This recent decision from the Supreme Court has important implications for settling disputes.
A settlement agreement is the usual document which records (and provides a mechanism for enforcement of) a settlement reached. It is a form of contract and as such the usual principles of contract law apply. There may be circumstances in which a settlement agreement can be set aside, including where there has been a misrepresentation.
A misrepresentation is a statement of fact made by one party which is false, the defendant knows it to be false (alternatively, he is reckless as to whether it is true or false), and he intends that the claimant should act in reliance on it. For a successful claim, the claimant needs to show he acted in reliance on the representation and, in consequence, suffered loss.
What is interesting about this case is the Defendant’s argument that the insurers (the other party to the settlement agreement) didn’t believe his story about the injuries anyway, but that they made the decision to settle for other ‘commercial’ reasons. The Defendant argued that the insurer had not therefore ‘relied’ on his statement.
Although this decision means less certainty and finality for settlement agreements, it is good news for insurers generally. Lord Clarke also commented as an aside (obiter), that there may be reliance on a misrepresentation even where the representee knows the representation to be false.
The Case? Hayward v Zurich Insurance Company plc  UKSC 48
The Supreme Court ruled that the payment of £135,000 should be set aside because the insurer had entered into the settlement in reliance on a fraudulent misrepresentation. Even though it had not believed the claimant's misrepresentations, those misrepresentations had still induced it to enter into the settlement agreement. This meant it had 'relied' on them.