Public Policy Fight Club: “Fraud” prevails over “Finality” in this round

19 September 2019

 The recent decision by the Supreme Court, per Lord Briggs, turned “on the outcome of a bare-knuckle fight between two important and long-established principles of public policy. The first is that fraud unravels all. The second is that there must come an end to litigation.” Fraud emerged victorious.

Background

 Mrs Takhar (the Appellant) received a number of properties from her husband (as part of their separation arrangements in around 1999. The properties were very dilapidated and caused the Appellant financial difficulties. After many years the Appellant became reacquainted with her cousin, the Third Respondent, and became very dependent upon her. The Appellant claimed that the Third Respondent exerted considerable influence over her. The Third Respondent, and her husband, the Second Respondent (the Krishans) provided financial help to the Appellant.

In November 2005, it was agreed that the legal title in the properties would be transferred to the First Respondent, Gracefield Developments Ltd (Gracefield), a newly formed company of which the Appellant and the Krishans were directors and shareholders. The purpose of the transfer was disputed.

The Appellant claimed that the Krishans would finance the renovation of the properties and, once let, the rental income would repay the costs of the renovation. The Appellant claimed that she would remain the beneficial owner of the properties. The Krishans contended that Gracefield was a joint venture company in which the properties would be renovated and then sold. The Appellant would receive an agreed value for the properties and any additional profit would be divided equally.

The First Claim

 In 2008, the Appellant issued proceedings on the basis that the properties had been transferred to Gracefield as a result of undue influence or other unconscionable conduct on the part of the Krishans (the First Claim). The Judge at that time dismissed the Appellant’s claim (the Judgment). An important piece of evidence at trial was a copy of a written profit share agreement (PSA) between the parties which appeared to have been signed by the Appellant. At trial, the Appellant gave evidence that she could not say that the signature on the PSA was hers but was not able to explain how it had got there. The Appellant had sought permission to obtain evidence from a handwriting expert but was refused.

The Second Claim

 After trial, the Appellant instructed new solicitors who obtained a report from a handwriting expert. The expert concluded that the signature on the PSA, which was said to be that of the Appellant’s, had been transposed from a letter of 24 March 2006 which the Appellant had sent to the Krishans’ solicitors.

The Appellant applied to have the Judgment set aside on the basis that it was obtained by fraud. The Krishans claimed that this was an abuse of process because the PSA had been available to the Appellant and her legal team since at least 12 months prior to the trial of the First Claim. This point was tried as a preliminary issue before Newey J who held that a party who seeks to set aside a judgment on the basis that it was obtained by fraud did not have to demonstrate that he could not have discovered the fraud by the exercise of reasonable diligence. The Krishans appealed and their appeal was upheld. The Appellant appealed to the Supreme Court.

The Supreme Court upheld Newey J’s judgment: “where it can be shown that a judgment has been obtained by fraud, and where no allegation of fraud had been raised at the trial which led to that judgment, a requirement of reasonable diligence should not be imposed on the party seeking to set aside that judgment”.

The Supreme Court did make two qualifications to that general conclusion:

  • Where fraud has been raised at the original trial and the new evidence relied on is in support of that original allegation; or
  • Where the innocent party made a deliberate decision in advance of the first trial not to investigate a suspected fraud or not to rely on a known fraud

As such, the Appellant’s case has been allowed to proceed to trial.

This judgment is important because the Supreme Court has clarified the long standing body of uncertain case law which has caused judges, including the Court of Appeal in this case, to err on the side of caution. This decision also brings the jurisprudence of England & Wales to be more in line with that of Australia and Canada.

Frances Jenkins Author
Frances Jenkins
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