Setting aside a judgment of an Australian court obtained by fraud – what is required?

judgment-fraud
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While is often thought that judgments made by Australian courts absent the usual grounds of appeal are sacrosanct and cannot be set aside, this is not always the case. In Australia, like in other common law jurisdictions such as England and Wales, courts have the power to overturn a judgment if the judgment was obtained by fraud. This power was best explained in the High Court case of Clone Pty Ltd v Players Pty Ltd (in liq) [2018] HCA 12 (Clone).

This article will provide a brief overview of the relevant facts in Clone, and then explain what must be established to successfully set aside a judgment obtained by fraud.

The Clone case

The dispute concerned wording in a lease agreement where Clone Pty Ltd (the lessor) leased hotel premises in Adelaide to Players Pty Ltd (the lessee). The agreement stated that “the Lessee will upon expiration or earlier determination of the Lease transfer to the Lessor any Liquor Licences or gaming machine Licences held in respect of the premises for NIL consideration”.

Players alleged the word “NIL” had been crossed out through amendments, though, for the purpose of the first instance hearing and appeal, Players could not locate original copies of the agreement to prove this. Clone however had located a lease document with the Liquor and Gambling Commission, which indeed had the word “NIL” crossed out. Clone kept this fact hidden from its opponent. Unable to confirm the wording of the agreement, the trial judge at first instance held that the lessor was not obliged to pay consideration for the licenses – this decision was subsequently upheld on appeal.

Players later learned of Clone’s concealment and located another copy of the lease document which had the word “NIL” crossed out. Players started new proceedings seeking to have the initial judgments set aside based on Clone’s malpractice. Clone appealed to the High Court, arguing that a court’s equitable power to set aside perfected orders is limited to fraud, rather than mere malpractice. The High Court ultimately sided with Clone, confirming that the power of a court to set aside judgments require proof of actual fraud.

Take-aways from the case – what must a claimant do?

While Players was unable to establish that Clone had acted fraudulently so as to have the perfected order set aside, the case nonetheless highlighted what a claimant must prove in order to do so.

  1. Bringing a ‘fresh action’

A claimant seeking to overturn a judgment on the grounds of fraud must pursue their cause in a new proceeding, separate from the original claim. Practically, this means a claimant would expend further legal costs and time associated with another round of litigation, and be at risk of an adverse costs order. These factors should be balanced against the prospects of proving actual fraud, the likelihood of the court setting aside the underlying judgment and the potential commercial outcome of having the judgment set aside (eg will there be a financial return).

  1. Proving ‘actual’ rather than constructive fraud

A claimant must show, on the balance of probabilities, that actual fraud was committed. The standard of proof is high, requiring evidence of an intention to knowingly mislead or deceive. Mere ‘constructive fraud’ – which is conduct that yields an unfair advantage without deceptive intent – including ‘misconduct, accident, surprise, or mistake’ – is insufficient. Under section 140(2)(c) of the Evidence Act 1995 (Cth), the court may consider the gravity of an allegation when weighing the balance of probabilities. Alleging fraud is serious, therefore a high evidentiary burden exists meaning claimants should only seek to set aside a judgment obtained by fraud where robust (usually contemporaneous documentary) evidence is available.

  1. Whether reasonable diligence was exercised in the earlier proceeding to discover fraud?

There is no precondition that a claimant establish reasonable diligence was exercised in the earlier proceeding to discover fraud. For a prospective claimant, not only does this remove another evidentiary hurdle, it enables earlier judgments tainted with the most conspicuous fraud to be set aside even though the claimant did not discover the fraud themselves at that time (even if it could have been discovered). The absence of this precondition widens the net for the court to consider all categories of earlier fraud no matter how easily identifiable the fraud may have been at that time and will not preclude the claimant from applying to set aside that judgment.

  1. Whether the fraud affected the outcome of the earlier proceeding?

A claimant need not establish that the fraud actually affected the outcome of the earlier proceeding for the court to set aside a perfected order. However, this is nevertheless likely to be relevant to whether the court exercises its power. Therefore, while not strictly necessary, a claimant should still demonstrate that the fraud had a material impact on the outcome of the underlying case and demonstrate that it is in the interests of justice for the orders to be set aside.

While Clone demonstrates that courts are willing to set aside a judgment obtained by fraud – even where the fraud did not definitively alter the outcome of that judgment and where the claimant had not acted diligently – they will only do so with robust evidence which proves the existence of actual fraud. Any claimant interested in setting aside an order they believe was obtained by fraud should balance the strength of their evidence against the financial, time, and energy strains involved with lodging a fresh action.

Further information

For more information about the issues raised in this article, or for more information about any aspect of dispute resolution and litigation, please contact:
Trevor Withane: trevor.withane@blackwattlelegal.com.au, tel +61 (0)418 717 001

Disclaimer

Blackwattle Legal’s communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication.

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