COURT ENTERS JUDGMENT IN DEFAULT OF DEFENCE – SIDESTEPPING THE LATE ACKNOWLEDGEMENT OF SERVICE ARGUMENT: DENTON PRINCIPLES APPLIES

 In Hanson & Ors v Carlino & Anor [2019] EWHC 1940 (Ch) Mrs Justice Falk neatly sidestepped the vexed question of when a claimant can enter judgment in default of acknowledgement of service by entering judgment in default of defence.   She held that the Denton principles applied to the defendant’s applications to extend time and that, applying those principles, those applications should be refused.  It shows that a claimant faced with a late acknowledgement of service may have two strings to their bow.

“the time has come to shift the onus onto the First Defendant to make out his case. He needs to come and demonstrate positively to the court that he does have such a real prospect, or that there is some other good reason why he should be allowed to defend the claim. But for now think he has taken up quite enough of the court’s resources.”

THE CASE

The claimant issued proceedings. The defendant did not acknowledge service.  The claimant applied for judgment in default. The defendant then filed an acknowledgement of service and then, on the morning of the hearing, an application for an extension of time.

THE JUDGMENT

The judge set out the history of the matter, including the defendant’s delay and prevarication that took place prior to the issue of proceedings, and then considered the procedural issues raised.

1. Dealing with time limits first, the First Defendant was personally served with both the claim form and the Particulars of Claim on Thursday, 7 March. There were minor subsequent changes to those Particulars of Claim, and Amended Particulars of Claim were served on 18 April. The time to file an acknowledgement of service on the face of it expired on 25 March (taking account of the additional two business days provided for under CPR 6.14). The point was made on behalf of the First Defendant that the certificate of service attached to the application for default judgment in fact related to the Amended Particulars of Claim. However, even by reference to the date of the Amended Particulars of Claim, time has run out.

2. The Claimants’ position is that because the First Defendant has filed no defence and has filed a late acknowledgement of service, and only did that after the application for default judgment was made, the court may enter judgment in default of acknowledgement of service or indeed in default of a defence under CPR 12.3.

3. Counsel for the First Defendant rightly pointed to the fact that there is some ongoing controversy as to the position where an acknowledgement of service is filed after an application for default judgment but before the decision, although it is right to say that it was recognised by Andrew Baker J in the Cunico case (Cunico Resources NV & Ors v Daskalakis & Anor [2018] EWHC 3382 (Comm)) that the preponderance of judicial opinion is in favour of the conclusion that the court can grant default judgment in circumstances where an acknowledgement of service has been filed, where that filing was made only after the application for default judgment. He did note however that the point is not straightforward and that there is one reading of CPR 12.3, which might be regarded as the natural reading, which suggests that default judgment may only be entered in default of acknowledgement of service if that acknowledgement of service has not been filed at the date of the judgment.

4. I do not need to decide which view is correct in this case, because it is possible to grant judgment in default of a defence as an alternative to judgment in default of an acknowledgement of service, relying on CPR 12.3(2). There has been no defence. There is an application for an extension of time but no defence has been filed, and the conditions set out in CPR 12.3(2) are met. That provides that judgment in default of a defence may be obtained only where an acknowledgement of service has been filed but a defence has not been filed, and the relevant time limit has expired. In this case 28 days has expired from the date of service of each of the original Particulars of Claim and the Amended Particulars of Claim.

5. Counsel for the First Defendant referred me to Unilever plc v Pak Supermarket [2016] EWHC 3846 (IPEC) where he suggested that the judge had reached a different conclusion at paragraph 14. I do not agree with his reading of that case. That was a case where, as I understand the facts, a defence was filed as well as the acknowledgement of service before an application for judgment in default. That is a different set of facts and is not what I am dealing with here. The defence has not been filed. So I consider that it is within my power to grant judgment in default of defence. I may well have power to grant judgment in default of acknowledgement of service, but I do not need to decide that.

6. I do however need to take account of a number of factors. The first is the obvious point that the First Defendant has now made an application for extensions of time, both in relation to the acknowledgement of service and the defence. I should clearly have regard to that application, or to the possibility that such application might succeed, in reaching a decision as to whether to grant a default judgment.

7. It is I think accepted by both parties that I am entitled to have regard to the principles in Denton v White [2014] EWCA Civ 906 in considering this point. Those are the well-known principles as to whether the delay has been serious and significant, the reasons for the delay, and the requirement to consider all the circumstances of the case. I will come back to that in more detail. I was also rightly referred by the First Defendant’s counsel to Walsham Chalet Park Ltd (t/a the Dream Lodge Group) v Tallington Lakes Ltd [2014] EWCA Civ 1607. That is a case in relation to CPR 3.4(2)(c), which was an application to strike out a statement of case, but I understood it to be uncontroversial that in deciding how to determine whether to exercise a power under CPR3.10 the court should have regard to similar principles. In Tallington Lakes it was emphasised at [44] that in a strike-out application the proportionality of the sanction itself is in issue. A distinction was drawn between a strike-out application and an application for relief from sanction, and reference was made to a statement by Lord Neuberger in another case that “the striking out of a statement of case is one of the most powerful weapons in the court’s case management armoury and should not be deployed unless its consequences can be justified”.

8. The First Defendant’s counsel makes a number of points in support of his submission that the three applications should be heard as interim applications by order. He says there is no material prejudice to the Claimants by doing so, because the interim relief already granted holds the ring and prevents the disposal of his assets. He also says that the First Defendant has engaged in the proceedings, attended court for cross-examination, provided affidavits and evidence, and has now filed an acknowledgement of service and asked for an extension of time, and indeed yesterday appointed new solicitors. Counsel points to the very serious allegations, effectively that the First Defendant stole money, and the significant amount sought by the Claimants, in excess of £3.7 million. The First Defendant’s failure to comply with the timetable for the acknowledgement of service has not been substantial, no hearings have been imperilled and, as already indicated, the Claimants would not be prejudiced.

9. I have taken account of all of those factors, and I have taken into account the need for proportionality, as already referred to, applying similar principles to those applied in a strike-out application under CPR 3.4. In my view the right course and the just course, given the background, is to grant judgment in default. In specific response to the points raised on behalf of the First Defendant, I accept that these are very serious allegations, but the problem lies at the First Defendant’s door. Throughout most of the proceedings there has been a complete failure by him to engage, including a refusal initially to admit that he had even been served with the proceedings. His evidence just served in support of the application for an extension of time states that he was away for two weeks over Easter in Cyprus and then five days in Devon, over a period when the proceedings had certainly started. He was well aware of the claim and application for interim relief, and during at least part of that time must have been aware that the interim relief had been granted. He has put the Claimants to enormous expenditure, not only with repeated trips to court but also significant expenditure on process servers as he sought to avoid service. I do not get the impression that the First Defendant has been treating the court process with respect.

10. Taking account of the Denton v White principles, as I also do, at this stage there is nothing in the witness statements I have seen that provides a really good reason for the delay in engagement. The delay in engagement has been serious and significant, certainly by reference to the date the proceedings started, less so simply by reference to the date of the Amended Particulars of Claim, but to consider that date in isolation without reference to the broader history of the proceedings to which I have referred would in my view be quite wrong. Although there has been some engagement by the First Defendant, the level of engagement has been extremely limited. He only attended when there was a bench warrant issued. The affidavit provided so far appears (at least on first reading) to be very limited, and there appears to have not been compliance with other orders. Acknowledgement of service was supplied late. He appointed new solicitors yesterday but did previously have solicitors acting for him, so he clearly was in a position to be able to instruct solicitors, if that was a relevant factor, although I would point out that litigants in person are, like represented parties, expected to observe time limits. I accept that to an extent the injunction already granted may hold the ring, although I note that if it is the case that the First Defendant has not complied with the information provisions, then the value of a proprietary injunction is frequently significantly reduced.

11. In all the circumstances I do not accept that there has been no prejudice to the Claimants. The impression given is one of an attempt to frustrate their obtaining justice, and to force them into a further hearing with an extension of time application leading to further delay. Whilst it is the case that no particular hearings have been imperilled, there have been very significant calls on the court’s resources. I am the fifth Chancery judge to have had to consider a material application on this matter since March, and this is largely due to the First Defendant’s actions.

12. As regards proportionality, I have carefully considered this. As the First Defendant’s advisors are well aware, this is not actually the end of the road for them. There is a proper course available to them pursuant to CPR 13.3, under which the First Defendant is entitled to apply to set aside or vary a judgment obtained under Part 12 if he can show he has a real prospect of successfully defending the claims or it appears that there is some other good reason why the judgment should be set aside or varied.

13. I agree with the Claimants that the time has come to shift the onus onto the First Defendant to make out his case. He needs to come and demonstrate positively to the court that he does have such a real prospect, or that there is some other good reason why he should be allowed to defend the claim. But for now think he has taken up quite enough of the court’s resources. This is not a simple matter of being a little late in acknowledging service. Reverting to Denton and considering all the circumstances of the case, I am strongly influenced by the history of the proceedings to date and what is clearly a decision of Mr Carlino’s choosing not to engage as he should have done at the appropriate stage.

14. In these circumstances I have concluded that the appropriate action is to grant judgment in default of defence, and therefore I do not need to decide whether I am able to grant judgment in default of acknowledgement of service. I make no order on the Claimants’ set aside application, and I dismiss the First Defendant’s application for an extension of time.