SETTING ASIDE JUDGMENT, DELAY AND DENTON: “PROMPTNESS” CONSIDERED: DELAY MUST BE EXPLAINED

May 29, 2017 · by · in Applications, Civil Procedure, Default judgment,, Relief from sanctions, Setting aside judgment

In Redbourn Group Ltd -v- Fairgate Development Limited [2017] EWHC 1223 (TCC) Mr Justice Coulson refused to set aside a default judgment.  The case contains some important discussion on how the Denton principles apply to applications to set aside judgment.

“… it subsequently became apparent that the relevance of r.3.9 to any application under r.13.3 has been specifically endorsed by the Court of Appeal in Gentry v Miller [2016] 1 WLR 2696, an important authority not referred to in either counsel’s skeleton argument and, more significantly, not referred to in the notes in the White Book under r.13.3 (an omission which should be rectified in the next edition).”

“It is always incumbent upon a solicitor seeking relief from sanctions to explain why something is late or why a proffered date could not in fact be met. On that topic, an analogy can be drawn with the recent trend in cases concerned with late amendments, such as Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), where Carr J made plain that, on the recent authorities, the absence of a proper explanation for delay will often, without more, lead to the application to amend being refused.”

THE CASE

The claimant had obtained a default judgment on the 9th March 2017. The defendant made an application to set that judgment aside on the 17th March 2017.

THE RELEVANCE OF CPR 3.9 TO APPLICATIONS TO SET ASIDE JUDGMENT

The judge held that the principles of CPR 3.9 and Denton were clearly applicable to an application to set aside judgment.

    1. There was some debate in the original skeleton arguments as to whether r.3.9 was relevant to an application under r.13.3: Mr Fowler, on behalf of RGL, said that it was; Mr Hale, on behalf of FDL, said that it was not. My view, prior to being shown any authorities, was that r.3.9 was plainly relevant to any application to set aside: after all, there is no greater sanction than judgment being entered in default of a defence, and no more important relief from sanction than being allowed to set aside that judgment, so as to be able to put forward a defence. That initial view found some support in the notes at paragraph 13.3.5 of the White Book and the decision of HHJ Richardson QC (sitting as a High Court Judge) in Hockley v North Lincolnshire and Goule NHS Foundation Trust, 19 September 2014 (unreported).
    2. However, it subsequently became apparent that the relevance of r.3.9 to any application under r.13.3 has been specifically endorsed by the Court of Appeal in Gentry v Miller [2016] 1 WLR 2696, an important authority not referred to in either counsel’s skeleton argument and, more significantly, not referred to in the notes in the White Book under r.13.3 (an omission which should be rectified in the next edition). In Gentry, Vos LJ said:

“23. It is useful to start by enunciating the applicable principles. Both sides accepted that it was now established that the tests in Denton’s case [2014] 1 WLR 3926 were to be applied to applications under CPR r.13.3: see paras 39–40 of the judgment of Christopher Clarke LJ in Regione Piemonte v Dexia Crediop SpA [2014] EWCA Civ 1298, with whom Jackson and Lewison LJJ agreed. It seems to me equally clear that the same tests are relevant to an application to set aside a judgment or order under CPR r 39.3.

24. The first questions that arise, however, in dealing with an application to set aside a judgment under CPR r.13.3 are the express requirements of that rule, namely whether the defendant has a real prospect of successfully defending the claim or whether there is some other reason why the judgment should be set aside, taking into account whether the person seeking to set aside the judgment made an application to do so promptly. Since the application is one for relief from sanctions, the tests in Denton’s case then come into play. The first test as to whether there was a serious or significant breach applies, not to the delay after the judgment was entered, but to the default in serving an acknowledgement that gave rise to the sanction of a default judgment in the first place. The second and third tests then follow, but the question of promptness in making the application arises both in considering the requirements of CPR r 13.3(2) and in considering all the circumstances under the third stage in Denton’s case.”

  1. Denton v TH White Limited [2014] 1 WLR 3926 is the leading case on relief from sanctions, and is the source of the three stages noted by Vos LJ in Gentry, namely: the identification and assessment of the seriousness or significance of the failure (stage 1); the reasons why the failure or default occurred (stage 2); and all the circumstances of the case (stage 3).
  2. In the present case, therefore, it is necessary to consider, first, the two elements of r.13.3(1) and then the three stages referred to in Denton.

THE TEST FOR SETTING DEFAULT JUDGMENT ASIDE

    1. Rule 13.3 provides as follows:
“13.3 – Cases where the court may set aside or vary judgment entered under Part 12
13.3 (1) In any other case, the court may set aside or vary a judgment entered under Part 12 if—

(a) the defendant has a real prospect of successfully defending the claim; or

(b) it appears to the court that there is some other good reason why—

(i) the judgment should be set aside or varied; or

(ii) the defendant should be allowed to defend the claim.

(2) In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly.”

 

Note that the test here is not an arguable prospect of success but the burden is on the applicant to show that there is a “real prospect of successfully defending the claim”.  The judge held that the the defendant in the current case did not meet that test.

DELAYS BY THE DEFENDANT

One factor that the judge took into account was the delays by the defendant.

  1. I have outlined the delays above. In my view, FDL have had repeated opportunities to set out their defence and their positive case on the alleged repudiation which, even at the eleventh hour, they have failed to take. This inevitably casts doubt on the credibility of their entire defence and counterclaim.
  2. These delays also go to the question of whether or not FDL should be granted a further opportunity to put in more evidence and/or documents. Most of the potential disputes in this case turn on the circumstances in which the contract came to an end, and that is where FDL, as the employers, ought to have taken the initiative months ago. How and why they decided to dispense with RGL’s services is their chosen battleground, and they have had over a year to get a coherent case together on that topic. But despite all that time to prepare, I consider that, for the reasons noted below, the material which FDL have been able to produce is wholly unpersuasive. In those circumstances, there is nothing to indicate that giving them still further time would make any difference to the outcome.

AN INADEQUATE DRAFT DEFENCE AND COUNTERCLAIM

Another factor was the inadequate way in which it was proposed to draft the defence and counterclaim.

  1. Related concerns affect the draft defence and counterclaim (which was not drafted by Mr Hale). Although a few positive averments are made there, it mainly consists of bare denials and non-admissions. There is no pleading of any factual framework beyond that identified by RGL in the particulars of claim, and some important parts of RGL’s claim are not even addressed. The source of the few positive averments is nowhere identified. In my view, a defendant in FDL’s position is required to do much more than is apparent from this evasive defence and counterclaim if it wants to persuade the court to set aside judgment.
  2. Thus the delays and the absence of any detailed evidence from those involved at FDL (the effect of which is apparent on the face of the draft defence and counterclaim) strongly suggest that FDL does not have a defence with a realistic prospect of success. In my view, that is then borne out by a consideration of the individual issues.

THE ISSUE OF PROMPTNESS

It is on the issue of promptness that the judgment is most interesting.

5. DID FDL ACT PROMPTLY?
    1. In accordance with r.13.3(2), the next issue is whether FDL applied promptly to set aside judgment.
    2. In my view, no criticism can be made of FDL on the narrow issue as to the timing of their application to set aside judgment. Judgment was entered on 9 March 2017 and their application to set aside was dated 14 March 2017. But it is artificial simply to consider that time period only: after all, it costs very little to make an application to set aside judgment. Moreover, in this case, Mr Love’s supporting statement was so devoid of detail that, if the application to set aside could have been accommodated immediately by the court, it would have failed.
    3. In my view, the real issue is whether FDL acted promptly after judgment was entered, up until the hearing on 19 May. In my view, on a proper analysis, they did not.
    4. FDL said that they needed until 22 February 2017 to serve a defence and counterclaim. They did not serve the document during that period, with the result that judgment was entered in default. When they applied to set that judgment aside on 14 March, 3 weeks after the date they had originally asked for, they should have attached the draft defence and counterclaim to the application to set aside. No reason has been advanced as to why they did not do so, or why the draft defence and counterclaim was not in fact provided until 11 May 2017.
    5. FDL’s lack of promptness can be tested in this way. According to the CPR they should have served a defence on 25 January 2017, in respect of events which are now between one and two years old, by reference to a claim made in some detail in the correspondence almost a year ago. So, if judgment is now set aside then it means that, without advancing any explanation, reason or apology (save for the irrelevant apology noted at paragraph 11 above), FDL will have obtained a de facto extension of over three and a half months, from 25 January until 11 May 2017. No such extension would have been granted to them if they had applied for it in the ordinary way. FDL cannot now be in a better position because of their wholesale failure to comply with the CPR.
    6. Similarly, as already noted, the application to set aside would have failed if the application could have been accommodated by the court at the end of March. So FDL are relying on the state of the court lists in order to provide material, such as the draft defence and counterclaim and the second statement of Mr Love, at the very last gasp before the hearing. Both these aspects of FDL’s conduct lead me to conclude that they have not acted promptly under r.13.3(2).
    7. It follows that, for the reasons set out in Sections 4 and 5 above, I will exercise my discretion in RGL’s favour under r.13.3, and I will not set aside the judgment in default. However, in case I am wrong on either of the two elements in r.13.3(1) and (2), I go on to address the three stages of Dento  (seriousness of failure, the reason for it, and all the circumstances of the case).
6. SERIOUSNESS OF FAILURE AND REASONS FOR IT
    1. In my view, FDL’s failure in allowing judgment in default to be entered was serious. They knew they had to serve a defence and counterclaim by 25 January 2017. They did not even seek an extension until 20 January and then, when they were offered an extension which they did not consider long enough, they did not make any application to the court until after the time for service had expired (1 February).
    2. More seriously still, they did not serve a defence and counterclaim during the period which they themselves had indicated was long enough to allow them to prepare the document. The 22 February 2017 date came and went without any communication from FDL at all. Indeed, such remained the position on 9 March, when the absence of any defence and counterclaim, or any other communication from FDL or their solicitors, caused judgment in default to be entered. As already noted, the draft defence and counterclaim was not served until 11 May.
    3. Turning to stage 2 as identified in Denton, what are the reasons for these serious failures? The short answer is that there are none. Neither of Mr Love’s witness statements provide any explanation at all for:
(a) Why he did not indicate that he required any extension of time prior to 20 January 2017, having become aware of the claims 17 days before;
(b) Why he did not make an application to the court immediately on receipt of Mr Haider’s offer of a 7 day extension only;
(c) Why he waited until 1 February 2017 before making an application to the court;
(d) The basis on which he believed he could produce the defence and counterclaim by 22 February;
(e) Why the defence and counterclaim was not served on 22 February: in other words, what went wrong which meant that Mr Love’s own date could not be met;
(f) Why he did not communicate with either Mr Haider or the court between 1 February 2017 and 9 March 2017, when judgment was entered;
(g) Why a draft defence and counterclaim was not served until 11 May 2017, 11 weeks after the extended date which he himself had sought.
    1. The only points raised by Mr Love in addressing delay can be found at paragraphs 5-10 of his second witness statement. These paragraphs detail the various personnel that have left FDL overt he last year or so. I have already dealt with this, because of the difficulties that it creates for FDL in terms of the overall reliability of their defence, at paragraphs 28-29 above.
    2. But these paragraphs do not explain the delays between January and May 2017. Mr Love makes plain that the two critical personnel who knew about the detail of the case, Mr Everett and Mr Howes, both left FDL in March-April 2016. Thus their departure can have nothing to do with the delays over the last few months and, in particular, FDL’s failure to meet its own requested extension of 22 February 2017. Although there is a reference to Mr Pervez leaving in February 2017, Mr Love accepts that he was the financial controller and did not have any detailed knowledge of the construction aspects of the project.
    3. Given the seriousness of the delays, the court is bound to take a very adverse view of Mr Love’s wholesale failure to explain each of the matters noted in paragraph 77 above. It is always incumbent upon a solicitor seeking relief from sanctions to explain why something is late or why a proffered date could not in fact be met. On that topic, an analogy can be drawn with the recent trend in cases concerned with late amendments, such as Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), where Carr J made plain that, on the recent authorities, the absence of a proper explanation for delay will often, without more, lead to the application to amend being refused.
    4. I then turn to consider all the circumstances of the case, having reached adverse conclusions to FDL on stages 1 and 2 as identified in  Denton.
7. ALL THE CIRCUMSTANCES OF THE CASE
    1. I have already dealt with the delays since the commencement of the proceedings and whether FDL acted promptly in applying to set aside judgment. As to the other delays, there was a good deal of evidence about the parties’ respective conduct in the lead-up to these proceedings which I have summarised in paragraphs 7 and 8 above. In essence, I consider that proper notification of the fee claim was given in May 2016 and the damages claim in July 2016. I consider that no substantive response was provided by FDL until September 2016, and that even then important information, such as the alleged losses said to flow from RGL’s breaches, was not identified, although it had been repeatedly promised.
    2. In those circumstances, RGL were quite entitled to commence proceedings in December 2016. Those proceedings have of course been marked by the serious and significant delay on the part of FDL, leading to judgment in default. I note that the defence and counterclaim contained no particulars of any kind of FDL’s damages claim for repudiation, despite the repeated promises that such information would be provided last year. Thus a consideration of all the circumstances of the case leads to a conclusion adverse to FDL.
    3. Accordingly, even if I was wrong on either of the elements of CPR r.13.3, I would conclude that, in accordance with Denton, FDL have not made out a case to be granted relief from sanctions. So the application to set aside judgment would still fail.
8. CONCLUSIONS
  1. For the reasons set out in Section 4 above, I conclude that FDL have no realistic prospect of defending this claim in principle or advancing their own counterclaim. I accept that the calculation of the precise fees due and the assessment of any damages as a result of FDL’s repudiation of the contract is a separate matter to be addressed at any quantum hearing.
  2. For the reasons set out in Section 5 above, I accept that the application to set aside was made promptly. But I find that that application was inadequate on its face and was only rendered even arguable by the material provided from 11 May onwards. In those circumstances, I do not consider that FDL acted promptly.
  3. That is sufficient to resolve this application against FDL. But in case I am wrong on either of the elements of CPR 13.3, I have addressed the elements relevant to relief from sanctions under CPR 3.9. For the reasons set out in Section 6 and 7 above, I find that each of the three stages identified in Denton and Gentry lead to conclusions adverse to FDL. I am particularly struck by the complete absence of any explanation – let alone excuse – for any of the relevant delays. Those would separately lead me to exercise my discretion against FDL and to refuse to set aside judgment.
  4. For all those reasons, therefore, I decline to set aside the judgment in default. I will deal with all consequential matters at a date convenient to counsel.
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