SETTING ASIDE JUDGMENT IN DEFAULT: DEFENDANT’S SOLICITOR FAILED TO NOTICE THAT PARTICULARS OF CLAIM HAD BEEN SERVED WITH THE CLAIM FORM

The judgment of HH Judge Hodge QC (sitting as a HIgh Court Judge)  in Praetura Asset Finance Ltd v Hood [2019] EWHC 2231 (Comm) shows how important it is to check what has been served.  The one, overwhelming, lesson for defendants is to check to see whether the particulars of claim have been served with the claim form.

“… there was no good reason for taking the view that there were no particulars of claim that had been served. The defendant clearly had the particulars of claim… there is no reasonable excuse for the solicitors failing to open the attachment and seeing that it contained the particulars of claim. Moreover, the claim form expressly stated “Particulars of claim attached”

THE CASE

The claimant issued proceedings claiming over £1.5 million.  A notice of intention to defend was filed by the defendant’s solicitors.  However no defence was filed. Judgment was entered in default.

THE DEFENDANT’S MISTAKE

The defendant’s solicitor failed to note that the particulars had been served with the claim form.  An application to set aside the judgment was originally made on the basis that the judgment was irregular. The defendant then noted its own error.

1. The fact that particulars of claim had been served with the claim form by the court only came to light on 2 July. On 12 July, the present application was issued by the defendant seeking the setting aside of the judgment in default pursuant to CPR 13.3(1)(a) and (b). I accept that if the starting point is 2 July, then the application notice was issued promptly. However, the default judgment had come to the notice of the defendant and his solicitors on or about 29 March. The claimant therefore says that the application notice was not issued promptly.

2. The evidence in support of the application, both as to the reasons why it was thought that there were no particulars of claim served with the claim form and also as to the substantive merits of a defence to the claim, is to be found in the witness statements of the defendant himself, dated 12 July 2019, and of his solicitor, Mr James William Sharkey, also dated 12 July 2019, together with their respective exhibits. On Monday of this week, and thus only one clear working day before the hearing of this application, evidence in answer was served in the form of a witness statement from the legal executive at the claimant’s solicitors, Addleshaw Goddard, who has the conduct of the case. That is Patricia Elder and her witness statement is dated 29 July 2019. At paragraphs 10.7 and 10.8 of her witness statement Ms Elder accepts that the claimant has failed to have regard to a 2 per cent discount applicable under clause 7.4.2 of the credit agreement, with the result that the judgment should in fact have been entered in the sum of £1,440,570.85. The claimant accepts that the judgment should be set aside to the extent of £97,557.77. Mr Hood, in the limited time available to him, has served a short, corrective witness statement, dated yesterday, 30 July 2019.

THE PRINCIPLES TO BE APPLIED TO THE APPLICATION TO SET JUDGMENT ASIDE

The judgment was a regular one.  The defendant had to persuade the court to exercise its discretion and that there was a real prospect of successfully defending the claim.

1. 1. Happily, and save in one minor respect, there is no dispute as to the applicable legal principles. By CPR 13.3(1), the court may set aside or vary a default judgment if:

“(a) the defendant has a real prospect of successfully defending the claim; or

(b) it appears to the court that there is some other good reason why –

(i) the judgment should be set aside or varied; or

(ii) the defendant should be allowed to defend the claim.”

By CPR 13.3(2):

“In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly.”

CPR 13.3 gives the court a discretion to set aside or vary a judgment which has been regularly entered. In that regard it is to be contrasted with CPR 13.2, where the court is directed to set aside a judgment which has been wrongly entered.

1. 1. The position here is that, until 2 July, the defendant and his solicitors considered the judgment had been wrongly entered because no particulars of claim had been served and therefore there was no default in serving or filing a defence. That, in fact, proved to be incorrect. The defendant therefore accepts that he has to invoke the discretionary jurisdiction under CPR 13.3. The defendant also accepts that, in addition to the express requirement that the court should have regard to whether the application to set aside was made promptly, the court must also have regard to the three-stage Denton test. Mr Crow accepts that the failure to serve a defence in time is a serious default and is not trivial. However, he submits that there was good reason for the default because the defendant and his solicitors thought that no defence was required because no particulars of claim had been served.

   2. In my judgment, there was no good reason for taking the view that there were no particulars of claim that had been served. The defendant clearly had the particulars of claim. He sent them to his solicitors – to two individuals at Fieldfisher – by way of e-mail attachment. Admittedly, the accompanying e-mail did not the refer to the fact that the attachment comprised the particulars of claim, and the e-mail was sent on a Sunday; but in my judgment there is no reasonable excuse for the solicitors failing to open the attachment and seeing that it contained the particulars of claim. Moreover, the claim form expressly stated “Particulars of claim attached”. The claim form and particulars of claim were served by the court. Had inquiry been made of the claimant’s solicitors as to where the attached particulars of claim were, or to the court as to precisely what documents had been served, the error would have come to light. Indeed, when the default judgment was communicated to the defendant’s solicitors, they had written to the court on 2 April pointing out that an acknowledgment of service had been filed and asserting that, as a response to the claim form had been sent within the requisite time period, a default judgment should not have been entered. The writer asked the court to overturn the order and confirm that it was unenforceable. According to the court file (but not placed in evidence by the defendant or his solicitors), on 5 April the court service responded saying:

“The court processed your acknowledgment of service which extended the time to file a defence to 28 days after service of the particulars of claim. No defence was filed by the deadline, so the claimant’s solicitors filed a request for judgment, which was processed by the court. If you wish to have the judgment set aside, you should file an application notice with the court together with the appropriate fee.”

That was on 5 April. No application notice seeking to set aside the default judgment was issued until 12 June. In those circumstances, I am satisfied that the application to set aside was not made promptly.

1. Mr Crow has referred me to observations of Pitchford LJ in Henriksen v Pires [2011] EWCA Civ 1720 at paragraph 30 to the effect that it is only knowing or culpable delay that is the relevant factor. In the present case the defendant and his solicitors knew of the default judgment. They thought that it was irregular. They thought that they were entitled to have it set aside under CPR 13.2. In that they were mistaken. But, nevertheless, they knew of the default judgment. They considered that it should be set aside. In my judgment, it matters not whether they thought that the set-aside application should be made under CPR 13.2 rather than CPR 13.3. The fact is that the application had to be made under the discretionary grounds of CPR 13.3. That engages the requirement for promptitude in CPR 13.3(2); and I am satisfied that this application was not made promptly.

2. As I have indicated, I am also satisfied that there was no good reason for failing to file a defence in time. The defendant and has solicitors should have appreciated that a defence was required. The defendant had received the particulars of claim; he had sent them on by e-mail to his solicitors; and it was their failure to open the e-mail that led them to fail to appreciate that. Later on, as I say, they could easily have checked the position with the claimant. They did check the position with the court; and yet they did not act appropriately in response.

3. I have then to have regard to all the circumstances of the case, including the need for the Civil Procedure Rules to be enforced and complied with and also the need for litigation to be conducted efficiently and at proportionate cost. It is at this point that I need also to consider the merits of the proposed draft defence in its revised form. Mr Cawson reminds me that under CPR 13.3(1)(a) it is for the defendant to show that he has a real prospect of successfully defending the claim, or any part of it, and that this requires him to satisfy a test similar to that applicable on an application for summary judgment. He must do more than show merely an arguable defence.

THE JUDGMENT ON COSTS

The judgment was set aside “by the narrowest of margins”.   The judge then considered the appropriate order as to costs.

1. Having delivered my extemporary judgment on the substantive set aside application, I now, inevitably, have to address the question of costs. I must bear in mind that if, in the exercise of its discretion, the court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order. In deciding what order, if any, to make about costs, the court will have regard to all the circumstances of the case, including the parties’ conduct and whether a party has succeeded on part of its case, even if that party has not been wholly successful. I have not been referred to any admissible offers to settle.

2. In the present case, it is clear that the successful party is the defendant. He has succeeded in having the default judgment set aside. However, the need for this application was the defendant’s failure to serve a defence, which gave rise to the entry of the default judgment. In the course of my judgment, I have held that there was no good reason for the failure to serve a defence, and that that failure amounted to a significant breach of the Civil Procedure Rules. I have also held that there was a lack of promptness in making the set aside application. I have rejected the proposed set-off and counterclaim, and I have rejected the proposed defence founded upon the Consumer Credit Act 1974. So, the defendant has not succeeded on all of his case.

3. In my judgment, the most significant factor is the defendant’s failure to serve a defence, which brought about the need for this application. The claimant readily accepted, when the point was raised, that the judgment was excessive to the extent of some £97,000; and I am satisfied that that error in over-stating the amount of the judgment debt could have been corrected by correspondence between the parties without the need for a court application.

4. The defendant has been successful, but by the narrowest of margins, and with some hesitation on my part. It is the defendant’s conduct that has brought about the need for the present application. The defence has yet to be tested at trial and it may prove to be without factual merit. In those circumstances, it seems to me, in the interests of justice, that the appropriate costs order should be costs in the case, so that the ultimate incidence of costs will depend upon who ultimately is successful at trial, whether the claimant or the defendant. That seems to be me to be preferable to the alternative of no order as to costs.

5. So, the costs order I will make is “costs in the case”. As a result, it does not fall to me to undertake any summary assessment of those costs.