The Royal Bank of Scotland Plc v Highland Financial Partners LP & Ors

A judgment obtained by fraud must be set aside where relevant evidence, conduct, statements or concealment involved conscious and deliberate dishonesty and was an operative cause of the judgment. Materiality concerns the effect of the fresh evidence on the original court’s approach, not the likely outcome of a later retrial. A party cannot retain the fruits of a judgment procured by fraud merely because later proceedings reached the same result.

A witness’s fraud is attributable to a company where the witness had the status necessary to make the evidence the company’s own. Equitable relief may also be refused for unclean hands where misconduct has an immediate and necessary relation to the relief. Perjury in proceedings seeking an anti-suit injunction, concerning the allegations sought to be restrained abroad, satisfies that connection.

RBS financed a portfolio of loans for a proposed collateralised debt obligation. After the transaction was terminated, RBS transferred 36 loans to its banking book and conducted a purported competitive sale process. It subsequently obtained summary judgment against three Highland entities for an alleged shortfall.

Further evidence established that the 36 loans had never been available for sale and that RBS’s principal witness had deliberately concealed and misstated that fact. Burton J nevertheless refused to set aside the liability judgment, holding that dishonesty and causation had not been established. He also refused RBS a permanent anti-suit injunction restraining related proceedings in Texas because RBS came to court with unclean hands: [2012] EWHC 1278 (Comm).

RBS appealed against the refusal of the injunction. Highland cross-appealed against the refusal to set aside the liability judgment. The principal questions were whether that judgment had been procured by fraud, whether the witness’s conduct was attributable to RBS, and whether his further misconduct was sufficiently connected with the anti-suit relief sought.

1. Disposition. The Court of Appeal unanimously dismissed RBS’s appeal and allowed Highland’s cross-appeal. The liability judgment, the earlier Court of Appeal judgment affirming it and the dependent quantum judgment were set aside. The refusal of the anti-suit injunction was affirmed.
2. Judgment obtained by fraud. Aikens LJ held that setting aside required conscious and deliberate dishonesty concerning evidence, conduct, a statement or concealment relevant to the impugned judgment. The fraud also had to be material by operating as a cause of that judgment. The principles in The Ampthill Peerage Case [1977] 1 AC 547 applied.
3. The email describing the loan-sale process was deliberately misleading because RBS had already determined that the 36 loans would not be sold to third parties. The responsible employee continued that misrepresentation through correspondence, pleadings and witness evidence. His reliance on solicitors’ advice that quantum material need not be disclosed did not answer the fraud because he had deliberately withheld the facts on which proper advice depended.
4. The fraud was an operative cause of the summary judgment. Full disclosure would probably have prevented RBS from applying for summary judgment in the form used and would probably have prevented the court from granting it. Materiality depended on the effect of the new evidence upon the original decision-making process. It did not depend on whether a later trial on honest evidence might reach the same ultimate result.
5. Corporate attribution. The applicable inquiry was whether the individual had the status necessary to make his evidence that of the company. He was RBS’s essential witness, was authorised to give evidence on its behalf and participated in its litigation case. His misconduct and perjury were therefore attributable to RBS.
6. Unclean hands. Misconduct bars equitable relief where it has an immediate and necessary relation to the equity sought. RBS relied on false evidence in the English proceedings whose object was to stop litigation in Texas concerning the same alleged misconduct. That connection was direct and sufficient. The anti-suit injunction was therefore properly refused, and Highland and Scott Law remained bound by their undertakings not to seek multiple or punitive damages.
7. Jurisdiction clause. Although unnecessary to the result, Aikens LJ considered that the interlocking transaction documents should be construed together. The wording of the clause made it exclusive, covered disputes connected with the transaction and extended to the claims against the employees acting for RBS.

• Court of Appeal (Civil Division), 2013: In The Royal Bank of Scotland Plc v Highland Financial Partners LP & Ors [2013] EWCA Civ 328 , RBS’s appeal was dismissed and Highland’s cross-appeal was allowed. The liability, earlier appellate and quantum judgments were set aside.
• Commercial Court, 2012: Burton J refused RBS permanent anti-suit injunctions and dismissed Highland’s claim to set aside the liability judgment for fraud: [2012] EWHC 1278 (Comm) . The Court of Appeal affirmed the former ruling and reversed the latter.
• Court of Appeal (Civil Division), 2010: Highland’s appeal against summary judgment on liability was dismissed: [2010] EWCA Civ 809 . That judgment was set aside in the present appeal.
• Commercial Court, 2010: Burton J first entered summary judgment for RBS on liability. He later entered a quantum judgment requiring payment of approximately €21 million: [2010] EWHC 3119 (Comm) . Both judgments were set aside in the present appeal.