It has long been a principle of English law that, once proven, fraud invalidates judgments, as well as contracts and all transactions whatsoever, perhaps best encapsulated by Lord Denning in Lazarus Estates Ltd v Beasley [1956] 1 Q.B. 702, in which he memorably stated as follows:
“No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court… can be allowed to stand if it has been obtained by fraud. Fraud unravels everything.”
The law and wider public policy in this regard, however, also recognises the desirability for finality in litigation and the propensity for the parties to litigation to sometimes seek to raise allegations of fraud as a means by which to seek to re-litigate disputes decided against them.
Accordingly, whilst the common law may permit, typically by way of fresh proceedings, for a wronged party to seek to set aside a judgment obtained by fraud, the fraud must be particularised with great specificity and proven to a high standard, concerning matters that would have materially impacted the original decision (as opposed to merely being collateral).
Materiality: the fraud must be “an operative cause” on the original judgment
The correct test for materiality is set out in Highland, endorsed by the majority of the Supreme Court in Takhar, and namely Aikens LJ’s formulation to the effect that:
- there must be conscious and deliberate dishonesty in relation to the relevant evidence given, or action taken, statement made or matter concealed;
- the relevant evidence, action, statement or concealment must be “material” in the sense that the fresh evidence that is adduced after the first judgment is such that it demonstrates that the previous evidence or concealment was “an operative cause of the court’s decision to give judgment in the way it did” or that the fresh evidence “would have entirely changed the way in which the first court approached and came to its decision”; and
- the question of materiality of the fresh evidence was to be assessed by reference to its impact on the evidence supporting the original decision.
In practice, the three-part test set out by Aikens LJ can be considered in two parts, namely the “fraud condition” comprising his first criterion and the “materiality condition” comprising his second and third criteria.
Aikens LJ in Highland was not requiring that it be shown that, but for the fraud, the first judgment would not (on a balance of probabilities) have been given, but rather that the fraud was an operative cause of the judgment or would have entirely changed the first court’s approach.
The judge’s task is to see whether the new evidence impugns the original judgment. The judge must look at the new evidence alongside the old to establish if, considered together, the trial judge had been materially misled.
The requirement of materiality does not extend to the second court having to retry the question of the liability of the parties or to see whether the fresh evidence or new facts are material to the final result. The purpose of a second action is to take the parties back to the position as it was before the trial so that a new trial on honest evidence can then take place.
Taking Stock: practical tips for setting aside judgments for fraud
Recent developments give rise to the following considerations for litigants:
- “Materiality” is key. The Highland test for materiality must be satisfied and is critical to the cause of action to set aside for fraud. The fraud must be shown to have been an “operative cause” on the original judgment. The judge will look at the new evidence alongside the old to determine whether the court was materially misled.
- Clear and “new” evidence of fraud is essential. Courts demand compelling proof of conscious and deliberate dishonesty in obtaining the original judgment (now impugned). Evidence must be “new” (that is, obtained post the judgment), or (if not) there must be a very good reason why the fraud was not raised in the original proceedings.
- There is no requirement, however, to show reasonable diligence. If it is shown that a judgment has been obtained by fraud, it is not a reason to allow that judgment to stand that the victim of the deceit was negligent in failing to recognise or allege fraud in the earlier proceedings.
Disclaimer
This publication is a general summary of the law. It is not intended to constitute legal advice and should not be relied upon as such.
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