Takhar v Gracefield REVISITED

In our article “Fraud unravels all…?” (https://tenetlaw.co.uk/articles/fraud-unravels-all/)  we considered the decision of the Supreme Court in Takhar v Gracefield Developments Ltd and others [2019] UKSC 13 (20 March 2019) where the Court sought to balance two conflicting principles of legal policy, namely that fraud unravels all, and that there must be a finality to litigation.  The resulting judgment was a welcome clarification of when a judgment can be set aside for fraud. The High Court has now considered the correct test to be applied when assessing materiality, resulting in the judgment finally being set aside (Takhar v Gracefield Developments Ltd and others [2020] EWHC 2791 (Ch)).

Summary

  • The facts of this case are set out in our previous article which can be found at: https://tenetlaw.co.uk/articles/fraud-unravels-all/.
  • The Claimant, Mrs Takhar’s, original claim was rejected on the grounds that she had signed a profit share agreement dated 1 April 2006 (the “Agreement”).
  • Mrs Takhar denied signing the Agreement, however an application to adduce evidence from a handwriting expert was refused on the basis that it had been made too late and was too close to trial.
  • The decision of the Supreme Court earlier this year meant that if Mrs Takhar’s signature was found to be forged by the Defendants, and crucially, if the forgery was material to the outcome of the original claim, then the court must set the original judgment aside.
  • The judge found that Mrs Takhar’s signature on the Agreement had been forged and that the Defendants were responsible for this.
  • The correct test for materiality is that set out in RBS v Highland Financial Partners.
  • The existence of the Agreement, in the absence of the knowledge of the forgery, was “plainly material to the judgment given at trial”.

Background

The Claimant, Mrs Takhar, originally issued proceedings against Gracefield Developments Limited and her cousin and her cousin’s husband, Dr and Mrs Krishan, claiming that a number of properties that she had owned had been transferred to Gracefield as a result of undue influence or other unconscionable conduct on the part of the Krishans.  This claim was rejected on the basis that Mrs Takhar appeared to have signed a profit share agreement dated 1 April 2006 (the “Agreement”).  Mrs Takhar denied ever having signed the Agreement, however a late application to adduce expert evidence on the subject was refused and in absence of a coherent explanation as to how her signature came to be on the document, the Krishans’ evidence was preferred.

Following the trial, Mrs Takhar obtained an expert report in respect of her alleged signature on the Agreement which concluded that the signature had been transposed from a letter signed by Mrs Takhar which had been sent to the Krishans’ solicitors.  Following receipt of the report, Mrs Takhar issued proceedings in which she sought to have the judgment set aside on the basis that it had been obtained by fraud.

The matter went all the way to the Supreme Court. The Krishans argued that Mrs Takhar’s claim was an abuse of process as the documents on which the expert report was based were available to Mrs Takhar and her solicitors 12 months prior to the original trial.  However, the Supreme Court concluded that Mrs Takhar’s claim was not an abuse of process, and where a judgment had been obtained by fraud and no allegation of fraud was made at the original trial, a requirement of reasonable diligence should not be imposed.

The test of materiality

It was therefore left to the High Court to determine whether the original judgment ought to be set aside. The decision of the Supreme Court meant that if Mrs Takhar’s signature was found to be forged by the Krishans, and crucially, if the forgery was material to the outcome of the original claim, then the court must set aside the original judgment.

The judge (Mr Steven Gasztowicz QC, sitting as a deputy High Court judge) was required to consider the correct test of materiality. Whether the correct test is that set out in Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328, namely that:

  1. the fraud was an operative cause of the court’s decision to give judgment in the way that it did; and
  2. fresh evidence would have entirely changed the way in which the first court approached and came to its decision.

Or, whether the correct test is the lower threshold suggested in Salekipour v Parmar [2017] EWCA Civ 2141, namely that there is a real danger that the fraud affected the outcome of the trial.

The judge noted that all seven members of the Supreme Court supported the statement of materiality at paragraph 38 of the judgment in RBS case, highlighting that the fraud should be “an operative cause” not “the operative cause”. The judge noted that although this part of the Supreme Court judgment was strictly obiter (i.e. outside of the rationale for the decision) the views of all seven members are “obviously to be accorded great weight”.  Furthermore, the test set out in Salekipour preceded the endorsement of the RBS test by the Supreme Court.

The judge did not consider that the test of materiality set out in the RBS case was over-stated. In further consideration of the case law, the judge noted that “…if it is positively established that the fraudulent evidence (in the present case the forged document) would not have made any difference, then it could not be a contributing cause.” He went on to explain that: “If the relevant evidence (here the forged document) was something in the melting pot of the evidence before the court…it will be “an” operative cause.” (para.56)  Of further note, is the point that the question of materiality of fresh evidence is to be assessed by reference to its impact on the evidence supporting the “original decision”, not by reference to its impact on what decision might be made if the claim were to be retried on honest evidence.

Was Mrs Takhar’s signature on the Agreement forged? Were the Defendants responsible?

The Krishans denied forging Mrs Takhar’s signature on the Agreement and put forward an alternative theory that somebody at the firm of accountants acting on their behalf in drawing up the Agreement, had transposed Mrs Takhar’s signature from another document. This argument was subsequently abandoned, but in any event, the judge found this alternative explanation unlikely. Instead, he considered that on the balance of probabilities (https://tenetlaw.co.uk/articles/dishonesty-what-is-the-standard-of-proof/) the Krishans were responsible for the forgery having had strong motive, and opportunity to do so.

Materiality

The judge considered that the Agreement (which he had now found was forged by the Defendants) was a “key part of the contemporaneous evidence produced by the Defendants for trial and relied on by Judge Purle as pointing towards the Defendants’ case that profit sharing had been agreed being right.” Such evidence, Judge Purle had described in his original judgment as “too compelling”.

The judge stated that: “Had the Judge known that her signature on the copy of that before him had been forged, for which the Defendants were responsible…that plainly would have (in the words of Aikens LJ in RBS) “entirely changed the way in which the first court approached and came to its decision” and it was plainly an “operative cause of the court’s decision to give judgment in the way that it did.”

The conclusion was that the existence of the Agreement, in the absence of the knowledge of the forgery, was “…plainly material to the judgement given at trial”.  

Comment / Learning points

The question of materiality may (as in this case) be fairly obvious. The fact that, in the original claim, the existence of the signed Agreement supported the Defendants’ case, and the judge was not presented with any evidence of forgery was clearly material to his decision. However, there will be many cases where the materiality of evidence may not be so clear. It is this type of case where the “melting pot” of evidence may come to the fore in determining whether or not the evidence can be considered “an”  operative cause.

If you would like some assistance or advice in relation to these issues, then please contact us at info@tenetlaw.co.uk.

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