SETTING ASIDE JUDGMENT. DELAY AND THE DENTON CRITERIA: ANOTHER IMPORTANT CASE

In Avanesov -v- Shymkentpivo [2015] EWHC 394 (Comm) Mr Justice Popplewell considered the issue of setting aside judgment after a long period of delay by the defendant and the relevance of the Denton criteria.

THE CASE

The defendant applied to set aside a judgment in default of acknowledgement of service entered on the 31st Jly 2013 and a further judgment on assessment of damages on 11th April 2014, totally US $14.5 million.

KEY POINTS

  • The defendant’s proposed defence was not flimsy.
  • The application had not been made promptly.
  • The defendant had made a deliberate decision to ignore the proceedings and a court should rarely exercise its discretion in these circumstances.
  • The question of “promptness” relates to the application being made as soon as could reasonably be expected.
  • Despite the presence of a potential defence the judgment was not set aside.

OTHER POSTS ON THIS POINT

THE JUDGMENT: THE RELEVANT RULES

The judge first considered the relevant rule – CPR 13.3.

  1. The application is made pursuant to CPR Rule 13.3 which provides:
“(1) …the Court may set aside or vary a judgment entered [in default of acknowledgement of service] 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 judgement 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 [in default of acknowledgement of service], 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.)”

THE RELEVANT CRITERIA: DID THE DEFENDANT HAVE A REALISTIC PROSPECT OF SUCCESS

The judgment contains a succinct summary of the relevant test in relation to whether or not there is a real prospect of success.

  1. The test is the same as that for summary judgment under CPR Part 24, although the burden of proof is reversed. The relevant principles were summarised by Lewison J, as he then was, in Easyair Limited v Opal Telecom Ltd [2009] EWHC 339 (Ch), in a formulation approved in a number of subsequent cases at appellate level, including AC Ward & Sons v Catlin (Five) Limited [2010] Lloyd’s Rep. I.R. 301 and Mellor v Partridge[2013] EWCA Civ 477:

(1) The Court must consider whether the defendant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman[2001] 1 All ER 91.

(2) A “realistic” defence is one which carries some degree of conviction. This means a defence which is more than merely arguable: E D & F Man Liquid Products v Patel [2003] EWCA Civ 472 at paragraph [8].

(3) In reaching its conclusion the Court must not conduct a “mini trial”: Swain v Hillman.

(4) This does not mean that the Court must take at face value and without analysis everything that a deponent says in his statements before the Court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: E D & F Man Liquid Products v Patel at paragraph [10].

(5) However, in reaching its conclusion the Court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence which can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] Lloyd’s Rep. P.N. 526.

(6) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the Court should hesitate about making its final decision without a trial, even where there is no obvious conflict of fact at the time of application, where reasonable grounds exist for believing a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Limited v Bolton Pharmaceutical Co 100 Limited [2007] FSR 3.

 

The judge found that he could characterise the proposed defence as weak or flimsy.  He found that there was a realistic defence whose ultimate strength could not be assessed at this stage.

THE EXERCISE OF THE DISCRETION

The judge then considered the question of the exercise of discretion.

  1. In Standard Bank PLC v Agrinvest International Inc [2010] EWCA Civ 1400 Moore-Bick LJ emphasised the enhanced importance of making the application promptly as a relevant factor, resulting from the introduction of explicit reference to it in Rule 13.3(2):

“[20] Before the introduction of the Civil Procedure Rules judgment could be entered in default of notice of intention to defend under O.13 of the Rules of the Supreme Court. Applications to set aside default judgment were governed by O.13, R.9, which provided as follows:

“without prejudice to Rule 7(3) and (4) the court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order.”

[21] The authorities relating to setting aside default judgments laid considerable emphasis on the desirability of doing justice between the parties on the merits. Delay in making an application to set aside rarely appears to have been a decisive factor if the defendant could show that he had a real prospect of defending the claim against him. Thus in J H Rayner (Mincing Lane Limited) v Café Norte S.A. Importadora e Exportadora S.A. [1999] EWCA Civ 2015 judgement was set aside after 7½ years on the applicants’ showing that they had a defence with a real prospect of success.

[22] The Civil Procedure Rules were intended to introduce a 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 overriding objective expressly recognised for the first time the importance of ensuring that cases are dealt with expeditiously and fairly and it is in that context that one finds for the first time in Rule 13.3(2) an explicit requirement for the court to have regard on an application of this kind to whether the application was made promptly. No other factor is specifically identified for consideration, which suggests that promptness now carries much greater weight than before. It is not a condition that must be satisfied before the court can grant relief, because other factors may carry sufficient weight to persuade the court that relief should be granted, even though the application was not made promptly. The strength of the defence may well be one. However, promptness will always be a factor of considerable significance, … and 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.”

  1. It is established by a number of first instance decisions (see eg Newland Shipping & Forwarding Ltd v Toba Trading FZC [2014] EWHC 1986 Comm), and was common ground before me, that an application to set aside a default judgment pursuant to CPR Rule 13.3 is an application for relief against sanctions to which CPR 3.9(1) applies. That rule provides that:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need-

(a) for litigation to be conducted efficiently and at proportionate cost; and

(b) to enforce compliance with rules, directions and orders. “

  1. As is well known CPR Rule 3.9 falls to be applied in accordance with guidance set out in Mitchell v Newsgroup Newspapers Ltd [2014] 1 WLR 795 and Denton and Others v T H White Limited (De Laval Limited Part 20 Defendant) [2014] 1 WLR 3926. In Altomart v Salford Estates (No.2) Limited [2014] EWCA Civ 1408 Moore-Bick LJ usefully summarised the principles in Mitchell and Denton in the following terms at paragraphs [19] and [20]:

“More recently the rigour of the decision in Mitchell has been tempered by the decision in Denton. In that case the court recognised thatMitchell had been the subject of criticism and, while holding that the guidance it provided remained substantially sound, sought to explain in rather more detail how it should be interpreted and applied. In doing so it identified three stages of enquiry: (i) identifying and assessing the seriousness and significance of the default which engages Rule 3.9; (ii) identifying its cause; and (iii) evaluating all the circumstances of the case including those specifically mentioned” [i.e. the need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance with the Rules]”

  1. Rule 13.3(2) requires “regard to be had to whether the application is made promptly”. I see little difference in the approach to this consideration from that required by the first two stages of the Mitchell/Denton approach, being an assessment of the seriousness and significance of the default and the reasons for it. Promptness is not to be measured by reference solely to the length of time which has passed before an application is made, but also by reference to the reasons for the delay. If the application is made as soon as could reasonably have been expected in the circumstances, it will have been made promptly even if made a considerable period after the defendant first became aware of the judgment. Conversely an application made a short time after notice of the judgment may not be prompt if it could reasonably have been made earlier. In Regency Rolls Ltd v Murat Carnall [2000] EWCA Civ 379 at paragraph [45] Simon Brown LJ posited the test as whether the applicant had acted with all reasonable celerity in the circumstances. Moreover the consideration of promptness in Rule 13.3(2) does not involve a binary exercise in which a line is to be drawn between promptness and its absence with the defendant’s conduct simply placed on one side or other. If promptness would have required an application within a week, an application made after two weeks and one made after two years would both lack promptness, but they would not fall to be treated equivalently. The inquiry is not merely whether the application is prompt but how prompt it is. The length of the delay and the reasons for it have to be examined not just to enable an answer to be given to the question whether the application has been made promptly, but equally in assessing what weight is to be attached to a lack of promptness in the exercise of discretion.
  2. Accordingly I consider the exercise of the discretion by adopting the three stage Mitchell/Denton approach, the first two stages of which address promptness.

On the facts of this case the judge stated it was difficult to avoid the conclusion that the delay in applying to set aside the judgments was the result of a deliberate decision to ignore the proceedings for as long as possible. The application was a long way from being “prompt”.

ALL THE CIRCUMSTANCES OF THE CASE

 

  1. I turn next to the specific matters identified in Rule 3.9, namely the need for litigation to be conducted efficiently and the need to enforce compliance with the rules and orders. These considerations afford good reasons for not setting aside the judgments in this case. I have concluded that the failure to take prompt steps to set side the judgments was the result of a decision to ignore the English proceedings until forced to engage by the second default judgment and the risk of enforcement, taken in the knowledge that my order of 31 July 2013 required any application to be made within 21 days. To set aside the judgments in those circumstances would be to condone and reward a deliberate failure to comply with the Court’s order and its procedures. Not only is this the very antithesis of the efficient and proper conduct of litigation, but it flies in the face of the important public interest in litigants abiding by the Court’s orders and procedures. The need to enforce the Court’s orders and rules, and to encourage compliance, means that a party should not lightly be relieved of the consequences of a deliberate decision to flout the Court’s orders and to ignore its procedures. Moreover SP’s conduct engages another aspect of the public interest in the efficient conduct of litigation because hard pressed judicial time and resources were devoted to the assessment of damages hearing, to the exclusion of other court users.

THE CONCLUSION

  1. Drawing the threads together, the emphasis which must be given under Rule 13.3(2) to the promptness of the application, or lack of it, and underMitchell and Denton to the seriousness of the default and the reasons for it, militate strongly in favour of refusing the application. The application was not made promptly. The delay of about 8 months in respect of the first judgment and about a month or six weeks in relation to the second judgment was lengthy, serious and highly culpable. The specific considerations which Rule 3.9 requires to be given weight point to the same conclusion: the need for the efficient conduct of litigation, and the need to ensure compliance with court orders and the rules, is not served by indulging a defendant like SP who has deliberately ignored the 21 day timetable set out in my order of 31 July 2013 and deliberately failed to engage in the proceedings until it perceives a risk of enforcement of the judgments. There is nothing in the interests of justice in the particular circumstances of this case which points to a different conclusion. The prejudice to Mr Avanesov if the judgments are set aside is significant. In all the circumstances the establishment by SP of a realistic defence is not sufficient to justify setting aside the judgments notwithstanding that the sums involved are large.
  2. The application will be dismissed.

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