RETROSPECTIVE VALIDATION OF SERVICE, THE ACKNOWLEDGEMENT OF SERVICE AND THE SETTING ASIDE OF DEFAULT JUDGMENT

In  YA II PN Ltd v Frontera Resources Corporation [2021] EWHC 1380 (Comm) Mr Justice Butcher considered the question of whether a default judgment was regular when the court had, retrospectively, validated service of the claim form.  He found that retrospective validation gave rise to a new timetable and that a judgment entered in default of acknowledgment should be set aside.

THE CASE

The claimant issued proceedings against the defendant. It obtained permission to serve at an address in the United States.  There were problems with identifying an address for service as the defendant had not kept its company filings up to date. Proceedings were personally served on a former officer of the company at a home address in Texas (mentioned on the company’s register), he promptly passed it on to a current officer of the company.  No acknowledgment of service was filed and the claimant entered judgment in default.

The defendant was successful in arguing that service by this means was not good service as the order that gave permission to serve abroad only allowed service at a specific address. The address at which the CEO was served was not that address.

RETROSPECTIVE VALIDATION OF SERVICE

The claimant was successful in obtaining an order under CPR 6.15 that the service on the CEO was retrospectively validated.

44. YA II has applied, in case the court should find there not to have been valid service, for an order that would retrospectively validate the service on Mr Bono on 2 March, pursuant to CPR 6.15, alternatively an order dispensing with service of the Claim Form pursuant to CPR 6.16, alternatively an order extending time for service of the Claim Form pursuant to CPR 7.6 with permission to serve this on Frontera at the offices of its solicitors. This third limb of the application is not opposed by Frontera.

1. 1. I will take YA II’s application under CPR 6.15 first. That rule 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. 1. The main principles applicable to the exercise of the jurisdiction under CPR 6.15 were distilled by Popplewell J at paragraph 49 of his judgment in Société Générale v Goldas Kuyumculuk Sanayi, loc cit, an exercise on which he was congratulated by the Court of Appeal in the same case: [2018] EWCA Civ 1093, at paragraph 36, and were also the subject of consideration by the Supreme Court in Barton v Wright Hassall LLP [2018] UKSC 12. In that case, Lord Sumption JSC said this at paragraphs 8 to10:

“8. The Civil Procedure Rules contain a number of provisions empowering the court to waive compliance with procedural conditions or the ordinary consequences of non-compliance. The most significant is to be found in CPR 3.9, which confers a power to relieve a litigant from any “sanctions” imposed for failure to comply with a rule, practice direction or court order. These powers are conferred in wholly general terms, although there is a substantial body of case law on the manner in which they should be exercised: see, in particular, Denton v TH White Ltd (De Laval Ltd, Part 20 defendant) (Practice Note) [2014] 1 WLR 3926 (CA), esp at para 40 (Lord Dyson MR and Vos LJ), Global Torch Ltd v Apex Global Management Ltd (No 2) [2014] 1 WLR 4495 (SC(E)). The short point to be made about them is that there is a disciplinary factor in the decision whether to impose or relieve from sanctions for non-compliance with rules or orders of the court, which has become increasingly significant in recent years with the growing pressure of business in the courts. CPR rule 6.15 is rather different. It is directed specifically to the rules governing service of a claim form. They give rise to special considerations which do not necessarily apply to other formal documents or to other rules or orders of the court. The main difference is that the disciplinary factor is less important. The rules governing service of a claim form do not impose duties, in the sense in which, say, the rules governing the time for the service of evidence, impose a duty. They are simply conditions on which the court will take cognisance of the matter at all. Although the court may dispense with service altogether or make interlocutory orders before it has happened if necessary, as a general rule service of originating process is the act by which the defendant is subjected to the court’s jurisdiction.

9. What constitutes “good reason” for validating the non-compliant service of a claim form is essentially a matter of factual evaluation, which does not lend itself to over-analysis or copious citation of authority. This court recently considered the question in Abela v Baadarani [2013] 1 WLR 2043. That case was very different from the present one. The defendant, who was outside the jurisdiction, had deliberately obstructed service by declining to disclose an address at which service could be effected in accordance with the rules. But the judgment of Lord Clarke of Stone-cum-Ebony JSC, with which the rest of the court agreed, is authority for the following principles of more general application:

(1) The test is whether, “in all the circumstances, there is good reason to order that steps taken to bring the claim form to the attention of the defendant is good service” (para 33).

(2) 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 (para 37). This is therefore a “critical factor”. 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)” (para 36).

(3) 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.

(4) Endorsing the view of the editors of Civil Procedure (2013), vol i, para 6.15.5, Lord Clarke pointed out that the introduction of a power retrospectively to validate the non-compliant service of a claim form was a response to the decision of the Court of Appeal in Elmes v Hygrade Food Products plc [2001] EWCA Civ 121; (2001) CP Rep 71 that no such power existed under the rules as they then stood. The object was to open up the possibility that in appropriate cases a claimant may be enabled to escape the consequences for limitation when a claim form expires without having been validly served.

10. This is not a complete statement of the principles on which the power under CPR rule 6.15(2) will be exercised. The facts are too varied to permit such a thing, and attempts to codify this jurisdiction are liable to ossify it in a way that is probably undesirable. But so far as they go, I see no reason to modify the view that this court took on any of these points in Abela v Baadarani. Nor have we been invited by the parties to do so. 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.”

1. 1. To that summary, it is helpful to add two particular aspects which were part of Popplewell J’s distillation in Société Générale v Goldas Kuyumculuk Sanayi. The first is that at paragraph 49(3), where in relation to the significance to be attached to the fact that the defendant became aware of the existence and contents of the claim form, Popplewell J said this:

“If one party or the other is playing technical games, this will count against him … This is because the most important function of service is to ensure that the content of the document served is brought to the attention of the defendant… The strength of this factor 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. 1. The other relates to the situation where service is required to be effected in a country which is party to the Hague Service Convention (as the USA is) or to a bilateral service convention. Popplewell J said this (at paragraph 49(9)):

“(9) Cases involving service abroad under the Hague Convention or a bilateral treaty:

(a) Where service abroad is the subject matter of the Hague Convention or a bilateral treaty, it will not normally be a good reason for relief under CPR 6.15 or 6.16 that complying with the formalities of service so required will take additional time and cost: Knauf at [47], Cecil at [66], [113].

(b) It remains relevant whether the method of service which the Court is being asked to sanction under CPR 6.15 is one which is not permitted by the terms of the Hague Convention or the bilateral treaty in question. For example, where the country in which service is to be effected has stated its objections under Article 10 of the Hague Convention to service otherwise than through its designated authority, as part of the reciprocal arrangements for mutual assistance on service with this country, comity requires the English Court to take account of and give weight to those objections: see Shiblaq at [57]. In such cases relief should only be granted under Rule 6.15 in exceptional circumstances. I would regard the statement of Stanley Burnton LJ in Cecil at [65] to that effect, with which Wilson and Rix LJJ agreed, as remaining good law; it accords with the earlier judgment of the Court in Knauf at [58]-[59]; Lord Clarke at paragraphs [33] and [45] of Abela was careful to except such cases from his analysis of when only a good reason was required, and to express no view on them (at [34]); and although Stanley Burnton LJ’s reasoning that service abroad is an exercise of sovereignty cannot survive what was said by Lord Sumption (with unanimous support) at [53] of Abela, there is nothing in that analysis which undermines the rationale that as a matter of comity the English Court should not lightly treat service by a method to which the foreign country has objected under mutual assistance treaty arrangements as sufficient. That is not to say, however, that there can never be a good reason for ordering service by an alternative method in a Hague Convention case: Bank St Petersburg at [26].

This was approved by the Court of Appeal in that case: [2018] EWCA Civ 1093, at paragraphs 32-33, where Longmore LJ said that “special circumstances” were required to justify validating a method of service to which a Hague Convention country had not consented.

1. 1. As is apparent from Popplewell J’s summary, it will be a matter of significance if the method of service which the court is being asked to sanction is one not permitted under the relevant Convention. This will particularly arise where the country in question has stated an objection under Article 10 of the Hague Convention to service otherwise than through the designated authority of that country. In the present case, the relevant country is the USA, which has not stated an objection under Article 10 of the Hague Convention.

1. 1. Applying these principles to the present case, I consider that there is good reason to validate the service which was made on Mr Bono on 2 March 2020. This is for the following reasons:

(1) The Claim Form, and accompanying documents were delivered to Mr Bono, and he brought them promptly to Mr Nicandros’s attention. Mr Bono warned that a response was required. Frontera, by Mr Nicandros, had been made fully aware of the Claim Form, its nature and contents, by early March 2020, and knew that there had been an attempt at formal service.

(2) The reason why personal service was not effected on a current officer of Frontera, but rather on Mr Bono, who had ceased to be such at the time of service, was because Frontera had not updated its public filings, as it should have done, and because none of the addresses provided for Mr Mamulaishvili was his current address. The address provided for Mr Nicandros in Frontera’s public filings was Frontera’s office address, which had been found locked.

(3) The method of service is one which is permitted under the Hague Convention. Although there were defects in the way in which it was effected, it was an attempt at “service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination”, which is allowed for under Article 10 of the Convention.

(4) No prejudice will be caused to Frontera by the retrospective validation of service. This is not, for example, a case in which any question of limitation arises.

1. 1. Although this is a Hague Convention case, because what was involved was a flawed attempt at service by a method which was permitted by the Convention, rather than by a method which was not permitted under it, I do not consider that the test of “special” or exceptional circumstances should apply. In any event, and if that is wrong, I consider that the matters I have identified, in particular because of those in sub-paragraphs (1) and (2), do amount to special or exceptional circumstances for the purposes of the jurisdiction under CPR 6.15.

1. 1. Because I will grant relief under CPR 6.15, I do not need to consider the application under CPR 6.16.

SETTING ASIDE THE DEFAULT JUDGMENT

The next issue was whether the default judgment should be set aside.  The claimant contended that if service had been retrospectively validated then the judgment remained a regular one.  The judge rejected this argument. The defendant had not been under any obligation to file an acknowledgement of service when proceedings had been served irregularly. The effect of retrospective validation was to set up a new timetable for the defendant to acknowledge service.  The default judgment, therefore, was not a regular one.

THE JUDGMENT ON THIS ISSUE

What is the consequence for the default judgment?

1. 1. What happens to the default judgment is the real cause of the matter having been debated before me. Frontera had made it clear in advance of the hearing that it did not object to YA II’s being able to proceed on the basis that delivery of the documents to Mr Bono was good service. What it did object to was the contention that that service had permitted default judgment to be entered, or that if there were retrospective validation of that service under CPR 6.15 that would validate the default judgment.

1. 1. At the hearing Mr Lowenstein made it clear that YA II did indeed wish to maintain the default judgment. He said that YA II did not accept that Frontera had any real defence to the claim, and wanted to avoid the delay which would be involved in the setting aside of the judgment.

1. 1. Mr Lowenstein submitted that, if there was an order under CPR 6.15, then the validation of the service would validate all subsequent steps. He referred in support of this submission to what was said by Aikens LJ, in a judgment with which Sharp and Bean LJJ agreed, in Kaki v National Private Air Transport Co [2015] EWCA Civ 731 at paragraph 43.

1. 1. Mr Lowenstein, however, also drew to my attention the authority of Dubai Financial Group LLC v National Private Air Transport Co (National Air Services) Ltd [2016] EWCA Civ 71. I gratefully acknowledge Mr Lowenstein’s very proper professional conduct in this regard. In that case, the majority of the Court of Appeal held that, where there has not been valid service, the defendant has no obligation to acknowledge service, and a default judgment entered in those circumstances is one which can be set aside under CPR 13.2. As McCombe LJ put it at paragraph 41:

“If a defendant has never become under a valid obligation to acknowledge service, either as specified under the rules or by order of the court, I do not see how it can be that a judgment can be entered against him in default of such acknowledgment. He is simply not in default at all.”

1. 1. Further, the majority regarded there as being a clear requirement, under CPR 6.15(4)(c) for any order retrospectively validating service to specify the period for filing an acknowledgment of service. In that case, the order validating service had not done so, and judgment in default had been entered immediately. But it is clear that the majority considered that in any case in which there is a retrospective validation of service the court should at that point give the defendant a further period in which to acknowledge service. At paragraph 30 Treacy LJ said:

“In those circumstances where, ex hypothesi, a defendant cannot know that he has been validly served, to deprive him thereafter of any period during which he can acknowledge service in the usual way seems to me unfair and unjust. In effect it denies a defendant part of the due process involving the ability to contest a claim once the claimant has established, through a CPR 6.15(2) order, that the mechanism requiring him to respond if he is to contest the claim has been triggered.”

1. 1. The majority of the Court of Appeal held that what had been said in paragraph 43 of Kaki v National Private Air Transport Co was not applicable and not binding on the court, because Kaki did not deal with a default judgment and did not consider CPR 6.15(4).

1. 1. I consider that I am bound by, and even if not should follow, the decision of the majority of the Court of Appeal in Dubai Financial Group. That requires that, having retrospectively validated service, I should set a time for the filing of an acknowledgment of service. It is implicit in CPR 6.15(4) that the period specified for filing an acknowledgment of service (or admission or defence as the case might be) should be after the date on which the order is made. CPR 6.15(4)(c) does not refer to a deemed date on which the acknowledgment of service should have occurred, and may be contrasted with CPR 6.15(4)(b), which refers to specification of the deemed date on which the claim form was served; and in referring to the period “for filing” it is using prospective language. This gives effect to the fact that it would, as the majority of the Court of Appeal in the Dubai Financial Group case said, be unfair and unjust for there to be no period after the defendant can know that there has been valid(ated) service in which he can enter an acknowledgment of service.

1. 1. On that basis, the default judgment must be set aside under CPR 13.2, because it was entered at a point when the time for acknowledgment of service had not expired. I will set a time in which there should be acknowledgment of service, which will be 7 days from the date on which this judgment is handed down.

Disposal

1. 1. Thus, the overall disposal of these applications is:

(1) I find that the service when initially effected on Mr Bono on 2 March 2020 was invalid;

(2) That service is retrospectively validated under CPR 6.15;

(3) Judgment in default is set aside; and

(4) The period for filing an acknowledgment of service will be 7 days from the date of the hand down of this judgment.