SETTING JUDGMENT ASIDE AFTER REDBOURN: 10 KEY POINTS FOR DEFENDANTS (CLAIMANTS MUST READ TOO)

The judgment in Redbourn Group Ltd -v- Fairgate Development Limited [2017] EWHC 1223 (TCC) highlights the fact that there is a new age for a party seeking to set judgment aside. Not only does the party have to satisfy the requirements of 13.3 but the applicant has then to go on to deal with the Denton requirements.  This is guide for any party seeking to have a judgment set aside. This applies to defendants seeking to set aside judgments and claimants seeking to set aside default judgment on a counterclaim.

POINT 1: EDUCATE YOUR CLIENTS

There are certain clients who tend to take an insouciant approach to receiving proceedings, claim forms get left or ignored.  It is the task of insurers and defendant lawyers alike to make it clear to clients that if proceedings are received they must be sent to lawyers promptly.  If judgment is entered then it may well not be possible to get it set aside.  Times have changed.  A party no longer has to show a “triable issue” to get judgment set aside and the process is a difficult one.

In relation to claimants it is essential that counterclaims are identified at once and the need to file a defence to counterclaim dealt with.

POINT 2: IF JUDGMENT IS ENTERED BE PROMPT, BE VERY PROMPT

Promptness is a factor considered in 13.3.  However this relates not just to the time after judgment and before the application but the time that has lapsed since judgment being entered. In the Redbourn case the judge stated:

“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.”

POINT 3: EXPLAIN ALL DELAY

Some defendants deal with “promptness” from the point of view of the conduct after the matter has been put in the hands of solicitors. This is not sufficient. The defendant needs to offer an explanation as to:

• How judgment came to be entered in default.
• Any delays between issue and judgment being instructed.

The key point here is to be honest. The court requires an explanation.  There may be no good reason. The reason may be a poor one. However the court will require an explanation before it can properly consider exercising a discretion (this is also relevant when the court considers the Denton principles. In Redbourn the judge noted:

“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.”

POINT 4: MAKE THE APPLICATION FULLY AND PROPERLY

Do not assume that merely exhibiting a draft defence will suffice. There is a clear burden on a defendant under CPR 13.3 to show that  “the defendant has a real prospect of successfully defending the claim”.   This has to be established by evidence. This is best done by first-hand evidence not second-hand evidence from the solicitor.

In Redbourn the judge was critical of the defendant’s failure to set out its case properly when the application was first made. Further evidence was put in shortly before the hearing.

“… 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).”

It would be less objectionable for a defendant to:

• Make the application promptly with an outline of the case.
• Put in more detailed evidence as soon as this is available.

The key point here is the need to put in the additional, more detailed, evidence promptly. If, as in the Redbourn case, it is left until shortly before the hearing it will carry less credibility and could lead the court to conclude that the defendant has not been prompt.

Remember, however the observations of Master Matthews in Goldcrest Distribution Ltd -v- McCole [2016] EWHC 1571 (Ch) (in relation to setting aside judgment on a counterclaim).

“It is ordinarily not right to serve an application notice for such an important order as this with some evidence in support at the time, and then, several weeks later, have a second bite at the cherry with an additional witness statement.”

POINT 5: REMEMBER THE CRITERIA THE DEFENDANT HAS TO MEET ” A REAL PROSPECT OF SUCCESSFULLY DEFENDING THE CLAIM”

This is repeating the earlier point slightly. The burden is on the defendant to establish this, by evidence.   Ensure that evidence is available, is first hand and is cogent.  A defendant may have a difficulty with disclosing all its evidence at this stage. However if judgment is set aside then the issue will be an academic one.  Get, and use, the best evidence available.

POINT 6: THE DENTON TEST (1) – SERIOUS AND SIGNIFICANCE

There is often little point arguing that allowing a default judgment to be entered is not serious or significant.   In the Redbourn case the judge observed:

“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).”

POINT 7: THE DENTON TEST (2) – THE REASON

The difficulty for most defendants is that there is rarely a “good reason” for allowing judgment to be entered in default. However the court considers the reasons as part of the test, the absence of a good reason is not fatal to an application. The failure to give an explanation at all is likely to be fatal. The key point is to give the court an honest explanation as to how this happened.     The court will look critically at the matter if there is no explanation at all. In the Redbourn case

“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 …”

POINT 8:  THE DENTON TEST (3) – ALL THE CIRCUMSTANCES OF THE CASE

Remember a defendant can act promptly, show a real prospect of successfully defending the claim and still if the judge takes an adverse view on all the circumstances of the case.  The pre-action conduct, the nature and pleading of the proposed defence and conduct generally are relevant at this stage. In Redbourn the judge observed:

“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.”

POINT 9: REMEMBER ALL OF THIS APPLIES TO JUDGMENT IN DEFAULT ON A COUNTERCLAIM

There is nothing more acutely embarrassing for a claimant than to have judgment in default entered on a counterclaim.

A party filing a Defence to a Counterclaim is under more pressure than the original defendant.  There is no acknowledgment of service stage.  The Defence to Counterclaim must be served within 14 days of service of the Counterclaim (20.3.3).

Further it is clear from the judgment of Master Matthews in Muhammad -v- ARY Properties Limited[2016] EWHC 1698 (Ch) that a Defence to Counterclaim is not a formality and a full and detailed Defence to the points made in the Counterclaim is required.

The claimant was unsuccessful in seeking to have judgment set aside in Goldcrest Distribution Ltd -v- McCole [2016] EWHC 1571 (Ch). Although the claimant had an arguable case in relation to the points made in the counterclaim the court refused the application on consideration of the Denton criteria.

POINT 10:  THIS IS A WHOLE NEW WORLD

There are real problems here for a defendants and claimants alike. An application to set aside judgment is far more difficult than previously. It has to taken extremely seriously. Applicant that fail to address these key points fully and properly are likely to file.