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22 March 2019 / by / in

A bare-knuckle fight between fraud and finality – fraud wins

Takhar v Gracefield [2019] UKCA 13 is a Supreme Court case of fraud unravelling everything. In the case a photocopy document, a joint venture agreement, bearing an apparently authentic signature was produced. However, after the trial it transpired that the document was a forgery. The party’s signature accepted at trial to be genuine had been photocopied onto a document and the original documentation destroyed. A late application for forensic examination of the document by a handwriting expert was refused because it was made too close to trial.

The fraud was subsequently discovered and the aggrieved party sought to set aside the judgment. The application to rescind the judgment was resisted as an abuse of process, because the documents on which the expert relied to expose the fraud had been available before the trial and the evidence of fraud could have been obtained before the trial with reasonable diligence. Lord Kerr decided that the existence or non-existence of fraud had not been decided by the trial judge, so this was not a re-litigation of the same issue. It is a basic principle that the law does not expect people to arrange their affairs on the basis that others may commit fraud. He relied on Canadian dicta of Brennan J in Gould v Vaggelas ‘A knave does not escape liability because he is dealing with a fool?’.

This was bolstered by another dicta of Lederer J from the Ontario Superior Court of Justice:

“A failure to exercise due diligence where fraud might otherwise have been discovered is not enough to sustain a judgment which resulted from that fraud.” He went on to refer to the “…fundamental proposition that fraud unravels everything… We are not required to be ‘perpetually on guard’ so that we are looking to discover the fraud of another party… Where fraud is present, finality will give way to the responsibility of the court to protect its process ‘so as to ensure that litigants do not profit from their improper conduct’…”

The principles set out by Aikens L J in RBS v Highland Financial Parties were approved:-

“The principles are, briefly: first, there has to be a ‘conscious and deliberate dishonesty’ in relation to the relevant evidence given, or action taken, statement made or matter concealed, which is relevant to the judgment now sought to be impugned. Secondly, the relevant evidence, action, statement or concealment (performed with conscious and deliberate dishonesty) must be ‘material’. ‘Material’ means that the fresh evidence that is adduced after the first judgment has been given is such that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court’s decision to give judgment in the way it did. Put another way, it must be shown that the fresh evidence would have entirely changed the way in which the first court approached and came to its decision. Thus the relevant conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms it was. Thirdly, the question of materiality of the fresh evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not by reference to its impact on what decision might be made if the claim were to be retried on honest evidence.”

Lord Sumption added that an action to set aside an earlier judgment for fraud is not a procedural application but an independent cause of action. Re-litigation of an issue relates to the court’s procedural powers and is abusive only where the point ‘should’ have been argued previously, not where it ‘could’ have been argued previously, e.g. in a case where the claimant had decided not to investigate a suspected fraud or rely on a known one.

Lady Arden said that “there is no reasonable diligence rule barring fresh actions based on fraud.”

However, the most colourful judgment was made by Lord Briggs, who said the case turned on a “bare-knuckle fight between two important and long established principles of public policy. The first is that fraud unravels all. The second is that there must come an end to litigation.”.

He went on to disagree with Lord Kerr in a passage which was disapproved by Lord Sumption. In setting up the fight between the fraud principle and the finality principle Lord Briggs eschewed the bright-line law approach for a fact sensitive approach. He refers to Lord Kerr’s judgment and goes on to say; “I have been unable to follow him all the way down a path which seeks to erect a reliable bright-line boundary between types of case where one principle or the other should clearly prevail. There will be too many cases where that supposed bright line is either invisible, or so technical that it fails to afford a basis for choosing between the two principles which accords with justice, common sense or the duty of the court to retain control over its own process, and thereby protect it from abuse. I would have preferred a more flexible basis upon which, recognising that many cases will straddle any bright line, the court can apply a fact-intensive evaluative approach to the question whether lack of diligence in pursuing a case in fraud during the first proceedings ought to render a particular claim to set aside the judgment in those proceedings for fraud an abuse of process. This approach would in particular seek to weigh the gravity of the alleged fraud against the seriousness of the lack of due diligence, always mindful of the principle that victims of a fraud should not be deprived of a remedy merely because they are careless.”

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John specialises in commercial and civil fraud litigation. Admitted as a solicitor in 1983, John worked in private practice and in-house for a leading life assurance company before establishing Bivonas with Antony Brown in 1997. John has extensive experience in a wide range of courts and tribunals including the UK Supreme Court, the Court of Appeal and the Divisional Court. He has been involved in a number of important reported cases.