Takhar v Gracefield Developments Ltd & Ors [2019] UKSC 13

Mrs Takhar sought to set aside a judgment she lost, alleging it was procured by a forged profit-share agreement. The Supreme Court held that a party seeking to set aside a judgment for fraud need not prove the fraud could not have been discovered with reasonable diligence.

Facts

Mrs Balber Kaur Takhar and her cousin, Mrs Parkash Kaur Krishan, became reacquainted in 2004 after many years. Mrs Takhar, facing financial and personal difficulties, transferred several Coventry properties in November 2005 to Gracefield Developments Ltd, a company in which she and Dr and Mrs Krishan were shareholders and directors. The parties disagreed as to the basis of the transfer: Mrs Takhar contended the properties were to be renovated and let, with her retaining beneficial ownership; the Krishans contended that Gracefield was a joint venture company and the properties were to be sold, with proceeds divided on an agreed basis.

In 2008, Mrs Takhar issued proceedings alleging undue influence and unconscionable conduct. At trial before HHJ Purle QC in 2010, a written profit share agreement dated 1 April 2006, apparently bearing Mrs Takhar’s signature, was central. The judge accepted the Krishans’ account and dismissed Mrs Takhar’s claim. Her pre-trial application to instruct a handwriting expert had been refused as too late.

After judgment, Mrs Takhar instructed new solicitors and obtained a report from handwriting expert Robert Radley, concluding that her signature on the profit share agreement had been transposed from an earlier letter. She then brought fresh proceedings seeking to set aside the judgment on the ground that it had been obtained by fraud. A preliminary issue was tried as to whether her claim was an abuse of process because the forgery could have been detected with reasonable diligence before the first trial.

Issues

The central issue was whether a party seeking to set aside a judgment on the ground that it was obtained by fraud must demonstrate that the evidence of fraud could not have been obtained with reasonable diligence before the original trial. A subsidiary issue concerned the correct treatment of earlier authorities, in particular Owens Bank Ltd v Bracco, Owens Bank Ltd v Etoile Commerciale SA, Hunter v Chief Constable of the West Midlands Police, and Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd.

Arguments

Appellant (Mrs Takhar)

It was argued that no due diligence requirement applied when seeking to set aside a judgment for fraud where the fraud had not been alleged or determined in the earlier proceedings. The fraud principle—that fraud unravels all—should prevail. She had in fact sought permission to adduce handwriting evidence but had been refused, and had not taken any deliberate decision not to investigate.

Respondents (the Krishans and Gracefield)

The respondents contended that the claim was an abuse of process because the documents underlying Mr Radley’s report had been available to Mrs Takhar’s legal team approximately twelve months before the first trial, so the alleged fraud could have been discovered with reasonable diligence. They relied on authorities suggesting that new evidence of fraud must not have been reasonably discoverable at the time of the original trial.

Judgment

The Supreme Court unanimously allowed the appeal and restored Newey J’s order that Mrs Takhar’s claim proceed to trial.

Lord Kerr (majority)

Lord Kerr held that neither Henderson v Henderson, Arnold v National Westminster Bank plc, nor Virgin Atlantic established a reasonable diligence requirement in cases where fraud was newly alleged and had not been determined in the earlier proceedings. He distinguished Phosphate Sewage Co Ltd v Molleson (which concerned additional evidence supporting the same relief previously sought), Hunter v Chief Constable of the West Midlands Police (which concerned collateral attack on a criminal conviction), and the Owens Bank cases (where fraud had already been litigated or the relevant dicta were obiter or unsupported by their cited authority).

He noted authoritative statements that fraud is “a thing apart” (Lord Bingham in HIH Casualty) and endorsed the reasoning of the Australian and Canadian courts in McDonald v McDonald, Toubia v Schwenke, and Canada v Granitile Inc, which rejected any due diligence requirement. Lord Kerr concluded that where a judgment has been obtained by fraud, and fraud was not raised at the original trial, a requirement of reasonable diligence should not be imposed. He left open two qualifications: where fraud had been raised at the original trial, or where a deliberate decision had been taken not to investigate a suspected fraud, the court might have a discretion.

Lord Kerr approved the principles articulated by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners lp, requiring conscious and deliberate dishonesty, materiality, and causation of the impugned judgment.

Lord Sumption

Lord Sumption agreed, emphasising that an action to set aside a judgment for fraud is a substantive cause of action, independent of the earlier cause of action, so neither cause of action nor issue estoppel applies. He invoked the principle that a person is entitled to assume honesty in those with whom he deals, citing Central Railway Company of Venezuela v Kisch and Redgrave v Hurd. He disagreed with Lord Briggs’ more flexible approach, regarding it as importing unacceptable discretion into the enforcement of a substantive right.

Lord Briggs

Lord Briggs concurred in the result but preferred a fact-intensive evaluative approach, weighing the gravity of the alleged fraud against the seriousness of any lack of due diligence, to determine whether proceedings were an abuse of process. He drew on the approach in Johnson v Gore Wood & Co.

Lady Arden

Lady Arden agreed the appeal should be allowed. She rejected a blanket rule but recognised that there may be legitimate restrictions in particular circumstances (for example, collusion, immateriality of the fraud, or deliberate decisions not to investigate), and suggested the Civil Procedure Rule Committee might consider procedural safeguards.

Implications

The decision establishes that a claimant seeking to set aside a civil judgment on the ground that it was obtained by fraud, where fraud was not raised at the original trial, need not show that the fraud could not have been discovered by reasonable diligence before that trial. The Court reaffirmed the deeply rooted common law principle that fraud unravels all, and aligned English law with the approach taken in Australia and Canada.

The judgment makes clear that the applicant must still satisfy the stringent requirements identified in Royal Bank of Scotland plc v Highland Financial Partners lp: conscious and deliberate dishonesty, materiality, and causation of the impugned judgment. Two potential qualifications were left open: where fraud was raised at the original trial, and where a deliberate decision was taken not to investigate suspected fraud. In both situations the court may retain some discretion.

The decision is significant for litigants, practitioners and the courts because it reinforces the integrity of judicial process by ensuring that fraudsters cannot shelter behind the carelessness of their victims. It confirms that an action to set aside a judgment for fraud is a distinct cause of action, not subject to res judicata. Lord Briggs and Lady Arden’s judgments indicate, however, continuing scope for procedural controls and for the abuse of process jurisdiction to prevent unmeritorious re-litigation. The boundaries of the two identified exceptions, and the role of any evaluative assessment of abuse, may fall to be developed in future cases.

Verdict: The appeal was allowed. The order of Newey J was restored, permitting Mrs Takhar’s claim to set aside the earlier judgment on the ground of fraud to proceed to trial. A party seeking to set aside a judgment for fraud, where fraud was not raised at the earlier trial, is not required to show that the fraud could not have been discovered with reasonable diligence before that trial.

Source: Takhar v Gracefield Developments Ltd & Ors [2019] UKSC 13