Redbourn Group Ltd v Fairgate Development Ltd [2017] EWHC 1223 (TCC)

Although this was not a casualty claim, the High Court dealt with the legal principles to be applied in a case where a party seeks to set aside default judgment. It can be seen that the same principles apply to casualty claims and this case provides useful insight in respect of the considerations made by the court when assessing whether to set aside default judgment and/or to grant relief from sanctions.

The facts

The defendant appointed the claimant as a project manager in respect of a property development. The contract ended with each party blaming the other for the wrongful repudiation of the contract. The claimant brought court proceedings against the defendant for wrongful repudiation and also claimed for unpaid invoices.

The claimant agreed to the defendant having a seven day extension for the filing of their defence until 1 February 2017 and on this date the defendant applied to the court for a further extension of time until 22 February 2017. However, the defendant did not chase the court for a hearing date for its application.

The claimant obtained default judgment against the defendant for their failure to file and serve a defence. In response, the defendant applied to the court to set aside default judgment and eventually served a defence and a counterclaim on 11 May 2017, which was over three months after the date of the claimant’s agreed extension. In respect of the counterclaim, the damages sought against the claimant were not quantified.

The defendant argued that there had been difficulties completing a defence and counterclaim because the employees involved in the contract had left the defendant’s employment. However, no other reasons appear to have been provided by the defendant in respect of the substantial delay in serving the defence.

Findings

The High Court held that it was necessary to consider relief from sanctions under CPR, r. 3.9 and the three stage test as set out in Denton v TH White Ltd [2014] EWCA Civ 906, when assessing applications to set aside default judgment.

In respect of setting aside default judgment, the High Court held that a defendant would need to demonstrate that they had a realistic prospect of successfully defending the claim. As a result, a defence had to carry some degree of conviction and had to be more than merely arguable. Further, it was held that the defendant’s assertions in the defence should be tested, to some degree, in order to ascertain whether there was any real substance and/or whether it was contradicted by contemporaneous documents.

In respect of this case, the High Court held that the defence mainly consisted of bare denials and non-admissions and a defendant was required to do a lot more than this in order to persuade the court to set aside judgment in default. The High Court also stated that the delays with the defendant setting out their evidence strongly suggested that they did not have a defence with realistic prospects of success.

The High Court noted that the defendant’s application to set aside default judgment had been made promptly. However, it was stated that the defendant had not acted promptly after judgment had been entered in respect of filing and serving its defence and counterclaim because this was done over three months late. Also, the defendant had provided no good reason as to why the defence was delayed to this extent. Further, the defendant’s application to set aside default judgment was considered inadequate because another witness statement was required after it had been initially lodged at court.

The High Court noted that if default judgment was to be set aside then essentially the defendant would be permitted an overall extension of three and a half months to file and serve its defence. It was held that this lengthy extension would not have been granted if an extension had been sought in the ordinary way.

The High Court stated that in applying the three stage test in Denton v TH White Ltd, the defendant would not have been granted relief from sanctions. In respect of the first stage, the defendant’s breach was held to be serious and significant and in respect of the second stage, it was found that there was no good reason for the breach. Whilst in relation to the third stage, the High Court considered all of the circumstances of the case and held that the defendant had significantly delayed with filing its defence, had no justification for this and the delay went beyond any extension which would have been granted.

As a result, the High Court held that judgment in default could not be set aside.

What this means for you

This case serves as a warning to defendants of the importance of complying with the prescribed timescales for filing a defence. In this case, it was not disputed that the defendant had promptly made an application to set aside judgment in default but the defendant was heavily criticised for failing to promptly file and serve its defence after it knew that it was in breach of the rules.

HHJ Coulson specifically stated that there had been serious and significant delays on the part of the defendant and the court “…was bound to take a very adverse view” of the defendant’s failure to explain matters. The defendant was also criticised for failing to serve a defence and counterclaim that provided any grounds for repudiation, despite advising the court that such information would be forthcoming.

The High Court referred to the Court of Appeal case of Gentry v Miller [2016] 1 WLR 2696, as being an important authority that CPR, r. 3.9, in respect of relief from sanctions, is relevant to any application under CPR, r. 13.3, where permission is sought to set aside default judgment.

Consideration was given to the criteria under CPR, r. 13.3, in respect of setting aside default judgment, namely whether the defence had a reasonableness prospect of success, whether there was good reason for the judgment in default to be set aside and whether the defendant could be permitted to defend the claim.

After reviewing the applicable facts, the High Court came to the conclusion that there were insufficient prospects of success and insufficient reasons to allow judgment in default to be set aside. Following this, the High Court then went through the three stage test in Denton and stated that, in any event, the defendant would not have been successful in seeking relief from sanctions due to the nature of the breach, lack of any good reason and failure to promptly act in respect of filing a draft defence and counterclaim.

This case supports that where judgment has been entered for failure to file and serve a defence, an application to set aside default judgment should be made promptly. The application should also cover the criteria under CPR, r. 13.3 along with the criteria under CPR, 3.9 and the three stage test for relief from sanctions.

In these types of cases, defendants should file and serve a draft defence without further delay in order to show that prompt action is being taken. Ideally, the draft defence should be appended to the witness statement accompanying the application in order to show that there is a valid defence with reasonable prospects of success and therefore good reason for judgment to be set aside.