Privy Council provides update on setting aside judgments and settlements for fraud

However, a legal expert has warned that the ruling may simply add more nuances to an already complicated area of law.

In this case, which is one of the first considerations of Lord Sumption’s 2019 ‘obiter’ comments in the UK Supreme Court case of Takhar v Gracefield Developments Ltd, Winston Finzi sought to overturn a series of past court decisions and settlements involving him and the Jamaican Redevelopment Foundation (JRF) from 2003 to 2014. Finzi alleged that these previous outcomes were achieved by JRF through fraudulent means. The lower court dismissed Finzi's claim, considering it an abuse of process due to his failure to diligently uncover and assert fraud during the earlier litigation.

Finzi appealed to the Privy Council. The question for the appeal to the Privy Council was whether the lower courts were incorrect in finding that failure to exercise reasonable diligence in uncovering and alleging fraud rendered the claim an abuse of process. But the Privy Council ruling dismissed Finzi’s appeal and held that the fact he had been in possession of evidence of fraud well before he agreed to the financial settlements with JRF meant the evidence could not be ‘fresh’. It also found that that he had “ample opportunity to deploy” the evidence in the earlier proceedings, but that he “offered no explanation of any merit for the fact that he did not.”

The Privy Council stressed that a party to new proceedings should not be permitted to raise in those new proceedings matters which should and could have been raised in earlier proceedings. Where a claimant relies on evidence not adduced in the original proceedings, the Privy Council has stressed that the evidence must have been obtained since the original judgment or settlement. If this isn’t the case, the claimant must establish why this evidence was not deployed in the first action. If the evidence is not “new” in these two senses, the claim to set aside is likely to be regarded as abusive unless the claimant is able to show a good reason which prevented or significantly impeded the use of the evidence in the original action. 

Bill Geiringer, civil fraud litigation expert at Pinsent Masons, said: “It has been more than four years since Lord Sumption’s obiter comments in the Takhar case on what constitutes ‘new’ or ‘fresh’ evidence for the purpose of a claim to set aside a judgment or settlement on the basis of fraud.”

“Courts are extremely cautious to re-litigate matters to avoid possible abuse of process. However where fraud is alleged, different considerations may apply. The Supreme Court has previously ruled, in the context of an insurance claim (29-page / 268KB PDF), that a suspicion of fraud at the time of a settlement agreement may still allow a claimant to later set aside that agreement on the basis of fraud. In a similar vein, in the Takhar case, the Supreme Court found that a party wishing to set aside a judgment for fraud did not have to demonstrate that they could not have obtained evidence of the fraud with reasonable diligence in advance of the trial.”

“However, the Privy Council’s ruling here generally requires evidence to have been obtained since the judgment or settlement. If the evidence is not new in this sense, the claimant must explain why this evidence was not deployed in the original action,” he said.

“Given the nuances of the law in this area, the safest course of action for any party wishing to challenge a judgment or settlement on grounds of fraud is to make sure that they have strong and cogent evidence as to why the fraud which is relied on to challenge the judgment or settlement was not put forward previously.  When drafting settlement agreements, consideration should also be given to making express provision for the consequences of fraud,” Geiringer said.

He added: “The courts will not take a mere allegation of fraud as some kind of ‘open sesame’ to restart litigation that has already been concluded. There is still a high burden on those wishing to do so.”

The Privy Council’s ruling came shortly after Judge Cawson KC, sitting as a High Court judge, handed down his decision in the English case of Chiswick International Holdings Ltd v Hotblack Holdings. Here, the court refused a stay of execution of the balance of a judgment debt on the basis of an allegation that the judgment had been obtained by fraud. There was no solid evidential basis for the fraud allegation.

Geiringer said: “Courts require exceptional reasons to allow a stay of enforcement following a judgment. Taking the Finzi and Chiswick cases in tandem, those seeking to set aside a judgment on the basis of fraud should note that they may still be required to pay the judgment debt while their application to set aside is being considered.”

He added: “The Chiswick case again emphasises the importance of cogent and strong evidence in support of any application to set aside on the basis of fraud. Not only will this strengthen the merits of the application, but could assist an applicant not having to pay a judgment debt while the application is pending.”