The Court of Appeal has refused to set aside a settlement agreement on the basis of new evidence indicating that the claimant’s case had been fraudulently exaggerated:  Hayward v Zurich Insurance Co plc [2015] EWCA Civ 327.

Settlement agreements may be set aside on the same grounds as any other contract, including on the basis that one of the parties was induced to enter into it by a counterparty’s misrepresentation concerning a material fact. However, where the representations relied on comprise the very allegations advanced by the claimant as part of the claim being settled, the courts have generally taken the view that the defendant has, in deciding to settle, taken into account the risk that the statement was false and has foregone the opportunity to challenge it. The issue in the present case was the extent to which the position is different where, as here, the representation was not merely false but could later be shown to have been fraudulently made.

In holding that the innocent party was nevertheless bound by the agreement, the Court of Appeal’s decision shows the limits, in this context, of the principle that “fraud unravels all”.  It confirms that a fraudulently advanced case will not necessarily entitle a defendant to rescind a settlement agreement – particularly in cases where the evidence suggests that, at the time of settlement, the defendant had at least some indication of the possibility of fraud and therefore settled “with its eyes wide open”.

The decision illustrates the courts’ “robust disinclination” to interfere with settlement agreements unless there are exceptional circumstances, given the important public interest in the finality of settlements.


Source - Lexology

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