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16 April 2019
If a claimant applies to have a judgment set aside due to fraud, they need not attempt to uncover that fraud before the judgment, even where it is suspected. That is the position the Supreme Court has taken in Takhar v Gracefield Developments Limited.(1)
The claimant, Mrs Takhar, transferred several deteriorating properties to Gracefield Developments Limited, a company in which she and the two respondents (her cousin, Mrs Krishan, and her cousin's husband, Dr Krishan) were shareholders. At the time, Takhar was experiencing significant financial difficulties.
A dispute arose over ownership of the properties. A significant piece of evidence was a profit share agreement, apparently signed by Takhar, which outlined the division of profit on the sale of the properties.
During the hearing, Takhar stated that:
However, she was unable to:
She applied for permission from the trial judge to obtain evidence from a handwriting expert to examine the signature on the agreement, but the application was refused because the trial was imminent.
Ultimately, the trial judge held that the properties had been transferred to Gracefield Developments Limited, both legally and beneficially, on terms reflected in the profit share agreement.
A handwriting expert engaged post-trial concluded that Takhar's signature had been forged. On that basis, Takhar issued proceedings to have the judgment set aside.
The Krishans contended that this was an abuse of process because the agreement had been available to the claimant before the earlier trial. The application reached the Supreme Court. The court found that 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 applying to set aside the judgment.
The existence of fraud was a new issue to be decided and not a matter that had been raised in the earlier proceedings. This was demonstrated by the differences in relief sought. In the earlier proceedings, Takhar had sought to avoid the effect of the agreement because of undue influence and unconscionability, whereas in the current proceedings she claimed that the agreement itself was fraudulent.
The Supreme Court also acknowledged that Takhar had attempted to bring the matter before the court in the earlier proceedings but the court had refused to grant permission. Therefore, she had not deliberately decided not to investigate the fraud.
As the High Court had done, the Supreme Court found the Australian and Canadian courts' position on the matter to be compelling, both of which rejected the notion that due diligence is required in order to have a judgment set aside for fraud.
Ultimately, the Supreme Court regarded the idea of a fraudulent party profiting from their opponent's passivity or lack of reasonable diligence to be antithetical to any notion of justice.
While making it clear that this was not the court's final view on the matter, the Supreme Court indicated that there may be instances where fraud does not unravel all, and a court could exercise discretion as to whether to entertain a challenge to set aside judgment – for example:
The case indicates that fraud should unravel judgments in order to safeguard against injustices. Further, the court has made clear that innocent parties should not be burdened with an obligation to keep their eyes constantly peeled for acts of forgery. That said, a prudent litigator should investigate suspicions of fraud when they first come to their attention. This would avoid the time and costs involved in challenging a judgment that has been obtained by fraud.
For further information on this topic please contact Karina Plain or Andy McGregor at RPC by telephone (+44 20 3060 6000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
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