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

 

Setting aside judgments for fraud: Court of Appeal considers what level of prior knowledge will disentitle the innocent party

The Court of Appeal has allowed a party to proceed with an action seeking to set aside a default judgment against him in earlier proceedings on the basis that the judgment was procured by fraud. The fact that, prior to the original proceedings, the party was aware of the factual circumstances now relied on to plead fraud did not mean that the action was an abuse of process: Park v CNH Industrial Capital Europe Ltd (trading as CNH Capital) [2021] EWCA Civ 1766.

The decision is of interest for its application of the principles recently confirmed by the Supreme Court in Takhar v Gracefield Developments Ltd [2020] UKSC 13 regarding the circumstances in which a judgment can be set aside for fraud or dishonesty (discussed in this post). Although the present case was decided in the context of a small business dispute, the principles discussed will apply equally in more complex commercial litigation.

Here, the alleged dishonesty lay in the fact that a deed upon which the original claim was based was said to have been procured by misrepresentation, and the claimant was said to have knowingly falsely asserted in its pleadings that the deed reflected what had always been the parties’ common intention.

The lower court’s decision to strike out the claim as an abuse of process failed to follow Takhar. There is no general principle that a party cannot set aside a judgment for fraud on the basis of evidence or facts that it knew about before the judgment was entered. While several of the judgments in Takhar suggested that an action might potentially be abusive if the party had made a deliberate decision not to raise the fraud allegation or rely on the evidence in the original proceedings, the court here noted that there is a distinction between a party being aware of the existence of facts or evidence and being aware that it could deploy that evidence to plead fraud. If the party was unaware of the latter, as was found to be the case here, it could not be said that it made a deliberate decision not to raise the issue.

The decision is also interest for its confirmation that applying for default judgment based on materially false pleadings can constitute deception of the court, even though the default judgment process is administrative and does not involve judicial consideration of the substantive allegations.

However, as we have previously noted, as a practical matter litigants who suspect some element of fraud should not assume that they will necessarily be entitled to re-open the litigation at a later date simply by producing evidence of the fraud. While the court’s approach to this issue is broadly supportive of victims of fraud, it does not give them carte blanche to “park” fraud allegations, either for tactical reasons or in the hope that stronger evidence of the fraud might come to light after judgment. In most cases, parties will still be well advised to investigate their suspicions and raise any allegations within the proceedings if they wish to pursue them. Continue reading