Logic tells us if you discover a party has deceived you for gain, you should be able to do something to recover your loss. In the context of a party obtaining such a gain through the award of a judgment or a settlement in proceedings, logic again may suggest that this subsequent discovery of fraud on the part of the benefiting party would give you a route to unravel the benefit they have gained without too much challenge.
As with most things in life, it is not that straightforward. While it has been accepted for a long time that a judgment obtained by fraud can be set aside, getting to that result requires careful thought. The court has quite rightly sought to wrap around this issue some stringent safeguards, principally as they see that the finality of litigation should not be too easily disturbed. Some recent decisions this year, and one in 2013, have provided helpful guidance on instances where judgments and settlements can be set aside on discovery of fraud.
The recent judgments
In The Royal Bank of Scotland v Highland Financial Partners, the Court of Appeal confirmed the principles that underpin applications to set aside judgments obtained by fraud. The court stated that the fresh evidence had to show a “conscious and deliberate dishonesty” in relation to the evidence given by the respondent, which was relevant so that the judgment is questioned. In addition, the conscious and deliberate dishonesty must be “material” so as to have changed the way the first court would have arrived at their decision if discovered.
However, what if that evidence could have reasonably been discovered before the conclusion of the first hearing? Should the applicant seeking to set aside the judgment obtained by fraud be penalised because they failed to discover that evidence when it could have been discovered with reasonable diligence? That appears to me to be the view of Burton J in the case of Chodiev v Stein.
Paragraphs 14 to 20 of Burton J’s judgment in May 2015 provide a concise analysis of the need for “reasonable diligence” to be considered. Reference was made to the House of Lords case of Hunter v Chief Constable of the West Midlands Police and the Court of Appeal case of Owens Bank Ltd v Bracco which both underline the importance of reasonable diligence as a key ingredient of the test as to whether the fresh evidence is sufficient to form the central pillar of an application to set aside a judgment.
On review of the Chodiev case, it is clear to me that the test of reasonable diligence is analogous to the test contained in section 32 of the Limitation Act 1980, which sets out that the limitation period for a “fraud” claim is six years from when a claimant could with “reasonable diligence” have discovered the fraud. Examining what would constitute “reasonable diligence” will no doubt always have to be assessed on a case by case basis. However, a party seeking to satisfy the reasonable diligence test ought to be looking at how the new evidence was in fact discovered, and whether during the time of the first trial they had the financial and practical ability to have discovered the evidence. If the new evidence was from a witness, could that witness have been identified earlier, say?
I should say, I have never been fond of the limitation defence for a party in a fraud claim along the lines of “if you looked hard enough into my conduct, you would have discovered my fraud and for that reason you should be time barred”. That, to me, seems somewhat unfair and I can see that you could perhaps take that logic to the issue of fresh evidence when seeking to set aside a judgment.
I should add that the Court of Appeal has confirmed the position under CPR 52.17 in respect of the same type of application in relation to appeals. In Bishop v Chhokar, permission was granted to reopen an appeal as the test in 52.17(1) had been met, namely:
- It was necessary in order to avoid real injustice.
- The circumstances were exceptional and made it appropriate to reopen the appeal.
- There was no alternative effective remedy.
The interesting aspect of this case was that the proposed alternative effective remedy to reopening an appeal was new proceedings to set aside the judgment in the County Court (CPR 52.10(2)), but it was found to be unclear whether the County Court had jurisdiction to determine a new claim to set aside a previous County Court decision. In other authorities on this point relating to appeals, the courts have added a gloss that the new evidence of fraud needs to be admitted or incontrovertible.
The position with setting aside settlements has recently been determined in the Court of Appeal case of Hayward v Zurich. This, for me, is quite interesting, as depending on how a case has been pleaded, it appears that a party will either allow or deny themselves the opportunity to set aside a settlement upon the discovery of fraud at a later stage.
In this case, which concerned personal injury damages, Zurich had throughout the proceedings alleged that Mr Hayward had exaggerated his injuries and therefore the level of damages sought. Nonetheless, Zurich settled the claim before trial. A few years later, neighbours of Mr Hayward (who I am sure soon moved house) came forward to tell Zurich that Mr Hayward had been living a very ordinary life and had not been hampered by the injuries he alleged and upon which the settlement had been ultimately based. Zurich sought to run an argument in deceit that they had been induced by the misrepresentations of Mr Hayward.
The court, in essence, stated that Zurich settled the case because they feared the dishonesty they suspected of Mr Hayward would not be found at trial. In effect, they bought off the risk of that event. The fact that they subsequently discovered that which they suspected, was not sufficient to set aside the settlement. The reasoning was that, as Zurich had pleaded that the injuries were exaggerated, that showed that Zurich were not placing sufficient reliance upon those alleged injuries in deciding to compromise the claim and were not influenced sufficiently.
It therefore appears to be correct to say that had Zurich not settled, lost at trial and then discovered the fraud, they could have sought to set that judgment aside, subject to the tests I set out earlier.
The position on setting aside a settlement, therefore, will require consideration of whether there have been fraudulent misrepresentations by one party to convince the other to settle, provided the party induced did not argue that the opponent was dishonest on the very issue that is subsequently found to be just that, dishonest.
The recent authorities provide helpful guidance for assessing whether to consider challenging a decision of the court or trying to reopen a settlement. Just be careful to manage your own and your client’s expectations, as the courts will not disturb the principles of finality in litigation without good reason.