Fraud on the Court: When Post-Trial Evidence Vitiates Judgment (Tinkler v Esken Ltd (Formerly Stobart Group Ltd) [2023] EWCA Civ 655)

Tinkler v Esken Ltd (Formerly Stobart Group Ltd) [2023] EWCA Civ 655

Background

The Appellant (“Mr Tinkler”) was a director, substantial shareholder and former CEO of the Respondent (“SGL”).  He stepped down as CEO in 2017 to focus on investment activities through a related entity (“SCL”) in which he was a majority shareholder. SCL’s remaining shares were held by Mr Soanes, another of SGL’s board members.

In 2018, a boardroom dispute arose between Mr Tinkler, on the one hand, and SGL’s Chair (“Mr Ferguson”), its new CEO (“Mr Brady”) and Mr Soanes. In May 2018, Mr Soanes brought proceedings against Mr Tinkler and SCL for constructive dismissal (the “Employment Proceedings”). In June 2018, Mr Tinkler was summarily dismissed from his directorship and employment at SGL, for breach of his fiduciary duties. Mr Tinkler was promptly re-elected to SGL’s directorship by its shareholders, but in July 2018, SGL’s board again dismissed Mr Tinkler under an express power within the articles of association.

The validity of the dismissals was put before HHJ Russen QC in late 2018. Mr Tinkler’s case was that his former board colleagues had formed a “premeditated plan” to remove him from SGL. In November 2019, HHJ Russen dismissed Mr Tinkler’s claims.

In April 2020, the Employment Proceedings were also dismissed. The Tribunal’s decision, however, caused Mr Tinkler to review Mr Soane’s disclosure. He discovered communications between Mr Soanes and Mr Brady, allegedly evidencing the “premediated plan” tried by HHJ Russen. The documents had not been disclosed in those proceedings. Mr Tinkler therefore brought claims to set aside HHJ Russen’s judgment on the basis that it had been procured by fraud.

The Court Below

The elements of a claim to set aside a judgment procured by fraud were not disputed before Leech J (‘the “Judge”): (i) the successful party must commit conscious and deliberate dishonesty (“Limb 1”), (ii) the dishonest conduct must be material to the original decision (“Limb 2”), and (iii) there must be new evidence before the Court (“Limb 3” collectively, the “Test”).

Counsel for Mr Tinkler invited the Judge to decide afresh inter alia the main factual issue resolved by HHJ Russen (whether the board had formed a premeditated plan to remove Mr Tinkler). Although, as below, this approach would lead to confusion, SGL did not object.

Accordingly, the Judge addressed the issues by: (i) identifying any relevant findings made by HHJ Russen; (ii) identifying the new evidence on which Mr Tinkler relied under Limb 3; (iii) considering whether the new evidence showed dishonest conduct (i.e. fraud) under Limb 1; and (iv) considering the materiality of thereof, per Limb 2.

In June 2022, the Judge dismissed Mr Tinkler’s claim. Mr Tinkler appealed on two key grounds: (1) the Judge had relied inappropriately on HHJ Russen’s findings, whereas the purpose of his set aside claim was to demonstrate that those findings were unsafe; and (2) the Judge had applied the wrong test for materiality.

The Correct Approach to Setting Aside Judgments Procured by Fraud

Vos MR (with whom Snowden and Poppelwell LJJ agreed) began with the claim’s nature. He referred to Lord Sumption’s dicta in Takhar v Gracefield Developments Ltd [2020] AC 450. Equity had long exercised a special jurisdiction to reverse transactions procured by fraud. Actions for such relief were brought by an original bill in equity: claims such as the present had therefore always been independent causes of action. Their focus is not the claim previously tried, but the conduct of the earlier proceedings themselves. The distinct and separate issue in actions to set aside a judgment for fraud is therefore existence of a fraud on the Court [11].

Vos MR considered the action comparable to deceit, save that in actions to set aside a judgment for fraud: (i) it is the court that has been deceived (rather than the claimant); (ii) deliberate dishonesty is required (recklessness will not suffice); and (iii) the fraud must have been material (by contrast to simple reliance) [12].

Vos MR therefore drew attention to the true nature of the court’s purpose in an action to set aside for fraud. Such claims are entirely distinguishable from procedural applications to adduce fresh evidence after judgment, governed by the Ladd v Marshall [1954] 1 WLR 1489 principles.  In Ladd v Marshall applications, the findings contained in the judgment remain the issues in dispute.  When setting aside a judgment for fraud, the disputed issue is the existence of a fraud – a matter “wholly free” from the issues originally tried. Only after answering that issue should the Court consider the materiality of the fraud to the evidence on which the court made findings and reached its decision [13-14].

Although the existence and materiality of fraud are theoretically distinct, they are often inextricably linked [15, 38, 42]. Vos MR observed that the Judge’s unorthodox approach – of reviewing HHJ Russen’s relevant original findings of fact before considering the new evidence in point – partly reflected the overlap between the existence and materiality of the fraud [16]. This followed from the nature of Mr Tinkler’s appeal case: that the new evidence which had been fraudulently withheld from the Judge was a continuation of the “premeditated plan” on which HHJ Russen had made findings [21].

In Vos MR’s view, the parties should have invited the Judge to assess the existence and quality of any new evidence under Limb 3 first. Once done, the Judge should have considered whether the new evidence proved conscious and deliberate dishonesty on the Defendants’ parts, under Limb 1. If that fraud was proven, the Judge should then have considered Limb 2 materiality.  Only at this final stage did the Judge need to consider HHJ Russen’s findings [49].

It followed from the above order, and from the claim’s nature, that the Judge’s role was not to re-try the issues before HHJ Russen, nor to consider all original evidence supporting the same. Doing so risked injustice by hearing part only of that underlying evidence [42], and the Judge rightly baulked at doing so [18]. The Judge was instead to assess whether the new evidence proved a fraud, and whether HHJ Russen’s judgment could withstand the same. He was not then required to rule on what the correct outcome of the underlying trial should have been, by way of retrial [33, 38]. Equally, in respect of those issues he was properly required to decide, the Judge had not felt bound by HHJ Russen’s findings [50].

The Judge had therefore applied the Test in substance. He had indeed started by setting out HHJ Russen’s findings and on one view had thereby put the cart before the horse. However, he had not done so because he felt bound by them (save where there was no new evidence on the point) [17]. He had merely used them as a “convenient starting point” for the findings he had properly been required to make [49]. It was therefore clear that the Judge recognised he was not engaged in a retrial; but was instead to hear and evaluate the new evidence of the fraud, before deciding its materiality. Accordingly, Vos MR dismissed this ground of appeal.

The Correct Test for Materiality

The second ground of appeal was that the Judge had erred in law by preferring Highland [2013] EWCA Civ 328, over Hamilton [2001] EMLR 15 as the test for materiality.

In Highland, Aikens LJ held that the fraud proven by the fresh evidence must be “an operative cause of the court’s decision to give judgment in the way it did” or, put another way “would have entirely changed the way in which the first court approached and came to its decision” [35]. By contrast, in Hamilton, Lord Phillips MR required only that the fresh evidence proved a “real danger that the dishonest conduct had affected the outcome” [8(i)].

Despite acknowledging Court of Appeal authority preferring Hamilton [51], Vos MR held Highland applied to claims to set aside for fraud [34]. He repeated the distinction between such claims and Ladd v Marshall applications. Hamilton concerned the latter and had been decided in the context of the second Ladd v Marshall criteria: that the new evidence to be adduced must exert an important, but not decisive, influence on the result. For that reason, the more stringent Hamilton (an action to set aside for fraud) test was appropriate and had been applied correctly [55-56].

Vos MR nonetheless proceeded to interpret Hamilton as holding that the fraud need only be an operative cause, and not the but for cause of the resultant judgment [52-53]. Vos MR therefore agreed with the Judge’s observation that little difference resulted from the application of either test to the facts at hand [53-56].

Conclusions

Fraud flourishes in times of economic hardship. Refreshers on the less common tools available to defeat fraudsters are therefore always welcome. Although sometimes challenging to interpret, Vos MR’s judgment ultimately gives clear guidance on this unusual action, drawing a clear distinction against Ladd v Marshall applications:

1. The action to set aside a judgment for fraud is a free-standing claim, with a long jurisprudential heritage. Although they share similarities, they are not to be elided with applications to adduce new evidence under Ladd v Marshall.
2. The issues before the Court deciding whether to set aside for fraud often overlap with the findings made by the judge in the underlying dispute. However, in contrast with Ladd, the key issue when considering set aside for fraud relates to the fraud itself, “wholly free from and unembarrassed by any of the matters originally tried” [13]. It is not, therefore the judge’s role to re-try the findings made in the underlying, substantive judgment.
3. The structure by which successful claims should be framed is now utterly clear. Parties should invite the Court first to evaluate new evidence (Limb 3); then to establish whether a deliberate fraud is made out thereby (Limb 1); and only then to consider the materiality of that evidence to the evidence supporting the original decision (Limb 2) [35].
4. If a claim satisfies Limbs 3 and 1 – in that order – the Test “which allows a party to defeat a final judgment must be set high” [20]. Limb 2 is therefore a stringent one. Although little turned on the point in this case, the Ladd v Marshall-influenced test in Hamilton arose from a different context, is less stringent, and does not apply.

Article by Rob Hammond and Amy Held.