Court of Appeal confirms appropriate means for challenging judgment allegedly obtained by fraud

The Court of Appeal has dismissed an application made after final judgment to strike out a claim for abuse of process under CPR 3.4 or to set aside the judgment under the court’s general power at CPR 3.1(7) to vary or revoke court orders: Daniel Terry v BC Corporate Acceptances Ltd [2018] EWCA Civ 2422.

The court confirmed that where a party wishes to challenge a final judgment allegedly obtained by fraud, any such challenge should be made by one of the established methods, being: (i) appealing the decision and seeking to rely on fresh evidence and obtain a retrial, or (ii) bringing a fresh action to set aside the judgment.

The decision highlights the court’s reluctance to interfere with a final judgment which, in the interests of finality, should remain in place unless there are proper grounds for appeal. It also reinforces the high threshold to be met when seeking to challenge a judgment on the basis that it was obtained by fraud. As the decision shows, the courts are not willing to allow litigants to avoid that burden by seeking to obtain relief by the back door in reliance on the court’s general powers under the CPR.

Rosanna Pinker, an associate in our disputes team, considers the decision further below.

Background

The claimants, Mr Taylor and his two companies who were in the business of providing commercial loans, commenced proceedings against the defendant, Mr Terry, to recover premiums paid to him under a contract for the procurement of corporate bonds and a credit facility. Those services were never provided and the claimants claimed for breach of contract, fraud and misrepresentation on the basis that the organisations the defendant had held himself out as representing were sham companies.

The claimants obtained judgment in default of defence for the full amount of the premiums paid and damages. The defendant applied to set aside the judgment under CPR 13.3, but this application was dismissed on the grounds of (i) excessive delay and (ii) failure to put forward a defence with a real prospect of success. He applied for permission to appeal this decision, but this application was also dismissed.

Some two years later, the defendant applied for an order to strike out the claimants’ claims and a stay of all proceedings for abuse of process under CPR 3.4(2). The application alleged that the claimants’ claim was fraudulent and made to deceive the French courts, before which proceedings were ongoing against the third claimant for advance fee fraud, and that one of the purportedly “sham” companies was in fact a vehicle of the third claimant rather than the defendant. The claimants denied the allegations.

At first instance, the court (Laing J) dismissed the defendant’s application, holding that the court could not strike out a claim after judgment had been given as “the cause of action, and thus the claim, has merged in the judgment”. The judge noted that it would have been open to the defendant to apply for permission to appeal out of time against the refusal to set aside judgment in default, but the defendant had instead chosen to rely on the strike out application – no doubt because it was not conditional on the court’s permission.

The Court of Appeal granted permission to appeal against Laing J’s judgment on the basis that it was arguable that a more flexible approach should have been adopted. In giving permission, Gloster LJ also raised the possibility of an application to set aside the judgment being made under CPR 3.1(7), which provides that the court’s power to make an order includes a power to vary or revoke the order.

The issues considered by the Court of Appeal included:

  1. Whether the trial judge was wrong to conclude that the court did not have jurisdiction to strike out a claim after final judgment.
  2. Whether the defendant could apply to set aside the judgment under CPR 3.7(1).

Decision

The Court of Appeal dismissed the appeal, agreeing with the judge that there was no jurisdiction to strike out the claim after final judgment, and finding that there were no grounds for setting aside under CPR 3.7(1).

Means of challenging a judgment allegedly obtained by fraud

Before considering the above points, the court gave a helpful summary of the established means of challenging a judgment allegedly obtained by fraud, which are:

  • commencing a fresh action seeking to set aside the judgment on grounds of the fraud; or
  • appealing the decision (if necessary seeking permission to appeal out of time) and seeking to rely on fresh evidence in accordance with the conditions set out in Ladd v Marshall [1954] 1 WLR 1489, that the evidence: (i) could not have been obtained without reasonable diligence for use at the trial; (ii) would probably have an important influence on the result of the case; and (iii) is apparently credible.

The tension between these approaches was recognised in Noble v Owens [2010] EWCA Civ 224, in that the latter approach involves an appeal and a retrial without proof of fraud, whereas the former approach involves a fresh action being brought to prove the fraud. The court in that case reconciled the approaches on the basis that, unless the fraud is admitted or the evidence of it is incontrovertible, the issue of fraud must be properly particularised and proved, which will usually require a fresh action.

The court noted that, to succeed in an action to set aside a judgment, a party need not only to prove the alleged fraud but also that it involved “conscious and deliberate dishonesty” and that it was “material” to the decision reached. The applicant must also establish that the evidence relied on to establish the fraud could not with reasonable diligence have been obtained for the trial (see Takhar v Gracefield Developments Ltd [2017] EWCA Civ 147, considered here, though an appeal against this decision has recently been heard in the Supreme Court).

The court noted that the existence of these established procedures, which have strict requirements, undermined the defendant’s general position that it is consistent with the overriding objective that there exist parallel, wider powers under the CPR to enable the court to set aside a judgment obtained by fraud.

Strike out after final judgment

The defendant’s application to strike out the judgment under CPR 3.4(2) was made in reliance on Summers v Fairclough Homes Ltd [2012] UKSC 26. His position was that the application: (i) could be made at any time, including after judgment; (ii) did not require the “reasonable diligence” criteria in Ladd v Marshall to be met; and (iii) could be heard and decided without oral evidence.

The court considered whether the decision in Summers supported or justified the striking out of a claim after final judgment, holding that the judge had been correct to conclude that it did not, for the following reasons:

  1. The decision to strike out the claim in Summers was taken at the end of trial before final determination of the claim, when there remained a choice between striking out the claim and complete or partial dismissal of the claim. That was not the case once final judgment had been given.
  2. The court’s power under CPR 3.4 is a case management power and is therefore founded on there being a live case before the court to manage. Once judgment has been perfected, a party’s rights are under the CPR are those of appeal.
  3. The Summers decision was not focused on whether the power to strike out could be exercised after judgment, but if Lord Clarke had contemplated that it could, he would have needed to address the status of the claimant’s cause of action following judgment, and in particular whether it was merged in the judgment.
  4. Lord Clarke made clear that nothing in his judgment affected a case where fraud taints the entire claim (as was alleged by the defendant in this case), in which circumstances it would, he said, be open to a defendant to raise the issue in an appeal. Lord Clarke did not suggest that it would be open to a defendant in such a case to apply to strike out.

The court therefore concluded that there was nothing in Summers, or any other authority, which supported an application to strike out after final judgment. The court therefore had no jurisdiction to strike out the claim.

Setting aside under CPR 3.1(7)

In the alternative, the defendant sought to set aside the judgment under CPR 3.1(7), which provides that the court has a general power to vary or revoke an order it has made.

Having reviewed the relevant case law, the court held that the circumstances in which a final order could be varied or revoked under CPR 3.1(7) are likely to be very rare given the importance of finality. An interim order may be varied or revoked where there has been a material change of circumstances since the order was made or a misstatement of the facts on which the original decision was made (as established in Tibbles v SIG Plc [2012] EWCA Civ 518). However, those general considerations will not justify varying a final order.

There was in any event a further hurdle facing the application under CPR 3.1(7) in this case, namely that the correct procedure for challenging a default judgment is the specific procedure set out in CPR 13.3, not the general power under CPR 3.1(7).

Rosanna Pinker
Rosanna Pinker
Associate
Email
+44 20 7466 2184

Leave a Comment

Filed under Appeals, Fraud, Judgments/Orders

Leave a Reply

Your email address will not be published. Required fields are marked *