Takhar v Gracefield Developments Ltd & Ors

Where a judgment has been obtained by fraud, it may be set aside if the dishonest evidence, statement, concealment or other conduct was an operative cause of the decision. Materiality is assessed by its effect on the evidence supporting the original judgment, rather than by asking what result might follow at a retrial on honest evidence. Fraud need not be the sole or predominant cause. Evidence forming part of the court’s evidential mix may be material unless it is positively shown that it could not have affected the decision. The court must set aside the judgment if the conditions are met; it must not determine the substantive dispute afresh in the fraud action.

The claimant sought to set aside a 2010 judgment in favour of the defendants concerning the transfer and development of commercial properties through Gracefield Developments Ltd. She alleged that her signature on a profit-sharing agreement had been forged and that the forged document had materially influenced the original judgment.

A preliminary challenge to the present action travelled through the High Court, Court of Appeal and Supreme Court. The Supreme Court held that reasonable diligence was not a precondition where fraud had not been raised at the original trial. The remaining issues were whether the signature had been forged, whether the defendants were responsible, what test governed materiality, and whether the 2010 judgment should be set aside.

1. Applicable test. The court adopted the principles stated by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328. There must be conscious and deliberate dishonesty relating to evidence, an act, statement or concealment relevant to the impugned judgment. That matter must be material in the sense that the fresh evidence demonstrates that it was an operative cause of the decision.
2. Materiality is assessed by reference to the impact on the evidence supporting the original decision, not by reference to the outcome which might be reached after a retrial on honest evidence. The phrase “an operative cause” is important. Fraud need not be the sole or dominant cause. If fraudulent evidence formed part of the evidential mix on a crucial issue, it will ordinarily be material unless it is positively established that it could not have made any difference.
3. The court rejected the suggestion in Salekipour v Parmar [2017] EWCA Civ 2141 that the Royal Bank of Scotland formulation was overstated. The approach in Hamilton v Al-Fayed (No 2) [2001] EMLR 394 was treated as substantially consistent shorthand rather than a lower test.
4. The claimant’s signature on the profit-sharing agreement had been transposed from the Whiston letter. On the balance of probabilities, the defendants were responsible. The document was a key part of the contemporaneous evidence relied on by the original judge, who had treated the apparent signature as supporting the defendants’ case. Knowledge of the forgery would have entirely changed the way the original court approached the evidence and was plainly an operative cause of its decision.
5. The alleged forgery of the ISV documents was not proved. The action nevertheless succeeded because the profit-sharing agreement forgery was material. The 2010 order was set aside. The court did not decide the underlying property and profit-sharing dispute, which required a fresh trial.

• High Court: Newey J held that a party seeking to set aside a judgment for fraud need not show that the fraud could not reasonably have been discovered before trial.
• Court of Appeal: The appeal was allowed on the basis that a due-diligence condition applied.
• Supreme Court: The claimant’s appeal was allowed. The Court held that reasonable diligence was not required where fraud had not been raised at the original trial, and restored Newey J’s order.
• High Court (present judgment): The claim succeeded and the 2010 order was set aside.