In proceedings with multiple defendants in which the claimant had obtained a default judgment against defendant A, another defendant, B, (which had statutory joint liability for A’s actions) was not bound by an issue estoppel raised by the default judgment against A.

Furthermore, B was entitled (notwithstanding substantial delay on its part) to set aside the default judgment which had been obtained against A.

Background

The case of John Page v Champion Financial Management & Others1, concerns complaints about the mis-selling of financial products to the claimant, Mr Page (Page). Page initially issued a claim form against five defendantsFour were companies and firms within the same group as the first defendant, Champion Financial Management (Champion). Ultimately, Page decided only to serve the claim form on Champion and on a fifth defendant, a company called Park Row Associates Limited (Park Row).

Page alleges that two collective investment schemes were mis-sold to him in 2006 by Champion. Champion was an intermediary, and had marketed the two Park Row products to Page. Champion was not itself a regulated entity, ie it was not an “authorised person” under the regulatory regime imposed on the  UK’s financial markets by the Financial Services and Markets Act 2000 (FSMA). Champion was only able to carry out its activities of selling Park Row’s products (to Page and presumably others) as an “exempt person” by virtue of the provisions of Section 39(1) of FSMA, which provides that:

“(1) If a person (other than an authorised person) –

  1. is a party to a contract with an authorised person (his principal) which –
  1. permits or requires him to carry on business of a prescribed description, and
  2. complies with such requirements as may be prescribed, and
  1. is someone for whose activities in carrying on the whole or part of that business his principal has accepted responsibility in writing, he is exempt from the general prohibition in relation to any regulated activity comprised in the carrying on of that business for which his principal has accepted responsibility.”

Park View was an authorised person under the FSMA regime, and it and Champion had entered into an agreement which met the criteria set out in FSMA Section 39(1) as quoted above. As such, Park View had assumed responsibility for Champion’s actions in the selling of its products (and so for any mis-selling claims which Page was able to substantiate).

Park View entered a defence to Page’s claim. Champion, however, failed to do so. Although the reasons are not entirely clear, it is apparent that Champion ceased to trade in 2008 and presumably it had no assets to defend. As he was entitled to do in the absence of a defence (or indeed any response at all), Page applied for, and obtained, default judgment against Champion. Champion did not seek to set aside this default judgment, so from Page’s perspective all that remained was to determine the quantum of his claim against Champion. The real prize he was seeking, however, was then to enforce that judgment against Park Row. Whilst Park Row was in liquidation it presumably still had a better asset position than Champion.

The issue, then, was what the effect was of this default judgment vis-à-vis Park Row. Park Row had accepted “responsibility” for Champion’s actions – did this mean it was bound by and liable to pay the sums due under the default judgment against Champion?

Page’s arguments in favour of an issue e estoppel

The arguments put forward by Page’s counsel were acknowledged in the judgment, and in essence were that:

  • It is well established English law that a default judgment is as binding as a judgment given after a trial on the merits, and can and will lead to an issue estoppel against the party against whom default judgment has been given2
  • It is equally well established that under the principle of res judicata a judgment binds the parties to those proceedings and their “privies” (ie those with some control over the party’s conduct of the matter), but does not bind those who are not party or privy to a party to those proceedings
  • That a default judgment “although capable of giving rise to estoppels, must always be scrutinised with extreme particularity for the purpose of ascertaining the bare essence of what they must necessarily have decided”3
  • That in the instant case, that minimum determination embodied in the default judgment must have been that Champion was negligent and in breach of contract
  • Therefore, that as a matter of public policy, to avoid the court giving inconsistent and conflicting judgments in the same action, Park View must be bound by the default judgment obtained against Champion
  • That Park View, had it wished to avoid this situation, should have exercised the rights which as a co-defendant it had under the English rules of procedure to apply  to set aside the default judgment within the requisite time period (three months), which it had not done

Decision

The deputy judge, Mr Simon Picken QC was not persuaded by these arguments. Page’s counsel had conceded that the principle of res judicata did not apply because Park View was not a privy of Champion (ie it did not control Champion’s conduct of its case). It is not entirely clear from the judgment why this alone was sufficient to dispose of the issue of res judicata given that Park View even if not a privy to Champion, was certainly a party to the proceedings. However, given that concession, the judge was not persuaded that there was a general rule which applied more widely which would preclude a court from permitting inconsistent judgments to arise in these circumstances. Consistency between judgments was desirable, and a legitimate public policy concern. However, there was a more important public policy concern in play, which was the public interest in the fairness and justice of allowing a co-defendant to properly defend itself. He concluded:

“For all these reasons, I conclude that the answer to the question of principle posed at the beginning of this judgment is that  a default judgment obtained against one defendant (defendant A) does not preclude another defendant in the same proceedings (defendant B) from advancing, by way of defence to a claim against it (defendant B), a case which is inconsistent with the default judgment which has been obtained (against defendant A). Expressed in terms which are specific to the present case … I conclude that it is open to the Fifth Defendant to defend the claim against it on the grounds that the First Defendant was neither negligent nor guilty of any breach of contract notwithstanding the default judgment against the First Defendant which the Claimant has obtained.”

Furthermore, the judge went on to determine that, had he not found against Page on the question of whether the default judgment led to an issue estoppel as against Park View, he would in any case have granted Park View its belated application to set aside the default judgment against Champion, in order to remove any question of issue estoppel against Park View. The judge expressly acknowledged that he would have done so notwithstanding Park View’s deliberate, tactical and significant delay in making such an application, and notwithstanding the recent concerted move within the English judiciary to place greater emphasis on policing exacting compliance with deadlines and time limits.

Commentary

Running through the heart of the judgment is an understandable concern to allow Park View to defend itself properly in the proceedings, which in view of its position, necessarily involved litigating the issues over Champion’s conduct of the sales process, which were the subject of the default judgment. It is difficult not have sympathy with the result in the application. Although there were issues of delay on its part, Park View did not control Champion’s actions in not seeking to defend the claim and thereby exposing itself to the eventual default judgment.

The tensions between that desire for natural justice to be served, and the principle that a default judgment is as binding as a judgment handed down at trial do not seem to be fully resolved in the judgment. It delivered a thoroughly pragmatic result, but at some stage this is an issue which will surely receive appellate scrutiny. In the meantime, the case is reassuring for co-defendants generally, and particularly those who under the FSMA regime as authorised persons bear responsibility for the actions of exempt persons.