Practice and procedure – Abuse of process – Fraud – Appellant applying to set aside judgment on ground that respondents obtaining it by fraud – Whether application to be struck out as abuse of process – Whether appellant obliged to show that evidence of fraud could not have been discovered with reasonable diligence before judgment in earlier trial – Appeal allowed
The first respondent company was the registered proprietor of various properties in Coventry which had been transferred to it by the appellant, who, along with the second and third respondents, was a shareholder and director of the company.
The appellant claimed that the properties had been transferred as a result of undue influence or other unconscionable conduct on the part of the second and third respondents. Judge Purle preferred the respondents’ evidence, finding that the transfer had been made on the terms of a written joint venture agreement which accurately reflected what the parties had orally agreed. The appellant had effectively transferred the properties to the first respondent for £300,000, with the properties then to be refurbished by the second and third respondents and the appellant to receive 50% of the profits on re-sale; that was not an insufficient price and represented a fair return for the appellant.
The appellant later applied to set aside the judge’s order on the ground that it had been obtained by fraud. She claimed that her signature on the joint venture agreement had been forged and sought to adduce the evidence of a handwriting expert to that effect.
The respondents sought to have the appellant’s application struck out as an abuse of process. They contended that the handwriting expert’s report was based on documents that had been available to the appellant well before the trial of the original claim. They also asserted that they were not responsible for any forgery. The judge refused to strike out the application. He did not agree that the claim was an abuse of process: [2015] EWHC 1276 (Ch); [2015] PLSCS 145.
The Court of Appeal allowed the respondents’ appeal, holding that a person who sought to have a judgment set aside on account of fraud had to show that the fraud could not have been discovered by reasonable diligence: [2017] EWCA Civ 147; [2017] PLSCS 69. The appellant appealed.
Held: The appeal was allowed.
(1) A person who applied to set aside an earlier judgment on the basis of fraud did not have to demonstrate that the evidence of that fraud could not have been obtained with reasonable diligence in advance of the earlier trial.
(2) (per Lord Kerr (Lord Hodge, Lord Lloyd-Jones and Lord Kitchin agreeing) The existence or non-existence of fraud had not been decided in the proceedings before Judge Purle. It was a new issue which did not involve the re-litigation of an identical claim.
The basic principle was that the law did not expect people to arrange their affairs on the basis that others might commit fraud. Fraud occupied a special place in the setting aside of judgments obtained by its use. The idea that a fraudulent individual should profit from passivity or lack of reasonable diligence on the part of his or her opponent seemed antithetical to any notion of justice. A person who obtained a judgment through fraud deceived not only their opponent but also the court and the rule of law. Where it could be shown that a judgment had been obtained by fraud, and 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 the judgment: Owens Bank Ltd v Bracco [1992] 2 AC 443 and Owens Bank Ltd v Etoile Commerciale SA [1995] 1 WLR 44 considered.
(3) (per Lord Sumption (Lord Hodge, Lord Lloyd-Jones and Lord Kitchin agreeing) An action to set aside an earlier judgment for fraud was not a procedural application but a cause of action which was independent of the cause of action asserted in the earlier proceedings. There could be no question of cause of action estoppel. Nor could there be any question of issue estoppel, because the basis of the action was that the decision of the issue in the earlier proceedings was vitiated by the fraud and could not bind the parties.
Abuse of process was a concept relating to the court’s procedural powers. Where a question could have been but was not raised in earlier proceedings, the court’s power to restrain abusive re-litigation was flexible. An application would only be abusive if a claimant deliberately decided not to investigate a suspected fraud or rely on a known one. A more flexible and fact-sensitive approach would introduce an unacceptable element of discretion into the enforcement of a substantive right. The standard of proof for fraud was high but, once satisfied, there were no degrees of fraud which could affect the right to have a judgment set aside.
(4) (per Lord Briggs) This appeal turned on the outcome of a fight between two important and long-established principles of public policy: (i) that fraud unravelled all; and (ii) that there had to be an end to litigation. In the present case, the fraud principle prevailed. However, the court should apply a fact-intensive approach to whether a lack of diligence in earlier proceedings rendered a future claim to set aside a judgment on the basis of fraud an abuse of process.
(5) (per Lady Arden) In general, a judgment obtained by the fraud of the winning party should be rescinded because it was wrong in principle that a person who was proved to be a fraudster should obtain and retain the fruits of his fraud. There were occasionally exceptions to the principle that “fraud unravels all”. It was not for the court to determine the precise state of knowledge at any time of the appellant. However, there was no rule that want of reasonable diligence in the first action of itself led to a blanket ban on bringing an action to rescind a judgment which the claimant could properly allege the respondents obtained by fraud.
John Wardell QC and Andrew Mold (instructed by Tanners Solicitors LLP, of Cirencester) appeared for the appellant; Joseph Sullivan and Tom Nixon (instructed by Gowling WLG (UK) LLP, of Birmingham) appeared for the respondents.
Eileen O’Grady, barrister
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