Hayward v Zurich Insurance Company Plc [2016
Court: Supreme Court
Facts: An insurer (C) entered into a settlement agreement with D, who claimed to have injured his back at work. Although C had argued that D was exaggerating his injury, it settled the claim due to insufficient evidence at the time. Later, evidence emerged that D had not been injured when he made the claim. C sought to rescind the contract and claimed damages for deceit. The Court of Appeal rejected C’s claim, ruling that C was not induced by the misrepresentation as it did not believe it to be true.
Issue: Is it necessary to prove that the representee believed the misrepresentation to show inducement?
Held: Rescission granted; it is not necessary to prove that the representee believed the misrepresentation.
Key Judicial Statement(s) :
Lord Clarke:
Requirement for a claim in deceit: The defendant must make a materially false representation intended to and which does induce the representee to act to their detriment.
Representee’s belief in the misrepresentation: It is not legally required for the representee to prove they believed the representation was true, although their state of mind may be relevant to inducement.
Inducement and causation: These are factual questions. There are scenarios where a representee may act to their detriment based on a misrepresentation without believing it to be true, particularly if the representor's conduct was intended to exploit the potential for the misrepresentation to be believed by a judge or other decision-maker.
Lord Toulson:
Elements essential for liability: Includes the making of a materially false representation, the defendant’s intent, and the impact on the representee.
Causation in deceit: In typical cases, a dishonest representation influences the representee if they believe it to be true. However, it is possible for a misrepresentation to induce the representee to act to their detriment without the representee's belief in its truth.
Current case: D's deceitful actions were meant to induce C to settle based on the belief that D’s claim was more valuable than it actually was. C was induced to pay significantly more due to the misrepresentation.
💡 Leveluplaw: The case clarifies that to rescind a settlement based on fraudulent misrepresentation, it is not necessary for the representee to prove they believed the misrepresentation was true. The critical factors are whether the misrepresentation induced the representee to act to their detriment and whether causation can be established.