COURT REFUSES TO SET ASIDE JUDGMENT IN RELATION TO SOLICITOR’S COSTS: SERVICE AT AN ADDRESS IN THE REGISTER IS THE PRICE OF BEING A DIRECTOR

In Farrer & Co LLP v Meyer [2022] EWHC 362 (QB) Mr Justice Kerr refused to set aside a long-standing judgment on a bill for solicitor’s costs.  The judgment also considered the importance of s.1140 of the Companies Act 2006. This allows service on a director at an address given as the registered address. This principle applies even when the proceedings in question have nothing to do with the defendant’s role as a director of the company.

SECTION 1140 OF THE COMPANIES ACT 2006

The judgment considers this section in some detail. It is worthwhile knowing about this section in cases where the defendant is a company director. In particular subsection (3): “(3)This section applies whatever the purpose of the document in question. It is not restricted to service for purposes arising out of or in connection with the appointment or position mentioned in subsection (2) or in connection with the company concerned.”

Service of documents on directors, secretaries and others

(1)A document may be served on a person to whom this section applies by leaving it at, or sending it by post to, the person’s registered address.

(2)This section applies to—

(a)a director or secretary of a company;

(b)in the case of an overseas company whose particulars are registered under section 1046, a person holding any such position as may be specified for the purposes of this section by regulations under that section;

(c)a person appointed in relation to a company as—

(i)a judicial factor (in Scotland),

(ii)[F1an interim manager] appointed under [F2section 76 of the Charities Act 2011][F3or section 33 of Charities Act (Northern Ireland) 2008] , or

(iii)a manager appointed under section 47 of the Companies (Audit, Investigations and Community Enterprise) Act 2004 (c. 27).

(3)This section applies whatever the purpose of the document in question.

It is not restricted to service for purposes arising out of or in connection with the appointment or position mentioned in subsection (2) or in connection with the company concerned.

(4)For the purposes of this section a person’s “registered address” means any address for the time being shown as a current address in relation to that person in the part of the register available for public inspection.

(5)If notice of a change of that address is given to the registrar, a person may validly serve a document at the address previously registered until the end of the period of 14 days beginning with the date on which notice of the change is registered.

(6)Service may not be effected by virtue of this section at an address—

(a)if notice has been registered of the termination of the appointment in relation to which the address was registered and the address is not a registered address of the person concerned in relation to any other appointment;

(b)in the case of a person holding any such position as is mentioned in subsection (2)(b), if the overseas company has ceased to have any connection with the United Kingdom by virtue of which it is required to register particulars under section 1046.

(7)Further provision as to service and other matters is made in the company communications provisions (see section 1143).

(8)Nothing in this section shall be read as affecting any enactment or rule of law under which permission is required for service out of the jurisdiction.

THE CASE

The claimant firm of solicitors brought an action for unpaid costs.  Proceedings were served at two addresses in London which the defendant had given as an addresses for companies of which the defendant was a director. No response was received and default judgment was entered.  There were various interlocutory hearings relating to enforcement of the judgment.  At an earlier application hearing in relation to enforcement counsel on behalf of the defendant had conceded that the judgment was regular.   The defendant had failed to comply with several orders of the court.

THE JUDGMENT IN RELATION TO RELIEF FROM SANCTIONS

The judge considered the arguments made by the defendant that there had not been good service, alternatively that the judgment should be set aside on its merits. The judge rejected both of the defendant’s arguments.  Service had taken place as allowed the Companies Act.  There had been an inordinate delay in making any application to set aside judgment, the application had scanty merits in any event.

1. 1. The defendant submits, through Ms Perselli, as follows.

1. 1. First, she submitted that the default judgment was irregular and should be set aside as of right. The court should not hold the defendant to Mr Bell’s concession that the judgment was regular, made at the hearing before Saini J in March 2020.

1. 1. On that occasion, Ms Perselli submitted, the set aside application was not before the judge. Further, the basis on which the validity of the service under section 1140 of the 2006 Act had been disputed, before Mr Bell made his concession that the judgment was regular, had then been rather different.

1. 1. Ms Perselli submitted that where service is effected under section 1140 of the 2006 Act default judgment may not be obtained. The authorities upholding service on an individual under section 1140 were not default judgment cases.

1. 1. Ms Perselli, in her skeleton argument, went through the rules on service in the CPR and the authorities at length and in detail. She submitted that the authorities relied on by the claimant were not in point. Those were mainly the authorities considered by the Chancellor, Flaux LJ, in PJSE Bank “Finance and Credit” v Zhevago [2021] EWHC 2522 (Ch) (see at [46]-[56]), supporting service under section 1140 on a company director resident outside the jurisdiction but in his capacity as an individual not a company.

1. 1. There was, she pointed out, no case in the books such as this, where (i) the claimant knows the defendant resides outside this jurisdiction; (ii) the business address at which the defendant was served had not previously been used for dealings between the parties, and (iii) the claimant made no attempt to bring the proceedings to the defendant’s attention.

1. 1. Here, Ms Perselli objected, the claimant had sent pre-action correspondence to a different email and postal address and then purported to use section 1140 to support service under that provision (at an address provided to Companies House of a company of which the defendant is a director) before obtaining default judgment.

1. 1. The defendant said that was unfair and outside the service rules in CPR rule 6. The cross-reference in rule 6.3(2)(b) to service under the 2006 Act should not be interpreted so as to apply to service on an individual under section 1140 in her capacity as an individual. The claimant, Ms Perselli argued, should either have sought the court’s permission to effect substituted service or should have served at the usual or last known residential address, under rule 6.9, having taken steps to ascertain what that address was.

1. 1. The defendant’s submission, in the skeleton argument of Ms Perselli, was as follows:

“It is implicit within section 1140 CA 2006 that the claimant cannot serve at that address in circumstances where it would be required, because of its knowledge of the defendant’s circumstances, to take reasonable steps to confirm the service address under r6.9. Therefore there has not been good service.

Further and alternatively, that CPR Part 12 is not available where service has not been effected pursuant to Part 6. The wording of Part 12 does not permit it and there are strong policy reasons why it should not be available.”

1. 1. The reasons relied on are, essentially, reasons of fairness. A person against whom default judgment is obtained may not know of the proceedings and may be denied the opportunity to defend against them before judgment is entered. Ms Perselli referred to the discussion of the issue in the context of article 6 of the European Convention on Human Rights in Akram v Adam [2005] 1 WLR 1762 CA, in the judgment of Brooke LJ at [41]-[43].

1. 1. Alternatively, the defendant submitted that the court should exercise its discretion to set aside the judgment. Mr Pike had not mentioned the default judgment request, in response to the defendant’s email of 6 December 2019, until after the default judgment had already been obtained. That was unconscionable, the defendant argued.

1. 1. Further, Ms Perselli submitted she had acted promptly in applying to set aside the judgment in January 2020. Her prospects of successfully defending the claim were good; the bills rendered by the claimant were sparse; the narrative was inadequate. She referred me in that regard to Ralph Hume Garry (a Firm) v Gwillim [2003] 1 WLR 510, in the judgment of Ward LJ at [63]-[70].

1. 1. The delays that had occurred since January 2020 were the fault of the claimant as much as of the defendant, Ms Perselli submitted. The claimant had sat on the case and not progressed enforcement of the judgment during the rest of 2020 and into 2021.

1. 1. As for the bills rendered to the defendant, she submitted that these were either too vague to qualify as valid solicitor’s bills under section 69 of the 1974 Act or, alternatively, if they did qualify as such, an extension of the one year time limit under section 70 of that Act for seeking an assessment of the bills should be granted.

1. 1. Furthermore, said Ms Perselli, the reasonableness of the charges could be contested at common law. The defendant’s right to do so was not excluded or curtailed by the 1974 Act. The burden at trial would be on the claimant to show the reasonableness of the charges sought to be recovered.

1. 1. The claimant, through Mr McWilliams, submitted in brief as follows.

1. 1. First, the judgment is a regular judgment. That concession was rightly made by Mr Bell and is not one from which the defendant should now be permitted to resile.

1. 1. Service effected at an address provided to Companies House by a director of a company is good service for the purposes of the CPR, Mr McWilliams submitted, even if the individual is not physically present in the jurisdiction (see the wording of section 1140 and the reasoning of the Chancellor at [46]-[56] in the PJSE Bank “Finance and Credit” case).

1. 1. The defendant here was served with the claim form attaching the particulars of claim on 15 November 2019 and, as such, deemed served pursuant to CPR rule 6.14 on 19 November 2019. Under rule 10.3, the defendant therefore had until 3 December 2019 to file an acknowledgement of service. She did not do so and, as such, the claimant satisfied the conditions under rule 12.3 for default judgment to be entered, so Mr McWilliams submitted.

1. 1. The new argument that default judgment is not available where service has been effected under section 1140 was hopeless, he contended, as shown by the decision in the PJSE Bank “Finance and Credit” case.

1. 1. Furthermore, Mr McWilliams contended there is no restriction under CPR Part 12 or 13 as to the manner in which service must have been effected in order for default judgment to be obtained, nor can any such restriction be found in the case law.

1. 1. The effect of section 1140, he submitted, is that the moment a director gives the Registrar of Companies notice of intention to change their registered address, the existing registered address can be used for service for a further 14 days. The director, therefore, only has to give notice of a change of address sufficiently in advance and monitor the old address until the 14 day period has elapsed.

1. 1. There is nothing unfair or onerous, he said, about the provision in principle. It serves to avoid disputes about service in the case of documents served after a notice of change has been sent to Companies House but before the same can be registered. It resolves those disputes by leaving both parties in no doubt as to what address can be used for service and for how long.

1. 1. In any event, said Mr McWilliams, the defendant rightly does not suggest she was served within the 14 day period after having given notice to Companies House of a different address. In fact, she was still using one of the addresses at which she was served as recently as July 2021.

1. 1. By the same reasoning, Mr McWilliams argued there is nothing in the human rights argument raised by the defendant as there is no unfairness.

1. 1. There are no good reasons why the court should exercise its discretion under CPR rule 13.3 to set aside the default judgment.

1. 1. The defendant does not, he suggested, have a realistic prospect of successfully defending the claim. For the reasons explained in Mr Blundell’s fourth witness statement, there is no sensible basis on which the defendant can dispute liability. At most, she could dispute quantum.

1. 1. She is well out of time to seek assessment under section 70 of the 1974 Act and, as for any common law challenge, nothing said by the defendant shows that the time claimed was not, in fact, worked or that the time was not reasonably incurred.

1. 1. Moreover, Mr McWilliams submitted, the defendant had delayed long both before and after making the set aside application. She had not sought to put it before the court until the hearing last week, some two years after the default judgment.

1. 1. He pointed out that she had acknowledged in her evidence before Saini J that she “should have been more proactive in dealing with the application to set aside this judgment“, yet did not offer anything like a proper explanation for that delay beyond a generic reference to workload and alleged difficulties in finding “a lawyer that I could trust, afford and work with.”

1. 1. Mr McWilliams pointed out that the defendant has already been found in contempt of court on one occasion and submitted that she is in contumacious breach of another order now. The court, he said, should decline to exercise its jurisdiction to assist a contemnor who shows flagrant disregard for the court’s orders, particularly where the indulgence she seeks is so great.

1. 1. Mr McWilliams disputed the suggestion that the claimant had acted unconscionably in obtaining the default judgment. The request, he pointed out, was submitted on 4 December 2019, which was two days before the defendant emailed Mr Pike.

1. 1. Finally, he said that the defendant had not satisfied several costs orders made against her. Even if the judgment were set aside, it should be on terms that they first be paid, including the costs of the instant hearing.

1. 1. Turning to my reasoning and conclusions on the application to set aside the judgment, I start by considering whether the defendant is entitled, as of right, to have it set aside on the basis that the judgment is irregular. In my judgment, it is not irregular. Mr Bell, on behalf of the defendant, conceded as much as long ago as March 2020.

1. 1. I reject the suggestion that because the context in which he did so was not the actual hearing of the set aside application itself, the defendant should not be held to his concession. By making it, the defendant sought to impress Saini J and gain advantage for his client. Mr Bell, properly doing his job, wanted to be realistic and concentrate his submissions on the existence of a possible partial defence to the claim.

1. 1. He relied on the substance of that possible partial defence and sought thereby to persuade Saini J to spare his client an oral examination the next day. I see no reason why it is unfair to hold the defendant to that concession. Furthermore, it was, with respect to Mr Bell and in fairness to him, correct. The decision and reasoning of the Chancellor in the PJSE Bank case, applies directly to this case. It legitimises service on a company director but in the capacity of an individual not corporate person under section 1140 of the 2006 Act at the company address until 14 days after that address is cancelled at Companies House.

1. 1. Contrary to Ms Perselli’s attractively put submissions, there is no limit to the purpose for which that service can be effected, whether it be of a claim in tort, contract, debt or other proceedings. Nor is there any basis for excluding that mode of service where default judgment is sought. The rules do not so provide expressly and I decline to read into them any implied exclusion for default judgment.

1. 1. There is nothing unfair about using section 1140 to serve a claim which is then subject to a default judgment. A company director making use of the privilege of incorporation in this country must also accept the burdens and other consequences of that. That means monitoring receipt of documents at the given address while it is in use for the company and for 14 days thereafter.

1. 1. It was up to the defendant to do that. It is not the claimant’s concern if she failed to do so, any more than it would be if she had been served at her home and had not bothered to open the envelope containing the claim documents before a default judgment was obtained. In both cases, the served party is unaware of the claim until after judgment. In neither case is that unfair.

1. 1. I have a discretion to set aside the default judgment, but I have rarely seen a weaker case for exercising that discretion. I accept the claimant’s submissions as to why I should not. There was some delay before applying to set aside the judgment. There was a much longer delay after the application was made.

1. 1. The delay after it was made is inexplicable, inordinate and inexcusable. It is no excuse that the other party also delayed to some extent. That party, the claimant, had the benefit of a judgment. The onus is on the party seeking to set aside to do so promptly. That was not done.

1. 1. Second, the merits of any defence look shaky, to say the least. First, it was reluctantly accepted by Ms Perselli, as it was less reluctantly by Mr Bell in March 2020, that any defence would be partial at best. There would still be a sum owing that could be measured in tens of thousands of pounds.

1. 1. Third, there is nothing in the point that the bills are inadequately particularised. They can be supplemented by information already known to the defendant, as Ward LJ made clear in the Ralph Hume case. It is clear from the copious witness statements from the defendant that she is well acquainted with the exact nature of the work done by the claimant. Fourth, there is no prospect whatever of obtaining an assessment of the bills. The time limit under section 70 of the 1974 Act has long expired and a request for an extension of time is hopeless and one has not even been made.

1. 1. That leaves the theoretical possibility of a common law defence based on the amount charged being too high. I might have been willing to consider allowing that to be tried if the set aside application had been pursued with vigour in late 2019 and early 2020.

1. I have no appetite for doing so nearly two years later, two years which has seen disobedience to court orders and unsatisfied costs orders. The application to set aside the default judgment is, for those reasons, rejected.