DELAY, DISCRETION AND SETTING ASIDE JUDGMENT

In the judgment today in Albesher -v- Ryan [2016] EWHC 541 (Comm) Mr Justice Walker considered issues of delay in an application to set aside a default judgment.

 

KEY POINTS

  • A regular judgment was set aside because there was a real prospect of successfully defending the claim.
  • There had been some delay by the defendant, however this was not sufficient to justify a refusal to set aside judgment.
  • The judge applied the Denton criteria and judgment was set aside.

PRACTICE POINTS

  • The case emphasises the importance of having a draft defence available when applying to set aside judgment (the failure was overlooked, but only because there were “exceptional” circumstances”).
  • One can’t help but comment on a remarkably laconic director who, receiving a claim form for over £25.4 million puts it in his briefcase on the grounds that there are more pressing matters.

THE CASE

The claimant issued proceedings against three defendants claiming damages in deceit, unlawful conspiracy in a sum in excess of £25.4 million.

  • One defendant filed an acknowledgment of service and filed a defence.
  • There were difficulties in serving a second defendant.
  • The third defendant (“Ryan Corp”) did not file an acknowledgement of service.
  • The claimant applied for judgment in default. This had to be at a hearing. Ryan Corp attended the application for judgment, were refused an extension of time for acknowledging service but a stay was granted pending its application to set judgment set aside.
  • The judge, at the application to set aside the judgment, decided that there were substantive issues and Ryan Corp had a real prospect of defending the claim.

 

THE EXERCISE OF THE COURT’S DISCRETION

A party seeking to have judgment set aside must still persuade the court to exercise its discretion even if there is a real prospect of successfully defending the claim.
  1. My conclusion in section D above has the consequence that the court has a discretion to set aside the default judgment. As to the exercise of that discretion, Dr Albesher advanced propositions that:
i) the express provisions of CPR 13.3(2) emphasise the importance of having regard to whether the person seeking to set aside the default judgment made an application to do so promptly; and

ii) although CPR 13.3 does not expressly say so, considerations under CPR 3.9 are relevant, with the consequence that the court should apply principles concerning relief from sanction set out in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926.

  1. Ryan Corp accepted both these propositions. In the remainder of this section I shall begin by considering whether Ryan Corp made its application promptly. I then discuss other factors said to have relevance to the exercise of my discretion, before turning to apply the Denton principles.
  2. As to promptness, the express words of CPR 13.3(2) state:
In considering whether to set aside or vary [a default judgment], 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.
  1. Oral submissions on behalf of Dr Albesher treated these words as if they covered the entire period from the date when the claim form was served through to the issue of an application to set aside the default judgment. This, as it seems to me, was too broad an approach. The particular factor which is expressly identified in CPR 13.3(2) is whether the application to set aside was made promptly. It cannot be made until after the default judgment has been entered. That is not to say that what happened prior to entry of the default judgment is irrelevant: on the contrary, it has relevance and I will consider it separately. My point only is that the specific factor identified in CPR 13.3(2) concerns the question whether, in the period between the grant of the default judgment and the application to set it aside, the defendant has made that application promptly.
  2. Ryan Corp asserted that in the present case the answer to that question must be yes. Ryan Corp was represented at the hearing in the course of which the default judgment was granted. At that hearing Ryan Corp advanced a submission that there should be a stay of execution for a period sufficient to enable Ryan Corp to make an application to set aside the default judgment. His Honour Judge Waksman acceded to that submission and granted a period until 23 June 2015 for that purpose. Ryan Corp submitted at the hearing before me that it had made the application within the time allowed by His Honour Judge Waksman, and therefore it must follow that the application was made “promptly”.
  3. The submissions for Dr Albesher did not distinctly grapple with this contention on behalf of Ryan Corp. Reference was made to Mr Ryan having become aware of the application for default judgment no later than 26 May 2015. I deal with that below, but for present purposes I observe that it does not engage with the observation that Ryan Corp took no longer to make its application than the judge had allowed. It seems to me that if there had been some factor which had the consequence that Ryan Corp could have made its application more speedily than the judge had envisaged, then it would have been open to Dr Albesher to submit that mere compliance with the time allowed would not demonstrate that the application had been made “promptly”. However no such factor is suggested. The preparation of the application required a considerable amount of work. I have no reason to consider that this work was done any less speedily than could have been expected, and in those circumstances I accept that the application was made “promptly” within the meaning of CPR 13.3(2).
  4. Accordingly I turn to other factors. There are, as it seems to me, three relevant periods prior to the grant of the default judgment. The first concerns the period between Ryan Corp becoming aware of the claim form and expiry of the time allowed for filing an acknowledgement of service. As to that, as noted in section D2.6 above, Mr Ryan gave an account of receiving the claim documents “around mid-late April” when attending a meeting regarding other business matters, of being involved in extremely significant property development opportunities which put serious demands on his time, of not immediately reading the documents that were given to him, but putting them into his briefcase thinking that he would review them later, of other business matters “completely dominating my time” and overlooking the fact that he had put the documents in his briefcase for review, and then simply forgetting about the fact that he had received the documents. He accepts that the documents were extremely important, but says that not having read them when first handed to him he had not appreciated that at the time.
  5. Dr Albesher submits that being busy is no excuse for overlooking the claim form. Ryan Corp does not suggest that it is. It is not said that there is any good reason for the failure to acknowledge service: the limit of Ryan Corp’s contention is that during the period prior to expiry of the time allowed for filing an acknowledgement of service there was no deliberate decision on its part to ignore a deadline. It is submitted by Dr Albesher that the importance of the documents must have been apparent to Mr Ryan. As it seems to me, the importance of the documents ought to have been apparent to Mr Ryan, but I am not in a position to say that it was in fact apparent to him.
  6. The next relevant period, as it seems to me, is the period between expiry of the time within which an acknowledgement of service ought to have been filed and the date when Ryan Corp realised that it had failed to do what it should have done. In the present case that period ended on 26 May 2015, when Mr Ryan received from Brebners the letter from Goodman Derrick warning of the application to enter default judgment. Ryan Corp’s position during this period appears to me to be materially identical to its position during the first period.
  7. The third period began on 26 May 2015 when Mr Ryan received notice of the hearing and ended on 2 June 2015 when the order for a default judgment was made. Dr Albesher criticised Mr Ryan in that regard: he had received notice of the hearing and yet did nothing for another two or three days. He instructed lawyers only on the day of the hearing. I consider that this is a fair criticism, but it is a criticism which arises in relation to a relatively short period of time. Moreover, there is no suggestion that if Mr Ryan had acted more promptly the outcome of the hearing before His Honour Judge Waksman would have been any different.
  8. I noted earlier that it is appropriate to consider whether the exercise of my discretion should be affected by the failure of Ryan Corp to submit a draft statement of case answering the particulars of claim. As indicated earlier, in the ordinary course I would expect to see such a document, so that the court can know precisely what answer is given to the allegations against Ryan Corp. When I raised this at the hearing two submissions were made in answer. The first was that Ryan 1 dealt fully with all matters of fact that could be expected to be dealt with in a draft statement of case, and indeed went beyond this. For the reasons given earlier, I accept that submission. The second submission was that it would save costs for a single statement of case to be prepared dealing with the defences of both Mr Ryan and Ryan Corp. This assumed that instructions would be given for the production of such a document. If, however, there had been any failure in Ryan 1 to deal with the facts that could have been expected to be dealt with in a defence, then it seems to me that this submission would provide no answer to the complaint.
  9. In these circumstances it seems to me that, in the exceptional circumstances of the present case, the court is not hampered by the lack of a draft defence. For that reason I do not give substantial adverse weight to Ryan Corp’s failure to provide such a document.
  10. A further aspect dealt with in submissions concerned the fact that Ryan Corp is but one of three defendants. I noted in section C above Mr Cohen’s contention at the hearing on 2 June 2015 in relation to CPR 12.8. Reliance on CPR 12.8 was repeated in Ryan Corp’s application notice, but the point was rightly not pursued at the hearing before me. The fact that there are other defendants does not, in the circumstances of the present case, bar entry of a default judgment.
  11. It was nevertheless relied on by Ryan Corp as relevant to discretion in two ways. First, it was said that because service on Mr Ryan had not been effected, Ryan Corp’s failure to act had not delayed the proceedings. Dr Albesher asserted that this was misleading, as Mr Ryan had deliberately evaded service. It seems to me that the position is that Mr Ryan, who is Ryan Corp’s effective owner, has deliberately not facilitated service. This in my view disentitles Ryan Corp from relying on the resultant delay during the period up to and including service of Dr Albesher’s reply to Mr Ryan’s defence. In any event, as its seems to me, Ryan Corp’s failure to acknowledge service has resulted in unnecessary proceedings and wasted time and expense comprising, at least, the application to enter default judgment, the hearing of that application, the issue of Ryan Corp’s application notice, and the preparation by Ryan Corp and consideration by Dr Albesher of Ryan 1.
  12. Second, it was said that the claim against Ryan Corp was inextricably linked to the claims against Mr Ryan and Credit Suisse. I do not consider that the link is “inextricable”. It is nevertheless true that almost all factual matters said to give rise to Ryan Corp’s liability will be matters that fall to be determined in the proceedings against Mr Ryan and Credit Suisse. It follows that setting aside the default judgment will not add significantly to the time required to resolve the claim.
  13. In these circumstances I turn to apply the Denton principles:
i) The first stage of the Denton principles requires me to identify and assess the seriousness and significance of the failure to file an acknowledgement of service. If that failure were neither significant nor serious, then little time may be needed when turning to stages two and three. I cannot say that the failure to file an acknowledgement of service falls into that category. It is significant, and it had serious consequences as set out above.

ii) The second stage is to consider why the default occurred. It is not suggested that there was good reason for the default, but on the other hand the default was not deliberate. Moreover it is a relevant mitigating factor that Ryan Corp had no relevant warning of the proceedings. No allegation of deceit or fraudulent conspiracy was made at the time of relevant events. There was no letter before action. It seems that in May 2014 a letter had been sent threatening proceedings for failure to repay a loan of £25.4m – but that was very different from the present claim, and it was not pursued.

iii) At the third stage all the circumstances are to be considered. Particular weight should be given to the need for litigation to be conducted efficiently and at proportionate cost and to the need to enforce compliance with rules, practice directions and orders. Here the delay and wasted expense identified above weighs against Ryan Corp, as does the fact that it failed to comply with the time limit for acknowledging service. As against that, however, Ryan Corp has since 2 June 2015 acted promptly, and it has shown that there is a real prospect of successfully defending grave accusations against it in circumstances where, although there has now been a delay of several months, the time required in future in order to deal with the claim against Ryan Corp will not add significantly to the time required in order to deal with the claim against other defendants.

  1. Weighing all these factors it is my view that the balance falls strongly in favour of setting aside the default judgment. I will exercise my discretion accordingly, and order that the default judgment be set aside.
F. Additional observations and conclusion
  1. I noted earlier that a defence has now been filed by Mr Ryan, that a reply to that defence has been filed by Dr Albesher, and that at my request the parties have made written observations in that regard. I have considered those observations. In the light of my conclusions in sections D and E above it does not seem to me that those observations materially advance either side in relation to the outcome of the present application.
  2. It was submitted by Dr Albesher that any order permitting the default judgment to be set aside should impose a condition that Ryan Corp pay Dr Albesher the full costs of the application. I do, not, however, consider that Ryan Corp’s case is so dubious as to make this appropriate. The setting aside of the default judgment will not be conditional.
  3. For the reasons given above I grant Ryan Corp’s application to set aside the default judgment.”

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