Takhar v Gracefield Developments Ltd & Ors

A judgment obtained by fraud can be set aside only where conscious and deliberate dishonesty was material and causative, and the fresh evidence would have changed the first court’s approach. A party seeking to reopen a judgment must also show that the evidence could not, with reasonable diligence, have been produced at the earlier trial. That requirement applies even where the later action alleges that the earlier judgment was procured by forged evidence or other fraud. Although strict issue estoppel may not arise where the fraud allegation was not previously litigated, the wider policy against direct or indirect collateral attacks still applies. An appeal based on fresh evidence is governed by a less rigorous test than a later action challenging the earlier judgment.

Mrs Balber Takhar’s original claim concerned the transfer of properties to Gracefield Developments Ltd. The claim was dismissed after Judge Purle found that the transfer had been made under a joint venture agreement.

Mrs Takhar later commenced proceedings seeking to set aside that judgment on the basis that her signature on the agreement had been forged and that false evidence had been given. Newey J held that the new claim was not an abuse of process and refused to strike it out. The defendants appealed.

The central issue was whether a claimant challenging a judgment allegedly obtained by fraud must show that the evidence of fraud could not have been obtained with reasonable diligence before the original trial.

The lead judgment was given by Patten LJ, with King LJ and Simon LJ agreeing.

1. Disposition. The appeal was allowed. The issue whether Mrs Takhar satisfied the reasonable-diligence condition was remitted to Newey J.
2. Fraud and materiality. The court proceeded on the common ground that setting aside a judgment for fraud requires conscious and deliberate dishonesty in relevant evidence, conduct, statements or concealment. The dishonesty must be material and causative of the judgment. The fresh evidence must be assessed by its effect on the evidence supporting the original decision, rather than by asking what result might follow from a retrial on honest evidence.
3. Finality and issue estoppel. Under Henderson v Henderson, Arnold v National Westminster Bank plc and Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd, a point cannot ordinarily be re-litigated on fresh material unless that material could not, with reasonable diligence, have been produced earlier. The present action was not strictly barred by issue estoppel because the alleged forgery had not been raised or decided in the original proceedings. The wider policy against collateral attacks nevertheless applied.
4. Fraud-based collateral challenges. The principles in Hunter v Chief Constable of the West Midlands and Phosphate Sewage Co Ltd v Molleson showed that the reasonable-diligence condition applies even where the challenge alleges fraud or forged evidence. The distinction between an appeal and a collateral action remains important: the Ladd v Marshall test for fresh evidence on appeal is less rigorous.
5. The competing Commonwealth approach that fraud should automatically displace the diligence requirement could not be adopted consistently with binding English authority, including Owens Bank Ltd v Bracco. The fraud allegation therefore did not, without more, prevent the later claim from being an abuse of process.

• Court of Appeal (Civil Division). In [2017] EWCA Civ 147, the defendants’ appeal was allowed and the reasonable-diligence issue was remitted to Newey J.
• High Court, Chancery Division. Newey J, in [2015] EWHC 1276 (Ch), held that the later fraud-based claim was not an abuse of process and refused to strike it out.