Legal Principles and Key Points
- In the case of Hayward v Zurich Insurance Co Plc  A.C. 142, D relied on the misrepresentation to terminate an agreement when there was actually fraudulent misrepresentation by C.
- This contract case is related to personal injury claims. This case is about deceit, fraudulent misrepresentation and settlements.
Facts of the Case
- C faced an injury at work and dishonestly represented the nature of the injury to D for a high settlement figure in damages.
- D claimed damage for deceit. In the lower courts, the settlement agreement could not be set aside because D was aware of C’s fraudulent actions.
- Should the defrauded representee agree to a settlement since they believed the false representations were correct?
- Should the representee’s state of mind be considered when induced into the contract?
Held by Supreme Court
- Appeal allowed – settlement agreement was set aside and D was induced into the contract.
Knowledge of misrepresentation
- D was unaware C was deliberately and dishonestly representing his injuries. D did not have the knowledge that the representation was false.
- On the facts, proof that the representee believed the representation was true is not necessary particularly as there is no legal authority to prove otherwise.
- ”As I see it, the representee’s reasonable belief as to whether the misrepresentation is true cannot be a necessary ingredient of the test, because the representee may well settle on the basis that, at any rate in a context such as the present, he thinks that the representation will be believed by the judge. But it is centrally relevant to the question of inducement and causation. Logically, the representee is more likely to settle for a different reason other than the representation, if his reasonable belief is that it is false.” 
Causation and inducement into contract
- D was suspicious but later recognizes that this is fraud. Following Downs v Chappell  1 WLR 426, the judge held inducement into a contract poses causation issues.
- Inducement is a question of fact as shown in Gipps v Gipps  1 NSWLR 454. C’s misrepresentation induced D into consenting to the settlement and to act to their detriment.
- “The elements essential for liability can be broken down under three headings: (a) the making of a materially false representation (the defendant’s conduct element); (b) the defendant’s accompanying state of mind (the fault element); and (c) the impact on the representee (the causation element). Where liability is established, it remains for the claimant to establish (d) the amount of any resulting loss (the quantum element).” 
- Knowledge is not a necessary requirement for determining whether someone consented to an agreement after a representation had been falsely made.
- “In order to set aside a compromise on the basis of fraudulent misrepresentation, to show the requisite influence by or reliance on the misrepresentation, (a) must the defrauded representee prove that it was induced into settlement because it believed that the misrepresentations were true; or (b) does it suffice to establish influence that the fact of the misrepresentations was a material cause of the defrauded representee entering into the settlement?” 
- Therefore the representee should be awarded a remedy in deceit.