Default judgment set aside applying Denton relief from sanctions (O'Brien v Goldsmith)

The Chancery Division has allowed an appeal under Rule 52.11(b) against a default judgment. In doing so it found there was a real prospect of successfully defending the claim (under Rule 13.3) and that it was appropriate to grant this relief under Rule 3.9 (applying Denton). It came to this conclusion even though the (new) defence had only recently been advanced and having taken into account and sought to balance all the factors of the case.

However, the court stressed that, had the appeal been limited to a review of the first instance decision, it would have been dismissed—the appeal was only allowed because of the new grounds of appeal, the new draft defence and bearing in mind the overriding objective at Rule 1.1 of the CPR.

Further, the order setting aside the default judgment was made conditional to reflect the factors that had weighed against the defendant.

The appeal—background facts

The defendant's appeal was against the decision refusing to set aside the default judgment obtained by the claimant following the defendant's failure to file and serve a defence within the required time limits pursuant to CPR 15.3.

Summary of key findings

In allowing the appeal, and thereby setting aside the default judgment, the Chancery Division found, among other things:

 

  • failing to serve a defence in compliance with CPR 15.2 can result in a default judgment being entered under CPR 15.3. As such, relief from sanctions provisions under CPR 3.9 are also engaged in any application seeking to set aside any such default judgment
  • this was an appeal which should not be limited to a review of the lower court's decision pursuant to 52.11(b) and CPR 1.1. This was because it would 'be wholly unrealistic to ignore the new draft defence and to deal with this appeal simply on the basis that none of this new material or new arguments were before the Master; such a course would ... fly in the face of common sense and the overriding objective' [para 45]
  • there was a real prospect of the defendant successfully defending the claim. Note: this was based on the defendant's new draft defence and not on the basis of the old and abandoned defence. This new defence had not been before the first instance court and, as such, the Chancery Division was keen to stress the first instance judgment could not be criticised for failing to deal with points which were not put before him
  • there was no other good reason for setting aside or varying the judgment or for allowing the defendant to defend the claim—see para 56 for further details. Note: the court made it clear it would not have set aside the default judgment for any other reason than that the new defence gave the defendant a real prospect of successfully defending the claim
  • substantial amounts of money in issue are not, of themselves, a good reason for setting aside a judgment in default [para 56(1)]
  • 'no amount of pressure should result in a party being untruthful in documents which bear a statement of truth, and in maintaining that untruthful position'
  • CPR 13.3 and CPR 3.9 both give the court a discretion when determining applications to set aside default judgment
  • the three-stage Denton approach is 'entirely apposite to an application to set aside a default judgment when considering whether there are good reasons to do so' (Hockley). Further, per the Court of Appeal in Regione Piemonte:

    'CPR 13.3 requires an applicant to show that he has real prospects of a successful defence or some other good reason to set the judgement aside. If he does, the court's discretion is to be exercised in the light of all the circumstances and the overriding objective. The Court must have regard to all the factors it considers relevant of which promptness is both a mandatory and an important consideration. Since the overriding objective of the Rules is to enable the court to deal with cases justly and at proportionate cost, and since under the new CPR 1.1 (2) (f) the latter includes enforcing compliance with rules, practice directions and orders, the considerations set out in CPR 3.9 are to be taken into account: see Hussain ... at [30]; Mid-East Sales ... at [85]. So also is the approach to CPR 3.9 in Mitchell / Denton. The fact that the Court's judgment in Denton was reinforced by the fact that CPR 3.9 was not reworded in the manner proposed by Jackson LJ does not detract from the relevance of CPR 3.9, and what was said about it in Denton, to applications under CPR 13.

    Denton makes clear that any application for relief against sanctions involves considering (i) the seriousness and significance of the default (ii) the reason for it and (iii) all the circumstances of the case. At the third stage factors (a) and (b) in CPR 3.9 are of particular, but not paramount, importance.'

  • applying the Denton approach to this case:
    • stage one—the breach was clearly serious as 'the filing of a defence is an important stage in litigation. No defence having been filed, the claimant obtained default judgment as a consequence'
    • stage two—the consequences of not filing a defence must have been clear to the defendant and/or his advisers. However, no good reason seemed to have been put forward for the failure to file in time
    • stage three—
      • the application to set aside was made promptly in compliance with CPR 13.3(2) and CPR 3.9
      • the court had to take into account, when exercising its discretion, that on the new defence there was a real prospect of successfully defending the claim. Note: the court also commented 'it must follow that there always was such a defence even though it had never before been advanced'
      • none of the other factors taken into account in this case reflected well on the defendant (see above). However, in applying the overriding objective, the 'real prospect of successfully defending the claim' finding outweighed the other factors in this case such that it was right to set aside the judgment and in doing so grant relief against sanction even though the defence has only recently been advanced
  • the court made it a conditional order pursuant to CPR 13.3 and CPR 3.1(3). The condition was that, in the event the defendant failed to comply with an costs order against him, the judgment (set aside under this appeal) would continue to stand

Practical implications arising from this judgment include (links are to LexisPSL Dispute Resolution Practice Notes, available to subscribers, or click here for a free trial):

  • when applying to set aside any judgment in default, ensure your evidence and application will also satisfy the relief from sanctions provisions under CPR 3.9 and Denton—see: Relief from sanctions—the application and Witness statement in support of an application for relief from sanctions
  • applications seeking to challenge any default judgment must be made promptly—this is a requirement under both CPR 13.3(2) and the relief from sanctions principles. The Chancery Division reminded the parties here of the Court of Appeal's decision in Regione Piemonte to uphold a decision not to set aside judgment on the grounds of delay even if the defence had a reasonable prospect of success. In that case the application to set aside had been made 12 months after judgment [para 62]—see: Court of Appeal: setting aside default judgments, key considerations and the application of Denton (Regione Piemonte v Dexia Crediop Spa)
  • supporting an application seeking to set aside a default judgment with a draft defence is good practice. However, it is not a requirement
  • where you are the respondent to an application seeking to set aside any judgment in default consider whether you might be able to persuade the court to make any order conditional. In this case the court ordered that the judgment in default would continue to stand in the event the defendant failed to pay in full the costs already ordered to be paid by him. It also indicated it would hear submissions as to whether any additional conditions should be imposed on the order setting aside the default judgment [para 65(6)&(7)]

Court details

Court: Chancery Division, High Court of Justice

Judge: Mr S Monty QC, sitting as a Deputy Judge of the High Court

Date of judgment: 18 May 2015

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