When seeking to resist enforcement of a foreign judgment on the basis that the judgment was obtained by fraud, Moffett KC found, in BG Atlantic v Hay Hill, that it is not sufficient for the fraud relied upon to be of a “background” nature.

The relevant facts

In summary, BG Atlantic had obtained judgment in New York against Hay Hill in respect of a debt owed under a loan agreement. Because there is no treaty or convention governing the enforcement of judgments between the UK and US, BG Atlantic brought a claim in England to recover the judgment debt.  BG Atlantic then sought summary judgment against Hay Hill.  Hay Hill sought to defeat the claim using the fraud defence. It argued that the funds advanced by way of the loan agreement were the proceeds of crimes committed by a third party, Larisa Markus (yes, this one), and the product of a fraud perpetrated by the controlling mind of Hay Hill, Mr Bykov, against Ms Markus.

The scope of the fraud defence

Moffett KC noted that none of the authorities to which he referred defined the full scope of the fraud exception, but it was nevertheless clear that the courts had been proceeding on the basis of a consistent understanding of what this was: (1) The fraud must be one which was practised on the foreign court; (2) The fraud may be one which relates to the claim which was advanced in the foreign court (in the sense that a fraudulent claim was advanced before the foreign court), or it may be one which is collateral to the foreign proceedings (in the sense that the claimant dishonestly interfered with the process of the foreign court); (3) The fraud must be conscious and deliberate; and (4) The fraud must be one which had an operative effect on the foreign court.

Hay Hill had relied on an allegation of fraud which related to the manner in which BG Atlantic was said to have obtained the funds which subsequently became the subject of the loan agreement. There was no pleaded case that the loan agreement was itself fraudulent, that the claim in the US was fraudulent or that BG Atlantic otherwise practised a fraud on the US court.  As a result, the matters relied upon by Hay Hill fell outside the proper scope of the fraud defence.

Fraud by omission?

Given the expansion of Hay Hill’s argument during the oral hearing before him, Moffett KC considered whether a conscious and deliberate failure to omit disclosure of a particular matter to the foreign court could be sufficient to constitute a fraud which fell within the scope of the fraud defence.  Moffett KC saw force in this as a matter of principle, provided that the omission had the necessary operative effect on the foreign judgment, but the omission would have to itself be fraudulent. In this case, Moffett KC thought that it would have been necessary for BG Atlantic to have been under an obligation to disclose a matter that it consciously and deliberately had not.  Moffett KC did not find that BG Atlantic had been under any such obligation.