Elu v Floorweald (judgment May 2020) - Fraud unravels all in practice

In the recent High Court case of Ms. Francesca Elu v Floorweald Limited [2020] EWHC 1222 (QB), the court was required to consider the Supreme Court judgment in Takhar v Gracefield Developments Limited [2019] UKSC 13.

Summary

  • On 15 May 2020, the High Court handed down judgment in the case of Elu v Floorweald Limited, having considered the principles set out in the Supreme Court judgment of Takhar.
  • Takhar left open the possibility of discretion whether or not to allow a judgment to be set aside on grounds of fraud where there had been a deliberate decision not to investigate the possibility of fraud in advance of the first trial.
  • It was held that for evidence to be considered “fresh” or “new” it must not have been known, at the time of trial, to the party seeking to rely on it.
  • Even though fraud had not been expressly pleaded, this did not mean that fraud had not been considered by the court in the first trial.

Facts

The Claimant, Ms. Francesca Elu, (former owner of the leasehold on a flat at 8 Burch Road, Gravesend (the “Property”), brought a claim against the Defendant, Floorweald Limited (owner of the freehold of the Property), in the County Court for breaches of its repairing obligations (the “Claim”). The Claimant succeeded at trial and was awarded £62,834.25 plus interest and costs on an indemnity basis (the “Order”).

The Defendant appealed the Order on the basis that the Claim was dishonest in that it was based on false evidence given by the Claimant and on forged or doctored documents, and that the Order was therefore procured by fraud. The appeal was stayed whilst the fraud issue was tried as a preliminary issue in the Queen’s Bench Division. The Defendant was required to set out its case in a statement of case as if it was a fresh claim.

The issue before the court was whether the Claimant’s application to strike out the Defendant’s statement of case alleging fraud should be allowed on the basis that it raised matters which are ‘res judicata’ (i.e. matters already judged) and/or was an abuse of process.

Key issues

We consider that the key issues to be decided in Elu v Floorweald Limited were as follows:

  1. What constitutes “fresh” or “new” evidence?
  2. Whether the issue of fraud had already been raised at trial?

Ratio of Takhar

The ‘ratio decidendi’ (i.e. the reason or rationale for the decision) in Takhar is cited as follows: “…where it could be shown that a judgment had been obtained by fraud, and no allegation of fraud had been raised at the trial which led to that judgment, a party seeking to set aside the judgment was not required to show that the fraud could not have been uncovered with reasonable diligence in advance of the obtaining of the judgment; that, therefore, an absence of reasonable diligence was not of itself a reason for staying as an abuse of process a claim to set aside a judgment on the grounds of fraud”.

The distinguishing features of the Takhar case being that although the Claimant, Mrs Takhar, was concerned that her signature on a number of documents, in particular, a profit share agreement, were not genuine, her evidence was simply that she could “not remember” signing the documents and no positive case of forgery was asserted. At trial, Mrs Takhar accepted that it was her signature on the profit share agreement. In fact, it subsequently transpired that the signature had been transposed from another document which she had genuinely signed. Mrs Takhar had made an application to rely on handwriting expert evidence which had been denied, therefore she was not in a position to allege fraud and did not do so.

Significantly, for the case of Elu v Floorweald Limited at paragraph 55 of his judgment, Lord Kerr left open the following possibility, that: “…in some circumstances, a deliberate decision may have been taken not to investigate the possibility of fraud in advance of the first trial, even if that had been suspected. If that could be established, again, I believe that a discretion whether to allow an application to set aside the judgment would be appropriate but, once more, I express no final view on the question.

The Defendant’s case

In the case of Elu v Floorweald Limited, the Defendant pointed to four categories of document which it said were evidence of fraud. The first category of document being invoices, bank statements and an email relating to works allegedly carried out on the instruction of the Claimant by a Mr McDonnell. Mr McDonnell had provided two witness statements which brought into question the authenticity of the supporting documents. Attempts were made to put the witness statements of Mr McDonnell before the court during the course of the initial proceedings, however the Defendant failed to exchange witness statements in accordance with directions and a late application for relief from sanctions failed. Consequently, the witness statements were not in evidence before the court at trial. In respect of a further two categories of document, the challenge to the authenticity of the documents was abandoned at trial.

“Fresh” or “new” evidence

The Claimant’s view was that virtually all of the evidence on which the Defendant now wished to rely was known to it and in its possession at the time of the trial. The Defendant argued that there was not any deliberate decision not to investigate the matter or not to put that evidence before the County Court. Rather, the Defendant was prevented from doing so. Furthermore, the Defendant took the view that evidence or facts which were not before the court in the earlier proceedings will be sufficient to constitute “fresh” or “new” evidence, however this was not accepted by the judge. At paragraph 153 of his judgment, Mr Justice Linden stated that: “…the facts or evidence relied on must be materials which were not known, at the time of trial, to the party now alleging that it was deceived.”

For evidence to be considered “fresh” or “new” it must not have been known, at the time of trial, to the party seeking to rely on it.

Was the issue of fraud raised at trial?

The court may still be required to consider and decide upon issues of fraud, despite a positive case of fraud not being advanced in statements of case.

Despite the Defendant’s failure to put forward a positive case of fraud, Mr Justice Linden considered that, given the way the case was argued, the trial judge had been required to consider and decide upon the issues of the truth of the Claimant’s evidence and the authenticity of the supporting documents. The judge did not consider it of any assistance to the Defendant that the issue of fraud was not pleaded, or to point to a small number of passages where counsel for the Defendant said that he was merely questioning the reliability of the Claimant’s evidence.

At paragraph 164 Mr Justice Linden stated that: “The implication of dishonesty in this case was clear and was clearly understood by the Judge who was also alive to the allegations of fraud which had been made in the course of the interlocutory proceedings.

Abuse of process

The judge considered the Defendant’s claim an abuse of process. He stated that the honesty of the Claimant’s claim had already been challenged and identified that the Defendant’s true complaint was that it had not put forward the whole of its case at trial. The key issue in this case was that the Defendant “…was able to plead its case in full but chose not to do so, for reasons which are unexplained in the evidence but which appear from Mr Harris’ exchanges with the Court to reflect a strategy which had been consciously decided upon.” Furthermore, the Defendant persisted in choosing not to do so despite warnings from the court in earlier hearings prior to trial.

Practically speaking, this judgment serves as a warning that any suspicion of fraud must be fully investigated and dealt with promptly and adequately in any proceedings. Parties will not be allowed a second bite of the cherry if they are in possession of facts and matters that point towards fraud and simply choose not to pursue the issue or fail to meet the issue head on. Furthermore, directions should be adhered to and if not, then an application for relief from sanctions must be made promptly.

Conclusion

Although this case went in the opposite direction to Takhar, there were a number of distinguishing features that resulted in the court considering this to be an abuse of process. This case has provided welcome clarification to the concept of “fresh” or “new” evidence, and has also confirmed that fraud does not necessarily need to be specifically pleaded in the original trial for issues of fraud to be found to have already been considered for the purposes of an application to set a judgment aside on the basis of fraudulent conduct.

Should you suspect that you are a victim of fraud, please do not hesitate to get in touch at hello@tenetlaw.co.uk.

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