In November last year the Court of Appeal gave judgment in the case of Park v CNH Industrial Capital Europe Limited t/a CNH Capital [2021] EWCA Civ 1766. The defendant had obtained judgment against the claimant in an earlier claim. In these proceedings the claimant sought to set aside that judgment on the basis that the defendant had obtained it fraudulently. The claimant’s claim had been struck out in the lower courts and he appealed.
The Court of Appeal’s judgment should reassure commercial entities on the receiving end of a fraudulently obtained judgment that they have the opportunity to achieve justice. It also serves as a stark warning to those who would seek to defraud the court of the consequences of such deception.
The facts
Mr Park is a farmer based in Lancashire. During the relevant period he conducted business through a limited company called Park Organic Farms Limited, of which he was a director. In 2013 and 2014, Mr Park signed four hire purchase agreements (the Agreements) with CNH Industrial Capital Europe Limited (CNH) for farm equipment. He signed the Agreements in his capacity as a director of “Park Hall Farms Limited”. The Agreements were supported by a personal guarantee, also signed by Mr Park, which related to all the agreements entered into by Park Hall Farms Limited. However, not only was Mr Park not a director of Park Hill Farms Limited, that company did not exist and never existed. CNH had completed the Agreements and Mr Park had not spotted this error.
Following a dispute between the parties, CNH terminated the Agreements in July 2014 and November 2015. In December 2014, CNH’s representative convinced Mr Park to sign a document headed “Deed of Rectification”. That document stated that it had always been the parties’ intention that “John Andrew Park trading as Park Hall Farms” would be party to the Agreements.
CNH subsequently issued proceedings against Mr Park seeking sums outstanding on the Agreements plus interest. The claim was based on the “Deed of Rectification” which, CNH alleged, had the effect of making Mr Park personally liable under the Agreements. Mr Park defended the claim on the basis that he was not liable under the Agreements: Park Hall Farms Limited was. However, his defence was struck out for failure to meet procedural deadlines and his attempts to obtain relief from sanctions failed. Default judgment was subsequently entered in CNH’s favour following a request by its solicitor.
After exhausting all his routes of appeal, Mr Park commenced proceedings to set aside the default judgment on the grounds that it was obtained by fraud. CNH’s application to strike out those proceedings failed at first instance, but succeeded on appeal before a circuit judge. Mr Park then appealed to the Court of Appeal.
The Court of Appeal’s decision
The successful outcome of Mr Park’s appeal ultimately depended on whether his claim constituted an abuse of process. The Court of Appeal found that it did not and allowed the appeal. However, it is the Court’s comments on the judgment CNH obtained against Mr Park that are particularly striking.
Mr Park argued that he was told by a representative of CNH prior to signing that the “Deed of Rectification” was in fact a document releasing claims over the farm equipment that was subject to the Agreements to enable that equipment to be sold. He claimed he would not have signed a document that had the effect of making him personally liable under the Agreements.
The Court of Appeal noted that there was no evidence that CNH believed that Mr Park carried on business as a sole trader. In fact, the evidence on which CNH relied and the documents themselves reflected that CNH believed that the hiring party was intended to be Mr Park’s company. The mistake in the Agreements was not that CNH intended to contract with Mr Park personally, but that the incorrect company details were added. If CNH had intended Mr Park to be the hirer, they would have had no need for a personal guarantee.
The Court of Appeal considered that CNH likely procured Mr Park’s signature on the “Deed of Rectification” when, after terminating the first two Agreements in 2014 and with litigation increasingly possible, they realised the error on the documents and that none of them were enforceable as a consequence. CNH must have been aware that they had no basis for rectifying the hire purchase agreements on the basis they sought to. The Court of Appeal took the view that Mr Park “appears to have strong grounds” that his signature on the Deed of Rectification was procured by fraud.
As to setting aside the judgment on the grounds of fraud, the Court of Appeal noted that, to do so, Mr Park needed to establish conscious and deliberate dishonesty by CNH that was relevant to the judgment it obtained and that the dishonesty was an operative cause of the Court’s decision to enter judgment for CNH. CNH had pleaded that it had always been the intention of the parties that Mr Park was the hiring party in the Agreements. However, in light of the evidence (including from CNH itself), that was untrue and CNH must have known that it was untrue both at the time the statement of truth was signed on the Particulars of Claim and when CNH’s solicitor submitted a request for judgment. The Court had been deceived and that deception was an operative cause of judgment being entered.
The Court of Appeal restored the district judge’s decision to refuse CNH’s application to strike out Mr Park’s claim and allowed the claim to proceed to trial. In the concluding paragraph of her judgment, Lady Justice Andrews commented that “CNH will now have to decide whether to continue to defend the claim, bearing in mind the false statements made in its Particulars of Claim”.
Comment
What began for CNH as an attempt to recover from Mr Park the sum of approximately £138,000 culminated in an adverse finding of fraud in a highly critical judgment in the Court of Appeal. The true genesis of this judgment, however, was a simple clerical error on the part of CNH: entering the incorrect company details on a few hire purchase documents. CNH tried to cover up this error by bringing proceedings based on statements of fact that they did not believe to be true. CNH’s situation is a stern warning to others who might consider doing similarly, assuming that no one will find out.
Commercial parties should not need to be reminded that fraud is not the solution to administrative mistakes, and the judgment instead is best seen as a reminder to those who have received a default judgment they consider to have been obtained by fraudulent means to act quickly to apply to set it aside. Whilst nothing in litigation is certain, if an innocent party can meet the necessary test and their claim is not an abuse of process, they have a good chance of succeeding in such an application.
Alasdair McDowell