On 20 March 2019, the Supreme Court handed down its eagerly anticipated judgment in the case of Takhar v Gracefield. In what Lord Briggs described as a "bare-knuckle fight" between two longstanding public policy principles, "fraud unravels all" and "there must come an end to litigation", the Court was asked to adjudicate on whether a judgment procured by fraud could be reversed where the victim could have discovered evidence of the fraud before the original trial. In delivering the leading judgment, Lord Kerr stated that where a judgment had been obtained by fraud, and where no allegation of fraud had been raised at the trial that led to that judgment, the victim should not be required to have exercised reasonable diligence in uncovering the fraud.
The case arose out of a family feud. Mrs Takhar owned a number of properties in Coventry, some of which were in disrepair, before she ran into financial difficulties in 2004. She confided in her cousin, Mrs Krishan, who, with her husband, Dr Krishan (together "the Krishans"), took on responsibility for negotiating with Coventry City Council over the rates arrears and dilapidated state of some of the buildings. In November 2005, Gracefield Developments Ltd ("Gracefield") was incorporated, with Mrs Takhar and the Krishans as the shareholders and directors. Legal title to the properties was then transferred to Gracefield.
Mrs Takhar contended that it had been agreed between her and the Krishans that the properties would be renovated and let out and that she would remain beneficial owner of the properties. She subsequently issued proceedings in the Birmingham District Registry of the Chancery Division on the grounds that the Krishans had unduly influenced her resulting in her transferring the properties to Gracefield. In response, the Krishans alleged that Gracefield was set up as a joint venture company and that the properties would be sold after being renovated.
The Initial Trial
The trial judge, Judge Purle QC, decided in the Krishans' favour. In doing so he afforded significant weight to a written profit share agreement, which appeared to have been signed by Mrs Takhar. He concluded that the written agreement represented what had earlier been agreed orally between Mrs Takhar and the Krishans – namely that the properties would be transferred to Gracefield for the sum of £300,000 and that Mrs Takhar would receive 50% of the profits when the properties were sold. Mrs Takhar averred that she had not signed the document but could not show that the signature on the agreement was not hers.
In advance of the trial she had sought permission to obtain evidence from a handwriting expert to examine the authenticity of the signature, but this was refused because the application had not been made until the trial was imminent. After the trial she did obtain a report from a handwriting expert, Mr Radley, who concluded that the signature had in fact been fraudulently transposed onto the agreement from a previous letter Mrs Takhar had sent to the Krishans' solicitors.
Preliminary Issue on Abuse of Process
On the basis of the evidence of the handwriting expert, Mrs Takhar applied to have Judge Purle QC's judgment set aside on the ground that it was obtained by fraud. The Krishans argued that Mrs Takhar's claim was an abuse of process because the documents on which Mr Radley's report was based had been available to Mrs Takhar around 12 months prior to the trial before Judge Purle QC. An order was made that the question of whether Mrs Takhar's claim was an abuse of process be dealt with as a preliminary issue. Newey J held that a party seeking to set aside a judgment on the ground that it was obtained by fraud did not have to demonstrate that he or she could not have discovered the fraud by the exercise of reasonable diligence. Mrs Takhar's claim was not, therefore, an abuse of process.
The Krishans appealed this decision to the Court of Appeal, which allowed the appeal, finding that it was always necessary to satisfy the reasonable diligence condition and that there was no exception where the new evidence was evidence of fraud.
Mrs Takhar then appealed to the Supreme Court. Lord Kerr, giving the leading judgment, affirmed the "special place occupied by fraud" in the setting aside of judgments obtained by fraudulent means. The appeal was allowed and the order of Newey J restored. Lord Kerr stated that where a judgment had been obtained by fraud, and where no allegation of fraud had been raised at the trial which led to the judgment, no requirement of reasonable diligence should be imposed on the party seeking to set aside the original judgment. The idea that a fraudulent individual could stand to profit from a lack of reasonable diligence on the part of their victim would be "antithetical to any notion of justice".
Is this a points win for victims of fraud? Or has the final bell not yet rung on reasonable diligence?
The Supreme Court's decision provides helpful clarification on the grounds for setting aside judgments obtained by fraud. Victims of fraud can be reassured by the knowledge that they will not be committing an abuse of process if they seek to have a fraudulently-obtained judgment set aside even in scenarios where they adduce new evidence of fraud, having failed to exercise reasonable diligence in investigating the fraud in the first place.
There are, however, a number of stones which remain unturned. Lord Kerr held that a court would have discretion as to whether to entertain an application to set aside a judgment on the grounds of fraud where (i) fraud had been raised at the original trial and new evidence as to the existence of the fraud is put forward in order to advance a case for setting aside the judgment; and (ii) where a party deliberately decides not to investigate the possibility of fraud.