the interests of justice to prevent acceptance of the offer.

The new rules also allow the offer to contain terms which automatically withdraw the offer at the end of the relevant period. However, why you would want to do so begs a different question as any cost protection will be extinguished by withdrawing the offer at the end of the period.

Offers are capable of acceptance until the end of the trial which is when the judgment is handed down. Any Part 36 offer made in relation to a matter heard at a split trial may be brought to judge’s attention when considering costs. However any ‘non relevant’ offer may not be brought to the judge’s attention.

The rule changes suggest that patience relating to tactically motivated offers has expired. An offer which is deemed not to be a genuine attempt to settle may lose the offeror its cost protection.  Such offers will not be tolerated; parties must remember to always engage in litigation with a view to seeking early settlement and liaising with parties on a fair and equal footing.

Noticeably, Part 36 has grown teeth where a party’s costs are limited to court fees only.  A party beating its own Part 36 offer may now recover 50%, this will offer some relief for those affected by Mitchell!

Finally, the changes have now offered some clarity on definitions:

  • “trial in progress” meaning that the time from the trial starts to when judgment is given or handed down.
  • offers made up to 21 days before trial the relevant period can now be up to the end of trial.
  • Offers after 6 April no longer need to state on its face “that it is intended as a consequence of Part 36”. It need only make clear that the offer is made pursuant to Part 36.

I rather feel the changes are designed to give parties cause to consider Part 36 more carefully.  Those who previously sought to engage its use as a mere tactical/cost building tool will need to exercise some caution.  Used well Part 36 remains an effective means of litigation reduction or settlement tool.

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