Making a false representation in particulars of claim in order to obtain default judgment will get you nowhere – the Court of Appeal has confirmed that “fraud unravels all” (the view taken by the Supreme Court in Takhar v Gracefield Developments) when it comes to setting aside such a judgment. The Court of Appeal confirmed in Park v CNH Industrial Capital Europe Ltd (t/a CNH Capital) that even where the deception of the lower court was an operative, not the operative, cause for default judgment, this was sufficient to set the decision aside.
There was also no abuse of process by the deceived party in this scenario. Even though that party had prior knowledge of the evidence, there had been no deliberate decision not to investigate a suspected fraud.
Background
The appellant, Mr Park, operated a farm (Park Hall Farm) through a limited company, Park Organic Farms Ltd. Between June 2013 and March 2014, he entered into four hire-purchase agreements relating to the use of farm equipment with the respondent, CNH Capital Europe Limited (“CNH”), plus a personal guarantee in respect of the agreements. The agreements and the guarantee all referred to the ‘hirer’ as Park Hall Farms Limited instead of Park Organic Farms Ltd. The appellant had signed all of the documents on behalf of the hirer with his position described as ‘director’.
There were various issues with payment of the hired equipment which led to CNH terminating the first two agreements in July 2014 for failure to make punctual payments. In December 2014, CNH Capital’s sales manager visited the appellant and secured his signature on a Deed of Rectification (the “Deed”). The Deed stated that (i) Park Hall Farms Limited had been incorrectly named as a party to the agreements, (ii) that the parties had always intended for the agreements to be concluded between the appellant and CNH, and (iii) that “all references to Park Hall Farms Limited in the agreements” should be read to mean the appellant trading as Park Hall Farms.
The appellant contended that he was only presented with the signature page of the Deed, which was the final page of the document, and that he thought it was related to equipment in storage – he would not have signed the Deed if he understood it would make him personally liable under the agreements. CNH denied this and maintained that they had given the appellant the whole Deed and explained to him before he signed it that it would have the effect of putting the agreements into his personal name.
CNH brought proceedings in the County Court in June 2016 for payment under the agreements. The appellant failed to comply with the court’s case management directions and then failed to comply with an “unless” order, the consequence of which was that the court struck out his Defence. The court also refused the appellant’s applications for relief from sanctions and granted judgment in default in CNH’s favour.
The appellant applied to set aside the judgment on the basis that it had been obtained by fraud. The court refused the application on the grounds that it was an abuse of process, given that the appellant had not pleaded fraud in his original Defence and his fraud claim was based on the same events the appellant had been aware of at the time of the claim.
Takhar revisited: setting aside a judgment obtained fraudulently
In order to set aside a judgment for fraud, the Court of Appeal confirmed that:
- the applicant needs to establish conscious and deliberate dishonesty by the other party;
- the dishonesty must relate to a statement made, evidence given or action taken which was relevant to the judgment it procured; and
- the dishonest behaviour must be an operative cause of the court’s decision to enter judgment in those terms.
(Royal Bank of Scotland plc v Highland Financial Partners LP and others.)
Further, the Supreme Court’s decision in Takhar v Gracefield Developments Ltd clarified that the dishonest behaviour need only be an operative cause of the court’s decision, rather than the only one.
Applying these to the present claim, the Court of Appeal found there were strong grounds that the default judgment had been obtained by fraud. The mistake which had been made was that the name of the limited company was incorrect, rather than concluding the agreements with a limited company rather than an individual. CNH’s intention at the time of the agreements seemed to have been to contract with the appellant’s company, Park Organic Farms Ltd, not the appellant personally, hence their requirement that he enter into a personal guarantee to secure the agreements on behalf of the limited company. The Court of Appeal found that CNH had deliberately pleaded false statements regarding their intention to contract with the appellant personally in their particulars of claim, and had maintained the lie “all the way to the Court of Appeal”.
The process for entering judgment in default of defence necessitates the court to assume that the claimant’s pleadings are truthful, as they have not had the opportunity to be tested at trial. Here, the dishonesty in the particulars of claim was an operative cause of the court at first instance entering default judgment in CNH’s favour. The judge at first instance had held that causation was not established, since “the operative cause” of the default judgment was the appellant’s procedural failures. But the Court of Appeal, applying Takhar, found that CNH’s deceit was another operative cause which led to judgment being entered on the basis of the information set out in the particulars of claim.
No abuse of process even though Mr Park had prior knowledge of the evidence
The Court of Appeal also rejected the argument that Mr Park’s claim to set aside the judgment for fraud was an abuse of process. There was no principle for the court to refuse to set aside a judgment for fraud on the basis that the appellant already had knowledge of the evidence before trial unless the appellant had made a deliberate decision not to investigate evidence suggestive of fraud. This was not the case here, as Mr Park had not taken a deliberate decision not to investigate a suspected fraud. He did not connect the document he signed with a deed of rectification that made him personally liable until CNH gave a witness statement. It was therefore wrong for the court at first instance to decide that his claim was an abuse of process.
Comment
This case confirms that the court’s decision to enter default judgment can be caused by a number of operative factors, but as long as one of them is the deceit of the court and the party seeking to set aside the decision then this may be sufficient.
The Court of Appeal also highlighted that knowledge of existing facts prior to trial is not a basis for characterising a claim as an abuse of process, providing that the party has not made a deliberate decision to ignore or not to investigate those facts further. This is a useful reminder to parties who might be considering bringing proceedings for fraud to ensure they have conducted investigations of the underlying facts.
