SETTING ASIDE A DEFAULT JUDGMENT AFTER AN ORDER IS STILL SUBJECT TO CPR 13: JUDGMENT SET ASIDE WHEN NO GOOD REASON FOR DEFENDANT’S DELAY

In QRS -v- Beach & Kordowski [2014] EWHC 2189 (QB) Mr Justice Warby considered the relevant criteria for setting aside a default judgment when the court makes an order/declaration? There is a detailed discussion of the relevant law and the appropriate test where a defendant seeks to set aside a regularly obtained judgment.

THE CASE

The claimants were a group of lawyers who had regularly been subjected to harassment on websites.  They issued proceedings against two defendants. The defendants did not file an acknowledgment of service. The claimants were seeking an injunction and made an application for judgment.The second defendant did not appear on that application and was served with the order on the 23rd September 2014. On the 9th October 2014 the second defendant made an application to have judgment set aside.

KEY POINTS

  • An application to set aside a default judgment after a court order is subject only to Part 13.
  • The claimants’ case was inferential rather than conclusive and the second defendant could have a response.
  • The second defendant’s had been culpable of some delay, nevertheless there were issues that required adjudication and  the judgment against the second defendant was set aside.

THE RELEVANT CRITERIA FOR SETTING JUDGMENT ASIDE

The judge considered, and rejected, the argument that different criteria applied to an application to have a default judgment set aside after a court order.

  1. CPR 13.3 sets out the principles to be applied upon an application to set aside a default judgment entered under Part 12 in a case such as this, where the court is not obliged to set aside. In such a case

“(1) ….. 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.

(Rule 3.1(3) provides that the court may attach conditions when it makes an order)”

  1. These provisions place the burden on an applicant for an order setting aside a default judgment to satisfy the court that one of the conditions specified in CPR 13.3(1) is met and that the court’s discretion should be exercised so as to set the judgment aside. In exercising the discretion, if it arises, the court is obliged to have regard to relevant matters which include but are not limited to whether the application was made promptly. The discretion must of course be exercised so as to give effect to the overriding objective in CPR 1.1.
  2. A “real prospect” means, as it does in the context of summary judgment under CPR 24, a prospect that is more than fanciful. As Lord Hobhouse observed in the context of the Part 24 test in Three Rivers DC v Bank of England (No 3) [2001] 2 All ER 513, “The criterion which the judge has to apply … is not one of probability; it is absence of reality.” The court should not conduct a mini-trial when assessing whether a party has a real prospect of success.
  3. The word “promptly” in CPR 13.3(2) is to be construed as requiring “all reasonable celerity in the circumstances: Khan v Edgbaston Holdings Ltd[2007] EWHC 2444 (QB), [13] HHJ Peter Coulson QC, citing the words of Simon Brown LJ in Regency Rolls Ltd v Murat Carnall [2000] EWCA Civ 379, [45] with reference to the requirement of CPR 39.3(5)(a) that the applicant act promptly in applying to set aside judgment after a trial which the defendant had not attended. (The terms of CPR 39.3(5) are set out below).
  4. It is submitted by Mr Busuttil for the claimant that it would not be enough for Mr Kordowski to satisfy the requirements of CPR 13.3. He argues that Stuart-Smith J granted the claimant not only a default judgment but also a final injunction. That he submits was an order on the merits quite separate from and additional to the default judgment, and it is therefore incumbent on Mr Kordowski to persuade me to revoke that order pursuant to the court’s general case management powers under CPR 3.1(7) which provides that “A power of the court under these rules to make an order includes a power to vary or revoke the order.” Mr Busuttil then goes on to refer to a number of cases in which the court’s approach to the exercise of this power has been considered. This jurisprudence distinguishes between interim or other procedural orders on the one hand and final orders on the other.
  5. The authorities relating to interim or procedural orders begin with the decision of Patten J in Lloyds Investment (Scandinavia) Ltd v Ager-Hanssen[2003] All ER (D) (Jul) where he held, without attempting an exhaustive definition, that for the High Court to revisit one of its own earlier orders the applicant must either show some material change of circumstances or that the judge who made the earlier order was misled in some way. Patten J’s decision was approved by the Court of Appeal in Collier v Williams [2006] EWCA Civ 20, [2006] 1 WLR 1945. These and subsequent authorities were most recently reviewed by the Court of Appeal in Tibbles v SIG plc [2012] EWCA Civ 518, [2012] 1 WLR 1591 where the court of first instance had relied on r 3.1(7) to vary a reallocation order. At [39] Rix LJ, with whom the other members of the court agreed, drew conclusions from the jurisprudence which included the following:

“(i) … The rule is apparently broad and unfettered, but considerations of finality, the undesirability of allowing litigants to have two bites at the cherry and the need to avoid undermining the concept of appeal, all push towards a principled curtailment of an otherwise apparently open discretion. Whether that curtailment goes even further in the case of a final order does not arise in this appeal.…

(iii) … the jurisprudence has laid down firm guidance as to the primary circumstances in which the discretion may, as a matter of principle, be exercised namely normally only (a) where there has been a material change of circumstances since the order was made or (b) where the facts on which the original decision was made were (innocently or otherwise) misstated…

(vii) The cases considered above suggest that successful invocation of the rule is rare. Exceptional is a dangerous and sometimes misleading word; however, such is the interest of justice in the finality of a court’s orders that it ought normally to take something out of the ordinary to lead to variation or revocation of an order, especially in the absence of a change of circumstances in an interlocutory situation.”

  1. The applicability of r 3.1(7) to final orders was considered in Roult v North West Strategic Health Authority [2009] EWCA Civ 444, [2010] 1 WLR 487 where the Court of Appeal dismissed an appeal against a judge’s refusal to re-open a final order approving a settlement of a personal injury action which had been based on what turned out to be a false assumption as to the future living arrangements of the claimant. The court, having considered the Ager-Hanssen case and Collier v Williams, held that it would not be justifiable to exercise the power under r 3.1(7) merely because the earlier decision had been based on erroneous information, or subsequent events had destroyed the basis on which it was made, even if such circumstances might justify the revocation or variation of an interim order. Hughes LJ held that [15] “The interests of justice, and of litigants generally, require that a final order remains such unless proper grounds for appeal exist.” Smith and Carnwath LJJ agreed.
  2. In Kojima v HSBC Bank plc [2011] EWHC 611 (Ch), [2011] 3 All ER 359 the defendant was sued for recovery of sums due under an unsecured loan. Acting in person he made admissions, upon which the judge ordered that unless the defendant executed a charge for the admitted amount the claimant bank should be at liberty to enter judgment. The defendant was then advised that he had a defence and applied for, among other things, permission to withdraw his admissions and the revocation of the unless order pursuant to CPR 3.1(7). The application was dismissed. On appeal from the County Court Briggs J considered the authorities and, basing himself principally upon Roult v North West Strategic Health Authority, held that whilst there was no simple jurisdictional ban on the application of r 3.1(7) to final orders, any jurisdiction that did exist was severely curtailed. He said:

“30 In my judgment once the court has finally determined a case, or part of a case, considerations of the type first identified by Patten LJ in Lloyds Investment (Scandinavia) Ltd v Ager-Hanssen [2003] All ER (D) (Jul) will generally be displaced by the much larger, if not indeed overriding, public interest in finality, subject of course to the dissatisfied party’s qualified right of appeal.

 

33 Leaving aside default judgments, with their self-contained regime for setting aside, I consider that a line has to be drawn between orders for which revocation may be sought under Part 3.1(7) upon the alternative grounds first identified in Lloyds v Ager-Hanssen and approved in Collier v Williams on the one hand, and final orders, to which the public interest in finality applies, on the other. I consider that orders made by way of judgment on admissions fall clearly within the second of those categories. Once a party has admitted a claim, and judgment has been given against him on the claim, the other party is in principle entitled to assume that, barring any appeal, there is an end to the matter.

34 It is unnecessary for me to conclude whether exceptional circumstances may nonetheless justify the revocation or variation of a final order within that second category, still less to prescribe in advance what those circumstances might be…”

  1. Briggs J’s decision in Kojima was appealed, but without affecting this point: [2011] EWCA Civ 1709; [2012] 1 All ER 1392. The decision was referred to by Rix LJ in Tibbles at [38] but as indicated by his paragraph [39](i) quoted above the court did not in that case address the application of r 3.1(7) to final orders.
  2. In Hackney London Borough Council v Findlay [2011] EWCA Civ 8, [2011] PTSR 1356 the Court of Appeal considered the exercise of the discretion under r 3.1(7) in the context of an order for possession against a secure tenant of the claimant council, made at a hearing in the absence of the defendant. The court held that although the short hearing at which a decision is made whether to grant a possession order does not involve a trial for the purposes of CPR 39 (Forcelux Ltd v Binnie [2010] HLR 340, CA), in the absence of some unusual and highly compelling factor a court that is asked to set aside a possession under CPR 3.1(7) when the tenant has not appeared at the hearing should in general apply the requirements of CPR 39.3(5) by analogy. CPR 39.3(5) provides that where application is made to set aside a judgment or order made against the applicant at a trial held in his absence “the court may grant the application only if the applicant (a) acted promptly when he found out that the court had entered judgment or made an order against him, (b) had a good reason for not attending the trial and (c) has a reasonable prospect of success at the trial.
  3. Mr Busuttil’s primary submission in the light of this jurisprudence is that the injunction in the present case is an order on the merits analogous to an order made by way of judgment on admissions. It therefore falls within the second category of cases referred to by Briggs J in Kojima at [33] and can only be challenged by way of appeal unless, perhaps, there are exceptional circumstances, which he submits there are not. What Briggs J had in mind when “leaving aside default judgments and their self-contained regime for setting aside” in his paragraph [33], submits Mr Busuttil, was “simply the self-contained regime in CPR Pt 13 for setting aside default judgments, not the orders a Court might go on to make in favour of a claimant, e.g. an injunction, having decided to enter default judgment under CPR r.12.11(1) following an application by the claimant under CPR r.12.4(2)“. In parenthesis Mr Busuttil submits that even if the injunction had been an interim order the decision in Tibbles shows that to have it revoked under CPR 3.1(7) Mr Kordowski would have had to show a material change of circumstances or that Stuart-Smith J had been misled. Alternatively, he suggests, without actively advocating this course, that since the order under challenge was a final order made at a hearing which was not attended by Mr Kordowski the court may conclude that it is appropriate when considering whether to revoke the order pursuant to CPR 3.1(7) to adopt the approach prescribed in respect of possession orders in Hackney LBC v Findlay, and apply the principles set out in CPR 39.3(5) by analogy. (It could only be by analogy, as a default judgment is defined in CPR 12.1 as “judgment without trial”.).
  4. The submission that it is necessary for a party seeking to set aside a default judgment successfully to invoke CPR 3.1(7) if there is not merely a default judgment but also an order such as a final injunction is novel and I do not accept it. I can see no good reason for regarding the provisions of CPR 12 and 13 as anything other than a self-contained regime governing the procedure for the grant, variation or setting aside of judgment and all such orders as the court considers the claimant is entitled to where the conditions prescribed by these rules are, or are alleged to be satisfied.
  1. The distinction which Mr Busuttil seeks to draw between default judgments and orders is not a sound one, in my view. As noted in n 41.1.1 of volume 1 of Civil Procedure 2014 the terms “judgment” and “order” have been assigned a variety of meanings in different contexts over the years, neither is defined in the interpretation provisions of the CPR (r 2.3) or the CPR glossary, and they are used in many contexts in the rules, sometimes in conjunction and sometimes not. The meaning of either must be gathered from the context.
  2. In the context of CPR 3.1(7) the court has been prepared to acknowledge that the term “order” could in principle include an order made as part of a final judgment: see, eg, the decision of Briggs J in Kojima as well as Independent Trustee Services Ltd v GP Noble Trustees [2010] EWHC 3275 (Ch). In the context of CPR 12 and 13 it seems to me that the term “judgment” should be read as including any order made by the court when it enters default judgment. This is plainly so when it comes to the words “such judgment as it appears to the court that the claimant is entitled to on his statement of case” in r 12.11(1). This wording contemplates that the court has options as to the form of judgment, which in turn implies that “judgment” means something beyond “judgment for the claimant”. The fact that r 13.3(1) gives the court power to “vary” a default judgment is also an indication that these rules do not treat a default judgment and an order giving effect to it by granting particular relief as separate and distinct.
  3. This being so, there is no need to look beyond CPR 13 for a power to set aside any orders made by the court under CPR 12 upon granting a default judgment. Nor would it be appropriate in my view for the court to import into the decision-making exercise under CPR 13 the principles developed in the context of r 3.1(7) for the revocation or variation of a previous order. Those principles have been developed by the court in order to set appropriate limits on an “omnibus” power of general application which on its face confers an open discretion. CPR 13, by contrast, contains specific provision governing applications of a particular kind, to vary or set aside default judgments.
  1. An application to set aside a possession order made in the tenant’s absence, as considered in Hackney LBC v Findlay, represents the closest analogy to an application under r 13 to be found in the r 3.1(7) jurisprudence. However, it is one thing to apply by analogy the principles set out in CPR 39.3(5) where an application is made to set aside a possession order under the general powers conferred by r 3.1(7) and another to apply those principles where application is made under the tailored regime contained in CPR 13 to set aside a default judgment entered in the defendant’s absence. To take the latter course would amount to re-writing CPR 13.3 in at least two ways: by making prompt application a threshold requirement rather than a discretionary consideration, and by inserting an additional threshold requirement in the form of good reason for not attending the default judgment hearing. That would be wrong when on the face of it a deliberate decision has been taken to specify less demanding thresholds for setting aside a default judgment under r 13 than those prescribed for setting aside judgment after a trial in the defendant’s absence under r 39. In those circumstances I need not consider whether the “reasonable prospect of success” required by CPR 39.3(5)(c) is something different from the “real prospect of successfully defending the claim” required by CPR 13.3(1)(a).
  2. For these reasons I reject the submission that an applicant who seeks to set aside a final injunction granted upon the entry of default judgment needs to persuade the court that the requirements laid down by the r 3.1(7) jurisprudence are satisfied.

THE APPLICATION ON THE MERITS

The judge was sceptical in relation to the second defendant’s case on the merits.  He held that the claimants’ case the second defendant was largely inferential.

  1. However, Mr Kordowski’s denial of involvement is again now made in a witness statement over a statement of truth, and the case against him on the evidence as it presently stands is not in my judgment so overwhelming as to compel rejection of what he says as unreal. The claimant states in paragraph 39 of his witness statement that “I understand that Mr Kordowski has constructed the websites“, but the source of that understanding is not identified. The particulars of claim allege in paragraph 12 that “Mr Kordowski worked together with Mr Beach to set up and develop the Beach Websites, to keep them functional and operational, and to optimise their searchability.” However, the claimant’s case in this respect appears to be an entirely inferential one with three main elements to it: Mr Kordowski’s IT and web design skills similarity of the Beach Websites to the sfh.co.uk and XYZ.net sites; and Mr Kordowski’s role as agent for Mr Beach after complaint was made by the claimant’s firm in April 2012.
  2. On the skills front, I not aware of any evidence which serves to exclude as a real possibility resort by Mr Beach to someone adequately skilled in IT other than Mr Kordowski. As to similarity, I can well understand why Stuart-Smith J found the evidence of similarity sufficiently compelling for the purposes of determining whether default judgment should be granted, in the absence of any evidence at all from Mr Kordowski. However, the similarities in this context are less striking than those between sfh.co.uk and XYZ.net, and the claimant’s evidence does not include anything to establish that the similarities may not be due to some factor other than Mr Kordowski’s involvement such as, for example, simple copying by Mr Beach or some agent of his other than Mr Kordowski of the get up and arrangement of XYZ.net.
  3. Mr Kordowski’s role as Mr Beach’s agent for the purposes of correspondence with the claimant’s firm from April 2012 does tend to make it more likely that Mr Kordowski was also involved in the setting up of the Beach Websites, or some of them. However, the correspondence itself is neutral on that point; it neither supports nor contradicts that view. The evidence is not in my judgment so strong as to make it unreal for Mr Kordowski to deny having anything to do with the construction or publication of any of the Beach Websites. There is a circumstantial case of some weight, I agree, but I must be cautious of inferring guilt by association. My conclusion is again that whilst Mr Kordowski’s case as to his lack of involvement in creating or publishing the Beach Websites appears an improbable one it is not one that is apt for summary dismissal as having no real prospect of success.
  4. I turn to the case of joint tortfeasorship on which Mr Busuttil focuses his submissions. This is a case that depends on Mr Kordowski’s conduct of correspondence on behalf of Mr Beach between April 2012 and July 2013. The essence of the case is that there was a common design to perform acts that were harassing, and that Mr Kordowski’s correspondence was undertaken in furtherance of that common design. The case of aiding and abetting that is advanced by Mr Busuttil in reliance on s 7(3A) of the PHA is another way of putting the case in reliance on the correspondence.
  5. This is not the case pleaded in the particulars of claim. The particulars plead a case of common design to harass but not a case of aiding and abetting. The pleaded case of common design identifies the “overt acts carried out by each of [the defendants] in furtherance of the common design” as the acts of harassment detailed subsequently in the particulars, namely publishing or causing or permitting the publication from March 2012 of the offending allegations with the requisite state of mind. No reference is made here to any of the correspondence in which Mr Kordowski engaged as agent for Mr Beach in and after April 2012. It appears that this way of putting the case is one that has occurred to the claimant’s team more recently. It is not a way of putting the case that was advanced before Stuart-Smith J on 16 September 2014.
  6. In addition, the submissions advanced on this application are somewhat broad brush. They do not involve any examination of the authorities on joint tortfeasorship or aiding and abetting or how the law applies to the facts of this case. Mr Busuttil has not entered into the correspondence in detail. Mr Kordowski’s role involved passing on letters ostensibly written by Mr Beach, making representations himself against the complaints and claims advanced by the claimant’s firm, and proposing settlement discussions. This clearly did not involve arbitration as he claims. However his case that his role was similar to that of a solicitor is not manifestly misconceived, and it is not really addressed by the claimant’s evidence or submissions.
  7. Moreover, some of the correspondence relied on by the claimant was marked “Without prejudice as to costs”. It is said in the evidence that this heading should be ignored as the content was not put forward as a good faith attempt to settle but no argument was addressed to that point which involves a notoriously difficult area of the law. The position is also different now from how it stood before Stuart-Smith J, in that Mr Kordowski has given evidence the effect of which is that he ceased acting as Mr Beach’s agent in about August 2013. Mr Kordowski’s statement that he had very little contact with Mr Beach after August 2013 is not contradicted, merely criticised as not involving an unequivocal assertion of no involvement or of disengagement.
  8. Against this background I have concluded that the issue of Mr Kordowski’s liability as a joint tortfeasor or an aider and abettor on the basis of his role in correspondence as agent for Mr Beach is not one suitable for summary resolution on this application. For Mr Kordowski to be held liable on this basis there should first be a clear statement of the claimant’s case in this respect, identifying the conduct of Mr Kordowski that is said to amount to furtherance of the common design to harass. There would then need to be a more thorough analysis of the correspondence than it was possible to undertake for the purposes of this hearing, considering first whether it is right for the court to ignore the “without prejudice save as to costs” markings, secondly whether and if so to what extent the correspondence can properly be said to involve conduct by Mr Kordowski in furtherance of a common design and thirdly, if so, whether there is any potential defence available to him, under s 1(3) PHA or otherwise.
  9. For these reasons I am persuaded, albeit by a narrow margin, that Mr Kordowski has a real prospect of successfully defending the claim based on assertions that he was not responsible for making, causing or permitting the publications complained of on XYZ.net and the Beach Websites. As for the case of joint tortfeasorship based on his conduct of correspondence I consider that that there are reasons for allowing him to defend it. This is an unpleaded basis for asserting his liability which requires fuller evidential and legal analysis. Nor have the potential defences to it or their application to the facts of this case been adequately addressed.
  10. I turn to the question of discretion. There is much to be said against Mr Kordowski on this issue. Whatever may be the position as regards his receipt or notice of the pre-action correspondence, there is no doubt that Mr Kordowski was aware of these proceedings by no later than 15 August 2014, by which time he was in possession of the claim documents, including a response pack. Besides the fact that this documentation spells it out Mr Kordowski, as an experienced litigant, must have been well aware that if he wanted to defend the claim he needed to file a Defence, or an acknowledgment of service stating an intention to defend, followed by a Defence. He did neither and has offered no excuse for failing to do so. This is a significant default and I conclude that it was deliberate.
  11. Mr Kordowski’s “lack of spare time” excuse for not dealing with the application for default judgment is unacceptable. It is not credible that he needs to be with his wife at all times; he has managed for example to attend the hearing of this application. He made no attempt to ask for an adjournment of the default judgment hearing to accommodate any difficulties he might have had. Mr Kordowski chose to take his chance on the court concluding on the basis of his letter that he had a viable defence.
  12. His application to set aside judgment, 21 days after service of the final order, was not prompt and the delay is unexplained. It is understandable for the claimant to complain that this application comes too late and that it would be unjust to him and those he represents to grant it. The need for efficiency and proportionate cost in litigation and the need to ensure that rules are complied with count against Mr Kordowski.
  13. I must however take account of all the circumstances of the case in exercising my discretion. There are six matters which can be set against the factors considered above and in favour of the exercise of the court’s discretion in Mr Kordowski’s favour. The first is that the judgment imposes on him a very large costs liability when he may have a meritorious defence. I add that Mr Busuttil’s submission that the claimant’s costs may be irrecoverable appears to assume that Mr Kordowski will be bankrupted by them. This seems plausible, since he was made bankrupt in 2011 (as recorded in the judgment of Tugendhat J in the Law Society case).
  14. Secondly, the default judgment application would have proceeded against Mr Beach in any event, even if Mr Kordowski had put in an acknowledgment of service or Defence. The costs of that application have not, therefore, been wasted. Thirdly, and contrary to one of Mr Busuttil’s submissions, even if the judgment is set aside against Mr Kordowski the claimant and those he represents have and will retain the comfort of the injunction against Mr Beach. The reliance so far placed on the order of Stuart-Smith J will not be undermined. Fourth, the Law Society injunctions remain in force against Mr Kordowski as they have throughout these proceedings and, in principle, protect the claimant and Protected Parties among others. Fifthly, Mr Kordowski’s delay in applying to set aside has not itself disrupted the course of this or other litigation. Finally, the only issues that have been raised as to Mr Kordowski’s liability for the course of conduct complained of in this action are issues as to his responsibility for publication; those issues are or should be relatively confined issues capable of resolution without enormous expenditure.
  15. In the end these six matters in combination are just enough to persuade me that, despite Mr Kordowski’s serious default and unwarranted delay and the improbability of his answers to the claims, it would be just in principle to exercise my discretion to set aside the default judgment and final injunction as against Mr Kordowski, and to allow him to defend, subject to appropriate conditions. I shall hear the parties on the appropriate form of order including, if sought, any interim remedy. I make clear, however, that I have in mind tight conditions, which must include as a first step the production by Mr Kordowski of a properly pleaded Defence. I also propose to impose a strict timetable for the progress of the case to a trial in the most cost effective way. I imagine that the claimant may seek costs orders against Mr Kordowski. If so, and if he is to maintain that he is unable to pay, or unable to pay promptly, he will need to produce supporting evidence.

ALSO ON SETTING ASIDE JUDGMENT

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