Takhar v Gracefield Developments Limited and others

A party seeking to set aside a civil judgment for fraud must rely on evidence not before the court in the original proceedings. Where fraud was not raised at the original trial, the party need not also prove that the fraud could not have been discovered by reasonable diligence. A reasonable person is generally entitled to assume that an opponent is honest.

The alleged fraud must involve conscious and deliberate dishonesty which was material to the judgment. It must have operated causally upon the court’s decision. Materiality is assessed by examining its effect on the evidence supporting the original decision, rather than predicting the result of a retrial. Whether different principles apply where fraud was previously alleged, or was deliberately left uninvestigated, remains open.

Mrs Takhar transferred properties to a company associated with her relatives. Her claim that the transfers resulted from undue influence or unconscionable conduct was dismissed in [2010] EWHC 2872 (Ch). A written profit-sharing agreement bearing what appeared to be her signature was important evidence against her.

After judgment, a handwriting expert concluded that the signature had been transposed from another document. Mrs Takhar commenced a new action seeking to set aside the judgment for fraud. Newey J held in [2015] EWHC 1276 (Ch) that her failure to discover the alleged fraud through reasonable diligence did not make the action an abuse of process.

The Court of Appeal allowed the respondents’ appeal in [2017] EWCA Civ 147. The central issue before the Supreme Court was whether a claimant seeking to set aside a civil judgment for fraud must show that the fraud could not, with reasonable diligence, have been discovered before the original trial.

1. Disposition. The appeal was allowed unanimously. Lord Kerr gave the principal judgment, with which Lord Hodge, Lord Lloyd-Jones and Lord Kitchin agreed. Lord Sumption, with the same three Justices, agreed subject to additional reasoning. Lord Briggs and Lady Arden agreed in the result but gave separate reasons. Newey J’s order permitting the fraud claim to proceed to trial was restored.

2. No reasonable-diligence condition. Where a civil judgment is alleged to have been obtained by fraud, and fraud was not raised in the original proceedings, the claimant need not prove that the fraud could not have been discovered through reasonable diligence. The law permits a person to conduct affairs on the assumption that others are honest. It would be contrary to justice and the integrity of the judicial process to allow a fraudster to retain the benefit of a judgment merely because the victim had been careless.

3. Independent cause of action. Lord Sumption explained that an action to set aside a judgment for fraud is a substantive cause of action concerning the conduct of the earlier proceedings. It is independent of the original cause of action. Cause-of-action estoppel does not arise, and issue estoppel cannot prevent an allegation that the earlier determination was itself vitiated by fraud. The evidence of fraud must be new in the sense that it was not before the original court, but it need not have been undiscoverable through reasonable diligence.

4. Requirements of the fraud claim. The court approved the principles stated in Royal Bank of Scotland plc v Highland Financial Partners lp [2013] 1 CLC 596. There must be conscious and deliberate dishonesty relevant to the judgment. That dishonesty must be material, meaning that it was an operative cause of the decision. Materiality is assessed by its effect upon the evidence supporting the original decision, not by predicting the outcome of a retrial. Mrs Takhar’s pleaded case had the potential to satisfy those requirements.

5. Questions left open. Lord Kerr expressed no final view about cases in which fraud was alleged at the original trial or deliberately left uninvestigated. Lord Sumption considered that a deliberate decision not to investigate suspected fraud or rely upon known fraud could alter the abuse analysis.

6. Separate reasoning. Lord Briggs preferred a broad, fact-sensitive inquiry into abuse of process, balancing matters such as the gravity and centrality of the fraud, the seriousness of any want of diligence, the strength of the allegation and the cost of renewed litigation. On the alleged facts, the claim was plainly not abusive. Lady Arden considered that any restriction upon a properly pleaded rescission action must be justified and proportionate. She also suggested that procedural safeguards might appropriately be considered through the Civil Procedure Rules 1998.

1. United Kingdom Supreme Court: In [2019] UKSC 13, the court unanimously allowed the appeal and restored Newey J’s order permitting the action to proceed to trial.
2. Court of Appeal: In [2017] EWCA Civ 147, reported at [2018] Ch 1, [2017] 3 WLR 853 and [2017] CP Rep 23, the court allowed the respondents’ appeal. It held that the fraud claim was abusive if it depended upon evidence which reasonable diligence could have produced at the original trial.
3. High Court, Newey J: In [2015] EWHC 1276 (Ch), the court decided the preliminary issue in Mrs Takhar’s favour. It held that reasonable diligence was not a condition of an action to set aside a judgment for fraud.
4. High Court, HHJ Purle QC: In [2010] EWHC 2872 (Ch), the court dismissed Mrs Takhar’s original claim based on undue influence and unconscionable conduct.