Fraud versus finality - how to set aside judgments obtained by fraud: Takhar v Gracefield Developments Ltd and Others

This case came after more than a decade of related and contested hearings, which reached the Supreme Court in March 2019 ([2019] UKSC 13). In short, the Claimant sought to overturn a judgment made against her in 2010, which was decided, at least in part, on the basis of an agreement in which the Defendants had forged her signature (the Original Action).

Despite the Defendants’ allegations as to abuse of process, the Claimant was able to return to the High Court and seek to set aside the judgment handed down in the Original Action.  This was possible as a result of the Supreme Court’s ruling that:

• if it can be shown that a judgment has been obtained by fraud; and
• no allegation of fraud was raised at the original trial that culminated in that judgment (as it had not been here, following the Court’s refusal of permission for expert handwriting evidence),

then a party seeking to set aside the judgment does not have to show the fraud could not, with reasonable diligence, have been uncovered in advance of the judgment. It accordingly fell to Mr Steven Gasztowicz QC (sitting as a Deputy High Court Judge) to determine whether the original judgment should be set aside in light of new expert evidence that confirmed “there was conclusive evidence that the Claimant’s signature […] had been forged.”

In coming to his conclusion, Mr Gasztowicz QC acknowledged the “great weight” of the obiter observations made by the seven Supreme Court Justices in March 2019 (referred to above) regarding how to determine this issue. Specifically, they unanimously endorsed the following test for when a judgment can be set aside because it was obtained by fraud:

1. there must be “conscious and deliberate dishonesty” in relation to the relevant evidence given, or action taken, statement made or matter concealed, which is relevant to the judgment that is being sought to be impugned;
2. the relevant evidence, action, statement or concealment must be “material” in the sense that it was an operative cause of the Court’s decision to make judgment in the way it did (i.e. it must be shown that the fresh evidence would have entirely changed the way in which the first Court approached and came to its decision); and
3. the question of materiality of the fresh evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not by reference to its impact on what decision might be made if the claim were to be retried on honest evidence.¹

Applying this test in full, Mr Gasztowicz QC confirmed that he did not consider that this test was overstated; as Lord Briggs observed in the Supreme Court in the March 2019 hearing, the test “provide[s] some protection against the abusive use of fraud allegations as a way of re-opening decided cases”. Accordingly, Mr Gasztowicz QC set aside the judgment and found that:

• the agreement had been forged by the Defendants;
• the forged agreement had been a key part of the contemporaneous evidence produced by the Defendants for trial in the Original Action and relied on by the original Judge as pointing towards the Defendants’ case as being right; and
• had the original Judge known that the agreement had been forged and the Defendants had been responsible for the forgery that plainly would have – in the words of Aikens LJ – “entirely changed the way in which the first Court approached and came to its decision” and it was plainly an “operative cause of the Court’s decision to give judgment in the way that it did.”

This case clarifies the legal test to apply when considering whether to set aside a Court judgment on the basis it has been obtained by fraud and, importantly, is a reminder of the requirement of “materiality” in reaching that conclusion.

Although the Supreme Court rejected the imposition of a reasonable diligence requirement on a party seeking to set aside a judgment that was obtained by fraud, removing a possible bar to bringing such a challenge, it is still a difficult test to meet and the emphasis on materiality reserves this relief for only the most serious cases. In the words of Lord Sumption, there are still “very stringent conditions” that need to be met for fraud to unravel all and trump the finality of litigation.

¹ This test was originally articulated by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328