UK: When Will New Proceedings To Set Aside A Judgment For Fraud Be An Abuse Of Process?

The background

In 1999, Mrs Takhar became the owner of a number of properties in Coventry following her separation from her husband. The properties were subject to rates arrears and many were dilapidated. Mrs Takhar transferred the properties to a newly incorporated company, Gracefield Developments Limited, to facilitate their development. That transfer was, Gracefield said, pursuant to a profit sharing agreement reached in November 2005 and documented in 2006.

The 2008 claim

The parties subsequently fell into dispute about how the properties were to be treated and, in 2008, Mrs Takhar brought proceedings against Gracefield. She said that the parties had agreed the properties were to be renovated and then let. Gracefield's case was that the properties were to be redeveloped and then sold, with any profits to be split equally between Mrs Takhar and Gracefield.

At trial, the judge preferred Gracefield's account of what had been agreed, as supported by a scanned copy of a written joint venture agreement (the JV agreement) which bore Mrs Takhar's signature. Mrs Takhar contended that she had not signed the JV agreement and had not been aware of it until the dispute arose. But the judge found that the JV agreement reflected the oral agreement the parties had reached previously for the redevelopment and sale of the properties, and therefore dismissed Mrs Takhar's claim.

The 2013 claim

In 2013, Mrs Takhar issued a new claim. She provided evidence from a handwriting expert which she said proved that she had never signed the JV agreement, but that a copy of her signature had instead been transposed onto it from another document. She sought to have the judgment in the 2008 claim set aside on the basis that it had been obtained by fraud.

Gracefield said that the 2013 claim was an abuse of process and should be struck out, as:

• The documents on which the handwriting expert had given his view and which formed the basis of the 2013 claim had been available to Mrs Takhar since at least 12 months before the trial of the 2008 claim;
• Mrs Takhar had sought to adduce the evidence of a handwriting expert in the 2008 claim, but permission had been refused; and
• The evidence that Mrs Takhar had signed the JV agreement was not determinative of the 2008 claim in any event.

In the High Court, Newey J determined - as a preliminary issue - the question whether the 2013 claim was an abuse of process. He concluded that Mrs Takhar had a real prospect of satisfying the court that judgment in the 2008 claim had been obtained by fraud. The 2013 claim was not therefore an abuse of process, and he ordered for it to proceed to trial.

Gracefield appealed this refusal to strike out the 2013 claim.

Court of Appeal

It was common ground between the parties that the relevant test for setting aside a judgment for fraud was summarised in Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328, namely that:

• There must have been conscious and deliberate dishonesty in evidence given to or a matter concealed from the court, which is relevant to the judgment;
• The evidence or concealment must be material - the fresh evidence would have entirely changed the way the first court approached and came to its decision; and
• The materiality of the new evidence is to be assessed in context of the evidence given at the original trial, not on basis of a retrial.

Newey J had concluded that Mrs Takhar had prospects of satisfying these requirements and so had ordered that the claim should proceed.

However, Gracefield argued that Newey J had erred in limiting himself to that question. It submitted that, in order to adduce new evidence of alleged fraud (and avoid a finding of abuse of process), Mrs Takhar also had to satisfy the test in Ladd v Marshall [1954] WLR 1489, i.e. by demonstrating to the court's satisfaction that the new evidence she relied on in the 2013 claim:

• could not have been obtained with reasonable diligence before the trial of the 2008 claim;
• would be likely to have an important (but not necessarily decisive) influence on the result of the case;
• must be apparently credible (but not incontrovertible).

Mrs Takhar contended that no such 'reasonable diligence' requirement applied where the new evidence indicated that there had been a fraud, and that she should not be precluded from having an judgment allegedly obtained by fraud set aside simply because she had been at worst negligent in failing to bring that evidence to court in the 2008 claim.

Delivering the leading judgment, Lord Justice Patten started with a review of early authorities on the distinct but overlapping principles of abuse of process and res judicata. He pointed to the rule in Henderson v Henderson that litigants must bring forward their whole case; they cannot (except under special circumstances) re-open the subject of litigation later only because they have, "from negligence, inadvertence or even accident, omitted part of their case". He went on to say that Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2013] UKSC 46 (a case in which Gowling WLG predecessor firm Wragge & Co LLP represented the successful party) made clear that rule is also the background to and part of the rules governing the doctrine of res judicata (i.e. a matter which has already been adjudicated by a competent authority and cannot be re-litigated).

In a unanimous decision, the court held that it did not matter whether a claim was defended on the basis of abuse of process or res judicata - in either case the same policy considerations were engaged. While a party may seek to set aside a judgment which is alleged to have been obtained by fraud (and that operates as an exception to the rule in Henderson v Henderson), that exception is subject to the additional requirement that evidence of the alleged fraud must not have been available to the party seeking to rely on it at the earlier trial.

The court therefore remitted the case to Newey J to determine whether Mrs Takhar has also satisfied the reasonable diligence condition, i.e. whether evidence of the alleged fraud could and should have been deployed at the trial of the 2008 claim so as to render the 2013 claim an abuse.

What does this show?

The case illustrates the court taking a balancing approach between two important policy considerations. On the one hand, there is a public interest in unravelling fraud, and so setting aside a judgment if it can be demonstrated it was obtained fraudulently. On the other though, there is a competing interest in the finality of litigation, and in preventing litigants from seeking to re-litigate the same subject matter by bringing new claims based on facts which were available to them at the time of the earlier trial.

In this case, the Court of Appeal firmly favoured finality of litigation over fraud unravelling everything, especially where the evidence of the fraud was available at the time of the original trial.

Points to remember

• Litigants should investigate claims fully at the outset and ensure that they bring all claims which can be properly evidenced.
• Claims brought at a later date, which could have been evidenced in earlier proceedings, are liable to be struck out as an abuse of process or res judicata.

For a contrasting case where later discovery of fraud allowed a party to unravel a settlement agreement, see our article "Suspicion of fraud does not prevent unravelling a settlement".