Fraud not "some kind of open sesame" in Privy Council appeal to set aside judgment

An appellant was unsuccessful in his bid to set aside judgment on the basis of fraud as the Board of the Privy Counsel dismissed his claim as an abuse of process (1).

The appellant had failed to show  "fresh evidence" of fraud as he already had all of the information he was relying on to allege fraud at the time he entered into a final settlement agreement, and had not offered an explanation of why he had not deployed this information whilst the original dispute was live.

Background

Mr Finzi (the Appellant) had taken out loans totalling JA$30.9m from various financial institutions in the 1990s. When high interest rates started triggering financial turbulence across Jamaica's economy, the Government of Jamaica set up the Financial Sector Adjustment Company (FINSAC) in order to restore stability by acquiring a number of debts owed to financial institutions which accepted its help. FINSAC subsequently sold a portfolio of debts to the Jamaican Redevelopment Foundation (the Respondent) which included the loans owed by the Appellant.

The Respondent brought claims against the Appellant in 2004 and 2005 for repayment of these loans. On both occasions, judgment was entered against the Appellant. The dispute continued until the parties managed to negotiate a settlement of the claims in 2012 whereby the Respondent agreed to accept US$1.05m in full and final settlement, provided that this sum was paid by 31 July 2013. They also agreed that in the event that the Appellant did not pay by the deadline the Respondent would be entitled to enforce the equitable mortgage it had procured as security over one of the Appellant's properties (the Providence Property). The Appellant failed to pay in time; judgment was accordingly entered against him and the Providence Property was sold in March 2015 to discharge the judgment debt.

However, in February 2017 the Appellant revived the dispute on the basis that he alleged that the Respondent had obtained previous judgments and settlements in the litigation by fraud, including the following allegations (amongst others):

• Some of the loans which had been assigned to the Respondent had already been repaid in 1996 using the proceeds of sale of various properties;
• A loan which had originally been granted to the Appellant to finance the Providence Property had already been repaid and therefore the equitable mortgage had been dissolved. The Appellant had felt "compelled under great strain and duress" to include his interest in the Providence Property as security in the 2012 settlement agreement; and
• Only the principal sums of the loans had been assigned to the Respondent, not an entitlement to claim interest.

The Respondent applied for summary judgment dismissing these claims and judgment was granted in July 2017 by Laing J of Jamaica's Supreme Court on the basis that the new claims were an abuse of process and the Appellant could (and should) have raised these allegations of fraud earlier in the proceedings. The Appellant applied for permission to appeal Laing J's order but the Court of Appeal refused permission. The Appellant therefore applied for leave to appeal to the Privy Council which was granted.

Decision

The key question for the Board was whether there was "fresh evidence" of fraud which justified setting the previous judgments and settlements aside. The principles for establishing this are that the evidence of fraud must (i) have been material (i.e., significant enough to affect the court's decision if put forward at the time), and (ii) either have been obtained after the judgment or not deployed during the original proceedings (though only for a good reason)².

The Board also highlighted the significance of the res judicata doctrine, which prohibits a party from relitigating a decision, and the Henderson principle, which precludes a party from raising matters in subsequent proceedings which could and should have been raised in previous proceedings³. Claims which infringed on these principles were likely to be abusive.

The information which the Appellant was relying on to allege evidence of fraud was a spreadsheet containing details of the debt portfolio acquired by FINSAC compiled by the General Manager of FINSAC which the Appellant had received in August 2011. This was clearly some time before the Appellant agreed to settle the dispute in 2012 and the Board was therefore satisfied that there was no reasonable basis for overturning Laing J's finding that the Appellant had all of the information he was relying on to allege fraud by the time he entered into the settlement agreement.

The impact of Takhar

The Appellant's submissions relied heavily on the Supreme Court's decision in Takhar v Gracefield Developments Ltd (Takhar) ⁴; in which Lord Sumption had made obiter comments that an application to set aside judgment in light of fraud would only be abusive if "the claimant deliberately decided not to investigate a suspected fraud or rely on a known one". The Court of Appeal had applied this reasoning in the case of Park v CNH Industrial Capital Europe Ltd (t/a CNH Capital) (Park), which the Appellant also relied on.

The Board held that Lord Sumption's obiter comments "do not bear the weight put on them" in Park, although that did not affect the outcome of Park which was in their view "rightly decided on its facts". Park did not deal with the question of abuse of process, but if it had then the Board conceded it was possible it might not "adopt the approach" which the Court of Appeal had taken in that case. In addition, it was possible to distinguish Takhar as that was not a case where the claimant was exclusively relying on information they already had at the time of the settlement or judgment, unlike in the present case in which the appellant had had the information he was relying on since 2011.

The obiter comments in Takhar were also at odds with "the strong public interest of achieving finality in litigation". Although it was right that a judgment proven to be obtained by fraud should not be upheld, the Board agreed with Lord Briggs' observation in Takhar that if the fraud allegations were weak, "the invasion of the finality principle in such a case will not merely be a risk but an expensive and time-consuming actuality" for parties having to deal with them⁵.

Reliance on evidence not adduced in original proceedings

Having considered Takhar and Park, the Board set out the test for setting aside a judgment due to fraud which was as follows:

"Where a claimant relies on evidence not adduced in the original proceedings to allege that a judgment or settlement in those proceedings was obtained by fraud, the burden is on the claimant to establish (1) that the evidence is new in the sense that it has been obtained since the judgment or settlement, or (2) if the evidence is not new in this sense, any matters relied on to explain why the evidence was not deployed in the original action. Furthermore, where the evidence is not shown to be new in this sense, the claim 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."⁶

The Appellant had all the information he now relied on to allege fraud well before he entered into the final settlement agreement in 2012, but he had not offered an explanation as to why he failed to make these allegations earlier. As the allegations themselves lacked substance, the Board dismissed the appeal.

Comment

Although the Board emphasised that judgments obtained by fraud should not generally be allowed to stand, fraud should not be "regarded as some kind of open sesame" and there were key public policy elements to consider (bearing the Henderson principle in mind) when deciding if it was an abuse of process to restart long-fought litigation battles. The Board clearly felt an obligation to defend the principle that litigation should offer finality to parties and this might dissuade litigants from re-opening closed cases unless there is good reason to do so; otherwise such attempts may be seen as an abuse of process.

This decision marks a departure from previous authorities on relying on fraud to set aside judgments and there are some interesting remarks about the reliance on a panel's obiter comments. In particular, the Board emphasised that "it is only the ratio of the decision which establishes a precedent and not obiter dicta"⁷. In the future, it is possible that Lord Sumption's comments in Takhar will be relied on to a lesser extent given the Board's analysis and that the ratio will be its more influential legacy.

¹Finzi v Jamican Redvelopment Foudation Inc and others [2023] UKPC 29
²Takhar v Gracefield Developments Ltd [2019] UKSC 13
³Henderson v Henderson [1843] 3 Hare 100
⁴Takhar
⁵Takhar, para 75
⁶Finzi, para 72
⁷Finzi, para 60