Fraud Unravels Everything: The Test for Admission of Fresh Evidence in an Action to Rescind a Judgment Obtained by Fraud

Mark Giddings, Bimaya De Silva and Natasha Wilson-Beddoe

Lord Denning in Lazarus Estates Ltd v Beasley [1956] 1 QB 702 famously said, “Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever”. His Lordship’s dictum has found renewed relevance of late, with the highest courts of Australia and the United Kingdom each hearing appeals concerning judgments alleged to have been obtained by fraud.

In March 2018, the High Court of Australia handed down its judgment in Clone Pty Ltd v Players Pty Ltd (in liq) [2018] HCA 12 (Clone v Players). In October 2018, the Supreme Court of the United Kingdom heard submissions for the appeal in Takhar v Gracefield UKSC 2017/0072 and judgment is currently reserved (a recording of the appeal is available on the Supreme Court’s website).

Both cases raised the question whether evidence of fraud which could have been but wasn’t led at trial should be admitted in proceedings to rescind a judgment. Answering this question requires examination of the historical basis of the jurisdiction to rescind a judgment fraudulently obtained. It also requires examination of the competing policy objectives of finality in litigation and preventing a litigant benefiting from his fraud.

Jurisdiction to rescind judgments fraudulently obtained

The unsuccessful parties in Clone v Players and Takhar v Gracefield sought to set aside judgment through proceedings in courts of original jurisdiction, rather than by appeal to a higher court. This procedure derives from an ‘original bill’, which gave the Court of Chancery the power to rescind or annul a decree on the basis of fraud. An ‘original bill’ was distinct from a ‘bill of review’, which gave the Court of Chancery much broader power to reverse or alter a decree where there was a substantial error of law or where a new matter had been discovered.

Historically, if a party wished to adduce fresh evidence in an action pursuant to a ‘bill of review’ it was necessary to show that the evidence could not have been obtained through the exercise of due diligence at the time of the original trial. By contrast, for a party seeking to rescind a judgment pursuant to an ‘original bill’, there was no requirement to show that they had exercised reasonable diligence in uncovering evidence of the fraud.

The Australian position on the admission of fresh evidence

Clone v Players involved a dispute over a lease agreement. After judgment had been entered in favour of the plaintiff, the defendant discovered evidence that the plaintiff’s lawyers had withheld information concerning the provenance of copies of the lease. The defendant successfully brought proceedings to have the judgment set aside on the basis of fresh evidence showing that the plaintiff’s lawyers had misled the court. However, in a unanimous decision, the High Court found that the conduct of the plaintiff’s lawyers had fallen short of fraud and that the original judgment ought not to have been set aside.

In reaching that decision, the High Court ruled that there was no requirement for an applicant who seeks to set aside a judgment obtained by fraud to establish that they had taken reasonable efforts to discover evidence of the fraud at first instance. Such a requirement was said to be inconsistent with the:

sharp historical distinction between an original bill to set a judgment aside for fraud and a bill of review. Reasonable diligence was never a requirement of an original action based upon fraud to set aside a judgment. It was only ever a condition for leave to be granted for a bill of review based on fresh evidence. (at [64])

The English position on the admission of fresh evidence

The position in England is not as clear. As the High Court observed in Clone v Players, there is a line of English authority that appears to import a due diligence requirement into an action to rescind a judgment obtained by fraud:

“It appears that the reason for the modern English position that reasonable diligence is required for the success of an original action to rescind a judgment for fraud has been based upon an assimilation of two historical sets of principles.” (at [67])

The first instance decision in Takhar v Gracefield [2015] EWHC 1276 (Ch) went against this line of authorities. The plaintiff, Ms Takhar, alleged that the defendants had obtained judgment in a property dispute by forging her signature on a joint venture agreement. Ms Takhar led fresh evidence from a hand writing expert that the signature was forged. Newey J held that Ms Takhar did not have to show that the new evidence could not reasonably have been discovered in time for the original trial. Referring to Australian and Canadian authorities, Newey J ruled that the policy concern that a litigant should not benefit from his fraud outweighed the policy concern that there should be finality in litigation.

In Takhar v Gracefield [2017] EWCA Civ 147, the Court of Appeal disagreed with Newey J and found that there was a due diligence requirement under English law. Ms Takhar appealed to the Supreme Court. In oral submissions, counsel for the appellant relied on the High Court of Australia’s decision in Clone v Players, among other Commonwealth authorities, as a recent affirmation that there was no due diligence requirement. Counsel argued that, as a question of policy, fraud trumps finality. English authorities to the contrary had taken a wrong turn, in particular with the decision of the House of Lords in Owens Bank Ltd v Bracco [1992] 2 AC 443, and ought not to be followed.

Counsel for the respondent also relied on Clone v Players, pointing out that the High Court had recognised that the positon in England differed to that in Australia. Counsel for the respondent was able to point to number of English authorities in support of a due diligence requirement. As to policy grounds, counsel argued, in the face of some notable resistance from the Court, that the due diligence requirement struck the right balance between allowing a remedy where there has been a fraud and upholding the principle of finality in litigation.

Conclusion

The position in Australia is well settled and has now been confirmed by the High Court in Clone v Players. There is no requirement that an applicant who seeks to set aside a judgment obtained by fraud must establish that evidence of the fraud could not reasonably have been discovered in time for the original trial. We await the decision of the Supreme Court in Takhar v Gracefield to clarify the position in England. On the one hand, there are several English decisions which, correctly or not, have made the due diligence requirement for the admission of fresh evidence a pre-condition for invoking the court’s jurisdiction to rescind judgments fraudulently obtained. On the other hand, there are strong policy reasons for the Supreme Court to dispense with a due diligence requirement, which would bring English law into line with other Commonwealth jurisdictions.

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