THE DEFENDANT’S DELAY LEADS TO COURT OF APPEAL REFUSING TO SET ASIDE DEFAULT JUDGMENT: THE IMPORTANCE OF BEING PROMPT

Today we are looking at a case where a defendant waited 16 months before applying to set aside a default judgment. That application to set aside was successful at first instance but overturned by the Court of Appeal. The Court rejected the submission that there was some kind of “Co-defendant” principle that applied to the factors to be considered in judgments being set aside.  There was nothing in this case that outweighed the fact that there had been considerable delay.

“Whilst the Judge’s decision to set aside judgment against the first defendant was one made in the exercise of his discretion, I do not consider that he identified any factor reasonably capable of outweighing the fact that, at the early stage of these proceedings, the first defendant had not challenged the judgment against him for 16 months without any good reason for that failure.”

KEY PRACTICE POINT

Delay is an important factor in applications to set aside default judgments. Delay will override the merits of any potential defence.  If you seeking to set aside a default judgment – be prompt, be very prompt.

THE CASE

Leadingway Consultants Ltd v Saab & Anor [2025] EWCA Civ 582

The claimant issued proceedings against two defendants. The first defendant did not respond and judgment in default was entered in August 2022 for €45m. The second defendant was served later.  The second defendant was, at one stage, debarred from defending but later obtained relief from sanctions so that he could challenge the jurisdiction.

THE SETTING ASIDE OF THE DEFAULT JUDGMENT AGAINST THE FIRST DEFENDANT

Sixteen months after proceedings had been served on the first defendant he applied to set the default judgment aside.  That application succeeded at first instance.

THE REASONS THE DEFAULT JUDGMENT WAS SET ASIDE AT FIRST INSTANCE

The reasons for setting aside judgment against the first defendant

28. The Judge identified that the relevant rule was CPR 13.3, sub-rule (1) which provides that the court may set aside or vary a default judgment if:

“(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why –
(i) the judgment should be set aside or varied; or
(ii) the defendant should be allowed to defend the claim.”

29. The Judge further noted that sub-rule (2) provides that, in considering whether to set aside or vary a judgment in default:

“…the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly”.

30. The Judge first addressed the question of whether the first defendant had an arguable defence to the claim, noting that the claimant accepted that there was such a defence to the alleged oral agreement [2] and determining that there was also an arguable defence to the alleged written agreement [3-4]. The claimant does not challenge those findings on this appeal. The Judge rejected, in passing, the further contention by the first defendant that the fact that the claim would proceed against the second defendant was a good reason to set aside judgment against the first defendant [5].

31. The Judge then turned to consider the Denton principles, first noting that the first defendant recognised that the delay by the first defendant was serious or significant [7], and that he also did not contend that there was a good reason for the delay [8].

32. The Judge therefore arrived at the stage of considering all the circumstances in the search for what is a just approach [9]. He did not regard the reasons for the delay as having any real weight over the period of time involved, and did not find “much mitigation” in what was said.

33. The Judge did, however, find it relevant at this third stage that the proceedings would continue against the second defendant in any event, stating that:

“11…[L]ooking at this litigation as a whole and the parties and their dealings as far as presented to me on the evidence and argument, with the default judgment there was no real sense of the proceedings or the dispute as a whole being over.
12. There may be, of course, cases where the sense of finality is a very real one and where it is only fair and important for rigour of the system to support that, but not I think in the present case…
13. However, I must weigh all of the circumstances with the benefit of what I have read and heard and bring that into the discretion that I have to exercise. I absolutely keep in mind that, in the present case, the person seeking to set aside the judgment did not make an application promptly but, nonetheless, what justice requires, in the present case, is to set aside the default judgment allowing the real issues in the present case for both defendants to go forward to a decision on the merits…”

THE CLAIMANT’S SUCCESSFUL APPEAL TO THE COURT OF APPEAL

The claimant’s  was successful in the appeal to the Court of Appeal against the setting aside of the default judgment. The Court of Appeal rejected the argument that there was a “co-defendant” principle.   The judge had, wrongly, stated that the existence of a co-defendant was a relevant factor. This factor was not sufficient to outweigh the considerable delay.

THE COURT OF APPEAL DECISION ALLOWING THE APPEAL

47. The claimant rightly stressed that the one factor specifically identified in the rules as relevant to the exercise of the discretion to set aside a judgment (assuming there is a defence with a real prospect of success or some other good reason why the defendant should be allowed to defend the claim) is the promptness with which the application was made. As Moore-Bick LJ observed in Standard Bank plc & Anr v Agrinvest International Inc & Ors [2010] EWCA Civ at [22], the introduction for the first time of an explicit requirement of promptness in CPR 13(2) was in the context of “new era in civil litigation, in which both the parties and the courts were expected to pay more attention to promoting efficiency and avoiding delay”. The fact that no other factor is specifically identified for consideration “suggests that promptness now carries much greater weight than before”.

48. In this case the first defendant waited 16 months after the judgment was served on him before applying to set it aside, a period when he accepts that he was perfectly capable of engaging in numerous proceedings in Cyprus and had lawyers acting for him there. As the Judge accepted, there was no good reason for his delay and no real weight or mitigation in his explanation for it. The answer to the question expressly posed in rule 13(2) is that the first defendant did not make an application promptly and had no excuse for failing to do so.

49. The claimant contended that the Judge failed to give the first defendant’s lack of promptness “any or any adequate weight”. I see no force in that contention given that the Judge specifically noted at the outset of his judgment that CPR 13.3 expressly provides that the court must have regard to whether any application to set aside judgment is made promptly and made several references to the very substantial delay. He made further reference to the fact that the application was not made promptly in his conclusion, holding that justice nonetheless required that the judgment be set aside.

50. There is more force, however, in the claimant’s criticism of the Judge’s approach to matters which he considered outweighed the powerful factor that the application was not made promptly, the claimant contending that those matters either should not have been taken into account or were not reasonably capable of outweighing the claimant’s right to retain a judgment regularly obtained against the first defendant.

51. The primary matter identified by the Judge as a factor in favour of setting aside the judgment was that “with the default judgment there was no real sense of the proceedings or the dispute as a whole being over”. Whilst it is unclear exactly what the Judge meant by that, it must be a reference to the fact that the claimant was still seeking to serve the second defendant and proceed with its claim against him, even as judgment was entered against the first defendant. That seems to have fed into the Judge’s conclusion that justice required “judgment to be set aside and for the real issues in the present case for both defendants to go forward to a decision on the merits”.

52. Mr D’Cruz KC, for the first defendant, argued that the Judge’s brief reasons demonstrated that he had applied, correctly, what Mr D’Cruz described as “the Co-Defendant principle”, namely, that the court is required to attach less weight to promptness in setting aside a default judgment where the same claim would continue against a co-defendant in any event. This principle is said to be derived from Hussain v Birmingham City Council and anor [2005] EWCA Civ 1570, to which the Judge was referred in argument. It is necessary to consider that unusual case in some detail.

53. Hussain was a personal injury claim by a claimant who had suffered serious injuries after falling 25 feet from a window at a community centre in 1992 when he was six years old. He commenced the proceedings in 2003 against the local council as owner and occupier of the premises and against the class instructor. The council asserted that it was not the occupier for the purposes of the Occupiers’ Liability Act 1957, the relevant responsibility being that of the governors of a maintained school using the premises. The council brought part 20 proceedings against “the Governors” of the maintained school seeking a contribution or indemnity, and obtained judgment in default in October 2004. Subsequently the claimant joined “the Governors” as third defendants to the claim, and in April 2005 also obtained judgment in default.

54. It was not until 9 November 2005, with the trial due to start on 28 November 2005, that the Governors applied to set aside the judgment, seeking to defend the claim on the basis that the council was the occupier. HH Judge Macduff dismissed the application on 21 November 2005. The appeal to this court was heard on an expedited basis on 25 November 2005 and ex tempore judgments were delivered the same day.

55. Chadwick LJ (with whom Keene and Rix LJJ agreed) referred at [28] to the consideration of promptness and noted that the Governors had not applied promptly to set aside the judgment against them. He went on to say at [29]:

“But it must be borne in mind that this was not a straightforward contest between a claimant and a single defendant, where the effect of a default judgment (if allowed to stand) would be that there will be no trial. In the present case, on any basis, there will be a trial between the claimant and the Council and [the instructor]; and, at that trial, the court will have to investigate the issue which would arise if the Governors were taking part in that trial – that is to say who, as between the Council and the Governors (or perhaps the Governing Body), was to be treated as having responsibility for the premises for the purposes of the Occupiers’ Liability Act 1957. The Court would have to investigate that issue because the issue lies at the heart of the Council’s defence to the claimant’s claim. So, although a factor to be taken into account, the failure to act promptly, of itself, must (as it seems to me) carry rather less weight than it would in a case where the effect of the default judgment, if left undisturbed, is that there would be finality. This is not a case where the default judgment – or judgments – relieves either the claimant or the first defendant of the need to go to trial; or relieves the Court of the need to decide the issue of responsibility under the 1957 Act.”

56. Chadwick LJ then considered other factors relating to the exercise of the court’s discretion, and concluded at [36] that, as Judge McDuff recognised, the essential question was whether the risk of injustice to the Governors outweighed the risk of injustice to the claimant and other defendants if the Governors were allowed at that late stage to participate in the proceedings.

57. At [37] Chadwick LJ noted that the judge had decided that essential question against the Governors, but that he might have taken a different view if he had been aware (as the Court of Appeal had been made aware that day) that there were serious doubts whether the Governors as at 2004 or 2005 (as opposed to a corporate Governing Body or the Governors as at 1992) were properly made defendants in the first place. Chadwick LJ concluded that it could now be seen that the claim “has probably been made against the wrong party; as well as being a claim to which the right party is likely to have a good defence”.

58. The Court of Appeal, however, did not need to decide whether to uphold the judge’s order because all parties had consented to the appeal being allowed and judgment set aside, in particular because “the Governing Body has now come on the scene with the benefit of its insurance company”.

59. In my judgment Hussain did not establish, nor purport to establish, a “Co-Defendant” principle such as that suggested by Mr D’Cruz, but merely indicated that the weight to be given to the factor of promptness will be rather less where “on any basis” there will be a trial of the very same issues as would be engaged in the claim against the defendant who was applying to set aside judgment. This could equally be viewed as giving rather more weight to countervailing factors. Even then, it is clear, the lack of promptness might still outweigh all other considerations, as demonstrated by the decision of the first instance judge in that case and the fact that the Court of Appeal did not state that his decision was wrong.

60. I certainly do not see any support in Hussain for the suggestion that a defendant who permits judgment in default to be entered against him can readily succeed (or have markedly better prospects of succeeding) in an application to set aside that judgment simply because there are other defendants against whom the claim is made, and to that extent there is no “finality”. It is commonplace that one or more of multiple defendants may not defend proceedings for a variety of reasons. The need to apply promptly to set aside such judgments applies with full force, perhaps even more so if the proceedings against other defendants are progressing in the meantime and setting aside judgment will involve delay and disruption.

61. The facts of the present case are very different to those considered in Hussain. Judgment was entered against the first defendant at a time when the second defendant had not even been served with the claim form, and there could be no certainty that he would be served or that he would defend the claim. In the event he was not served for another year. If and to the extent the Judge’s statement at [11] that “there was no real sense of the proceedings or the dispute as a whole being over” was an adoption of Chadwick LJ’s consideration of whether there was “finality” in Hussain, it was inapposite and, in any event, unjustifiable. Finality was not a significant issue at that embryonic stage of proceedings and to the extent it was, the only claim that had been served was at an end.

62. To be fair, Mr D’Cruz focussed his arguments on the position as it stood at the hearing of the first defendant’s application to set aside judgment, by which point the second defendant had been served and had been granted an extension of time (by the Judge) to challenge the jurisdiction or defend the proceedings. But at that point the claimant had had a regular judgment against the first defendant for 16 months and the proceedings against the second defendant had only just reached the point of a jurisdiction challenge. It is difficult to see how the pendency of proceedings against the second defendant could in itself justify setting aside the judgment against the first defendant in those circumstances. In that regard, in the course of argument Mr D’Cruz accepted that the first defendant would have had no arguable grounds for applying to set aside the judgment against him in the course of the year after it was entered, during which the second defendant had not been served, there being no factors favouring such an application. That concession was rightly made in my judgment. But it is then a rather startling proposition that the claimant inadvertently revived the first defendant’s ability to apply to set aside judgment by finally achieving service on the second defendant. To the extent that questions of finality entered the equation, they weighed heavily, in my judgment, in not re-opening a judgment that had been entered 16 months before and had previously been unchallenged.

63. It is clear that the Judge also had regard to the desirability of deciding the underlying merits of the case and held that justice required that be done in the present case [12]. But as the claimant pointed out, that consideration must be taken as read in any case where the defendant applying to set aside default judgment has satisfied the condition of demonstrating that he has a real prospect of successfully defending the claim. In this case, in contrast with Hussain, there was no particular concern that the wrong parties had been served in the first place or that there was a particularly strong defence. As Moore-Bick LJ recognised in Agrinvest at [22]:

“…if there has been a marked failure to make the application promptly, the court may well be justified in refusing relief, notwithstanding the possibility that the defendant might succeed at trial.”

64. Whilst the Judge’s decision to set aside judgment against the first defendant was one made in the exercise of his discretion, I do not consider that he identified any factor reasonably capable of outweighing the fact that, at the early stage of these proceedings, the first defendant had not challenged the judgment against him for 16 months without any good reason for that failure.

65. I would allow the appeal against the setting aside of judgment against the first defendant.