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“A knave does not escape liability because he is dealing with a fool”

So said Justice Brennan in the Australian High Court and quoted by the UK Supreme Court in Takhar v Gracefield Developments Limited & Ors. Given the frequency with which the Cayman and BVI Courts grapple with the concept of fraud it is inevitable that this case will be pored over by both Courts in the not too distant future.

Mrs Takhar issued proceedings claiming that properties had been transferred to the defendants as a result of undue influence or unconscionable conduct. At trial, a significant piece of evidence was a scanned copy of a profit share agreement. Mrs Takhar did not recall signing the agreement and was unable to explain how her signature had come to appear on the document. An application  in advance of the trial for permission to engage a handwriting expert was refused and no allegation of fraud was made at trial Mrs Takhar’s claim was dismissed. She later engaged a handwriting expert who stated conclusively that her signature had been transported from an earlier document. Mrs Takhar sought to set aside the judgment on the basis it had been obtained by fraud.  The application was granted at first instance, overturned by the Court of Appeal, and then came before the Supreme Court.       

The Court weighed the “finality in litigation” principle (a party should not suffer repeated litigation over the same point) against the “fraud unravels all” principle (a fraudster should not be allowed to retain the fruits of his fraud). On the facts, the Court found there was no tension between the application of both principles where fraud was not raised as an issue at trial, even though Mrs Takhar suspected fraud and, with due diligence, could have established fraud at the trial. The policy arguments where it can be shown that judgment has been obtained by fraud were overwhelming. However, the result would very likely have been different if fraud had been raised at trial or if a deliberate decision had been taken not to investigate the fraud.

While the decision was unanimous, four separate judgments were delivered, each containing obiter statements as to the scope of the application of the principle in any given case. Of note is the judgment of Lord Briggs who expressed a preference for a flexible approach where one might weigh the gravity of the fraud against the extent of the failure of due diligence. The decision therefore leaves open the possibility that a lack of reasonable due diligence might, in some cases, be so serious that an application to set aside a judgment for fraud will be stayed as an abuse of process.      

“A knave does not escape liability because he is dealing with a fool”

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