Unravelling it all: challenging judgments tainted by fraud

Final and conclusive judgments, meaning judgments of judicial bodies which bring litigation to an end and are not (or are no longer) subject to an appeal process, have a special place in this jurisdiction. The principle of finality demands that they be respected, complied with, and left undisturbed save in the most exceptional of circumstances. English law takes this attitude both to its domestic judgments, for obvious reasons, but also to foreign judgments, for less obvious (although by no means less valid) reasons.

Those seeking to undo a final and conclusive judgment of any competent court thus face an uphill task. This article looks at two related but distinct circumstances in which fraud litigators may find themselves doing just this. First, seeking to avoid enforcement or recognition of a foreign judgment procured by fraud; second, a fresh action to set aside a domestic judgment procured by fraud (or in both cases defending a judgment from such an attack).

Defeating a foreign judgment in England & Wales

The exercise in establishing fraud in foreign proceedings is a difficult and fact sensitive one. Practitioners defending the enforcement of a foreign judgment do not generally have the luxury[1] of gathering evidence, getting a client’s ducks in a row, and carefully pleading out a fraud claim. In this context, the person alleging fraud is reactive; they are the defendant to proceedings and must act quickly to take instructions and find sufficient material supporting a client’s allegation of fraud.

This is made all the more difficult if clients have not seen the proceedings coming or (worse) have seen them coming and chose to do nothing until service of the Claim Form.

So, how do you prevent enforcement on grounds of fraud? The key principles seem to be as follows:

1. ‘Fraud’ in this context can take a broad meaning. It is not confined to the limited number of causes of action generally regarded as ‘fraud claims’ in English law. It has been said it can extend to encompass “every variety of mala fides and mala praxis whereby one of the parties misleads and deceives the judicial tribunal”: Jet Holdings Inc v Patel [1990] 1 Q.B. 335, 346. It also undoubtedly encompasses fraud and corruption by the foreign court itself, although it will be a rare case where this is successfully shown.
2. The fraud ground for resisting enforcement is a “carefully delineated exception and is not to be given an expansive application” (Gelley v Shepherd & Anor [2013] EWCA Civ 1172 at [47]) being an exception to the general rule that the English Court will not re-open the substantive merits of final and conclusive judgments entered by foreign courts of competent jurisdiction. Fraud defences are not to be run on light material or with anything other than a realistic view of the challenges they pose.
3. That being so, even where powerful considerations of comity arise, “it is questionable how compelling such considerations would be if the enforcing court considered it proven on the balance of probabilities that the foreign judgment had been obtained by fraud”: GFH Capital Ltd v Haigh [2020] EWHC 1269 (Comm), per Henshaw J at [74].
4. The English Court will nevertheless take “a nuanced approach depending on the reliability of the foreign legal system, the scope for challenge in the foreign court, and the type of fraud alleged…” (AK Investment CJSC v Kyrgyz Mobil Tel Ltd [2011] UKPC 7 per Lord Collins at [116], obiter).
5. In other words, where the foreign jurisdiction in question has a sophisticated legal order and reliable system for adjudicating on allegations of fraud, including where made against the foreign court itself, it is less likely the English Court will refuse enforcement on this basis. Generalised assertions of bad faith or political motive in foreign jurisdictions are, purely anecdotally, less likely than ever to be well-received by a High Court Judge in England & Wales (see, as a recent example, Shamma v Jawad [2022] EWHC 2987 (KB), concerning the Iraqi legal system).
6. Moving from statements of general approach to statements of principle, to rely successfully on this ground the party alleging fraud must be able to show both that there was a “conscious and deliberate dishonesty” and that this dishonesty was “material”, i.e. it was an operative cause in bringing about the foreign judgment: Royal Bank of Scotland v Highland Finance Partners LP [2013] EWCA Civ 238; GFH Capital Ltd v Haigh [2020] EWHC 1269 (Comm), [69]-[70]. It must be shown that the fresh evidence would have entirely changed the way in which the foreign court approached and came to its decision. The English Court will not be moved by bald assertions of fraud or entertain speculation as to how new facts, deliberately concealed would have affected the outcome of earlier proceedings.
7. It is not necessary to find new evidence of fraud that was not available in the original tribunal – the fraud defence may be advanced on material already available for deployment in the original proceedings, although the Court will want to know why it was not already advanced in those proceedings: JSC VTB Bank v Skurikhin [2014] EWHC 271 (Comm). In Skurikhin the defence failed, the Court noting at [95] that the defendant “had no defences to the claims they faced in the Russian proceedings beyond those which they raised there, and they are aware of this”.

With those principles in mind, it is critically important that any assertion as to fraud in foreign proceedings is credible, well-founded, specifically and carefully set out/pleaded, and properly interrogated by the legal team supporting the client’s defence against enforcement.

In this respect, practitioners are well-advised to approach the exercise in much the same way as they would when being asked by a client to allege fraud in extant domestic proceedings and heed all of the judicial and professional warnings that come with the same: see (for example) the well-known passages in Three Rivers District Council v Bank of England [2003] 2 AC 1 at [185]-[186] (Lord Millett); JSC Bank of Moscow v Kekhman [2015] EWHC 3073 at [20] (Flaux J); and see also CPR r.16.4(1)(e) and CPR PD16 para 8.2.

Readers are also well-advised to note the recent observations of Master Dagnall in Shamma v Jawad [2022] EWHC 2987 (KB) – specifically considering a prior Iraqi judgment – that a mere reservation of a right to plead fraud in a Defence, coupled with an allegation of fraud in a witness statement, is plainly not permissible ([78]):

“That is a classic example of someone being prepared to wound but not to strike. It seems to me from all the case law with regards to fraud that one cannot simply float such an allegation with regards to the future. Either one makes it or one does not make it; and if one does make it, one has to make it subject to the normal rules of stating precisely what the alleged fraud is and the facts and matters relied on. It does not seem to me that this is a proper pleading of fraud.”

That was an observation about alleging fraud of a counter-party in the Iraqi proceedings. Master Dagnall was equally dismissive of aspersions cast in respect of the Iraqi courts and judges:

“… there is raised a possibility of some impropriety as far as the Iraqi court and judges are concerned. That is alluded to in some sort of way in paragraph 15.3 of the draft defences. However, I do not see such a mere allusion as being a proper way of advancing such a contention if that is indeed the aim. If a serious matter with regards to impropriety of a foreign court is to be advanced, then it needs to be firstly clearly advanced and, secondly, with grounds for the making of such an allegation which grounds perform the important functions of not merely informing the court and the other side as to what they are but requiring whatever legal representative has pleaded the case to be satisfied that they are reasonable grounds which justify such a serious allegation. It seems to me again that this also is a pleaded matter which to allow it to be pursued would involve an abuse.” (emphasis added)

Further complications arise where, far from new evidence being discovered after the event, an allegation of fraud has in fact already been raised and dismissed or could have been raised in the foreign court. A decision by a foreign court that a judgment from the courts of that same country was not obtained by fraud can (although not must) create an estoppel in English proceedings to enforce that judgment: Owens Bank Ltd v Bracco [1992] 2 A.C. 443.

It may also be an abuse of the English Court’s process for a party to raise for a second time an argument which was raised and disposed of in the foreign court: House of Spring Gardens Ltd v Waite [1991] 1 Q.B. 241. In those cases, it is critically important for the defending party to show why, notwithstanding the failure of that allegation in the original country, it should nevertheless succeed in England so as to deprive the judgment creditor of its/her/his ability to enforce that judgment in England.

Ultimately that is likely to be determined by the English Court’s view of the strength of the fraud allegation(s), no easy feat where it is necessary, in doing so, to persuade the English Court to trespass beyond its instinctive (i) desire not to create conflicting decisions, (ii) need not to undermine (or be perceived as undermining) the sovereignty of a foreign court, and (iii) scepticism towards an allegation which has already been heard, in a different judicial forum, and rejected.

Setting aside a domestic judgment

The law is in a similar, but not identical, state in relation to attempts to overturn final judgments of the domestic English courts for fraud.

Readers are likely to be aware of the Takhar decision of the Supreme Court[2] from 2019 and the principles described therein[3]. Two more recent decisions of the Court of Appeal on similar issues are of particular interest.

Tinkler v Esken [2023] EWCA Civ 655 was a case decided last month. In 2018, the appellant was removed from office as a director by his co-directors, who began proceedings. Mr Tinkler counterclaimed for a declaration that his removal was unlawful. He lost at trial. Thereafter, Mr Tinkler came into material which he considered ought to have been disclosed by his opposing party in the first set of litigation and applied for the judgment to be set aside, arguing that it had been obtained by fraud. He relied on new evidence which he contended had been deliberately withheld from the trial judge.

It was common ground that the test, in setting aside a domestic judgment for fraud, is whether (i) the successful party committed conscious and deliberate dishonesty, (ii) the dishonest conduct was material to the original decision, and (iii) there was new evidence before the Court.

The Court of Appeal confirmed in that case that the form of materiality test set out above in relation to foreign judgments (Royal Bank of Scotland Plc v Highland Financial Partners LP [2013] EWCA Civ 328) applies. This puts the causation requirement in the non-enforcement of foreign judgments for fraud and in fresh actions to set aside a domestic judgment for fraud broadly on the same footing.[4]

In conceptualising the challenge to a judgment on grounds of fraud, Sir Geoffrey Vos MR noted at [12] that:

“In modern terms, we can perhaps regard the action to set aside a judgment for fraud as akin to an action for deceit. The only significant differences are that the court, rather than the opposing party to the first action, has to be shown to have been deceived, deliberate dishonesty is required, and materiality rather than simple reliance must be shown. If the elements are made out (misrepresentation or misleading conduct, made or undertaken fraudulently, with reliance for deceit and materiality for an action to set aside a judgment), the contract or the judgment can be rescinded or set aside.”

He went on at [14] (explaining why an attempt to overturn a domestic judgment for fraud need be done in a fresh action issued by the wronged party):

“…It must be shown that the judgment was obtained by the fraud, and that the court was induced to make a potentially wrong judgment by the fraud. The party that lost as a result of the fraud must prove the fraud “wholly free from … any of the matters originally tried.””

More pertinently for practitioners, the Court of Appeal went on to hold that (in addition to working out whether the alleged fraud had been proved at all) the task of the judge considering the fresh action to set aside was to determine whether the new evidence discovered impugned the trial judge’s decision and showed that the concealment was an operative cause of his/her decision. In carrying out that task, the judge has to look at the new evidence alongside the old to establish if, taken together, they show that the trial judge had been materially misled.[5]

In Tinkler, Leech J (considering the set aside claim, and upheld on appeal) concluded that the material discovered by Mr Tinkler was not sufficient to undermine the original decision against him, the Judge holding that none of the new evidence which had been adduced would have been material (in the sense identified above) to the judge’s findings in the original claim (see [460]-[478] of Leech J’s judgment[6]).

It is centrally important that, where challenges are made to judgments said to have been tainted by fraud, litigators take a careful and critical look at the new evidence discovered and ask themselves (and their clients): would this really have made all the difference?

Conclusion

There are important differences between the courts’ approach to challenges to final and conclusive domestic and foreign judgments. The most important, perhaps, is that actions to set aside domestic judgments must be founded on new evidence not available to the complainant party during the original trial, although there is no distinct requirement of reasonable diligence in assessing what the complainant ought to have done to discover such material at that time (Takhar).

Other differences are procedural, such as the need in challenging a domestic judgment for a complainant to issue a fresh action to establish the fraud on the facts and then demonstrate sufficient materiality to overturn the judgment.

Both forms of challenge, however, share certain key features. Both are, at least early on, generally battles fought uphill by those making the allegation(s) (as most claimant fraud litigators will recognise). They moreover demand strong, cogent evidence to be put before the Court at an early stage, and a critically engaged legal team.

Litigators must in both cases think critically about the grounds and evidence which are advanced for this purpose before they are put before the English Court, particularly where (as in the case of enforcement/recognition proceedings) an early application from the claimant for summary judgment can be expected. Moreover, successful challenges to judgments on grounds of fraud, both foreign and domestic, are likely to remain exceedingly rare.

Article by James Shaw. First published in the Young Fraud Lawyers Association’s Spring Newsletter.

[1] In the very loosest sense.

[2] Takhar v Gracefield Developments Ltd [2019] UKSC 13.

[3] It is likely (but has not formally been determined) that the Takhar principles apply equally to challenges under s.68 of the Arbitration Act 1996: Nigeria v Process & Industrial Developments Limited [2020] EWHC 2379 (Comm).

[4] This notwithstanding two Court of Appeal cases having suggested, obiter, without deciding, that the alternative test
in Hamilton might be preferable: see [51].

[5] The Court of Appeal took materially the same approach to the applicable principles in Ras Al Khaimah Investment Authority v Azima [2023] EWCA Civ 507, decided the month before Tinkler. That decision arises in the context of highly publicised litigation and a detailed examination of the same is beyond the scope of this note. It is worth noting, moreover, that the Court in that case was concerned only to subject the fraud and materiality allegations to a ‘real prospect’ analysis.

[6] [2022] EWHC 1375 (Ch).