CLAIMANT CANNOT ENTER JUDGMENT AFTER ACKNOWLEDGEMENT OF SERVICE IS FILED LATE: DENTON PRINCIPLES APPLIED TO GRANT DEFENDANT EXTENSION OF TIME TO DISPUTE THE JURISDICTION

December 9, 2018 · by · in Applications, Default judgment,, Extensions of time, Relief from sanctions, Service of the claim form, Serving documents, Setting aside judgment

The judgment in Cunico Resources NV & Ors v Daskalakis & Anor [2018] EWHC 3382 (Comm) addresses several procedural issues. Firstly the much debated question of whether a claimant can obtain judgment when the defendant has acknowledged service late.  Mr Justice Andrew Baker held that the key date is the date of the claimant’s application. If the acknowledgment of service is received before the claimant’s application then default judgment cannot be entered. The judge also granted the defendant an extension of time to dispute jurisdiction.

THE CASE

The claimant issued proceedings against the defendants. The defendants made an application to dispute jurisdiction. However the defendants did file an acknowledgement of service on time. They were 28 days late.   The claimant had applied for default judgment.

THE FIRST ISSUE: COULD JUDGMENT IN DEFAULT STILL BE OBTAINED IF THE ACKNOWLEDGEMENT WAS SERVED LATE?

The judge stated that there were  three possible ways of construing the rules in relation to judgment in default when a party filed an acknowledgement late.

    1. The issue is one of the proper construction of the conditions fixed by CPR 12.3(1) for the obtaining of judgment in default. Three suggested constructions emerge from the prior decisions (‘the three meanings’):
i) firstly, that CPR 12.3(1) only allows the court to grant default judgment where, at the time of judgment, there is no acknowledgment of service and the time for acknowledging service has expired (‘the first meaning’);
ii) secondly, that CPR 12.3(1) allows the court to grant default judgment so long as, at the time the request or application for default judgment is filed, there was no acknowledgment of service and the time for acknowledging service had expired (‘the second meaning’);
iii) thirdly, that CPR 12.3(1) allows the court to grant default judgment where timely acknowledgment of service was not filed, irrespective of any acknowledgment of service later filed, ex hypothesi after expiry of the time period set under CPR Part 10 (‘the third meaning’).

THE JUDGE’S DECISION

There is a very detailed discussion of the rules and relevant case law.
    1. This full review of the authorities (assuming there are no others I should have considered) leads me to the following summary, leaving aside which of these views were or were not part of the ratio for any actual decision, namely that:-
i) the first meaning has the support of Blair J in ESR Insurance Services and (all things being equal) would have had my own support;
ii) the second meaning has the support of Popplewell J, Phillips J and HHJ Hacon;
iii) the third meaning has the support of Neuberger J (as he was at the time) and Morison J, but in circumstances where I wonder whether their support for that meaning would subsist today;
iv) the third meaning also has the apparent, but not definitive, support of Popplewell J, but that support for the third meaning is inconsistent with his firm support for the second meaning and was expressly not followed by Phillips J and HHJ Hacon;
v) the third meaning has the more unequivocal support of Deputy Master Pickering and Jefford J, both of whom declined to follow Phillips J’s view but were unaware of HHJ Hacon’s, but in my respectful view Deputy Master Pickering and Jefford J’s views are unpersuasive and unsatisfactory.
    1. As my initial summary of the cases showed, only Unilever and (possibly) McDonald set any precedent for the correctness or incorrectness of the third meaning that Marketing needs to be correct. Unilever decides that it is not correct. There is an argument for reading McDonald as deciding that it is correct, but if that is how McDonald is to be read I do not find it a satisfactory decision and Unilever was not considered. In those circumstances, I do not regard McDonald as a reason to refuse to follow Unilever.
    2. For the reasons I have given in the detailed discussion, my own view is that the third meaning is not correct. I acknowledge that if deciding the matter entirely de novo, I would also say that the second meaning is incorrect, yet that meaning was preferred in Unilever, albeit no decision was called for there as between the first and second meanings. That does not cause me to refuse to follow Unilever in rejecting the third meaning, however.
    3. Rejecting the third meaning, and following Unilever, had it then been necessary to decide between the first and second meanings, and since I would not have been making that decision de novo, on balance, I would not have adopted the first meaning, in that regard following Boeing Capital and Taylor v Giovani (which actually decided against the first meaning), and (to that extent only) McDonald if it is read as setting a precedent, and recognising also that the preponderance of views previously expressed has been against the first meaning. I would have done so, however, (a) with a real sense of concern (i) that those decisions and preponderant views are wrong to reject the first meaning, and (ii) that by default rather than by design I would be upholding the second meaning, a meaning I do not find in the language of CPR 12.3(1), and (b) in the hope that the question might reach the Court of Appeal for a definitive ruling (whether or not this case affords that opportunity). Indeed, that last is a hope I express in any event.
Conclusion
  1. In conclusion on the default judgment application in the 2018 Claim, following Unilever and declining to follow McDonald (if it is to be read as a precedent to the contrary), the conditions for judgment in default under CPR 12.3(1) were not satisfied in this case, because Mr Daskalakis filed an acknowledgment of service, late but (just) prior to the default judgment application, and there is no application to set aside that acknowledgment of service. The default judgment application in the 2018 Claim will therefore be dismissed.

 

RELIEF FROM SANCTIONS IN RELATION TO THE LATE APPLICATION

The judge then had to consider the issue of whether to grant relief from sanctions to the defendant who had filed the acknowledgement of service late and wanted to dispute jurisdiction.

 

Extension of Time / Relief from Sanctions
    1. I have already said I agree with, and so I am happy to follow, Taylor v Giovani in deciding that under CPR 11(2) it is a procedural requirement of an application under CPR 11(1) to challenge jurisdiction that the defendant first file a timely acknowledgment of service. That means filing either within the time period set under CPR Part 10 or within an extended period fixed by the court on a successful application (prospective or retrospective) for an extension.
    2. Therefore, Mr Daskalakis is not entitled to challenge jurisdiction in the 2018 Claim unless he is granted either a retrospective extension of 28 days for filing acknowledgment of service, to cover his lateness in doing so, or relief from sanctions by a waiver of CPR 11(2).
    3. In the context of seeking judgment in default, Marketing made it clear throughout that it did not wish to prevent Mr Daskalakis from challenging jurisdiction in the 2018 Claim, assuming as Marketing did that he would wish to do so on the same grounds as he had raised in the 2017 Claim. That was not at all times quite the unequivocal or unconditional concession it might sound. Thus, it seems to me that when Marketing filed its application for judgment in default, not knowing that a late acknowledgment of service had just been filed, it intended to have it dealt with ex parte, without reference to or argument upon the evidence filed in the 2017 Claim. It served the application on Mr Daskalakis (treating his acknowledgment of service as valid for that purpose, so as to entitle it to serve him at the address for service nominated therein) only when it learned that an acknowledgment of service had been filed on the same day as the application. Having done so, it sought initially to insist upon the application being heard and determined, albeit now inter partes, on Friday 13 July 2018, the date it had obtained for the application, even though the jurisdiction application in the 2017 Claim was then listed for the 2-day argument in early November 2018 that in the event came before me and will be the subject of a separate judgment.
    4. That equivocation, however, was short-lived, and it became clear following firm objection on Mr Daskalakis’ behalf to that procedural course that in fact Marketing agreed (to quote from its skeleton argument) “that the outcome of the Jurisdiction Challenge [in the 2017 Claim] will be determinative on the question of the Court’s jurisdiction to hear the 2018 Proceedings“, and therefore that it could not obtain judgment in default if the challenge to jurisdiction in the 2017 Claim succeeded.
    5. Had the application for default judgment not failed for other reasons, therefore, I could not have disposed of it prior to giving judgment on that jurisdiction challenge.
    6. One effect or implication of Marketing’s agreement, however, is that it has consented to Mr Daskalakis’ entitlement to challenge jurisdiction in the 2018 Claim notwithstanding the lateness of his acknowledgment of service. Its agreement was not conditional upon Mr Daskalakis obtaining an extension of time. To the contrary, it was an agreement reached whilst at the same time not consenting to any extension of time. Indeed, though professing to adopt the stance that the question of extension / relief from sanctions was primarily a matter between Mr Daskalakis and the court, Marketing actively opposed any extension of time and presented a vigorous argument against it. It was hardly a disinterested observer, after all, since on its case as to the meaning of CPR 12.3(1) it was entitled to and wished to obtain default judgment for c.US$74 million (so long as it could establish jurisdiction), and an extension of time would sidestep that default judgment application if (contrary to my conclusion above) it could otherwise have succeeded.
    7. In Denton v TH White at [41]-[43], the Court of Appeal emphasised the need for parties to behave reasonably, and not to use the court’s proper concern to enforce compliance with the rules as a means for trying to take advantage of mistakes so as to obtain windfalls or refuse reasonable requests for limited extensions of time or relief from sanctions. As it seems to me, putting aside any concern I might have had about the initial approach (paragraph 96 above), had it been maintained, Marketing’s final stance accords with that emphasis. There were, at its lowest, substantial reasons for resisting an extension of time, so long as that was not an opportunistic attempt to try to prevent Mr Daskalakis from challenging jurisdiction in the 2018 Claim by reference to the grounds already raised against the 2017 Claim.
    8. The fair and just way to give effect to Marketing’s agreement, and in my judgment a fair and just outcome whether or not, in addition, an extension of time for acknowledging service is granted, is to waive CPR 11(2) so as to entitle Mr Daskalakis to challenge jurisdiction in the 2018 Claim under CPR 11(1) notwithstanding that his acknowledgment of service was filed out of time. To that extent, I shall grant relief from sanctions come what may.
    9. The question of extension of time then does not in fact arise. If the challenge to jurisdiction as against Marketing in the 2017 Claim succeeds, then by agreement the 2018 Claim will also fall to be set aside for want of jurisdiction. If it fails, then under CPR 11(7) the acknowledgment of service filed by Mr Daskalakis on 4 July will cease to have effect and he will have time, in the normal way, to file a fresh acknowledgment of service and then a defence, if he wishes to accept jurisdiction and defend on the merits.
    10. In case this matter should go further, though, I shall indicate how I would have exercised my discretion had it arisen for exercise:
i) Firstly, I would have assumed for the purpose that the court had jurisdiction in the 2018 Claim, since if it does not, the 2018 Claim will fall away by agreement; in other words, whether an extension of time should be granted would only matter in this case if Marketing in due course did establish jurisdiction.
ii) Secondly, I would have recalled that the substantial purpose of the extension of time sought (since it was not being proposed that Mr Daskalakis should not be allowed to challenge jurisdiction without it) was to avoid the default judgment application. But that application has failed without reference to the question of extending time.
iii) Thirdly, then, I would have considered, for completeness, whether it would have been right to extend time, on the assumption of jurisdiction in the 2018 Claim, if, contrary to my actual disposal of Marketing’s application, judgment in default could in those circumstances have been entered regularly. For the reasons given below, my conclusion would have been that an extension should not be granted in that case.
    1. It is important to start by repeating the consequence. Without an extension of time, a default judgment regularly entered would not be the end of the 2018 Claim at first instance for Mr Daskalakis. He would have his right to apply under CPR 13.3 for that judgment to be set aside by showing that he has a real prospect of success on the merits, or that there is other good reason to allow the claims against him in the 2018 Claim to proceed to trial.
    2. I said in the introduction to this judgment (paragraph 7 above) that I am sure all of Marketing’s claims are disputed by Mr Daskalakis. But all it takes for a claim to be disputed is a refusal to acknowledge liability. That a claim is disputed, and that a defendant would like to (try to) contest it, says nothing as to the prospects of success for any defence. Mr Daskalakis wishes to say nothing about the merits at this stage, since in the first place he is challenging jurisdiction. That is understandable, up to a point. But the way to achieve that wish cleanly was to acknowledge service on time. Where acknowledgment of service has been filed in accordance with CPR Part 10 and a timely application under CPR 11(1) is pending, CPR 11(9)(a) provides that no defence need be filed. So there can be no judgment in default of defence prior to determination of an application timely made under CPR 11(1).
    3. The particular context in which the request for an extension of time arises here is, first and foremost, that the parties were already actively litigating the 2017 Claim. Absent possible time bar considerations, Marketing’s further claims in the 2018 Claim would naturally have fallen to be added to the 2017 Claim by amendment, to which there could have been no objection so long as it was clear that allowing the amendment was without prejudice to the application to challenge jurisdiction and Mr Daskalakis was allowed then to amend that application to take account of the additional claims.
    4. Marketing did not commence a separate claim, therefore, to vex or oppress. Nor did it keep the 2018 Claim up its sleeve. By its solicitors, it sent a copy of the 2018 Claim Form and Particulars of Claim to Mr Daskalakis’ solicitors, who were on the record for him in the 2017 Claim, and asked for agreement for service to be effected on them, but on the basis that such agreement would not be allowed to prejudice Mr Daskalakis’ jurisdictional objection. Mr Daskalakis chose to stand on his strict right not to be helpful – he refused to instruct his solicitors to accept service, taking the view that there was “no incentive (or basis)” for him to assist Marketing in getting the 2018 Claim fully under way by service.
    5. That stance was unhelpful and misconceived, as later events proved. It was unhelpful deliberately – a choice to insist on being unhelpful because there was no legal obligation to help. It was misconceived because Mr Daskalakis must have known that there was no difficulty about finding him and effecting service on him in Switzerland. In that respect, and to his credit, at no stage has Mr Daskalakis sought to avoid service of proceedings or arrange his personal circumstances in such a way as to make it unlikely that service will be possible. But in a sense, that is the point. All Mr Daskalakis can have thought he was doing by choosing to be unhelpful is to put Marketing to trouble and expense effecting service formally via official channels in Switzerland, as is well known to be required for service there of foreign legal process, and to create delay. That is, with respect, entirely unattractive on his part. More than that, however, it meant he was choosing not to do the one obvious, reasonable thing he could do to ensure he did not slip up procedurally in responding to the 2018 Claim, namely have the Claim served on his English solicitors so all that would be down to him personally, very busy international businessman that he is, would be to remain contactable by his solicitors to confirm an instruction whether to acknowledge service.
    6. Having chosen that path, Mr Daskalakis must have realised that the 2018 Claim would be on its way to him in Switzerland for service via official channels, that it might take some months to get to him, that he now had no control over when precisely it would get to him, and that, after whatever might be a minimum realistic time had passed, it could get to him any day. He ought to have been on high alert to check thoroughly anything that reached him that could conceivably be the 2018 Claim, so he could inform his English solicitors and get them to respond in proper time to protect his interests.
    7. In the event, the 2018 Claim Form was served on Mr Daskalakis on 16 May 2018 under the Hague Convention, when he personally collected the service copy of the Claim Form, Particulars of Claim and Response Pack at a police station in Zug, signing a receipt, after receiving notice from the police that there were documents for him to collect. As it happens, on that occasion he also collected, and signed for, documents thereby served on him in the Dutch proceedings relating to the Cunico group. Those Dutch documents did not require immediate attention, whereas of course the 2018 Claim did, now it was served.
    8. It is Mr Daskalakis’ evidence that he did not realise he had collected and signed for two separate sets of documents, one for the (English) 2018 Claim and one for the Dutch proceedings. I am not in a position to find that to be untrue. It is corroborated by the fact that Mr Daskalakis did nothing although I am sure he understood the need to react quickly to the 2018 Claim if and when it arrived and intended to participate (challenging jurisdiction in the first instance, then taking a view whether to participate on the merits if that challenge went against him) just as he was participating in the 2017 Claim. In other words, he did nothing even though the last thing he intended was for the 2018 Claim to be ignored and (possibly) go against him in some way by default. I therefore believe, and accept, that Mr Daskalakis indeed made the honest error he says he made.
    9. However, it is an extraordinary error. It is explicable only on the basis that Mr Daskalakis paid no sensible attention at all to what he had just signed for. He cannot have looked even cursorily at the 2018 Claim documentation. Even if (which itself seems reckless) Mr Daskalakis decided upon a cursory glance at some of the Dutch documentation that it could definitely be ignored, that does not begin to explain failing to look also, even if only cursorily, at the English claim documentation. I am not satisfied by his evidence so as to be able to find that he was handed only a single bundle of documents, yet asked to sign two receipts. Even if he was, in the context I have taken pains to emphasise, it is inexcusable that he did not take even 10 minutes to look through the bundle properly at least to satisfy himself he knew what he had just been served with.
    10. I accept Mr Daskalakis’ further evidence as to his circumstances at the time, and the sequence of events, namely:
i) His mother in law died on 2 May 2018.
ii) He was then away on business (from when exactly I am not clear) in Greece, Macedonia and Geneva in the days running up to 16 May 2018.
iii) He briefly returned to his home in Zug on the morning of 16 May 2018, but was scheduled to travel abroad again later that day on a flight to Athens departing at 4.25 pm.
iv) Having received notice to collect papers at the police station, he went there at around 12 noon, returning home directly after collecting the papers and signing the receipts.
v) He left the package at home, having briefly glanced only at a few pages that were in Dutch, when he then departed for the airport.
vi) Thereafter, he was on business away from home until early July 2018, in Greece, Macedonia, the Dominican Republic, Turkey, Spain, the Ivory Coast, Burkina Faso and Zimbabwe.
vii) His English solicitors notified him that what had been served on him was or included the 2018 Claim on 3 July 2018 when, upon checking the court file, they saw a certificate of service that had been filed by Marketing’s solicitors on 18 June 2018. (They thought to check the court file then because correspondence they were having as solicitors to Mr Mundhra about difficulties with serving him caused them to wonder whether Mr Daskalakis had been served.)
viii) The acknowledgment of service was then filed promptly the following day, as it happens just before Marketing filed its application for default judgment.
    1. That evidence and sequence of events, however, just reinforces how unhelpful and mistaken it was for Mr Daskalakis to adopt the stance he did that he had no interest in or basis for co-operating in a smooth commencement of the 2018 Claim by instructing his solicitors to accept service on terms preserving his right to challenge jurisdiction. The more Mr Choo Choy QC emphasised, as naturally he did, that given all those commitments on Mr Daskalakis’ part it was credible that his procedural default resulted from an honest mistake, the more he thereby emphasised how unreasonable and procedurally risky to Mr Daskalakis was his insistence on being served directly in Switzerland rather than via his solicitors.
    2. Mr Choo Choy QC accepted that pursuant to the ‘implied sanction’ doctrine, an out of time application for an extension of time for filing acknowledgment of service is to be determined by reference to relief from sanctions principles under CPR 3.9 and Denton v TH White. Moreover, in the present case, since there is agreement that Mr Daskalakis should be allowed to challenge jurisdiction despite the lateness of his acknowledgment of service (so that I shall be granting relief from sanctions to that extent come what may), the substance of the application for an extension of time is for relief from an express sanction, viz. the availability of judgment in default had I decided that CPR 12.3(1) has the third meaning. In other words, this is not a matter only of an ‘implied sanction’.
    3. Applying Denton v TH White in those circumstances:
i) Mr Daskalakis’ procedural default was substantial – he was in default by 28 days in respect of the key, basic procedural step he was required to take (since he wished to challenge jurisdiction), a step he had only 21 days to take and that in truth he needed only 1 day to take. Mr Choo Choy QC suggested that under CPR 3.8(4) it would have been reasonable for Marketing to have agreed a prospective extension of up to 28 days, so that a delay of 28 days should not be seen as serious or significant. I disagree. Assuming Mr Daskalakis had taken a moment’s care on 16 May 2018, he would have had more than ample time to acknowledge service, and would have done so in timely fashion (though I strongly suspect he would have chosen to do so only on the 21st day). Had he instructed his solicitors to ask for a 28-day extension of time, Marketing would have been acting entirely reasonably to refuse. Mr Daskalakis’ procedural default has not materially delayed the resolution of the substantial first stage of this litigation, namely his (and Mr Mundhra’s) challenge to the jurisdiction. However, it has generated a substantial further interlocutory process, no doubt at significant cost, including irrecoverable cost.
ii) It is entirely Mr Daskalakis’ fault that he did not file a timely acknowledge service. In that regard, he is guilty of a high degree of fault, even though his mistake was an honest one and he did not intend to be in default. He has the court’s condolences for the loss of his mother in law at the beginning of May; but I do not think that lessens his fault in failing to pay any or any sensible attention to the obviously important documents he signed for at the police station on 16 May. To be fair to him, I am not sure it was submitted on his behalf that it did. Mr Daskalakis’ serious fault in turn only mattered, or rather he only created the opportunity to fail so badly to do what he should have done under the CPR, because of his unreasonable and unhelpful insistence on service via official channels in Switzerland, on the misconceived basis that it was not in his interest to co-operate.
iii) Mr Daskalakis has apologised for his mistake. I accept that apology so far as it goes. But I do not detect in his evidence any real insight into how unhelpful his stance in all of this was from the off, or how that is the underlying, basic problem. Mr Choo Choy QC contended that there is an element of opportunism in the default judgment application, given that (a) Marketing’s solicitors did not mention to Mr Daskalakis’ solicitors, when corresponding with them in their capacity as Mr Mundhra’s solicitors, that the 2018 Claim had been served on Mr Daskalakis on 16 May, and (b) it was always likely that there should be a co-ordinated resolution of the question of jurisdiction in both Claims. I disagree. As to (a), Mr Daskalakis was the one who refused to instruct his solicitors to act for him in the 2018 Claim vis-á-vis Marketing. As to (b), subject perhaps to the short-lived wrinkle (paragraph 96 above), Marketing has adopted what I think is a reasonable stance, namely that in the particular circumstances of this case the challenge to the jurisdiction and the propriety of seeking judgment in default, if that challenge fails, can and should be seen as separate issues.
iv) Finally, Mr Choo Choy QC submitted that “the entry of default judgment against [Mr Daskalakis] in the staggering sum of US$74 million as a result of an inadvertent failure [to appreciate he had been served with the 2018 Claim] would be sanction … overwhelmingly out of proportion to his mistake. Such a ruinous result would be a wholly undeserved windfall to [Marketing] in circumstances where it has (rightly) known and expected throughout that [Mr Daskalakis] would be contesting … jurisdiction.” Again, the reference to Marketing’s appreciation that Mr Daskalakis would wish to challenge jurisdiction is a red herring. He is to be entitled to do so, and to the extent he needs relief from sanctions for that (as I have concluded he does), he shall have it. Whether the entry of judgment in default for US$74m or thereabouts is a disproportionate sanction, or an undeserved ruinous result for him or windfall to Marketing, is not established merely by being asserted. For all the court knows, or Mr Daskalakis is willing to vouchsafe at this stage, there may be no substance to any defence that Mr Daskalakis has in mind to attempt on the merits, if his challenge to jurisdiction in the 2018 Claim fails and he then chooses to participate on the merits.
  1. In those circumstances, if the court has jurisdiction in the 2018 Claim, and judgment in default could have been entered in the face of the late acknowledgment of service filed prior to the default judgment application, in my judgment the fair outcome would have been to allow that application, enter judgment in default and leave Mr Daskalakis to apply, if so advised, to set it aside under CPR 13.3 upon a showing, if he can make it, that he has a real prospect of successfully defending Marketing’s claims in the 2018 Claim on the merits (or other good reason for setting aside), after the determination (if it went against him) of his challenge to jurisdiction. The question I touched on in paragraphs 38-41 above would have arisen; but even if it were concluded then that an application under CPR 13.3 is an application for relief from sanctions in respect of the original procedural default, that would be a new and different application for relief than the application I have considered, because the court would be in a position to assess the reality and potential viability of any defences to be asserted on the merits if the judgment were set aside, and it could not properly be held against Mr Daskalakis that he had saved that interim defence on the merits until after his challenge to jurisdiction had been resolved, since to have raised it earlier could well have destroyed that challenge independently of its merits.
  2. In conclusion on Mr Daskalakis’ applications in the 2018 Claim presently arising for determination, then, there will be relief from sanctions limited to waiving CPR 11(2) so as to entitle Mr Daskalakis to challenge jurisdiction in the 2018 Claim under CPR 11(1) notwithstanding that his acknowledgment of service was filed out of time, but otherwise those applications will be dismissed. What happens next in the 2018 Claim will now turn on the outcome of the jurisdiction application in the 2017 Claim, on which there will be a separate judgment (see paragraph 102 above).
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