Unravelling judgments – fraud and the courts

Most people will be familiar with the mantra that “fraud unravels all” and that judgments obtained by deploying fraudulent evidence will not be allowed to stand. This was recently put to the test by a 7-member panel in the Supreme Court case of Takhar v Gracefield Developments Limited and others [2019] UKSC 13.

The facts

Mrs Takhar obtained a number of properties on separating from her husband. The properties fell into disrepair and Mrs Takhar turned to her cousin, Mrs Krishnan, and Dr Krishnan, her cousin’s husband for help. Dr and Mrs Krishnan set up Gracefield Developments Limited (Gracefield), with Mrs Takhar and the Krishnans as shareholders. The properties were transferred into the company.  From this point everything went downhill.

On 24 October 2008, Mrs Takhar issued proceedings against Gracefield and her relatives, claiming that the properties had been transferred as a result of undue influence or other unconscionable conduct.  During the proceedings, a written profit share agreement, apparently signed by Mrs Takhar, was produced, backing-up the Krishnan’s version of events. Mrs Takhar made an application to adduce handwriting expert evidence shortly before trial, which the judge rejected and no allegation of forgery or fraud was made. HHJ Purle QC, perhaps unsurprisingly, rejected Mrs Takhar’s claim. 

The second proceedings

Following the trial, Mrs Takhar’s new solicitors instructed a handwriting expert, who concluded that the signature on the profit share agreement had been lifted from a letter sent by Mrs Takhar. The document, the expert concluded, was a forgery.

Mrs Takhar issued further proceedings seeking to set aside the original judgment. Gracefield claimed that Mrs Takhar’s claim was an abuse of process as the matter had already been decided and any fraud could have been discovered at the time of the original proceedings. This point, in essence either cause of action estoppel or issue estoppel (or as they are also known, res judicata), was heard as a preliminary issue. 

The Supreme Court decision

The Supreme Court considered both cause of action estoppel and issue estoppel. The Court of Appeal had decided that there was a requirement, for bringing fresh proceedings to set aside a judgment, that the new evidence relied upon could not have been discovered by reasonable diligence during the original proceedings. Mrs Takhar’s case was, therefore, an abuse of process.  

Their Lordships agreed with the Court of Appeal that, when bringing fresh proceedings on a point already decided by a court, there is a prerequisite that the new material now relied upon must not have been discoverable through reasonable diligence. Further, there is a general principle that a party should normally bring the whole of its case in the original proceedings (Henderson v Henderson (1843) 3 Hare 100).

In Mrs Takhar’s case, however, fraud had not been in issue between the parties in the original proceedings. Further, it was a policy matter whether fraud should override the general principles. Lord Kerr, giving the leading judgment endorsed a wealth of Commonwealth authority on the point, holding that:“…It appears to me that the policy arguments for permitting a litigant to apply to have judgment set aside where it can be shown that it has obtained by fraud are overwhelming.”

There is, therefore, no reasonable diligence prerequisite where fraud was not alleged in the original proceedings. It was not relevant that it could have been discovered at the time. Mrs Takhar’s appeal was, therefore, allowed and Newey J’s judgment restored.

Comment

Where fraud was not alleged in the original proceedings, it will not be an abuse of process to bring fresh proceedings, even if the fraud could have been discovered earlier. In his conclusion, however, Lord Kerr rowed back slightly from an absolute rule that fraud unravels all. He stated, albeit obiter (i.e. not an essential part of the decision), that:“…Two qualifications to that general conclusion should be made.  Where fraud has been raised at the original trial and new evidence as to the existence of the fraud is prayed in aid … the court … should have discretion as to whether to entertain the application… The second relates to the possibility that … a deliberate decision may have been taken not to investigate the possibility of fraud in advance of the first trial, even if that had been suspected.  If that could be established, again, I believe that a discretion whether to allow an application to set aside the judgment would be appropriate…”

Neither of these two points were before the Supreme Court, as Mrs Takhar had not alleged fraud in the original trial and had sought to adduce handwriting evidence, albeit very late in the day..