In the latest decision in the wake of Denton, the Court of Appeal in Priestley v Dunbar & Co (a firm) [2015] EWHC 987 (Ch) has set aside a default judgment, despite a lack of promptness in making the application.

Background

Dunbar & Co (Dunbar), a small firm of accountants, had acted for Dr Priestley between 1977 and 2010.  Dr Priestley made a number of allegations of negligence against Dunbar including that it had failed to advise him to incorporate his business and failed to submit his tax returns between 2007 and 2010 such that Dr Priestley had been forced to sell his house in France at an undervalue to pay the tax liability.

Dr Priestley issued proceedings against Dunbar.  In November 2013, judgment in default was entered.  On 6 January 2014, Dunbar wrote to the court to say that it had never received the proceedings.  In that letter Dunbar set out its defence to the claim.  Dunbar's position was that it had not been retained to advise Dr Priestley on incorporation and, while it had submitted Dr Priestley's 2007/2008 tax return, it had not been retained to submit any subsequent returns.

On 7 January 2014, at a hearing which Dunbar did not attend, DJ Giles ordered, amongst other directions for the damages trial, that "Any application by the Defendant to set aside the judgment must be filed with the Court as soon as possible".

Thereafter, for various reasons, including it appears a dispute over Dunbar's professional indemnity cover, Dunbar's application to set aside the judgment was not made until 25 March 2014, some 11 weeks after DJ Giles' order.

In April 2014, DJ Giles dismissed Dunbar's application.  DJ Giles found that although there were serious triable issues on liability, (i) Dunbar had not made the application to set aside the judgment promptly, (ii) there was a risk that work had been done in respect of the damages trial that might not now be needed, and (iii) the proceedings would be put back. 

Dunbar applied for permission to appeal.  In granting permission, Behrens J (who subsequently heard the appeal) observed that "The case brings into sharp focus the question of how far lack of promptness should prevent a Defendant with an arguable defence on liability from succeeding in an application to set aside a default judgment and how far is it open to an appellate court to interfere".

The appeal

Behrens J handed down his judgment on 30 April 2015.  The judge confirmed the power to set aside a regular default judgment is contained in CPR 13.3, which states:

1. In any other case, the court may set aside or vary a judgment entered under Part 12 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.

2. In considering whether to set aside or vary a judgment entered under Part 12, 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.

In considering the issues, and in relation to the question of promptness, Behrens J confirmed that promptness only referred to the period relating to the application to set aside, although that needed to be assessed in context and any delay prior to the entry of judgment could be taken into account as part of the court's general discretion.  He also acknowledged guidance from other authorities that a default judgment was an extreme sanction and that justice may be better done by making the setting aside of the judgment subject to conditions.  He stated it was common ground in this case that there were serious triable issues on liability. He further noted that DJ Giles' judgment was made following the decision in Mitchell but before Denton, which Dunbar's Counsel submitted may have influenced DJ Giles' decision.

Behrens J considered that he could only interfere in the judgment of DJ Giles if it could be shown that DJ Giles had either erred in principle or approach or had left out of account some feature which he ought to have considered.  After setting out in his judgment the submissions of the parties, Behrens J found that DJ Giles had erred in the exercise of his discretion.

The judge stated that he had considerable sympathy for DJ Giles when he refused Dunbar's application to set aside the default judgment as: he was sitting late, was doing his best to assist the parties by giving his judgment at the time and the decision was made at a time when the robustness of approach advocated in Mitchell must have been at the forefront of many district judges' minds. 

The judge agreed with DJ Giles that the application had not been made promptly and that the breach was significant and serious.  However, the judge was concerned that there was nothing in DJ Giles' judgment to suggest that he had evaluated all the circumstances of the case (including those specifically mentioned in CPR 13.9) and that the judgment was accordingly flawed.  In particular, DJ Giles had:

  •  failed to have regard to the quantum of the claim (potentially up to £300,000) against a small accountancy firm and the serious effect of a judgment on liability
  •  failed to consider whether a more appropriate sanction for the default would have been an order setting aside the judgment on terms
  •  failed to take into account that there was a substantial delay on the part of Mr Priestley in the pre-action correspondence and so this was not a claim that was being progressed urgently. 

Further, no weight was given to the unchallenged evidence that, while service of proceedings was regular, Dunbar were unaware of the proceedings until after the default judgment had been granted.

The judge further held that it was common ground that Dunbar had a real prospect of defending the claim and, while some costs might be wasted as a result of the delayed application, they were unlikely to be large.  There was also unlikely to be a significant delay in the trial period, particularly in the context of the 2 ¼ year gap between the notification of the claim and the issue of proceedings.

Accordingly, Behrens J allowed the appeal.

Comment

This case highlights a further departure from the draconian decisions that have been made following Mitchell and confirms that, while promptness is an important consideration in determining whether to set aside a default judgment, it is only one of the considerations that must be taken into account.  It also indicates that an appeal court will be willing to interfere with the discretion of a lower court in appropriate circumstances, particularly, as here, where there was clearly an arguable defence to the claim.