Taylor v Khodabakhsh & Ors

A judgment obtained by fraud may be set aside only where the dishonesty was material to the decision actually made. The court must consider its effect on the evidence and reasoning supporting the original relief, rather than on hypothetical claims that might have been brought with honest evidence.

A payment made under a valid court order passes legally and beneficially to the payee unless and until the order is set aside. Fraud alleged in obtaining the order does not itself create an immediate proprietary interest in the money.

A freezing injunction requires solid evidence of identifiable assets and a real, objectively assessed risk of unjustified dissipation. Dishonesty alone is insufficient, and delay may be an important factor against relief.

The claimant sought proprietary and worldwide freezing injunctions, a declaration extending earlier injunctions to the third defendant, and a stay of detailed costs assessment. The applications arose from proceedings in which the claimant’s claims against the respondents had been dismissed in a judgment later upheld on appeal.

The claimant alleged that the earlier judgment had been procured by forged and backdated documents concerning ownership of assets, and that the respondents had thereby caused the claimant to incur costs. He also claimed that money paid under an adverse costs order would be held on constructive trust for him.

The central issues were whether there was a good arguable case that the fraud was material to the earlier decision, whether the payments could support proprietary relief, and whether the requirements for freezing relief were met.

1. The applications were dismissed. The application to extend or continue the earlier injunctions against Rhino and the application to stay detailed assessment of costs were also refused.

2. The principles in Royal Bank of Scotland v Highland Financial Partners [2013] 1 CLC 596, as approved in Takhar v Gracefield Developments Ltd [2020] AC 450, applied. The claimant had to show conscious and deliberate dishonesty that was material in the sense that it was an operative cause of the earlier decision. Materiality concerned the impact on the original court’s approach and decision, not the result of a hypothetical retrial on different claims.

3. The court rejected the submission that materiality was confined to the result rather than the reasons. The reasons were relevant, but the focus remained on the relief actually sought and the reasons supporting that relief. The alleged fraud concerned a substantially different conspiracy and different loss from the claims determined in the earlier proceedings. It therefore did not readily satisfy the materiality test.

4. A payment made under a regular court order was not analogous to stolen property. The order remained valid and binding until set aside, so payment vested legally and beneficially in the recipient. The claimant had a cause of action to set aside the judgment, not an immediate right to rescind it or an immediate proprietary interest in money paid under it.

5. The proprietary injunction would in practice have determined the pleaded constructive-trust claim before trial. Applying the approach in Koza Ltd v Koza Altin Isletmeleri AS [2021] 1 WLR 170, the merits and the least irremediable prejudice were therefore especially important. The proprietary claim lacked sufficient merit.

6. A freezing order required assets capable of being caught by the order, a real risk of unjustified dissipation established by solid evidence, and a separate assessment against each respondent. Dishonesty did not by itself establish dissipation. The evidence did not identify a sufficient risk, and repayment of a genuine litigation-funding loan was not shown to be unjustified dissipation.

7. The claimant’s substantial delay, including the failure to seek relief when the respondents were joined to the earlier proceedings, was an important factor against relief. The balance of injustice and benefit also favoured refusal, particularly because the costs order remained unsatisfied and the respondents required funds to defend the proceedings.

8. The earlier injunctions had been made against the original defendants and had never been extended to Rhino. They could not independently bind Rhino, and any application concerning their continuation should have been made in the original proceedings.

• High Court (Chancery Division): the applications for proprietary and freezing injunctions, extension of earlier injunctions, and a stay of detailed costs assessment were dismissed.
• Earlier proceedings: the judgment in the original proceedings, [2019] EWHC 1951 (Ch), dismissed the claimant’s claims. The Court of Appeal later dismissed the substantive appeal in [2020] EWCA Civ 353.