SETTING ASIDE A DEFAULT JUDGMENT: DELAY, FAILING TO KNOW THE CORRECT PROCEDURE AND ABSENCE OF MERITS: LORD CHANCELLOR WINS THE DAY…

March 3, 2021 · by · in Applications, Civil Procedure, Setting aside judgment

The judgment of Master Thornett in  The Lord Chancellor (as Successor to the Legal Services Comission) v Halberstadt-Twum (t/a Cleveland Solicitors) & Anor [2021] EWHC 413 contains some object lessons for anyone involved in an application to set aside default judgment.  The question of “promptness” relates not only to the time making the application to set aside but also in relation to procedure defaults and delays afterwards.  There is a strong burden on a party arguing that they have a real prospect of defending a claim to set out that argument and defence in some detail.  It also serves as a reminder that a failure to be prompt can, in itself, be good grounds for refusing to set aside judgment.  Finally it shows the importance of a lawyer being familiar with practice and procedure in the High Court in relation to obtaining a date for a hearing.

 

“The Defendants do not present a defence or defences that have reasonable prospects of success. They have not made their Application promptly. The gross delay in this case is such that even if points of proposed defence might have reasonable prospect, the case is such that I am satisfied it would not be just that liability be re-opened and the judgment set aside even if the proposed defence or defences might have some prospect of success.”

THE CASE

The claimant sued as the successor to the Legal Aid Board. The defendants ran a solicitors practice. They were convicted and imprisoned for conspiracy to defraud the Claimant and imprisoned.  The claimant brought an action to recover overpayments.  Proceedings were served on the defendants whilst they were in prison.  The claimant entered judgment in default for sums in excess of £4,844.691 in August 2019.

THE DEFENDANTS’ APPLICATIONS

The defendants sought to set the default judgments aside, in full or in part.

THE PROMPTNESS OF THE APPLICATION

CPR 13.3(2) requires the court to consider whether an application has been made “promptly”.   An absence of promptness can, itself, be a grounds for refusing to set aside a judgment. Here the Master concluded that the defendants had not been prompt either in making the application or in pursuing a hearing date through the High Court.  The problem arose because the Defendants’ solicitors did not appear to be familiar with High Court procedure.

  1. The Defendants’ steps following Default Judgment through to their Application and Hearing
This is a case where the issue of promptness is not limited to the period between the default judgment and the relevant Application but also the period through to the listing of and the hearing itself. This is because of the required procedure in the Queen’s Bench Division of the High Court. Failure properly to follow that procedure, the Claimant submits, can also be taken into account on the issue of promptness because, as distinct from the County Court, it remains for an Applicant to ensure that further relevant steps are taken beyond the issuing of an Application. An Applicant in this Division cannot simply sit back and attribute any delay in seeing the Application listed as purely reflecting the workings of the court system. I agree with that submission.
22.1          For the reasons stated, the Defendants saw judgment being entered against them despite being legally represented and yet when there came a point when they were aware few if any relevant steps were being taken.
22.2          The Defendants fail to establish any explanation why they did not ensure a Defence or Defences were filed by the due date.
22.3          The Defendants fail to explain and justify why then in excess of a month elapsed between the default judgment on 21 August 2019 and their Application. Indeed, a month elapsed between the First Defendant coming out of prison and the Application. Save for remarking how she was “settling back at home” and that she and her husband were arranging to instruct another solicitor, the period seems to be assumed by the First Defendant to be as without any requirement to further elaborate at all.
22.4          Taking if only the period between judgment and the Defendants’ Application, I find the Defendants failed to act promptly.
22.5          Stokoe Partnership electronically submitted the Defendants’ Application and it was date stamped by the court as received on 27 September 2019. The Application sought a hearing with a time estimate of 3 hours.
22.6          What followed thereafter was also far from prompt.
22.7          Because the Defendants’ time estimate was in excess of 30 minutes, in terms of Queens’ Bench practice [1] that meant the hearing was unsuitable for the Urgent and Short Application list heard by Masters twice daily and instead needed to be judicially listed following provision by the Applicant Defendants of a Private Room Appointment [“PRA”] form. A PRA form provides (or ought to provide) both Applicant and Respondent’s time estimates (if different) and preferred dates of availability.
22.8          This procedure was clearly set out in the (then applicable) 2018 edition of the Queens’ Bench Guide at Chapter 9 and Paragraph 9.3 in particular. It marks the significant and, as is ordinarily well understood, important distinction with County Court practice that the High Court [2] does not serve Applications. It is for Applicants to ensure that they become effective through to a listed hearing and that the applicable Respondents are notified by the Applicant of that hearing date upon formal service of the issued Application. Whilst the court sends out a Notice of Hearing, that serves more to confirm the date and time of the hearing.
22.9          For reasons that still remain unexplained by or on behalf of the Defendants, however, no PRA form was supplied as part of the Defendants’ Application at the time of issue and so no hearing date was provided. This is despite, according to Miss Rushton, Michelmores having provided their information to Stokoe in October 2019 following receipt of the issued Application.
22.10      The missing link, to so speak, therefore appears to be the Defendants’ failure to then act upon the issued Application and the completed PRA form by seeking a listing. Because this did not occur there was no judicial direction that a hearing should be listed and so no Notice of Hearing went out. The Application remained latent in the hands of the Defendants. In short, the Defendants through their solicitors created an impasse of their own making.
22.11      I am satisfied that there is no obligation on a Respondent to incur time and expense in formally responding to an Application that has only ever been sent to them in draft. Only until a Respondent knows they are being summonsed to a hearing can they be expected to file and serve, for example, their evidence in response.
22.12      I therefore reject criticisms of the Claimant that the Claimant failed promptly to respond to the Defendant’s Application.
22.13      Indeed, it was not until an e-mail dated 4 November 2020 that a new firm of solicitors, MAK Solicitors, asked for an update in respect the Defendants’ Application and referred to an annexed a letter dated 16 October 2020 that they had apparently sent to the court. I note that letter is headed “By Recorded Delivery” and addressed simply to “High Court, Royal Court of Justice, Strand, London, WC2A 2LL”.
I note no such letter appears in the electronic court file, filing of correspondence in respect of which has been compulsory for professional users in this Division since 18 November 2018. Further, the letter was not correctly addressed in any event even if MAK hoped that their hard copy letter would ultimately be correctly directed.
22.14      These errors of procedure are not subject to any explanation in the Defendants’ submissions. Nonetheless, by their e-mail the Defendants’ Application became revived and saw progress, although there still remains a degree of uncertainty about preceding events as referred to by MAK. The 16 October 2020 letter  refers to having “previously requested the court to allow use more time as newly instructed solicitors to prepare ourselves in readiness for the hearing to set aside the default judgment and to proceed further with the matter. Unfortunately, it took us longer than expected”. The letter goes on to “request the court to fix the matter for a half-day hearing to set aside judgment in default” and provides “common dates from both parties”. Perhaps with an unintended irony, the letter comments that the firm awaits “to hear from the court at the earliest convenience”.
22.15      I can find no “previous requests” on the court electronic file as amount to “previous requests” from MAK either.  However, on any view such references entirely ignore the fact that the Application was not live anyway and so no hearing date had become operative. Whether by way of correspondence or telephone calls, references to needing more time in respect of an inchoate Application would make no sense and so have no effect in this Division.
22.16      My conclusion is that, as perhaps was the case with Stokoe Partnership, MAK Solicitors had County Court procedure in mind and so believed that a hearing date was due to be provided by the court at some stage and that the interim delay had been nothing to do with the Defendants as Applicants. If this is correct, then this seems to mark another point of error in the sequence of the events as ultimately attributable to the Defendants.
22.17      Nonetheless, the MAK 30 October 2020 letter served to provide the outstanding information (even if not in required format) for the PRA form. As the Assigned Master, the letter was referred to me on 11 November 2020 and an instruction to list directed on 12 November 2020. The Notice of Hearing for the hearing on 28 January 2021 was dated 12 November 2020.
Once it had been correctly presented, therefore, the Application saw due process.
22.18      I note that MAK had informed Michelmores in an e-mail on 3 August 2020 that they were in the process of making an application to set aside judgment and asking for counsel’s availability (even though an application had already been issued) [617]. Ms Maguire replied on 20 August 2020 asking for an update and warning that the Claimant would be opposing the application on grounds of delay. I note in the final paragraph of this letter Ms Maguire’s trenchant description of the Application having been “sat on for a year and we have not received any correspondence from you during that time in relation to a hearing date for an application to set aside”.
22.19      There is no explanation from the Defendants why it had taken MAK solicitors until November 2020 effectively to write to the court, despite their e-mail dated 3 August 2020 to Michlemores and the very clear warning of opposition from Michelmores in reply on 20 August 2020. I do note, however, that the Claimant had issued statutory demands on 22 October 2020 and infer that the timing of their 30 October 2020 letter was not co-incidental.
22.20      Despite this sequence, the Application presented at the hearing on 28 January 2021 remained that as issued although, as Miss Rushton was clear to point out, the skeleton argument as sent by Mr Schama late in the afternoon before the hearing did seek to present it on a different basis.
  1. Three days before the hearing, the First Defendant signed her Second Witness Statement. It was served on the Claimant’s at 11.00pm on 25 January 2021.
This is her response to the First Statement of Emma Maguire, as had been submitted in response to the Application once it had been served. It seeks to gainsay remarks in Ms Maguire’s statement about the way in which the original investigation was conducted and the 1st Defendant’s involvement.
23.1          It is clear that this statement reflects submissions made by Mr Schama at the hearing and as featured in the skeleton argument he sent to the Claimant and the court late in the afternoon before the hearing.
23.2          Contrary to the impression of acceptance of criminal conviction at Paragraph 83 in her First Statement, the First Defendant at Paragraph 11 in this lately served Second Statement remarks that she and her husband are now seeking to appeal their convictions. No other details are provided.
23.3          It is also in this lately served second statement that the First Defendant, for the first time, seeks to argue that the omission of the Schedules in the period between service and (i) their provision to Stokoe on 3 June 2019 and (ii) at the Freezing injunction hearing on 26 June 2019 is of material significance in explaining the failure to file a Defence.
23.4          Without any elaboration on the pertinent facts and events, at Paragraph 24 the First Defendant suggests that “a large part of the delay in this application being heard was due to the global coronavirus pandemic” and implies that the Claimant ought to have acknowledged this.
23.5          There is no developed or reasoned discussion about the various and considerable delays in the Application at its various junctures. Whether or not as affected by Covid-19.

 

THE ATTACK ON THE STATUS OF THE JUDGMENT

The defendants, late in the day, raised an argument that the judgments obtained were not regular.  This argument was rejected by the Master.

24.2          However, by way of (only) Mr Schama’s skeleton argument served the evening before the hearing, the Defendants sought to deny that the judgment was regular.
24.3          The Defendants refer to the fact the default judgment arose from an N244 Application by the Claimant dated 22 July 2019 as had sought a hearing at which judgment in default would be entered. That Application was drafted somewhat ambiguously in requesting (N244 Question 5) a decision “without a hearing” but then adding (Question 6) that the Claimant Applicant thought the hearing would last 2 hours. Question 9 was completed that the “Defendants” should be served with the Application.
24.4          Mr Schama sought to argue that because this Application was never served, the judgment therefore obtained under it was irregular and should be set aside as of right. The Application for variation of the default judgment was only in the alternative.
24.5          The Defendants seek to link this submission with uncertainty arising from the amendment to the Particulars of Claim in July 2019. I have already dealt with that latter point.
24.6          The procedure for obtaining a default judgment is set out at CPR 12.4. For a judgment on a specified sum(s) of money such as in this case, it is achieved by a Claimant requesting the court to enter judgment using a standard “practice form” : CPR 12.4(1). A defaulting defendant is not required to be notified either in fact or by way of a formal application under Part 23 unless, by CPR 12.4(2), the judgment as requested is :
“(a) on a claim which consists of or includes a claim for any other remedy; or
  (b) where rule 12.9 or rule 12.10 so provides”
Neither of these requirements applied in this case and so no notice was required to be given to the Defendants. No “other remedy” is sought. Neither was this a request for judgment for costs only (r.12.9) or against a protected party, spouse or civil partner, against a defendant out of the jurisdiction or others as listed in r.12.10.
24.7          The request for judgment therefore did not require a Part 23 Application and it is clear from the Court File that the request was processed not as a Part 23 Application and so as not requiring a hearing. Master Gidden was referred to the Application and granted the default judgment accordingly.
24.8          Some time was spent with Mr Schama at the commencement of the hearing seeking to establish (i) how and why the court and Respondent Claimant should entertain such a significant change in the basis of the Application at a late stage without any apparent prior notice and request to amend the Application (ii) the procedural basis for the proposition, given there was no procedural requirement for the request for default judgment to have been a Part 23 Application anyway.
24.9          Mr Schama argued that it had or ought to have been “plain” to the Claimant that the Application was being put on a wider basis, not least from his skeleton argument. He submitted the Claimant did not require any, or much, extrinsic evidence to consider or with which to respond. The fact it was not raised earlier might, at best, go to costs. However, he conceded that the Defendants had never expressly notified the Claimant of an intention to change the basis of the Application.
24.10      I reject these submissions and decline to accept this late and, as I find it, fundamentally different basis for the Application. I do not follow the submission that the point should have been anticipated. It strikes me as a very different point. There also has been chronic delay before it being presented at the 11th hour. If one takes as the starting point the date of the Application when this different type of Application should have been presented, the Defendants and their representatives still had a period of approaching 16 months in which they could have sought to amend and so introduce a different basis for their Application.
24.11      Further, even had the submission been made earlier and properly proposed, it would seem to have little prospect of success. I fail to see how a claimant that unnecessarily prepares a more elaborate document but presents it [3] according to the more simple required procedure for requesting judgment in default – as the court in consequence recognised and processed – facilitates an argument to a defendant presumably based on some form of procedural estoppel or election [and yet in respect of which they were entirely unaware and so took no part]. In short, the defendant in this scenario is no better nor worse than they always would have been if a simple pro-forma request for judgment had been filed. Save for perhaps having a point on costs in distinguishing the additional preparation of the request as if it were a Part 23 Application.
24.12      I am satisfied that this is a regular judgment and that the Application to set it aside should be considered on this basis.

THE DENTON TEST IS ALSO APPLIED

In addition to considering the criteria in CPR 13.3 the court hearing an application to set aside a default judgment has to consider the Denton criteria.

24.13      The Claimant refers me to the confirmation of the Court of Appeal in Gentry v. Miller [2016] EWCA Civ 141 that an application under CPR 13.3 to set aside a judgment entered in default of defence under CPR 12.3 is one to which the relief from sanctions regime in Denton v. TH White [2014] EWCA Civ 906 applies. Though well known, these are that the court should apply a 3-stage test in deciding whether to exercise its discretion to set aside judgment. Namely, in the context of this Application, to ask :
  1. Whether the breach (to file a Defence) was serious and significant?
  2. Whether there is any valid explanation for it?
iii.                Whether relief should be granted in all the circumstances, including the factors under CPR 3.9(1)(a) and (b): the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules and orders.
24.14      The Denton criteria thus overlaps with, and complements, the test under CPR 13.3.
  1. The involvement and relevance of the Defendants’ legal advisors
The Claimant refers to Mullock v. Price [2009] EWCA Civ 1222 in submitting that failures by a legal representatives cannot provide an adequate excuse for a defendant failing to act promptly in an application under CPR 13.3, a defendant having a personal obligation to make the application.
In Mullock, the Court of Appeal was satisfied [Para 22] that it was wrong that a party should shield behind his representatives in such an Application. Ward LJ agreed with the comments of Peter Gibson LJ in  Training in Compliance Ltd (t/a Matthew Read) v Dewse (t/a Data Research Co) [2001] CP Rep 46 that :
“in general, the action or inaction of a party’s legal representatives must be treated under the Civil Procedure Rules as the action or inaction of the party himself. So far as the other party is concerned, it matters not what input the party himself has made into what the legal representatives have done or have not done. The other party is affected in the same way; and dealing with a case justly involves dealing with the other party justly. It would not in general be desirable that the time of the court should be taken up in considering separately the conduct of the legal representatives from that which the party himself must be treated as knowing, or encouraging, or permitting.”
  1. At Paragraph 23 Ward LJ observed that r.13.3 explicitly refers to “the person” making the application and that the CPR “impose duties on the parties to the litigation, and it seems to me that must mean the parties themselves irrespective of the help and advice they are or are not receiving. Their duty under CPR r.1.3 is this: “The parties are required to help the court to further the overriding objective.” One of those objectives is of course to ensure that the case is dealt with expeditiously…”
  1. In the context of r.13.3, therefore, the First Defendant’s selected references to electronic communications between her and her solicitors before judgment was entered in seeking to shield her and her husband and to shift the blame are irrelevant.
  1. Despite this conclusion, I believe it has been necessary to analyse and deconstruct the submission made by the Defendants, drawing upon the suggestion in Julia and Rana’s early correspondence, that they were unrepresented at the material time.
  1. On any view, the month that elapsed between the First Defendant coming out of prison on 27 August 2019 and the date the Application was issued is less easy to blame on solicitors. The First Defendant on her own admission had by then come to learn that matters had not gone as she says were intended. Plainly, the Defendants were by then clearly on notice that their solicitors appear not to have acted in their best interests [4] and yet still saw a month elapse without issuing their Application. The Defendants offer no explanation for this period of delay other than to explain how the First Defendant had to “settle in” on return home and they needed to consider the instruction of new legal advisors.
One wonders how long that process would have taken anyway, given the Defendants returned to Stokoe, such that it was that firm that issued their Application.
  1. If the relationship between the Defendants and their respective firms of solicitors can appropriately be separately and independently considered, perhaps as part of the third test in Denton despite the very clear comments in Mullock in the context of r.13.3, I conclude that the personal involvement of the Defendants and about matters that remained in their hands are inadequately explained.
  2. Whatever the interplay between two firms of solicitors being involved between service of proceedings and Application to set judgment aside, nothing material is said about the period between the issue of the Application and it finally becoming effective. I note no reference from the First Defendant (there being no witness commentary at all from the Second) to monitoring the progress of her Application and questioning, as a qualified solicitor, why nothing happened for over a year. This episode is well distanced from blame attributed to the original default and the immediate period that followed.
  1. I am satisfied that both by way of dicta in respect of r.13.3 in Mullock and separately having regard to the overall circumstances of the case in Denton, the Defendants remain central and answerable for the delay in the issue and presentation of their Application.
  1. Severity of Breach and Promptness
There seems no realistic suggestion that a failure to file a Defence such that judgment is entered is not a serious breach.
As to promptness, for reasons I have set out in some detail, there equally seems no rational basis for the Defendants to suggest that their Application has been prompt. To the contrary, there has been continuous delay from the outset. Despite the First Defendant’s attempts to distinguish between her efforts and interests as a solicitor and those taken by solicitors acting on her and her husband’s behalf, I am not satisfied sufficient or persuasive explanation is provided.
  1. Realistic prospect of success
The Claimant submits that the factor of delay in this case overrides considerations of whether the proposed defences, as at least can be followed by way of submission even if not draft Defence(s) put before the court, have realistic prospects. Miss Rushton refers me to the recent decision of HHJ Pelling, sitting as a Judge of the High Court, in Core-Export v. Yang Ming Marine Transportation Corp. [2020] EWHC 425 (Comm). In that case a defendant had failed to engage in the claim such that the claimant could understand the defendant’s position, despite chasers and there was then inaction and delay in bringing an application to set aside judgment [the delay being eight weeks after service of the Claim Form and over three weeks after having become aware of the judgment]. Though recognising that the proposed defence had realistic prospects, the history and delay of the defendant was sufficient to refuse the Application following Denton criteria.
  1. The Claimant also reminds me that the burden is on the Defendants to show that they have a realistic prospect of defending the various heads of claim against them and that this means having a defence which is more than merely arguable.
THE ABSENCE OF A DEFENCE
36.
The Claimant refers to remarks by the trial judge in the criminal prosecution that the fraud extended over four and a half years from May 2007 to November 2011.
The Claimant submits that the First Defendant is the one who should be producing records to show that she has a defence with realistic prospects of success, to rebut the prima facie evidence of the “no match” schedule, if she has any defence to raise. The First Defendant cannot rely upon her own failure to cooperate with the LAA’s Official Investigation and consequent unavailability of records to avoid explaining why a reasoned defence has never been produced.
Neither has the First Defendant made any attempt over the past seventeen months to obtain the expert evidence she claims she would need to draft a defence.  Whilst the First Defendant seeks to make great play of potential issues with the Home Office data, and the matching of it with data from the LAA’s computer records, suggesting she needs to look at the underlying case files and so claims it is necessary to await disclosure by the LAA on these issues. The Claimant observes, however, that the LAA does not have copies of other case files (whether electronic or paper) because of the very refusal by the First and Second Defendants to attend or cooperate during the Official Investigation into their firm in November 2013. The prosecution was obliged to rely upon only the paper case files obtained by Mr Armstrong in June 2013 and Ms Begum in March 2013 i.e. such paper case files the LAA had managed to obtain from the Defendants. The Claimant submits that the suggestion that the formulation of the Defence has been delayed and is still reliant upon Disclosure is unrealistic and unpersuasive.

FAILURE TO FORMULATE A DEFENCE

The Master accepted the Claimant’s argument that the defendants had done little to formulate their defence in the considerable time they had available.

37. These submissions have considerable force. The Defendants position to-date, despite the considerable lapse of time, has been never directly to seek to factually or arithmetically gainsay the claim. The location of the files they say they would need to consult is not discussed. The extent to which the Defendants might still be able to refute the methodology or calculation relied upon by the Claimant is entirely unacknowledged. The sum total of the Defendants position appears to be that proposed by Mr Schama in his skeleton argument.

OTHER REASON TO SET ASIDE THE JUDGMENT

  1. Other reason
Although included as part of the Defendants’ submissions, I can recognise no separate or discrete reason why the judgment should be set aside. The repeat of the same arguments but as if drawing upon this alternative provision within r.13.3 do not assist.

THE MASTER’S CONCLUSIONS

  1. Conclusion
The Defendants do not present a defence or defences that have reasonable prospects of success. They have not made their Application promptly. The gross delay in this case is such that even if points of proposed defence might have reasonable prospect, the case is such that I am satisfied it would not be just that liability be re-opened and the judgment set aside even if the proposed defence or defences might have some prospect of success.
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