COURT REFUSED TO SET ASIDE A DEFAULT JUDGMENT ON COSTS: DENTON PRINCIPLES ARE VERY MUCH INVOLVED IN SUCH AN APPLICATION

In  Ince Gordon Dadds LLP v Mellitah Oil & Gas BV [2022] EWHC 997 (Ch) Mr Hugh Sims QC, sitting as a Deputy High Court Judge, refused the defendant’s application to set aside a default judgment obtained for solicitor’s costs.  The judge held that the Denton principles applied to such an application and, in the exercise of his discretion, it was not appropriate to set aside the judgment.  The defendant’s dilatory conduct of the application to set aside the judgment was a relevant factor, as was its failure to provide detailed information on the basis upon which the bill of costs would be challenged.

“I read the Court of Appeal’s decision in Regione Peimonte as being based on a conclusion that the rules have to be read in accordance with the overriding objective, and it would be consistent with the overriding objective to require applications under CPR 13.3 to be scrutinised not only having regard to the framework laid down within CPR 13.3 but also, in addition, with regard to the Denton principles.”

THE CASE

The claimant firm of solicitors had obtained a judgment in default of defence. The judgment was  for unpaid costs and totalled US$1,412,296.43. Judgment was entered on 25th January 2021 and an application to set aside was made on the 17th March 2021. The sole ground for setting aside initially was that there was a real prospect of successfully defending the claim.  At the application submissions were also made that there was “some other good reason” why the judgment should be set aside.

THE INTERACTION BETWEEN SETTING ASIDE DEFAULT JUDGMENT AND THE DENTON CRITERIA

1. 1. It is generally accepted, and was accepted by MOG before me, that an application under CPR 13.3 to set aside a judgment entered in default of defence is an application for “relief from any sanction” within the meaning of CPR 3.9. It therefore requires, when exercising a discretion, the consideration of the three stage test as laid down in Denton v TH White (Practice Note) [2014] EWCA Civ 906. The application of the Denton principles, to an application to set aside under CPR 13.3, was challenged before the Court of Appeal in Regione Peimonte v Dexia Crediop SpA [2014] EWCA Civ 1298 and rejected: see at [39]-[[40] per Christopher Clarke LJ, with whom Jackson and Lewison LJJ agreed. The application of the Denton principles to an application under CPR 13.3 was accepted, and the three stage test was applied, by the Court of Appeal in Gentry v Miller (Practice Note) [2016] EWCA Civ 906. However, in Cunico Marketing FZE v Daskalakis and another [2018] EWHC 3382 (Comm) at [39] Andrew Baker J raised the question of whether this is right, because the availability of a judgment under Part 12 carries with it the availability of an order under Part 13 setting such judgment aside. He noted at [40] the contrary view of the Court of Appeal in Regione Peimonte and Gentry v Miller above, but concluded this was not binding on him because in the former case the view was obiter and in the latter case the point was conceded. He also referred to other first instance decisions, one preceding those decisions when a different view was taken, and one after, which adopted the same view as the Court of Appeal in the two above cases. He reasoned at [41] that there was no authority binding on him, but concluded it was not necessary to decide the point, and did not do so. Whilst MOG did not seek to persuade me to adopt this reasoning it nevertheless is a point I need to address in order to satisfy myself as to how I should proceed with this application.

1. 1. I have hesitation in concluding that what was said by Christopher Clarke LJ in Regione Peimonte can necessarily said to be obiter. The judge at first instance declined to set aside on the basis he was not satisfied that the applicant had real prospects, and this was challenged in the Court of Appeal. In concluding his judgment at [126] Christopher Clarke LJ said as follows:

“I do not regard Piedmont as having established that the judge’s refusal to set aside the default judgment or his grant of summary judgment on the monetary claims were in error. Whilst in limited respects I have found that there was a realistic prospect of establishing non-compliance with Italian law that is not sufficient to justify setting aside the judgment. In my view the extent and character of the delay alone afforded, in this case, good grounds to refuse to set the judgment aside even if the defence had a real prospect of success. In the light of the character and extent of that delay it would require a defence of some considerable cogency, based on pretty convincing evidence, particularly on the question of capacity, to justify setting the default judgment aside. The judge was entitled to take the view that there was no real prospect of Piedmont succeeding or, at any rate, none with a sufficient degree of conviction to justify setting aside the default judgment in the circumstances of the present case.”

1. 1. It seems to me at least arguable that a critical part of the reasoning did not depend on the conclusion that the judge was entitled to take the view that there was no real prospect of the applicant succeeding, but included reasoning as to the character and extent of delay, which was informed by the earlier conclusion as to the application of Denton principles at [40]. It might be thought that the third sentence is offering that point as a first line of reasoning, though the point is open to some debate as the last sentence might be said to put it the other way round.

1. 1. I am also not persuaded that the approach to the interpretation of CPR 13.3 and 3.9 suggested by Andrew Baker J at [39] in Cunico Marketing FZE is the correct one, assuming for present purposes I would be free to depart from the above Court of Appeal decisions. As noted by Christopher Clarke LJ at [40] in Regione Peimonte, since the overriding objective of the rules is to enable the court to deal with cases justly and at proportionate cost, and since under the new CPR 1.1(2)(f) this includes enforcing compliance with rules, practice directions and orders, it is to be expected that the considerations set out in CPR 3.9 are to be taken into account in the exercise of discretion. This might be thought to be especially so as CPR 3.9 applies on an application for relief from “any sanction”. The argument which Andrew Baker J appears to have been attracted to is that the sanction under CPR 12 came with the ability to apply for relief under CPR 13.3 such that an application to set aside should not be viewed as being an application for relief from a sanction at all. Thus, so the argument goes, subject to overcoming the jurisdictional gateway, and subject to the requirement to have regard to promptness, the discretion to set aside is unfettered. The argument, moreover, is it ought not to be fettered by the further application of another layer, based on Denton principles. However, simply because the sanction under CPR 12 comes with the bespoke ability to apply to have it set aside under CPR 13.3, it does not necessarily follow that it is not an application for relief from sanction.

1. 1. I read the Court of Appeal’s decision in Regione Peimonte as being based on a conclusion that the rules have to be read in accordance with the overriding objective, and it would be consistent with the overriding objective to require applications under CPR 13.3 to be scrutinised not only having regard to the framework laid down within CPR 13.3 but also, in addition, with regard to the Denton principles. Gentry v Miller is to much the same effect, emphasising at [24] (per Vos LJ, with whom Beatson and Lewison LJJ agreed) that the question of promptness is relevant both in considering the requirements of CPR 13.2(2) and also when considering all the circumstances under the third stage in Denton.

1. When it comes to considering the discretion to be exercised under CPR 13.3 I consider that is the correct approach for me to take. I do so because I think it is likely to be binding on me and also because I see no reason why a different and perhaps less strict approach should apply to applications to set aside default judgments than other types of default which may be no less terminal for the defaulting party. I see no reason why, simply because the rule makers have spelt out certain requirements within CPR 13.3, including a jurisdictional gateway, and then a particular discretionary factor which needs to be taken into account, the discretion (assuming that stage of the test is reached) should not be approached in a similar way as occurs with other cases (where a sanction is imposed without any express rule providing for a jurisdictional gateway and without specifying a specific additional factor which must be considered as part of the exercise of discretion). It may be little turns on that in this case, for reasons which are apparent below, but that is the approach I will take to this application.

EXERCISING THE COURT’S DISCRETION IN THIS CASE

Challenging the bills

The judge found that the defendant had not provided compelling evidence that the bills were unreasonable. Indeed the defendant’s evidence was scanty.  The defendant needed to establish “special circumstances” in order to challenge the bills which were rendered 12 months previously.

1. 1. A major difficulty that MOG now face on this application is that Mr Shamaka referred to the fact, in a witness statement served over a year ago, that his committee was in the process of reviewing the detail of the IGD invoices, that it was necessary to have specialist advice to do so, and the process would take several more weeks. Notwithstanding that statement, and the apparent acceptance that some of the invoices may be payable, no further evidence has been adduced by MOG to develop its case in this respect, over 12 months later. In order to meet this point MOG submits that this application is not an application for a detailed assessment, and it is right and proportionate for a party such as MOG to take matters in stages and not be required to engage in the potentially costly task of such a more detailed review. The problem I have with this submission is that MOG could pursue such an application irrespective of whether or not the judgement is set aside. It hardly serves to instil any confidence or conviction into points which may be arguable to not provide further detail as to the criticism, or the amounts involved. I remind myself that the burden of proof is on the applicant on a summary judgment application to demonstrate to the court that there are real merits in the points raised and this requires, in this context, not simply to be satisfied that there are genuine points which may be raised, but some conviction of what sum or reduction might reasonably be anticipated arising from them. I am left without any great assistance from MOG in this respect.

1. I do not think I can discount the weak possibility, however, that some special circumstances may be established so as to justify an assessment which could lead to some as yet unidentified reduction. Doing the best I can on the limited information I have been provided with by MOG it does not seem to me this would be very substantial.

A defence and counterclaim

The judge found that there may be an arguable defence and counterclaim. However this was very weak.

1. Overall therefore, that means MOG’s application just, but only just, passes the jurisdictional gateway test under CPR 13.3(1)(a), because there is a very thin basis on which it might succeed in some limited respects, in some as yet unquantified way. That is very much a “limp over the line” in circumstances where the disclosure of the awards, very late, and in breach of undertakings to the court and to IGD, have shown some of the claims to be wholly lacking in merit. This has some significance when I come to consider the exercise of my discretion.

SOME OTHER REASON TO SET ASIDE THE JUDGMENT

The judge rejected the defendant’s submission that there was “some other reason” for judgment to be set aside.

1. 1. The second jurisdictional gateway relied on by MOG, at least in submissions, is the “some other good reason” gateway under CPR 13.3(1)(b). MOG submitted that unnecessarily aggressive conduct on the part of a person who obtained a default judgment was relevant not only to the exercise of discretion but also could constitute “some other good reason“. In this context MOG relies on the decision in Hart Investments Ltd v Fidler [2006] EWHC 2857 (TCC) at [22(c)]. In that case it was noted that there was clear confusion over whether or not service had been or could be validly accepted by fax and the recipient was a liquidator who was acting without legal representation. The unreasonable conduct identified was in filing an incorrect certificate of service and a request for default judgment which was on any view premature. This unnecessarily aggressive conduct was made worse, in the judge’s view, by the fact that it was directed at a liquidator acting in person, not another firm of solicitors. Given that I have already concluded that the jurisdictional gateway has been crossed, albeit only just, under CPR 13.3(1)(a), I will deal with this point quite briefly.

1. 1. The two particular factors relied on by MOG in this context are the conduct of IGD in the service of a letter of claim, or letter before action, which provided for an inadequately short period for a response of only 7 days, and, secondly, the failure to provide notice of the issue of the claim by email in circumstances where this was a reasonable expectation of MOG.

1. 1. There is little in the first point; it does not carry MOG very far. I recognise that in the Practice Direction on Pre-Action Conduct and Protocols at paragraph 6(b) it is stated the letter of claim should provide a defendant with a reasonable period of time to respond and it goes on to suggest that this might be 14 days in a straight-forward case and no more than 3 months in a very complex one. IGD contended that this was a very straight-forward debt claim based on invoices which had not been challenged under a contra actually agreed proceed and therefore sought to justify the 7 day period. I accept this may be said to have been aggressive on the part of IGD. However, as it happens IGD did not issue proceedings until 22 December 2021, over 2 weeks later, having heard nothing back from MOG. MOG and Mr Shamaka accept they received the email, but state other pressures meant they did not get a response out. It would not have been difficult for Mr Shamaka or another officer or agent of MOG to have replied to IGD suggesting that they considered 7 days was too short to respond, that they wished to mount the two challenges which have since been articulated but needed more time to prepare those. If they had and IGD had charged on regardless I consider this point would have carried some weight but in the event in my judgment it does not provide some other good reason to set aside the default judgment.

1. 1. I also consider there is little in the second point, and it also does not assist MOG in the events which turned out. Again for present purposes I would accept the point that it might have been wise for IGD to have communicated by email, again, at the same time as proceeding with formal service, as required, on the registered office in the Netherlands, especially given the difficulties posed by COVID-19 at the time (albeit no specific evidence was adduced to show that this was a factor). Two points may be said to mitigate and ultimately eliminate it of any lasting relevance however: The first is that the email sending the letter of claim on 3 December 2020 was not responded to by MOG, at all. The second is that IGD had requested in the letter of claim for MOG to nominate solicitors to accept service. If MOG had responded constructively to that point then any alleged difficulties in processing the documents internally within MOG would have been avoided. But even more significantly however for present purposes is the fact that the evidence of MOG was that its Chairman had received a copy of the court documents by 4 January 2021 and there was still time then to ensure an acknowledgment of service was filed and/or a defence entered. MOG did not do so in the remaining 10 days available to it. Mr Shamaka suggests this may have been down to the inexperience or lack of knowledge on the part of the Chairman, and I am willing to accept that may be so, but it does not provide for an auspicious start to a submission that the unreasonable conduct of IGD is in some way responsible in any relevant sense to default judgment being entered against MOG.

1. I do not consider therefore that either of these factors on their own or taken together provide MOG with “some other good reason” for the default judgment to be set aside.

THE EXERCISE OF THE COURT’S DISCRETION

The judge then considered whether it was an appropriate exercise of his discretion to set aside the default judgment. He concluded that it was not.

Promptness

1. 1. The first matter I must consider is whether or not MOG has made the application promptly, as required to be considered under CPR 13.3(2). In Gentry v Miller above it was confirmed at [19] that this question is to be assessed from the date the person applying to set aside first had knowledge of it. In this case that was on 28 January 2021 when IGD served CMS with a copy of the sealed order, and the application was not made until 17 March 2021, over 6 weeks later. In Regency Rolls Ltd v Carnall (Security for Costs) [2000] 6 WLUK 576 it was held by Simon Brown LJ that 30 days was too long a delay before making an application. However, it must be noted that what “promptly means” cannot simply measured by reference to comparing the time length in one case with another but requires an analysis of whether or not there was “reasonable celerity in the circumstances” (Khan v Edgbaston Holdings [2007] EWHC 2444 (QB)).

1. 1. There are two factors to be born in mind when assessing promptness in this case. The first is that there was the complication of needing to secure the confidentiality in documents filed and which might become available for inspection by third parties without some protection being obtained in that respect. This point was raised by CMS on 25 February 2021 and the subsequent delay in making the application can largely be said to be down to the reasonable need to seek some protection on this point. The second factor worth noting is that IGD itself appears to have contemplated that it was willing to consider any application to set aside and suggested itself a timetable which required it to be served by 26 February 2021. Whilst I do not consider the parties can be the final arbiter of what is prompt it does inform me when assessing what objectively might be said to constitute reasonable celerity in this case.

1. 1. Accordingly I conclude that the application in this case has been made promptly, or in any event not involving any significant periods where MOG did not act with reasonable celerity such as to cause this point to be of any significant weight when assessing my discretion. There are however, in this case some more significant discretionary factors which tell against MOG’s application. In my judgment these would apply whether I was considering an unfettered discretion under CPR 13.3 or a discretion which includes consideration of the Denton three stage test. I intend to adopt the latter approach given the reasons I have already set out in the introduction to this judgment, but I note that stage 3 of the Denton test, at least in cases which get to stage 3, require the court to take into account all the circumstances of the case so as to deal with the case justly. On an application to set aside a default judgment the merits, or otherwise, of the case will always be a very important factor, if not it may not in all cases be the most important factor.

Stage 1 – serious and significant?

1. 1. This is focussed on the original default in failing to enter the defence by the deadline required and which resulted in default judgment being entered. I remind myself that it is the right of a foreign defendant to decline to accept jurisdiction and chose not acknowledge service or submit a defence. However if the defendant does not do so then it must accept the consequences of a failure to comply if it later wishes to contest the case. It will normally be expected that a failure to submit a defence in time will be considered to be serious and significant, at least where the party was properly served in time and had sufficient time to acknowledge service or enter a defence (cf. Gentry v Miller above at [36]). In this instance the Chairman of MOG had received the relevant court documentation by 4 January 2021, some 10 days before the relevant deadline. See paragraph 64 above.

1. 1. In my judgment the failings on the part of MOG were also serious and significant given that they failed to respond, at all, to the 3 December 2020 email, enclosing the letter of claim, which invited them to accept service via a firm of solicitors. See paragraph 63 above. If they had responded or nominated a solicitor then any difficulty involving the Chairman not recognising the urgency of the matter, from 4 January 2021, would have been avoided. That said I do not view the failing in this case as the most serious: the delay is relatively short and no significant adverse impact on the proceedings was caused by the original default. Different considerations apply, in my judgment, when assessing the later conduct of the application, but that is not the focus of the enquiry here.

Stage 2 – why the default occurred

1. 1. The fault occurred in this case, on the basis of MOG’s own evidence, based on its officer’s own incompetence. I refer to paragraphs 21, 64, 70 and 71 above. It is submitted however, relying on the decision of Stuart-Smith J in Tideland Ltd v Westminster City Council [2015] EWHC 2710 (TCC) that internal disorganisation which led to the original default should not be visited again against the defendant in default when considering promptness. It seems to me however that the reasoning adopted in that case (see at [33]) was before the receipt of the guidance of the Court of Appeal in Gentry v Miller which makes clear that in considering whether or not there was a good reason for the default it is the default in filing a defence which is the subject of examination (see, in applying the principles, at [36] in Gentry v Miller). I decline to accept, therefore, that internal disorganisation is a good reason, or, to put it another way, is not a factor against MOG in this instance. However it is not a deciding factor, as all the circumstances of the case must be considered.

Stage 3 – all the circumstances of the case

1. 1. I start by noting that all the circumstances of the case require me to consider the need for litigation to be conducted efficiently and at proportionate cost (see CPR 3.9(1)(a)) and the need to enforce compliance with rules, practice directions and orders (see CPR 3.9(1)(b)).

1. 1. So far as the need to conduct litigation efficiently a significant factor against MOG is their failure to prosecute this application after it was issued. I refer to the matters set out in the background section of this judgment and in particular to paragraphs 28 to 35. Even making some due allowance for a period when the parties were in negotiations it is apparent that many months went by when CMS were failing to obtain instructions to enable the application to be proceeded with. This is interlinked to some degree with the second factor, concerned with compliance with rules, compliance and orders. MOG served, very late, evidence during the course of the hearing. I do not criticise CMS for this lateness and I note that it was relatively modest in its significance and scope. Perhaps of greater significance for present purposes is the lack of any responsive evidence to assist the court in understanding how the original draft defence and counterclaim could be sustained, or provide the court with an update of how and by how much a challenge to an assessment would impact on the judgment sum based on the invoices or bills already raised by IGD and which form part of the judgment sum.

1. • As regards the need for compliance with court orders of particular concern in this case is that the delay which I have described above was coupled with the failure, in breach of the undertaking given to the court and to IGD, in the recitals to the second order of Master Pester, made on 11 March 2021. MOG undertook “to notify the Claimant and the Court (1) within 7 days of the fact of an award in the arbitration references” but it singularly failed to do this over many months. No explanation was provided by MOG in its evidence as to why this default occurred or to apologise for it. Mr O’Shea did, on enquiry from me during the course of the hearing, tender an oral apology on behalf of MOG. However in my judgment if such a serious and persistent breach of an undertaking occurs it is incumbent on the party who gave that undertaking to provide the court with a full and frank explanation in evidence. This is all the more important where the delay overlaps with a period of withholding material information for a 6 month period (see paragraph 32 above) and when that material is then scrutinised it is apparent that the content of the awards are harmful to MOG’s case (see the analysis of limb 2 of the submissions on real prospects, considering the counterclaim points, at paragraphs 46 and following above).

1. 1. I also remind myself of the submissions of MOG in this context who emphasise that the default arose after the termination of a professional relationship, involves an overseas defendant and occurred at a time when COVID-19 was causing difficulties around the world. I bear all those points in mind but I note that MOG has its own legal department (according to the evidence it served during the hearing) and it has not been shy in accessing external legal resources when required. Nor has it been suggested there has been any resource difficulties in it doing so at the time, or any illness due to COVID-19 which was material to the above events. For reasons which are apparent from what I have already said I reject the submission that this is an instance of lawyers stealing a procedural march over the non-lawyer.

1. 1. I remind myself that I have found that MOG does have real prospects of making some potential in-roads into the judgment sum and this is an important factor to bear in mind. But weighed against that are that the merits of those points are flimsy or shadowy on the material MOG provided to me and it lay in MOG’s hands to provide a more convincing case and evidence, particularly bearing in mind more than a year has now elapsed since the original application was made.

1. 1. There is also the unusual factor in this case that in relation to the two limbs forming the defence and counterclaim which MOG wish to have the opportunity to pursue, subject to one point, they can pursue them whether or not I set aside this regular judgment. The one point is whether or not it might amount to an abuse of process for it do so in later proceedings. IGD suggested in oral submissions that they seek to reserve their right to argue that point in the future. I was somewhat troubled by that last suggestion as it seemed to me to be storing up further argument and unnecessary expense for the future, and I bear in mind the proportionality and impact of any order I might make when assessing what is the appropriate order to make. Preventing a party from being able to pursue a case on its merits in the future must always be considered very carefully unless the court is satisfied there is no real merit in any of it.

Conclusion on discretion

1. 1. Bearing in mind all the factors and circumstances of this case, including the matters I have expressly mentioned above, I conclude it would not be just to leave MOG in the position where it cannot pursue a claim or application for an assessment, under the 1974 Act, if on further scrutiny it can be shown that the “special circumstances” test is satisfied. Equally if MOG considers, after further investigation, it can mount a fresh claim against IGD it should be permitted to do so, if so advised. In the circumstances I indicated to the parties in advance of handing down this judgment, when circulating the draft, that I proposed to order that if IGD was willing to abandon any reservation of its position in relation to mounting an abuse of process argument based on what has happened to date in these proceedings, then I would decline to set aside the default judgment and MOG would be left to pursue the above steps, if so advised, in separate proceedings. I also confirmed that if IGD was not willing to provide the necessary confirmation I would be inclined to make some form of other conditional order, reminding myself of the ability to do so by reference to the words in brackets at the end of CPR 13.3 and the decision of Males J (as he then was) in Newland Shipping and Forwarding Ltd v Toba Trading FZC [2014] EWHC 1986. In the event, when I heard the parties following the circulation of this draft judgment IGD provided the confirmation required by me.

1. In the circumstances, subject to the variation I have referred to in paragraph 36 above, I dismiss the application to set aside the default judgment.