APPLYING TO HAVE JUDGMENT SET ASIDE: BE QUICK TO BE SAFE: DELAY IN MAKING APPLICATION MEANT IT WAS “RIGHT ON THE LINE”

In Mountain Ash Portfolio Ltd v Vasilyev [2021] EWHC 1853 (Comm) Stephen Houseman QC, sitting as a Deputy High Court Judge, set aside a default judgment. However this was done by the narrowest of margins, the delay in making the application led to the decision being “right on the line”.  The judgment serves as a reminder than promptness can be a major, sometimes a key, factor when a court is considering an application to set aside a default judgment.

“Solicitors on the record for a defendant in the position of Mr Vasilyev should do their utmost to progress an application of this kind to ensure that it is made promptly, otherwise their client risks losing such application and being stuck with a default judgment on avoidable procedural grounds.”

THE CASE

The claimant had obtained a default judgment. The defendant applied to set aside that judgment.  The judge found that there was a realistic chance of the defendant being successful. The judge then went on to consider whether the application had been made promptly.

CONSIDERATION OF THE RELEVANT TEST

The judge first set out the test for setting aside a default judgment.

36, The legal framework is uncontroversial. Both sides cited authority for emphasis rather than to resolve any material issue of principle. I do the same below.

1. 1. The two limbs or gateways in CPR 13.3(1)(a) and (b) are disjunctive. If either is satisfied, the Court then has a broad discretion as to whether to set aside the relevant default judgment. The applicant/defendant has the burden both as to satisfaction of one or other gateway and also the exercise of discretion in its favour. This reflects the underlying policy of legal certainty which protects a claimant’s legitimate expectation qua judgment creditor to act upon and take the benefit of a judgment which has been properly entered in its favour.

1. 1. Consistent with such policy, an applicant/defendant under CPR 13.3 must show that it has acted promptly in making such application: CPR 13.3(2). Promptness depends on the particular circumstances, and should ordinarily be measured from the time when the defendant learns of the default judgment. Further, it is now established that an applicant/defendant under CPR 13.3 must also satisfy the test for ‘relief from sanctions’ under CPR 3.9, reflecting the fact that the relief sought from the Court arises from that party’s own prior procedural default – in this case, failure to file acknowledgement of service within 14 days of (assumed) service of the claim form: CPR 58.6(2).

1. 1. As regards the first gateway (CPR 13.3(1)(a)), the leading authority is the Court of Appeal decision in ED&F Man Liquid Products Ltd v. Patel [2003] EWCA Civ 472; [2003] All ER (D) 75 which sets the threshold merits test as equivalent to summary judgment albeit with the burden reversed. This means that a defendant must show it has a realistic as opposed to fanciful prospect of successfully defending the claim. A realistic prospect is one that carries some degree of conviction and not one that is merely arguable – it must have real substance: see JSC VTB Bank v. Skurikhin & Others [2014] EWHC 271 (Comm).

1. 1. As regards the second gateway (CPR 13.3(1)(b)), the decided cases are somewhat equivocal as to whether a defendant’s non-receipt of the proceedings prior to the default judgment should itself constitute a ‘good reason’ for setting aside and/or permitting him to defend the claim: 2021 White Book at 13.3.2. This appears to be a contextual analysis involving circumstances such as whether the claim was brought out of the blue or without pre-warning: see S T Shipping & Transport Inc v. Vyzantio Shipping Ltd (The “Byzantio”) [2004] EWHC 3067 (Comm); [2005] 1 Lloyd’s Rep. 531 (HHJ Havelock-Allan QC). In some cases, the defendant’s lack of actual awareness of the proceedings prior to default judgment did not provide sufficient ‘good reason’ for this purpose: see Wards Solicitors v. Hendawi [2018] EWHC 1907 (Ch).

1. 1. At paragraph [42] of Wards Solicitors, HHJ Paul Matthews (sitting as a Judge of the High Court) summarised the case law as follows:

“It may not be necessary to show an arguable defence, but it is necessary to show how setting aside the judgment will serve some useful purpose, such as in relation to reputational or costs issues.“

1. 1. As regards the requirement for promptness (CPR 13.3(2)), this is always an important factor in the Court’s exercise of discretion: see 2021 White Book at 13.3.3. There are no hard and fast rules or even indicative tariffs in play, it all depends on the circumstances of each case. This inquiry is at heart about justified as distinct from unjustified delay in bringing the application. That in turn requires the Court to be satisfied that any apparent delay has been properly explained by the defendant/applicant. Delay may be justified where investigations are necessary in a foreign country: see e.g. Shandong Chenming Paper Holding Ltd v. Saga Forest Carriers Ltd AS [2008] EWHC 1055 (Comm).

1. 1. The impact of any unjustified delay (i.e. lack of promptness) should be considered as part of the Court’s exercise of discretion under CPR 13.3. This includes whether such unjustified delay has caused prejudice to the claimant qua judgment creditor, i.e. whether the setting aside of the default judgment notwithstanding such delay would cause prejudice to the claimant.

1. CPR 13.3 itself makes it clear that the Court is empowered by CPR 3.1 to attach conditions when making any order under this provision. There is no fetter on the nature or scope of conditions that may be attached. The Court must further the Overriding Objective of the CPR when attaching conditions to any order.

APPLYING THOSE PRINCIPLES TO THE CURRENT CASE

The judge found the threshold merits gateway test had been met.  He then went on to consider matters of discretion.  The issue of delay was a major consideration.

1. 1. It remains for Mr Vasilyev to satisfy me that it is just and appropriate to set aside the Default Judgment in all the circumstances. As already noted, those circumstances include whether the Set Aside Application was made promptly (CPR 3.12(2)) and the degree to which he has satisfied the gateway in CPR 13.3(1)(a). I must also be satisfied in this context that it is appropriate to grant relief from sanctions in accordance with CPR 3.9 and associated jurisprudence.

1. 1. On Mr Vasilyev’s case, which I accept for the purposes of this analysis, he did not become aware of the Default Judgment until 19 October 2020.

1. 1. The Set Aside Application was made on 5 February 2021. The intervening period of 15½ weeks included 72 business days in this jurisdiction, allowing for the Christmas and New Year holidays. Mr Vasilyev appears to have instructed Dentons in London immediately, as they wrote to MAP’s solicitors on 21 October 2020 and identified Mr Power as having been already instructed as counsel on behalf of Mr Vasilyev.

1. 1. At first blush this is a startling amount of time for the making of an application under CPR 13.3. There is nothing prompt about it.

1. 1. The explanation provided on behalf of Mr Vasilyev is that it was necessary during this period to investigate underlying matters and request information from various sources in order to formulate and issue the Set Aside Application. Mr Vasilyev says that he was ill during November 2020 which meant he couldn’t assist or investigate matters for a period of three weeks. COVID-19 restrictions are cited as contributing to the delay, although this is not explained in practical terms relevant to investigation of underlying matters or preparation of the Set Aside Application. Western and Orthodox Christmas and New Year holidays on 24-28 December 2020 and 31 December 2020 to 11 January 2021, respectively, are also cited as somehow causative, but without any attempt to explain why or how by reference to the preparation of the Set Aside Application.

1. 1. Mr Power invokes the magnitude of the Default Judgment as justifying the delay in bringing the Set Aside Application by reference to the concept of proportionality. The equal and opposite point could just as well be made against Mr Vasilyev or Dentons: an individual against whom a default judgment of such magnitude has been entered in his personal capacity and on a presumptively regular basis should be at strains to apply to set it aside without delay.

1. 1. If there is to be a justification for the absence of promptness in this case, it has to lie in the need for Mr Vasilyev and his legal team to investigate underlying events and seek information from third parties before being in a position to make the Set Aside Application. I consider this aspect in more detail below.

1. 1. The Set Aside Application itself is not a complex or substantial offering. The application notice and draft order were accompanied by a single witness statement from Mr Vasilyev dated 4 February 2021. His witness statement runs to 76 paragraphs spanning 14 pages of substantive text. The exhibit to which he refers has about 400 pages, including a substantial number of documents in both original Russian and translated into English. A Draft Defence dated 4 February 2021 was also provided with the Set Aside Application. It is settled by Mr Power. It contains 25 paragraphs and comprises about 7½ pages of substantive text. (The Khmyz Report is dated 29 March 2021 and formed part of Mr Vasilyev’s reply evidence, not original supporting evidence, so is not relevant for present purposes. A similar point applies to the Lerner Statement.) The Set Aside Application is a relatively modest package all things considered.

1. 1. When evaluating promptness in a context like the present, it may be instructive to look at what could have been done sooner. This isn’t the same thing as asking whether the Set Aside Application itself (i.e. in its final form as issued) could or should have been prepared faster or made sooner. It is also legitimate to view the Default Judgment in the context of the unexplained timing of the legal proceedings themselves in circumstances where limitation was most likely triggered by the Demand Notice sent 11 years earlier in April 2009.

1. 1. I do not lose sight of the fact that fraud and forgery are strong things to allege and should only be advanced on a proper and considered basis. An applicant under CPR 13.3 should not be held to a timeframe that would punish him for having acted responsibly before making such serious allegations by way of set aside application. This depends to a large extent on the evidential basis of the Set Aside Application, i.e. the first witness statement of Mr Vasilyev.

1. 1. I have no basis for doubting Mr Vasilyev’s evidence that he was ill for three weeks in November 2020 and that this affected his ability to provide instructions or discuss this case with Dentons. I am, however, concerned that he gives no dates for or details about his illness and alleged physical incapacitation during that period. Further, his evidence that he “could not discuss any case-related matters with [his] lawyers” during this undisclosed three-week period during November appears to require qualification. In his second witness statement Mr Vasilyev says he first met with his lawyers (presumably, Dentons) on 13 November 2020. This was, by definition, within any three-week period whenever it may have occurred during the month of November.

1. 1. Dentons sent a detailed letter on 24 November 2020 disputing matters of quantum and liability, as described above. Whilst this letter makes repeated references to investigations being ongoing and rights being fully reserved, it nevertheless suggests some prior substantive input from or on behalf of Mr Vasilyev as well as time for reviewing documents and drafting by the legal team. The letter attached three Appendices (lettered A, B & C) each with translated versions, which together span 27 pages including cover sheets. Further, three of the six lines of inquiry to third parties relied upon by Mr Vasilyev in his first witness statement as explaining the delay in making this application involved letters sent on/before 19 November 2020. In one case, information was received from MUG’s insolvency practitioner, Mr Christof Stapf, on 6 November 2020, although no details are given (including the date) of the inquiry prompting this response from Mr Stapf. These matters, asserted by Mr Vasilyev himself, put a dent in his own evidence as to a complete ‘blackout period’ of three weeks during November 2020.

1. 1. Mr Vasilyev’s main point is that he needed time to request and obtain pertinent information from third parties such as CC-CIS, DTCL, CFSP and KIT’s successors, because he retained no papers from his employment with the Marta group. He describes this process as a “time consuming and difficult exercise” in his first witness statement.

1. 1. I am concerned by the lack of detail surrounding this investigative process. I am also somewhat sceptical as to its causal impact on the timeline to issuance of the Set Aside Application. It is apparent from Mr Vasilyev’s evidence that in five of the six identified cases there had been no meaningful response (to borrow his words) from the relevant third party by the time of signing his witness statement in support of the Set Aside Application. It is not clear how such (fruitless) inquiries bore upon the critical path to making the application on 5 February 2021. The Set Aside Application is based, at least in part, on the fact that no evidence has been received from CC-CIS or KIT (for example) which bears upon the Forgery Issue. No details are given by Mr Vasilyev as to what information was being sought from any of the six identified third parties.

1. 1. The January 2009 Email shows that Mr Vasilyev was able to call for documentation relating to his (former) status as a shareholder of MUG and/or senior employee within the Marta group. Dr Biegler is not identified as a third party source contacted for information following notification of the Default Judgment.

1. 1. It is not clear to me how Mr Vasilyev could not have had in mind, upon reading the Default Judgment and seeing that the claim is based upon the Guarantee, that he had successfully resisted claims against him on the BTA Guarantees before the Moscow court in September 2010. Whilst that was a decade earlier, it is the kind of thing that an individual in Mr Vasilyev’s position, especially given the history of antagonism with his co-surety and former co-shareholder, would naturally have recalled quite readily, all things being equal. Mr Vasilyev had 101 million good reasons to recall the Moscow Judgment at that point in time, it might be said. The Moscow Judgment features prominently in his supporting evidence and Mr Power’s submissions on behalf of Ms Vasilyev.

1. 1. Mr Vasilyev’s evidence is that he only located a copy of the Moscow Judgment on 16 December 2020, almost two whole months after receipt of the Default Judgment. He gives no evidence about when he started looking for it, where he found it or who provided it or how long it took to locate a copy of it. These omissions are concerning and telling. It might be inferred from the contents of Dentons’ substantive letter dated 24 November 2020 that no mention had as yet been made by Mr Vasilyev of the Moscow Judgment or any doubt raised by him as to whether he had signed the Guarantee. This remains unexplained.

1. 1. Mr Vasilyev first disputed the authenticity of his signature on 30 December 2020. The process leading to that allegation being made then, but not sooner, appears to be as follows: Dentons asked Edmans & Co by email on 17 December whether they or MAP had a “the full wet-ink signed original of the Deed of Guarantee purportedly entered into on 31 October 2007“. Edmans & Co responded after the festive holiday break on 30 December, confirming they neither they nor MAP were in possession of the original instrument. In the meantime, MAP issued the Recognition Application on 22 December. Mr Vasilyev became aware of that application in late December. Dentons then sent an email to Edmans & Co on 30 December stating that Mr Vasilyev had no recollection of signing the Guarantee and in light of other frauds perpetrated upon him in relation to similar guarantees (an allusion to the Moscow Judgment) there was an “obvious concern that this is another fraudulent instrument“.

1. 1. As noted above when addressing the Forgery Issue, MAP made something of the coincidence in timing between the forgery allegation first being made on 30 December 2020 and Mr Vasilyev learning about the Recognition Application. The trigger, on the face of things, appears to have been Mr Vasilyev’s location of a copy of the Moscow Judgment on 16 December leading to Dentons’ inquiry about the ‘wet ink’ version of the Guarantee the following day, as described above. Whilst that may explain the timing of the inquiry for a ‘wet ink’ version first being made, it doesn’t meet the separate concerns arising in respect of the opaque process prompting the search for or leading to the location of the Moscow Judgment on 16 December rather than many weeks earlier, addressed above.

1. 1. MAP suggests that the raising of the forgery allegation on 30 December 2020 was an opportunistic response by Mr Vasilyev to being told that day that MAP didn’t have the ‘wet ink’ version of the Guarantee. That is a matter which goes to Mr Vasilyev’s credibility and the ultimate merits of the Forgery Issue, rather than the present inquiry as to the delay in bringing the Set Aside Application.

1. 1. Mr Vasilyev provides no evidence as to whether or when he searched his private email address or any archives for that email account at any time after receipt of the Default Judgment. If he had searched the word “guarantee” he would have presumably found the January 2009 Email attaching the Guarantee as executed by him. As noted in paragraph 79(a) above, Mr Vasilyev has remained conspicuously silent about whether he has looked for or located the January 2009 Email since it was exhibited to MAP’s responsive evidence.

1. 1. No explanation is provided at all for why it took another five weeks to issue the Set Aside Application after being told on 30 December 2020 that MAP did not have the ‘wet ink’ version of the Guarantee. It appears that Dentons contacted Clifford Chance LLP in London by email on Monday 18 January 2021 with inquiries concerning the execution of the Guarantee. (This email was not in evidence before me, but is referenced in the response from Clifford Chance LLP.) Clifford Chance LLP responded by letter dated 22 January 2021, from which it was apparent inter alia that they would not be able to get access to the ‘wet ink’ version of the Guarantee.

1. 1. No explanation for the timing of this inquiry from Dentons has been given. Dentons ought to have appreciated by 30 December 2020 that time was by then of the essence if they were to seek to set aside the Default Judgment on behalf of their client. They waited 11 business days, making allowance for New Year’s Day, to make this further inquiry on what must have been appreciated to be the central issue in the case and any application to set aside the Default Judgment.

1. 1. I note that the Schedules of Costs provided for Mr Vasilyev, one for each of the two Dentons offices involved in this matter – namely, London and Moscow – show that three partners plus a team of associates and others have been engaged. The total costs claimed are £345,607.71 (including counsel’s fees of £48,355). This level of law firm engagement serves to underscore the point made in the previous paragraph.

1. 1. Mr Vasilyev’s bland invocation of the Orthodox Christmas and New Year holiday period, between 30 December 2020 and 11 January 2021, is unimpressive and I disregard it. There is no evidence that this had any specific practical impact upon the timing of the Set Aside Application. Dentons corresponded with Edmans & Co during this period, first on 30 December 2020 (as described above) and again on 10 January 2021 in response to an email dated 5 January 2021 from Edmans & Co. In their latter email, sent at 5.29pm on Sunday 10 January 2021, Dentons chased for information about MAP’s foreign enforcement steps, demanding a response by close of business the next day.

1. 1. I have asked myself whether the 22 January 2021 letter from Clifford Chance LLP made a material difference to Mr Vasilyev’s ability to bring a viable or credible set aside application sooner than 5 February 2021. I am not convinced that it did, and at any rate there is no evidence from Mr Vasilyev suggesting that this letter impacted the timing of his application. Mr Vasilyev refers to this letter in his first witness statement under a separate heading, “The Guarantee was not executed as a deed“, rather than as material to support his primary allegation about forgery/fraud. As noted above, no explanation has been given for why Dentons did not contact Clifford Chance LLP prior to 18 January 2021 requesting details about the execution of the Guarantee. Mr Vasilyev states that there had been no meaningful response from CC-CIS to his inquiry dated 19 November 2020.

1. 1. No explanation is given for why the Set Aside Application was not then issued until 5 February 2021, a full fortnight after receipt of the letter dated 22 January 2021 from Clifford Chance LLP. As described above, the Set Aside Application itself is a relatively modest offering.

1. 1. These delays and the significant gaps in evidence to explain them are a cause of genuine concern for me in terms of acceding to the Set Aside Application. An applicant in the position of Mr Vasilyev could and should do more, both in terms of bringing his application sooner and explaining any delays with cogent evidence when making such application. Despite being challenged to do so, Mr Vasilyev has not explained how certain matters identified by him actually impacted the timeline towards issuing the Set Aside Application. Whilst due allowance should be given to the protection of privileged communications, with a margin of prudence around such matters, the onus is upon an applicant to explain and justify delay, not just to identify steps taken.

1. 1. Solicitors on the record for a defendant in the position of Mr Vasilyev should do their utmost to progress an application of this kind to ensure that it is made promptly, otherwise their client risks losing such application and being stuck with a default judgment on avoidable procedural grounds. The impression from the file in this case is that Dentons did not move this matter forward with utmost diligence and dispatch. The Set Aside Application could and should have been made sooner.

1. 1. I am required to take account of this absence of promptness when weighing all the circumstances in the exercise of my discretion. I also take into account what I regard to be the slim margin by which Mr Vasilyev has satisfied CPR 13.3(1)(a) on the Witness/Deed Issue, as analysed under (1) above.

1. 1. Against these considerations, I take into account the following matters: (a) these proceedings were commenced in April 2020 without any obvious reason for their timing or impetus by reference to the Demand Notice (11 years earlier) or prospective expiration of limitation on the assumption that the Guarantee is a deed (one year later) (see paragraphs 49 to 52 above); (b) the central challenge to liability raises serious issues of forgery and fraud that cannot be and could not have been made without due investigation and consideration; (c) the key factual events took place in October/November 2007 in Moscow; (d) there was a legitimate need to exhaust lines of inquiry that may have cast light on events that took place so long ago, even if they ultimately did not do so; (e) the Default Judgment against Mr Vasilyev personally is for a very substantial amount; and (f) there is no suggestion or evidence of any specific prejudice to MAP qua judgment creditor caused by the fact that the Set Aside Application was made on 5 February 2021 rather than, say, mid-late December 2020.

1. 1. As to point (e) above, whilst I can see how this feature pulls both ways (see paragraph 101 above) it is legitimate to give it some weight in favour of setting aside the Default Judgment in light of the other factors identified above. All things being equal, an individual defendant deserves a chance to contest proceedings of this nature and magnitude, even if the Court at the present stage views his putative defences with some scepticism. Whilst not about proportionality, the magnitude of the Default Judgment is a factor feeding into the balance of injustice on the present application.

1. 1. As regards paragraph (f) above, the causative impact of any unjustified delay on the part of Mr Vasilyev should be viewed in the context of the subsequent listing and determination of the Set Aside Application. Having been issued on 5 February 2021, the matter was listed and heard on 23 June 2021 after three rounds of responsive or reply evidence. Whilst MAP took steps pursuant to the Default Judgment prior to Mr Vasilyev’s first disavowal of the Guarantee on 30 December 2020, i.e. by issuing the Recognition Application a week or so earlier, that can be dealt with by way of costs (on the indemnity basis) in so far as capable of constituting a form of detrimental reliance induced by unjustified delay in seeking to set aside the Default Judgment.

1. 1. When considering all these matters, I am marginally satisfied that it is just and appropriate to set aside the Default Judgment under CPR 13.3 subject to conditions. As with Threshold Merits, I have reached this conclusion after some hesitation and with some reluctance. I am prepared to accept Mr Vasilyev’s evidence that he only located a copy of the Moscow Judgment on 16 December 2020. This appears to have triggered a chain of inquiry that led to the central line of defence forming the basis or focus of the Set Aside Application. Whilst matters could and should have moved forward much more quickly than they did from that point, there is no suggestion by MAP that it has suffered specific prejudice by the delay in subsequent issuance of the Set Aside Application.

1. 1. Mr Vasilyev should know that this was right on the line and could have ended up in the refusal of his application by reason of delay alone. The position was not optimised for him through his explanation of delay or aspects of the conduct of the matter on his behalf by Dentons. Whilst I have sympathy for MAP’s perception that Mr Vasilyev is playing forensic Black Jack in proceedings that relate to the signing of a security instrument a very long time ago, I am ultimately persuaded that it is just and appropriate in all the circumstances for such substantive matters to be investigated and determined on a contested basis, rather than through procedural default on the part of Mr Vasilyev.

1. I am further satisfied that Mr Vasilyev has met the requirements for relief from sanctions under CPR 3.9 and associated jurisprudence. The position prior to the Default Judgment is covered in paragraphs 88 to 94 above. My conclusion as to the effect of lack of promptness is relevant to the period since Mr Vasilyev became aware of the Default Judgment. I did not understand MAP to contend that relief from sanctions would operate as an independent ground for refusal to set aside in this context, assuming I was otherwise satisfied that this was the just and appropriate course to adopt under CPR 13.3. In so far as relief from sanctions forms part of the exercise of discretion under CPR 13.3 itself, I am satisfied for the reasons given above that the Default Judgment should be set aside subject to conditions (see below).