Setting aside a judgment for fraud: applying the three-limb test

In a recent decision the Court of Appeal has analysed how a court should apply the established test as to when a judgment should be set aside on the basis of fraud: Tinkler v Esken Ltd [2023] EWCA Civ 655.

Despite the traditional adage that “fraud unravels all”, an unsuccessful litigant must do more than merely produce evidence of fraudulent conduct by its opponent in order to have the judgment set aside. It must satisfy a court that (i) the successful party (or someone for whom it must take responsibility) committed conscious and deliberate dishonesty, (ii) the dishonest conduct was material to the original decision and (iii) there is new evidence before the court (The Royal Bank of Scotland plc v Highland Financial Partners LP and others [2013] EWCA Civ 328).

The present decision reinforces prior authority that such an application is a freestanding claim, in which it is the fraud and its impact on the original decision that need to be proved. The court’s task is not to retry the issues in the underlying action, or to speculate as to how the trial judge would have ruled if the full and accurate evidence had been before them. The question for the court to decide, and for an applicant to address, is whether the new evidence discloses a fraud on the court and whether it undermines the supporting basis for the original findings, to an extent that vitiates the court’s ruling.

However, as the judgments in this case illustrate, what that distinction means in practice will not always be straightforward.  As the Court of Appeal observed, the nature of the fraud may be such that the question of the new evidence’s impact is inextricably linked with the original evidence and the trial judge’s findings.

The decision suggests that, provided a court has directed itself to the correct question, it will not be constrained by technical restrictions as to what it can and cannot take into account. In particular, it usefully confirms that, while the focus of the enquiry should be on the impact of the new evidence, a court may have regard to the evidence led at trial and the trial judge’s assessment of it to the extent necessary to form a view as to whether the new evidence discloses fraud that vitiates the original ruling.

Background

The underlying proceedings involved a boardroom dispute between a company director, Mr Tinkler, and his fellow board members, regarding his removal as a director and dismissal as an employee for alleged misconduct.  In a High Court action, the trial judge ruled that Mr Tinkler had breached his duties to the company and that his removal and dismissal were lawful and valid. That conclusion was based in part upon the evidence of witnesses associated with the company.

Mr Tinkler subsequently brought an action to set aside that judgment on the basis of fraud, relying on new material he had obtained from the company in separate employment proceedings. He claimed that the new material showed that the relevant witnesses had deliberately failed to disclose or had destroyed documents which would show that the evidence they gave at the trial was false.

The High Court dismissed the application to set aside the judgment, primarily on the basis of a finding that the dishonesty and fraud alleged were not established.  Mr Tinkler appealed from that dismissal, arguing that the High Court had adopted the wrong approach to the application. Amongst other things, he submitted that:

(i)   the court had wrongly excluded consideration of the original evidence before the trial judge – which, Mr Tinkler said, when taken together with the new evidence would prove that the witnesses had lied;

(ii)  the court had placed inappropriate reliance on what the trial judge had decided on the relevant issues, when the whole point of the fraud action was to demonstrate that his findings were unsafe; and

(iii)  in its approach to the materiality requirement, the court should have applied the test of (a) whether was a real danger that the deception had affected the outcome of the trial (as stated in Hamilton v Al Fayed (No. 2) [2001] EMLR 15), rather than (b) whether the alleged fraud was an operative cause of the court’s decision, or the new evidence would have entirely changed the court’s approach (as stated in Highland Financial Partners).

Decision

The Court of Appeal (Sir Geoffrey Vos, Popplewell and Snowden LLJ) dismissed the appeal.

It was clear that the High Court had understood that its task was not to conduct a retrial of the relevant issues but, rather, to hear and evaluate the new evidence to determine whether there had been a fraud on the court and then, if so, consider its materiality in order to decide whether the court’s ruling could stand in light of it.

In doing so, the High Court had adopted a satisfactory course. While its methodology may have been unorthodox in starting with the trial judge’s findings on each relevant factual issue, it was clear from the judgment taken as a whole that the court did not consider itself bound by those findings, and that it was not wrongly focused on how the trial judge may have decided those issues if the new evidence had been available.

When assessing the initial question of whether the new evidence disclosed conscious and deliberate dishonesty in the conduct of the proceedings, a court is not limited to considering the new evidence to the exclusion of the evidence led at trial, and the court here did not do so. While it correctly concentrated on the impact of the new evidence, it was entitled to and did consider aspects of the original evidence to the extent that that was necessary to understand how the new evidence was said to show that the trial judge had been misled.

However, the court was not required (under the materiality requirement or otherwise) to consider the new evidence alongside all of the original evidence so as to effectively retry the relevant issues. To the extent that it made any practical difference in this case (which the High Court had doubted), the High Court was right to regard the test of materiality in Highland Financial Partners as applicable here, rather than that in Hamilton. The preponderance of case law supported Highland Financial Partners, and Hamilton was not an action to set aside a judgment for fraud but an application to adduce new evidence, which involves fundamentally different questions.

Jan O'Neill
Jan O'Neill
Professional Support Lawyer, London
+44 20 7466 2202

 

UK proposes new offence of failure to prevent fraud

Last week saw the UK government’s long-awaited introduction of a proposed new criminal offence of failure to prevent fraud, which would apply to both UK and non-UK incorporated entities that fall within its scope.

While this blog is focused primarily on civil action in respect of fraudulent and dishonest conduct, it is often the case that such conduct can be the subject of both civil and criminal action. The interaction between the civil and criminal law and procedures in such situations is governed by (somewhat technical) legal principles. But, for both civil fraud claimants and defendants, any potential for parallel criminal action will an important factor in the mix when formulating their litigation strategy – including as to where and when civil action should be brought, sources of evidence, and settlement decisions.

As currently drafted, there would appear to be some potential for the new offence to apply in scenarios that could also be the subject of civil fraud claims in the commercial courts. However, the proposals are still at an early stage in the Parliamentary process and any potential impact in the civil fraud context remains to be seen.

For more on the proposed offence, see this briefing from our Corporate Crime team.

Court of Appeal confirms company assets fall outside direct scope of freezing injunction against company’s owner

The Court of Appeal has clarified the definition of “assets” for the purpose of the standard form freezing injunction, confirming that assets belonging beneficially to a wholly owned company are not directly caught by an injunction against that company’s sole shareholder: Lakatamia Shipping Company Limited v Nobu Su & Ors [2014] EWCA Civ 636. In doing so, it has disapproved the first instance judge’s reasoning to the contrary, bringing the analysis on the point into line with that of Hildyard J in the unrelated case of Group Seven Ltd v Allied Investment Corporation Ltd [2013] EWHC 1509 (Ch) (whose reserved judgment was, by coincidence, handed down on the very same day).

The appeal was, however, dismissed on other grounds; the Court agreed with the judge’s alternative reasoning that the injunction in any event prohibited the shareholder from procuring any disposition by any of his companies likely to result in a diminution in the value of his own assets – his shareholdings. Richard Mendoza considers the decision below. Continue reading