DEFAULT COSTS CERTIFICATE NOT SET ASIDE: SERVICE BY EMAIL WAS WRONG, BUT RECTIFIABLE: RELIEF FROM SANCTIONS REFUSED

Cases on Default Costs Certificates appear to be like London Buses – they come along in twos. Here we have the second case in two days.  In  Serbian Orthodox Church – Serbian Patriarchy v Kesar & Co [2021] EWHC 1205 (QB) Mr Justice Foxton allowed an appeal against the setting aside of a Default Costs Certificate.  With issues relating to service at an incorrect email address, the use of CPR 6.27 and the need for candour when making an application for relief from sanctions, this case takes us on quite a journey.

 

THE CASE

The respondent, Kesar, had been ordered to pay the costs of an action.  Correspondence took place as to the appropriate means of service of the Bill of Costs.

 

    1. On 17 September 2020, Mr Donnelly of the Appellant’s solicitors indicated that the Appellant was happy to receive service of documents by email if Kesar confirmed its readiness to do so. On 18 September 2020, Mr Kesar replied:
“I am happy to accept service by email as [long as] this is reciprocated”.
Mr Donnelly replied:
“No problem. Yes I’m happy to agree that moving forwards service of documents by email between us is accepted”.

TWO EMAIL ADDRESSES

The difficulty was that the respondent had two email addresses. A “short” and “long” address.   The notice of commencement was sent to the “long” address, which had been used earlier in the litigation, but which was not the correct address.  However transmission from the long to the new email address was instantaneous.

  1. These exchanges were conducted using Kesar’s email mkesar@kesar.co.uk (“the short email”). It would appear that Kesar had at some stage used another email address – mkesar@kesarandcosolicitors.co.uk (“the long email”). On 15 October 2020, the Appellant sent its notice of commencement and accompanying bill of costs, in the sum of £222,256.85, to the long email address. Kesar had put in place arrangements for all emails sent to the long email address to be immediately and automatically forwarded to the short email address, which duly received these documents at or around the time of despatch. If this constituted valid service, then Kesar had until 9 November 2020 to file Points of Dispute. No such document was filed, and by a letter sent on 12 November and received by the court on 13 November 2020, the Appellant sought a DCC in the amount of £222,256.85. The DCC was entered by the court on 16 November 2020. On 25 November 2020, Kesar applied to set aside the DCC.

The respondent did not file points of dispute and the applicant obtained a Default Costs Certificate. The respondent applied to set this aside, this was refused by the Master, the applicant appealed to the judge.  The applicant’s appeal was successful. The applicant was represented by Kevin Latham, the respondent by Andrew Hogan.

THE DECISION OF THE MASTER

The Maser held that service to the long address did not constitute good service. However if it had been good service he would not have set aside the default costs certificate.

“Senior Master Gordon Straker held that the service on the wrong email address did not constitute good service.
i) rejected Kesar’s argument (which was not seriously pursued at the hearing) that there had been no agreement to accept service by email;
ii) accepted Kesar’s argument that sending an email to the long form email address, which had then been automatically and instantly forwarded to the short form email address, did not constitute valid service; and
iii) confirmed that he would not have been satisfied, had the issue arisen for determination, that Kesar had shown “good reason” for setting the DCC aside.”

THE CLAIMANT’S SUCCESSFUL APPEAL

The judge allowed the claimant’s appeal.  This was not good service, however the court had a discretion to validate service and it was appropriate to do so in this case.  Once service was found to be valid there was no good reason for setting aside the Default Costs Certificate.

 

WAS THIS GOOD SERVICE ?

The judge carried out a detailed analysis of the rules and authorities relating to service. He agreed with the Master’s conclusion that there had not been good service.

Analysis and conclusion
    1. So far as the position under the CPR is concerned, the only authority considering a similar point to which I was referred was R (Davies) v Kingston upon Thames County Court [2014] EWHC 4589 (Admin). In that case, the claimant’s landlord served proceedings on the claimant at the property which it was known the claimant had vacated, on the basis that she believed that provision had been made for the redirection of the claimant’s post. A default judgment was entered and the claimant’s application to set it aside failed, and permission to appeal against that decision was refused. The claimant sought to challenge that decision by judicial review, and effectively had to establish a jurisdictional error in the narrow pre-Anisminic sense or a procedural irregularity of such a kind as to amount to a denial of a fair hearing. One argument advanced was that it had been an error of law to treat service as having been effected by the re-direction of the claimant’s mail. HHJ Lambert said he was “far from sure there is any error on the part of the judge at all” ([26]) because:
“the redirection does seem to be proper service. There is an ingenious argument but any purposive interpretation of the rules as to service shows it is a permissible means by which to serve someone”.
    1. Those observations were tentative, and the judge reached his conclusion on the basis that the District Judge had found that the vacated property was the claimant’s last-known address, which was an issue of fact not reviewable on judicial review ([27]), and because any error did not rise to the level which justified a remedy in judicial review. The decision is, therefore, only of limited assistance.
    1. I have concluded that the Senior Master was right, and valid service was not effected in this case. I have reached this conclusion for the following reasons:
i) First, on the natural construction of Practice Direction 6A, it is the “sending” of the email to the agreed address which constitutes valid service. That the word “sent” is concerned with the address used by the party effecting service is reinforced by the use of the same word in the provisions on deemed service and the certificate of service (which are necessarily premised on events within the claimant’s knowledge – something which steps taken to forward correspondence on from a postal or email address will not ordinarily be).
ii) Second, that conclusion is more consistent with the provisions on deemed service in the CPR, with their focus on the steps taken to post a letter or send an email, which have been held, for reasons of certainty, to preclude proof of non-receipt for the purposes of establishing that service had not been validly effected. I note that in Austin Rover, Sir John Megaw had viewed the ability under the RSC of a defendant who had not received the document to establish that service had not been effected as supporting his conclusion that it should be possible to establish as a matter of fact that a misaddressed communication had reached the right destination. There is something in the converse proposition under the CPR.
iii) Third, I am troubled by how the provisions on obtaining default judgment would operate if there could be valid service (by reason of the on-forwarding of the communication) but, on the objective facts known to the party serving, valid service had not been effected and a truthful certificate of service could not be filed.
    1. Like Lloyd LJ in Austin Rover, I should not be taken as holding that any minor error in addressing a communication will involve a failure to effect service, and no doubt the fact that a communication did reach the intended destination may provide a practical indication of the materiality of the error. However, that could only be relevant to errors in a postal or courier address – emails are not so forgiving.

 

COULD (AND SHOULD) THE COURT VALIDATE SERVICE ON THE FACTS OF THIS CASE?

The judge then considered the issue of whether the court should validate service.

C SHOULD THE COURT VALIDATE SERVICE UNDER CPR 3.10 OR CPR 6.27?
Is this argument open to the Appellant?
    1. If there has not otherwise been good service, Mr Latham contends that the Court has the power either to waiver any procedural error in effecting service under CPR 3.10 or to declare under CPR 6.27 that sufficient steps had been taken to effect service.
    1. In response, Mr Hogan contends that this argument is not open, because it was not raised before the Senior Master, and because the Appellant elected to proceed on the basis of those arguments raised before the Senior Master rather than seek to adjourn the hearing, after he was given the opportunity to make such an application.
    1. I am satisfied that there is nothing in this argument. The Appellant’s decision to proceed, rather than seek an adjournment, might well be relevant to any attempt to raise new factual issues on appeal, but the arguments which Mr Latham seeks to advance do not involve any further factual issues beyond those already in play. The principles which determine whether the court should allow further arguments to be raised on appeal are set out by Haddon-Cave LJ in Singh v Dass [2019] EWCA Civ 360, [16]-[18]:
“[16] First, an appellate court will be cautious about allowing a new point to be raised on appeal that was not raised before the first instance court.
[17] Second, an appellate court will not, generally, permit a new point to be raised on appeal if that point is such that either (a) it would necessitate new evidence or (b), had it been run below, it would have resulted in the trial being conducted differently with regards to the evidence at the trial.
[18] Third, even where the point might be considered a ‘pure point of law’, the appellate court will only allow it to be raised if three criteria are satisfied: (a) the other party has had adequate time to deal with the point; (b) the other party has not acted to his detriment on the faith of the earlier omission to raise it; and (c) the other party can be adequately protected in costs.”
    1. Applying those principles, I am satisfied that the Appellant should be permitted to advance this argument. The point requires no further evidence, nor would it have affected the course of the hearing below. Mr Hogan was clearly ready to deal with the point, and Kesar had not acted to its detriment by reason of the fact that the point was not taken before the Senior Master. I would note that the argument arises because of a point which Kesar itself took for the first time at the hearing before the Senior Master.
The provisions relied upon
    1. CPR 3.10 provides:
“Where there has been an error of procedure such as a failure to comply with a rule or practice direction –
(a) the error does not invalidate any step taken in the proceedings unless the court so orders; and
(b) the court may make an order to remedy the error.”
    1. CPR 6.15 provides:
“(1) Where it appears to the court that there is a good reason to authorise service by a method or at a place not otherwise permitted by this Part, the court may make an order permitting service by an alternative method or at an alternative place.
(2) On an application under this rule, the court may order that steps already taken to bring the claim form to the attention of the defendant by an alternative method or at an alternative place is good service.”
    1. CPR 6.15 is given effect in relation to documents other than a claim form by CPR 6.27, which provides that “Rule 6.15 applies to any document in the proceedings as it applies to a claim form and reference to the defendant in that rule is modified accordingly.”
The authorities
    1. There is a surprising amount of first instance authority (and a surprising dearth of appellate authority) on attempts to use CPR 3.10 to overcome a failure to achieve effective service under the CPR.

THE APPROACH IN THIS CASE

The judge reviewed the authorities in detail and considered the appropriate approach in this case.
Conclusion as to the proper approach
    1. I must confess to having some difficulty with the suggestion that CPR 3.10 could be relied upon to validate a defect in service where, for example, service had been effected by email without permission to serve at that email address, in any case in which relief could not have been obtained under CPR 6.15. A particular difficulty with CPR 3.10 is that, if it is applicable to service errors, CPR 3.10(a) would appear automatically to validate service unless the Court ordered otherwise. That, with respect, is a surprising proposition, and an approach which requires the party seeking to validate service to seek and obtain an order from the court seems inherently more appropriate.
    1. Further, the reasoning which commended itself to Nicklen J and Morgan J – that CPR 3.10 as a provision of general application must yield to the more specific provisions on service in, for example, CPR 6.15, 6.27 and CPR 7.6(3) – also commends itself to me, for conventional legal reasons and because it has strong support from the majority of the Supreme Court in Barton, [8] when addressing a similar argument as the interrelationship of CPR 3.9 and CPR 6.15. In these circumstances, I have concluded that if the Appellant is to validate the service of the notice of commencement, it must persuade the court to make an order under CPR 6.27.
When should the court make an order under CPR 6.27?
    1. CPR 6.15(1), and hence CPR 6.27, requires “good reason” to be shown before ordering that the steps already taken constitute good service. In Barton,
i) At [9], Lord Sumption JSC referred to Lord Clarke JSC’s judgment in Abela v Baadrani [2013] UKSC 44, [38], and Lord Clarke’s approval of the statement that “service has a number of purposes, but the most important is to ensure that the contents of the document are brought to the attention of the person to be served”. However, “the mere fact that the defendant learned of the existence and content of the claim form cannot, without more, constitute a good reason to make an order under rule 6.15(2)” and “the question is whether there is good reason for the court to validate the mode of service used, not whether the claimant had good reason to choose that mode”.
ii) At [10], he stated that “in the generality of cases, the main relevant factors are likely to be (i) whether the claimant has taken reasonable steps to effect service in accordance with the rules and (ii) whether the defendant or his solicitor was aware of the contents of the claim form at the time when it expired, and, I would add, (iii) what if any prejudice the defendant would suffer by the retrospective validation of a non-compliant service of the claim form, bearing in mind what he knew about its contents. None of these factors can be regarded as decisive in themselves. The weight to be attached to them will vary with all the circumstances”.
iii) At [16], he noted that “although the purpose of service is to bring the contents of the claim form to the attention of the defendant, the manner in which this is done is also important. Rules of court must identify some formal step which can be treated as making him aware of it. This is because a bright line rule is necessary in order to determine the exact point from which time runs for the taking of further steps or the entry of judgment in default of them.”
iv) At [17], he noted that there were “particular problems associated with electronic service, especially where it is sought to be effected on a solicitor” because “a solicitor’s office must be properly set up to receive formal electronic communications such as claim forms” and “there must be arrangements in place to ensure that the arrival of electronic communications is monitored, that communications constituting formal steps in current litigation are identified, and their contents distributed to appropriate people within the firm”.
v) Finally, at [21], he noted that “the claimant need not necessarily demonstrate that there was no way in which he could have effected service according to the rules within the period of validity of the claim form.”
    1. The criteria for making an order under CPR 6.15 were also considered by Popplewell J in Société Générale v Goldas Kuyumculuk Sanayi Ithalat Ihracat AS [2017] EWHC 667 (Comm), [49]. He noted that the strength to be afforded to the fact that the document “served” came to the notice of the defendant “will depend upon the circumstances in which such knowledge is gained. It will be strongest where it has occurred through what the defendant knows to be an attempt at formal service. It may be weaker or even non-existent where the contents of the claim form become known through other means.”
    1. It is clear that what constitutes “good reason” may vary with the context (e.g., what constitutes “good reason” in an ordinary service case may not constitute good reason in a Hague Service Convention case: see the authorities collected in M v N [2021] EWHC 360 (Comm)). I accept, therefore, that something incapable of constituting “good reason” for making an order under CPR 6.15 when there had been a failure to effect service of originating process in accordance with the CPR might be capable of amounting to good reason for making an order under CPR 6.27 in respect of other documents (reflecting the significant difference between the two types of document identified by Popplewell J in Intergral, [37], and the fact that service of other types of document will not engage the limitation issues which may arise from the expiry of a claim form before service).
The position on the facts of this case
    1. There was a dispute between Mr Latham and Mr Hogan as to whether the service of notice of commencement of costs assessment proceedings was to be equated with service of originating process for the purposes of CPR 6.15. Mr Hogan pointed to the fact that CPR 47.6 refers to “commencement of detailed assessment proceedings” and sets out how the “detailed assessment proceedings are commenced”. I accept that the detailed assessment of costs is a distinct phase of the proceedings, with a distinct process for commencement. However, I do not accept that this is equivalent to the commencement of originating process. By the time costs are assessed, in personam jurisdiction over the defendant has long been established, and the defendant has been fully engaged in the proceedings. The commencement of “detailed assessment proceedings” is the next step in the proceedings, which a defendant against whom an adverse costs order has been made should be expecting. I accept that the service of notice of commencement bears some resemblance to the commencement of a claim, in that a failure to respond in time can generate a default liability, but that is also true of a failure to serve a defence in response to particulars of claim. For these reasons, I have approached the Appellant’s application under CPR 6.15 on the basis that the particular considerations engaged by applications relating to the service of originating process do not apply.
    1. I have been persuaded that there is “good” reason to order that the steps taken by the Appellant to serve notice of commencement constituted good service. I have reached that conclusion for the following reasons:
i) It is clear on the evidence that the documents to be served were sent to an email address which Kesar had used, and which was set up not to notify senders that the email was no longer in use or to direct them to a different email address, but automatically to forward the documents to the address which was in use.
ii) The documents were received through the agreed mechanism for service, and, short of opening the email (which Mr Kesar did not do before the DCC was entered), it would not have been possible for Kesar to know whether the notice of commencement had reached that email box because it had been sent there directly or forwarded in accordance with the arrangements Mr Kesar had put into place.
iii) This was in a case in which the served documents not only reached the party to be served, but did so by service to an email address which was set up to receive electronic service of documents such as the notice of commencement, and which ought to have been monitored to that end.
iv) By reason of its arrival at that email address, the document reached Kesar by a means from which, had the email been opened, it would have been obvious this was an attempt at formal service.
v) I accept that validating service involves prejudice to Kesar, but that prejudice is of a very different kind to, for example, loss of a limitation defence. The prejudice in question is that there has been a default assessment of its costs liability, unless it is able to show “good reason” for setting the DCC aside.
    1. Unless, therefore, Kesar can persuade me that the Senior Master erred in concluding that it had failed to establish “good reason” for setting aside the DCC, the DCC will stand.

WAS THERE A GOOD REASON FOR CONTINUING THE COSTS ASSESSMENT?

The judge then upheld the Master’s conclusion that there was no good reason for setting aside the Default Certificate.  In particular the Master took account of the respondent’s “lack of candour” in making the application, the judge held that it was appropriate to do so.

D DID THE MASTER ERR IN CONCLUDING THAT NO GOOD REASON HAD BEEN SHOWN FOR CONTINUING THE COSTS PROCEEDINGS UNDER CPR 47.12(2)?
    1. That makes it necessary to consider Mr Hogan’s alternative argument that the Senior Master should have set aside the DCC on a discretionary basis in any event. Mr Hogan accepts that Senior Master Gordon-Saker properly directed himself as to the Denton test. He accepts that the Senior Master was entitled to find that:
i) this was a significant default; and
ii) no good reason for the failure to act in time had been made out.
    1. However, he suggests that the Senior Master had misapplied the third limb of the Denton test – the evaluation of all the circumstances of the case, so as to enable the court to deal with the application justly. On this issue, the question for me is not how I would apply the Denton criteria de novo, but whether the Senior Master exceeded “the generous ambit within which a reasonable disagreement is possible”, which would include taking account of an irrelevant factor, or failing to take account of a relevant one (for a recent statement of the principles in the same context see Michael Wilson & Partners Ltd v Sinclair and another [2020] Costs LR 387, [19]). Mr Hogan contends that the Senior Master did take account of an irrelevant consideration, in placing weight on what the Senior Master described as a lack of candour on Mr Kesar’s part in the witness statement made in support of the application.
    1. To set that criticism in context, it is necessary to say a little more about why the Senior Master found that there was no good reason for the failure to serve Points of Dispute in time, and the specific context in which the Senior Master came to find that there had been insufficient candour on Mr Kesar’s part.
    1. Mr Kesar’s witness statement stated that on 10 October 2020, a family member had had to isolate due to Covid infection, requiring him to work at home for 10 days. He referred to the fact that there was “some provision in place to work from home” but that there were no “adequate arrangements”, and that he had tried without success to access the firm’s servers. He also said that he used his personal email address but did not explain what arrangements had been put in place for his staff to access and forward emails to him. This evidence was vague, and as the Senior Master noted, someone in Mr Kesar’s position (with 25 staff working for him) ought to have been able to put in place arrangements to ensure that email was monitored while he was working from home. In any event, Mr Kesar returned to the office on 26 October 2020. Mr Kesar’s evidence offered no satisfactory explanation for his failure to deal with the Appellant’s email after he had returned to the office.
    1. What Mr Kesar did say is “the defendant’s costs draftsman Mr Francesco Rodriguez served their bill of costs and notice of commencement by email on 15 October. He had not sought permission to serve his documents by email”. That statement was made in support of an application notice, itself supported by a statement of truth from Mr Kesar, which asserted that “the Respondent was not asked if service by email was acceptable and the Respondent had not confirmed that he would accept service of the bill of costs by email”. In the light of the email exchange at [3] above, the Senior Master was clearly surprised by the statements in the application notice and witness statement, which he described as “a failure to be as candid as he could have been”. The Senior Master clearly viewed that failure not in isolation, but against the background of the prior criticisms made of Mr Kesar’s conduct of the case in Master Cook’s judgments, which required him to be “as candid as possible”.
    1. I am unable to accept the submission that it was not open to the Senior Master, at stage three of the Denton analysis, to have regard to Mr Kesar’s failure to address the issue of agreement for service in a candid way, and in particular, before confirming the absence of an agreement to accept service by email by statements of truth, to have looked at the correspondence and drawn any relevant material to the court’s attention. Nor can I accept the submission that it was not open to the Senior Master, in this context, to have regard to the prior failings on Mr Kesar’s part. That argument was premised on the assertion that the assessment of costs was a new set of proceedings, and that any criticisms which might be made of Mr Kesar’s conduct in the prior proceedings could not be relied upon in the assessment proceedings. However, at [56] I have already rejected the argument that the notice of commencement initiated a new set of legal proceedings, rather than a new phase of the proceedings commenced by the claim forms which Mr Kesar had issued.
    1. In these circumstances, I do not think it can be said that the Senior Master misdirected himself in reaching this conclusion, or that he took account of an irrelevant matter in reaching his conclusion, and, accordingly, Kesar is unable to bring itself within the narrow scope for challenging the exercise of a procedural discretion on appeal.
E CONCLUSION
  1. For these reasons, the Appellant’s appeal succeeds, on an issue which was not advanced before the Senior Master (no doubt because the argument to which it was a response was first raised at that hearing).