WHY LIFE IS NOW DANGEROUS FOR DEFENDANTS (ESPECIALLY THOSE WHO DON’T FILE A DEFENCE ON TIME)

July 21, 2017 · by · in Applications, Default judgment,, Extensions of time, Relief from sanctions, Summary judgment

The judgment of Mr Justice Coulson in ADVA Optical Networking Limited -v- Optron Holding Limited  [2017] EWHC 1813 (TCC) highlights what a dangerous world this can be for defendants. A defendant who is late filing a defence, and where judgment has not been entered, still has to satisfy the Denton criteria before the court will grant it an extension of time to file a defence.  The defendant was successful in this case. However the judge observed that this will be relatively rare.

This case highlights the importance of the 10 key points for defendants on setting judgment aside set out in a previous post on this topic.

“…this is one of those (relatively rare) cases of serious default in which it is appropriate to grant relief from sanctions.”

THE CASE

The claimant in the action (Rotronic) issued proceedings against the defendant A One Distribution.  There were related proceedings against Optron and A One had refused to be a party to a “stand still agreement”.  Once proceedings were issued the defendant did nothing, a defence was not filed. However judgment was not entered.   The defendant then applied for permission to file a defence out of time.

case highlights the importance of the 10 key points for defendants on setting judgment aside set out in a previous post.This

THE CRITERIA

The judge held, firmly, that a defendant in these circumstances had to deal with the Denton test.
    1. There was a suggestion in the letter of 16 June 2017, reiterated in Mr Beatson’s statement, that A One did not really require relief from sanctions at all, and that this was a relatively simple application for an extension of time to serve a defence. Mr Ward did not pursue that argument. In my view, he was right not to do so. The correct approach is that a retrospective application for an extension of time to serve or file a document should be dealt with on the same principles as a claim for relief from sanctions: see R (Hysaj) v Secretary of State for the Home Department [2015] 1 WLR 2472.
    2. The leading case on relief from sanctions is, of course, Denton and Others v T H White Limited [2014] 1 WLR 3926. There, the Court of Appeal ruled that an application for relief from sanctions must be addressed in three stages:
(i) Identify and assess the seriousness and significance of the failure to comply with any rule;
(ii) Consider why the default occurred;
(iii) Evaluate all the circumstances of the case, so as to enable the court to deal justly with the application, including the factors in sub-paragraphs (a) and (b) of r.3.9(1).
  1. There is a plethora of decisions post-Denton, but the vast majority of them turn on their own facts. The only two that I should identify here are Gentry v Miller [2016] 1 WLR 2696, in which the Court of Appeal made plain that the principles relating to relief from sanctions also apply to cases concerned with setting aside default judgment; and Salford Estates (No.2) Limited v Altomart Limited[2015] 1 WLR 1825, where the Court of Appeal allowed relief from sanctions on the basis that, although the delay in question was considerable, it had had little, if any, effect on the course of the proceedings. Paragraphs 22 and 23 of the judgment of Moore-Bick LJ in Salford Estates provide a timely corrective to those who maintain that relief from sanctions should never be granted in cases where there has been a non-trivial breach of the rules.
  2. I should deal at once with the position under r.13.3 and the potential relevance of the test for setting aside judgment in default. In the present case, judgment in default could have been entered against A One. But on the facts, whether judgment had been entered or not is irrelevant because, having been provided with A One’s draft defence Mr Bell, on behalf of Rotronic, sensibly accepts that A One has a realistic prospect of successfully defending the claim. In that way, the test in r.13.3 has been met, and this application becomes a straightforward application of the three stages identified in Denton.

THERE WAS SERIOUS AND SIGNIFICANT DEFAULT

The judge held that there was serious and significant default.

  1. In my view, A One’s failure to comply with the rules was serious. Because A One had refused to be party to a Standstill Agreement, Rotronic had had to issue separate proceedings against them. A One then ignored those proceedings, and the Particulars of Claim with which they had been served. Instead of serving a defence at the end of March 2017, they did not provide their draft defence for another three months. I deal with the significance of A One’s default in Section 6 below, when I consider all the circumstances of the case.
NO GOOD REASON
    1. In my view, there was no good reason for this serious breach of the rules. In his witness statement (at paragraphs 12 and 14), Mr Beatson suggested that A One did not understand the meaning and effect of the documents with which they had been served and that they could be “forgiven for assuming that something further was to happen before it was required to respond to the Particulars”.
    2. In my view, that was a thoroughly bad point. There was nothing complicated about the principal document which was provided to A One by Rotronic’s solicitors on 10 March 2017. The fact that it was called “Particulars of the Third Party’s Additional Claim Against the Fourth Party” could hardly have been a source of confusion, because Rotronic and A One were expressly named as the third and fourth parties respectively. The fact that A One were also provided with documents in the main proceedings, including Rotronic’s defence to Optron’s claim, was nothing to the point.
    3. Further and in any event, A One’s decision in March 2017 to ignore the Rotronic Particulars of Claim was entirely consistent with their conduct both before and since. That conduct is summarised in paragraph 19 of Mr Lovatt’s statement. It is unnecessary to set out all the examples of A One’s refusal to engage properly or at all with the claim against them, but their defaults include:
(a) Refusing to enter into a Standstill Agreement or equivalent in July 2016, unlike the other three parties, thereby forcing Rotronic to issue separate proceedings;
(b) Failing to respond to the invitation to agree to an extension of time for the service of the Particulars of Claim in October 2016, thereby forcing Rotronic to make an application;
(c) Failing to respond to the invitations to agree to consolidate the two sets of proceedings in February and March 2017, thereby forcing Rotronic to make a further application;
(d) Failing to respond to the letter of 11 May 2017, which amongst other things, notified A One that Master McCloud had ordered them to pay the costs of the unnecessary application to consolidate the proceedings;
(e) Ignoring the letters of 10 and 25 May 2017, noted at paragraph 6 above;
(f) Failing to take any part in the proceedings until Taylor’s letter of 16 June 2017.

 

ALL THE CIRCUMSTANCES OF THE CASE: A EXTENSION WAS JUSTIFIED

Despite this, and on the particular facts of this case, the judge granted the defendant an extension of time for filing the defence.
    1. For the reasons set out above, A One’s overall conduct has been very poor. They have not complied with the relevant rules and they have prevented the efficient and proportionate conduct of the claim against them.
    2. However, that negative assessment has to be balanced against two factors which I believe are firmly in A One’s favour and which, on analysis, have led me to conclude that I should, in this case, grant relief from sanctions.
    3. The first point is similar to that which arose in Salford Estates. As I have indicated, the relevant period of delay here is three months. That is a significant amount of time. But as in Salford Estates, that delay has not in fact had any real effect on the course of these proceedings. In the claim brought by ADVA, various amendments were made to the pleadings, which therefore have only just closed. In the Rotronic action, if A One was allowed to defend the claim then, save for a potential reply from Rotronic, the pleadings are also closed. Beyond that, the actions are at a relatively early stage. Disclosure has not yet taken place; indeed, I made specific orders in relation to disclosure at the hearing on 14 July 2017. In addition, at the same hearing, I gave directions leading up to the trial in April 2018. I consolidated the two sets of proceedings and ordered that they should be case managed together.
    4. Thus, if I grant A One relief from sanctions, their default, serious though it has been, will not have caused any delay to the proceedings as a whole. Aside from the costs of the aborted CMC, which I have ordered A One to pay, A One’s default has given rise to no additional costs, and a minimal waste of judicial and court resources. For these reasons, the significance of their default should be regarded as minor.
    5. The second point is this. Mr Ward pointed out that Rotronic’s claim against A One was contingent, because Rotronic’s primary position, back up the supply chain, is a complete denial of liability. Many of the matters they raise, such as their reliance on their terms of business, arguments about the alleged cable failures, and the reasonableness of any settlement, are very similar to the matters raised by A One in their own draft defence. Thus, any judgment in default entered against A One (if relief from sanctions is not granted) would be a contingent judgment only, and would only become relevant if Rotronic’s defence was rejected.
    6. Mr Ward argued that it would be very unsatisfactory in a case of this kind for there to be a contingent judgment in default. He also submitted that such a situation would represent a clear risk to A One going forward: with a judgment in default in their favour, Rotronic might decide not to engage further in the detail of the claim in the main action, knowing that, even if their primary case failed, because of the default judgment, it would be A One who would be picking up the bill.
    7. I consider that this submission has real force. I am uncomfortable about a situation where A One are made the subject of a judgment which, as things presently stand, Rotronic do not need, and which is contrary to Rotronic’s primary case. Unlike the situation in John Page v Champion Financial Management Limited and Others [2014] EWHC 1778 (QB), this is not a situation in which a default judgment against defendant A might impact on the nature of the defence advanced by defendant B. This is a situation where, on Rotronic’s current case, the default judgment which they would obtain would be contrary to their primary position up the supply chain.
    8. Furthermore, Mr Bell’s attempt to address this part of the application only served to persuade me that it would be unfair to hobble A One by not granting relief from sanctions now. He argued that, even if relief from sanctions was not granted and judgment in default was entered against A One, they could still take what points they wanted on quantum, including the argument that any settlement up the line was unreasonable. But I consider that, if A One are still going to be a party to these proceedings, able to argue at least some of the points in their draft defence, it would be artificial to restrict them to points of quantum, whilst preventing them from arguing, for example, that they did not supply the cables in the first place.
    9. Accordingly, having considered all the circumstances of the case, I find that, although A One’s breach was serious, and although there was no good reason for it, the breach did not have a significant effect on the course of these proceedings as a whole. On the particular facts of this case, I am uneasy about allowing judgment in default on a contingent basis. I also conclude that, even if I refused relief, the issues which would continue to involve A One would be so similar to those which would arise if I granted relief, it would be artificial not to grant relief from sanctions. Thus, this is one of those (relatively rare) cases of serious default in which it is appropriate to grant relief from sanctions.

 

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