Settlement Of Disputes: Look Before You Leap

Litigation can be a risky enterprise as outcomes are often uncertain. In order to try and avoid the uncertainty of a trial, sensible litigants will often consider whether they can reach a settlement of their dispute with the other side long before a trial is in the diary. Settlements give certainty and are very often much cheaper than resolving a dispute at a trial. However, for all its attraction, settlement must be thought through properly before a deal is concluded as otherwise disappointment can arise, as can be illustrated by the recent decision in the Court of Appeal in Hayward v Zurich Insurance Co Plc.

The facts of the case are straightforward: Mr Hayward injured his back at work and his claim for damages was settled by agreement with his employer's insurance company who made a payment to him. Before the settlement had been concluded however, the insurer had argued that Mr Hayward had exaggerated the effect of his injuries. Despite this, a deal was done and the court claim halted. Some time later Mr Hayward's employer was tipped off by a third party that the back injury was not as bad as Mr Hayward had made out. The insurer was informed and began proceedings against Mr Hayward to unwind the settlement and recover the money it paid to him. This claim made its way to the Court of Appeal.

While noting that courts will in general seek to uphold a settlement so that there can be finality, that being one of the attractions to settle a dispute in the first place, the Court of Appeal went onto say that while parties to litigation will invariably weigh up the relative merits of each side's case, they will not normally also factor into their thinking whether the other side's case is fraudulent. So while a party must evaluate - before settlement - the likelihood of the other side's...