England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE QBEN1 97/0834 CMS1

(MR MAWREY QC SITTING AS A DEPUTY HIGH COURT JUDGE )

Royal Courts of Justice

Strand

London WC2

Tuesday 7 April 1998

B e f o r e:

THE MASTER OF THE ROLLS

(LORD WOOLF)

LORD JUSTICE OTTON

LORD JUSTICE ROBERT WALKER

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LADY ELIZABETH ANSON

(Trading as Party Planners)

Plaintiff/Respondent

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IVANA TRUMP

Defendant/Appellant

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 421 4040

Official Shorthand Writers to the Court)

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MR M ROBERTS (Instructed by Messrs McNulty & Co, Hampshire RG21 7QQ) appeared on behalf of the Appellant

MR A BURNS (Instructed by Messrs Radcliffe Crossman Block, London SW1P 3SJ) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court)

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©Crown Copyright

JUDGMENT

LORD WOOLF, MR: I will ask Lord Justice Otton to give the first judgment.

LORD JUSTICE OTTON: This is an appeal from an order made on 12 December 1996 by Mr Richard Mawrey QC, sitting as a Deputy Judge of the High Court in the Queen's Bench Division. He dismissed a summons to set aside a default judgment, which had been entered against the defendant on 22 November 1996, and a concurrent application for a stay. He also dismissed a notice of appeal to the judge in chambers against the order of Master Murray made four days later on 26 November 1996. By this appeal the appellant seeks to set aside the default judgment and the decision of Master Murray.

The plaintiff is Lady Elizabeth Anson who is in the business of organizing parties for the rich and famous. The defendant is Mrs Ivana Trump. She is the former wife of Donald Trump, an American tycoon. She is described as a prominent international business woman and socialite. In June 1993 she was minded to give a surprise party to her fiancee. She approached the plaintiff who agreed to organise a party for 20 couples which involved hiring an exclusive restaurant and hotel, Le Manoir aux Quat' Saisons, in Oxfordshire. The party took place over the weekend of 19/20 June 1993. The defendant paid a deposit of £10,000. On 25 June the plaintiff duly rendered her bill for the balance of the account in the sum of £26,497.32, thus making the total account in the region of £36,500. The defendant asserts that the agreement was that the party would cost only a little under £25,000 or, in the alternative, that the total bill was excessive and that she should be liable only to pay a reasonable amount for the plaintiff's services.

By the time the proceedings were commenced by writ on 11 November 1994, some payments had been made by the defendant against the sum claimed. By the time the amended statement of claim was served on 28 June 1996, further sums had been paid and the sum outstanding, as far as the plaintiff was concerned, was reduced to approximately £12,000. The defendant has in effect paid to the plaintiff the sum which she contends she was liable to pay for the party in the first place.

The appeal is concerned primarily with procedural matters. In May 1996 the plaintiff sought to amend her statement of claim. She made application to Master Murray, who made an order dated 14 June which was somewhat unusual. He allowed the application to amend the statement of claim, and allowed the original statement of claim to be removed from the record and a new statement of claim to be substituted. At the same time he ordered that the defence should also be withdrawn. He directed that a new defence be served within 21 days after the service of the amended statement of claim.

The amended statement of claim was duly served on 28 June 1996. It is common ground that no defence was served within the 21 days ordered, nor indeed was any defence served in the succeeding five months. The plaintiff, perhaps disappointed by the lack of progress of such a simple claim, changed her solicitors. The new solicitors discreetly warned the defendant's solicitors that they intended to enter judgment on 22 November. The defendant's solicitors did nothing in between. They did not take out a time summons to extend the time for delivery of the defence. On the morning of 22 November 1996, the plaintiff's solicitors, shortly after the opening of the court offices, signed judgment in default for the original sum claimed. On the same day, in the morning and shortly before the default judgment was signed, the defendant's solicitors faxed a defence to stand as the amended defence. It was, in essence, identical with the original defence with some minor amendments. The defendants do not contend that the plaintiffs knew that the defence had been served by fax at their offices before the representative of the solicitors signed judgment in the High Court office. The matter went back to Master Murray on 26 November who refused a stay of execution on the defendant's application. However, later that day a stay was granted by Sir John Wood in chambers.

The first issue on the appeal is a short point: can a default judgment be entered where a defence is served outside the 21 day period ordered by the Master, but prior to the entry of judgment? Is such a judgment regular or can it be set aside ex debito justitiae or otherwise as of right? The defendant purported to serve the defence out of time and without leave to serve late. This was done by fax on 22 November. It was transmitted at about 9.42 am according to the clock on the defendant's fax machine. It was received by the plaintiff's solicitors between then and 10.05, when it came to the attention of the responsible person in the solicitor's office who had not departed for court. The representative who was to seek judgment at court at 10 am had already left the office.

Order 19 rule 2 provides:

"Where the plaintiff's claim against a defendant is for a liquidated demand only, then if that defendant fails to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, enter final judgment against that defendant for a sum not exceeding that claimed by the writ in respect of the demand and for costs, and proceed with the action against the other defendants, if any."

The commentary immediately beneath the text reads as follows:

"If before a judgment is entered, the defendant serves a defence even though it be out of time, judgment in default cannot be entered ( Gill v Woodfin (1884) 25 Ch D and Gibbings v Strong (1884) 26 Ch D 66 CA)."

It is also to be noted that Order 19 rule 7(4) provides:

"Defence served after default - A defence served after expiration of the prescribed time but before judgment has been given cannot be disregarded, and will generally prevent the plaintiff from entering judgment, even though it is not served until after the plaintiff has served his summons or notice of motion for judgment under this rule, but the defendant may be ordered to pay the costs occasioned by his delay."

There is again a reference to Gill v Woodfin and Gibbings v Strong :

"In such a case the court will have regard to the contents of the defence served out of time, and deal with the case in such a manner that justice can be done."

Having considered Order 19 rule 2 the learned judge said:

"I take the view that the words 'if a defendant fails to serve a defence on the plaintiff' must be read as 'in accordance with the rules or orders made under the rules' otherwise those rules and any orders would be completely nugatory. If when Master Murray orders a defence to be served within 21 days this simply means that the defendant can serve a defence at any time she likes up to the point in time when, as it were, the rubber stamp is put on the judgment in the Law Courts, then it seems to me that that makes a mockery of r.2(1) and indeed of orders of Masters such as Master Murray.

In my judgment the correct way to read Ord 19 r 2 is to this effect. Where time has been limited for the service of a defence then the defendant has up to the expiry of that time to serve his or her defence. If the defendant does so within that time, then the defendant has complied with the rules or the order. A plaintiff who is foolish enough to sign judgment before the expiry of the time is liable to have that judgment set aside ex debito justitiae because the plaintiff has not waited [until] the time has expired. Once the time has expired, however, it seems to me that the defendant is at risk. If the defendant serves a defence, that defence is not a nullity in the sense that it is completely valueless. It is, however, irregularly served.

....

Once the time has expired, without a defence being served in that time, and the plaintiff thereafter [signs] judgment, that judgment in my judgment is regular but of course is liable to be set aside on application by the defendant."

Mr Michael Roberts, on behalf of the defendant, submits that although the judge said that the argument made a mockery of the wording of Order 19 rule 2, that approach overlooks two matters. First, if in fact the plaintiff does not enter judgment at the end of 21 days or a considerable time thereafter, there is no reason in principle why the defence should not be valid. By her actions in not entering judgment at the end of the 21 day period a plaintiff had effectively waived the defendant's obligation to serve within that period and impliedly consented to an extension of time. In particular, he relies upon the passage in the commentary to Order 19 rule 2, and the two 19th century decisions to which reference has been made. I have considered those decisions with great care. They must be considered in the light of the procedural rules then existing.

We have not been supplied with the text of the Rules of the Supreme Court in 1875, but in Gibbings v Strong Earl of Selborne, LC, refers to the rule in his judgment at page 68. He stated as follows:

"When no defence has been put in, then, by Order XXIX, rule 10 of the Rules of 1875, the plaintiff may set down the action or motion for judgment, ´and such judgment shall be given as upon the statement of claim the Court shall consider the plaintiff to be entitled to.´

That quotation is clearly taken from Order 29 rule 10. Thus a judgment in default was obtained by a judicial process, namely a motion for judgment for want of defence.

The Lord Chancellor continued at p 69:

"This means that the Court is to exercise some judgment in the case: it does not necessarily follow the prayer, but gives the plaintiff the relief to which, on the allegations in his statement of claim, he appears to be entitled; and if a defence has been put in, though irregularly, I think the Court would do right in attending to what it contains. If it were found to contain nothing, which, if provided, would be material by way of defence, the Court would disregard it. If, on the other hand, it discloses a substantial ground of defence, the Court will not take the circuitous course of giving a judgment without regard to it, and obliging the defendant to apply, under rule 14, to have that judgment set aside on terms, but will take steps to have the case properly tried on the merits."

Cotton LJ in his judgment said at p 71:

"I think it is the duty of a Judge, when an action comes before him on motion for decree in default of pleading, to look at everything the knowledge of which may enable him to do justice between the parties. The Plaintiff was entitled to move under Order XXIX, rule 10, but, especially having regard to rule 14, I do not think that where a defence has actually been put in, rule 10 can be construed as obliging the Court to pay no attention to it, because it was put in after time and without leave."

Since those decisions, time has moved on. What was a judicial process has now been replaced in the case of a claim for a liquidated demand by an administrative Act under Order 19 rule 2 (cf O 19 rule 7). Judgment by default is obtained by the plaintiff completing a form, part of which requires a declaration that no defence has been filed (see Practice Direction [1979] 1 WLR 851). Such a judgment is not immutable. The defendant can make application to set aside such a judgment. The Master then considers the application on its merits and decides, in all the circumstances, whether to do so. If the defence is served late, the plaintiff can waive the irregularity and the action continues. If the defendant is in default, but the plaintiff knows that there is a prima facie arguable defence to be put forward, he may still enter judgment, but does so at his own peril as to costs on any subsequent successful application to set aside the judgment.

This procedure is, to my mind, fundamentally different from Order 29 of the rules of 1875. Consequently I gain little assistance from those earlier decisions, save that a late defence was to be treated as an irregularity and not a nullity, so that it could be considered by the judge on the hearing of the motion.

I turn to consider whether the judge was correct to find that the judgment was not obtained irregularly. The judgment was entered at a time when the plaintiff had no knowledge that the defendant had purported to serve a defence. The plaintiff's agent who was obtaining judgment could not reasonably have discovered that the defendant had purported to serve the defence. The defendant was in default of serving her defence and had never taken out a time summons for an extension of time. The plaintiff, in my view, is not blameworthy in entering judgment and therefore did not do so irregularly.

I now consider whether the judge was correct to find that the defendant failed to serve a defence by the time the plaintiff entered judgment against her. Here the defendant was ordered to serve a defence within 21 days of the service of the amended statement of claim. In order to serve the defence validly, she had either to serve the defence within the time ordered or obtain leave from the Master to serve late. Any defence served by fax on 22 November was undoubtedly served out of time and without leave having been given or applied for. The only conclusion is that it was served irregularly. Consequently the judge was correct when he said, in effect, that the reference to a defence under Order 19 rule 2(1) must mean a regular defence and cannot include an irregular defence.

In my judgment, the judge's analysis of Order 19 rule 2(1) accords with the wording of the Practice Direction in which the plaintiff's solicitor has to certify that the defendant is in default of serving a defence within the time prescribed by the Rules of Court or as extended by order of the Court or by the consent of the parties. The Practice Direction does not require a plaintiff's solicitor to certify that the defendant is in default in serving his defence "to date" or "up until now" or "in so far as I am aware".

This reading of the rule causes no hardship to defendants, as it would be open to them to apply for leave to serve late or to apply to have judgment set aside under the discretion if a plaintiff knew full well that a defence had been served, albeit an irregular one. In practice these two summonses could be heard by the same Master in whichever order he felt appropriate in order to achieve justice between the parties. Consequently, I come to the conclusion that the judge was correct when he said:

"I therefore take the view that if a judgment is signed after the expiry of the period, there being no service of a defence within the period, then that judgment is regular. It is liable to be set aside, but not ex debito justitiae but as a matter of discretion by the court."

The second issue of the appeal concerns the way in which pleadings faxed to the other side are to be treated. This applies not only to a defence but, for example, to the service of a statement of claim. A writ cannot be served by way of fax. The facts are not in issue. The faxing of the defence to the plaintiff's solicitors office was completed, according to their clock, by 9.42 am; the judgment was entered at 10.05 am.

Order 65 rule 5 provides as follows.

"(1) Service of any document, not being a document which by virtue of any provision of these rules is required to be served personally or a document to which Order 10, rule 1 applies, may be effected -

....

(ca) by FAX in accordance with paragraph (2B)."

Paragraph (2B) provides:

"Service by FAX may be effected where-

(a) the party serving the document acts by a solicitor,

(b) the party on whom the document is served acts by a solicitor and service is effected by transmission to the business address of such a solicitor.

....

Where the FAX is transmitted on a business day before 4 pm it shall, unless the contrary is shown, be deemed to be served on that day, and, in any other case, on the business day next following."

The judge took the view that in order to make Order 65 rule 5(2B) work, there must be implied into it a reasonable time between the actual arrival in the fax machine and a communication to someone in the office who knows about the matter in question. The judge said:

"I would be prepared to hold that service by fax under Ord 65, r 5(2B) has to be interpreted in such a way which is sensible and workable. In my judgment it would be very undesirable if in a situation such as the present the court had to embark on an inquiry as to the precise time when a judgment was entered and a precise time at which a fax was received, to embark on an inquiry as to whether a fax was received perfectly or imperfectly, and it would be very undesirable for every clerk attending to sign a judgment to have to stand in the Judgments Room with a mobile telephone clamped to his or her ear so as to get up-to-the-second instructions from somebody standing by the fax machine as to whether or not the defence has been served. In my judgment that would be quite ludicrous.

I take the view that the only way in which paragraph (2B) can be made to work is by implying into it that a reasonable period of time is to elapse between the physical arrival of the fax and its reasonable communication to someone at the solicitors' office who knows something about it. A reasonable time may be no more than an hour, but in my view a reasonable time must be allowed to elapse, otherwise the ludicrous situation would arise whereby a fax comes in (one of thousands or tens of thousands) to a huge city firm. It is quite impossible logistically for that fax to reach the hands of anybody who knows what they are doing in under half-an-hour, however efficient the system in place. Nonetheless, the moment the last page is out the document is taken to be served. Therefore, I would hold that in the circumstances of this case, these solicitors having in my judgment quite deliberately cut it as fine as they possibly could, have cut it too fine and that there had not been proper service of the documents."

Mr Roberts submits that there is no scope in the rules for such an indication to be made. "No-one suggests that service by post or leaving at an office of process, or proceedings is subject to someone having to pick up the document and look at it within an uncertain time thereafter. There is no reason why faxing should be any different". The rule his simply in terms of "transmission", ie electronic communication of the fax and nothing more. If the rule was in terms of "transmission and communication to someone having the conduct of the matter", that would be a very different situation. The judge sought to imply into the rule a delay period which does violence to the plain words of the rule, is out of step with other methods of service, and creates an uncertainty which the rules on service are designed to avoid.

Mr Burns on behalf of the plaintiff contends that the judge was correct to find that the defence was served too late by fax. There are uncertainties which accompany service by fax. A fax can be delayed in the memory buffer. The instant of transmission by the sender cannot be "service" as the recipient does not have a legible document at that moment. The precise time when the final page is printed out in a legible form by the recipient's machine may well be uncertain, depending on the sophistication of the machine and the amount of traffic it is dealing with at the time.

Mr Burns commends the judge's approach that a person must allow a reasonable time for a fax to be transmitted, printed out and received. He suggested not more than an hour. This, he submits, is a pragmatic way of interpreting the rule. As to the order itself, the language does not deal in instant moments or minutes, but in whole days. He relies upon the passage that a fax transmitted before 4 pm is deemed to arrive on that day. A fax transmitted after 4 pm is deemed to be served on the following business day. Consequently the defendant's defence was deemed to be served on 22 December and judgment in default was entered on the same day.

I regret that I cannot accept the learned judge's reasoning and Mr Roberts' arguments are more attractive, but not conclusive. In my judgment there is no scope within the rules to import a gloss of reasonableness or a reasonable lapse of time. This introduces a subjective element into the rule which is not called for, and would undermine it and lead in time to uncertainty. What would be reasonable in a single practitioner's office would be unreasonable in a large city firm and vice versa. Transmission must be given a meaning which is consonant with modern communication technology and commercial practice. I would hold that "transmission" means the process from the moment that the document is despatched by the sender to a time when the complete document has been received into the recipient's faxed equipment. This may be a matter of seconds or even nano-seconds, it may be somewhat longer if the recipient's fax machine is busy or the document is longer. The fact that it may remain in the fax memory before being printed or read is to my mind irrelevant. Consequently I would respectfully differ from the judge and hold in this case that, in the absence of evidence to the contrary and assuming that the clock on the transmitter's fax machine was accurately set, the defence which consisted of two pages and probably a covering sheet was transmitted and served at about 9.42 am on 22 November.

The third issue in the case concerns the merits of the defence itself. On behalf of the defendant, Mr Michael Roberts submits that on the face of the defence, and on the facts as they now present themselves this court should set aside the judgment on the merits. We have before us an affidavit sworn on 17 February 1997. It is submitted that it raises a substantial and bona fide issue of fact. The judge, when considering this aspect of the case, said:

"I have read the defence. This is a defence which, if Mrs Trump had been extremely lucky with a very indulgent Master on Ord 14 proceedings, might have led to conditional leave, conditional on all the money being brought into court. But in my view a robust Master would have said this defence is hopeless. Therefore even if Mrs Trump had been entitled, as it were, to the benefit of the doubt of the defence itself, the conduct of this litigation by her and by her solicitors (which I have said is quite deplorable) would in my view preclude any exercise of discretion in her favour."

Mr Burns submits that the Deputy Judge was justified in finding that her defence was hopeless. The defendant had not appealed the judge's finding that she had no excuse for the delay in serving her defence. She simply contended that her solicitors were led into believing that default judgment would not be entered as the plaintiff had restored the summons for directions. That point has not been pursued by the defendant.

It was however suggested that Mrs Trump was so busy about her business and social affairs that she was unable to give her solicitors adequate instructions. Mr Burns says that the judge exercised his discretion in the way that was reasonable, open to him on the evidence and, in the light of the explanation for delay which was offered, it is not surprising that the judge decided in the way which he did. He urges that this court should not interfere save in exceptional circumstances which do not exist in this case.

I have come to the conclusion that it is appropriate for this court to consider the exercise of discretion afresh. The defence which was before the Deputy Judge was, on perusal, adequate to meet the statement of claim. The defence said, in terms:

"4. ....it was an implied term of the agreement that the Defendant would pay a reasonable charge for the Plaintiff's services and/or any additional services requested of the Plaintiff by the Defendant.

5. On or about the 25th June 1993, the Plaintiff delivered an account of the same date for £36,497.32 to the Defendant. The Defendant will aver at the trial of this action that requests had been made of the Plaintiff to supply original itemised accounts and invoices and an itemised breakdown of the amount of time spent by the Plaintiff, her servants, and agents in the execution of the agreement and wrongfully the Plaintiff has failed to provide the same or to render a true and full account as requested.

6. The Defendant denies that the sum claimed by the Plaintiff and referred to in paragraph 5 above as a reasonable charge is a reasonable sum. The Defendant will aver at the trial of this action that inter alia the charges raised by the Plaintiff for her time and the time of her staff were duplicated and excessive."

Thus the defence is quite clear. It is acknowledged that there was an agreement, that some monies were due at the conclusion of the provision of the services, but there is a challenge as to the reasonableness of the bill. It is also suggested, and in my view correctly, that the plaintiff's solicitors were dilatory, and obstructive by their downright refusals of any sight of the documentation in support of the claim. In those circumstances I must differ from the learned judge when he says that the defence was hopeless. It seems to be that that was an eminently arguable defence to the claim in part, if not in whole.

I take heed of the submission by Mr Burns that we should consider the exercise of the judge's discretion on the basis of the evidence that was before him which did not include the fresh affidavit. However, I consider that the learned judge erred in the exercise of his discretion and it is thus appropriate for this court to exercise its own discretion. The affidavit merely amplifies those parts of the defence to which I have referred.

I regard it as arguable that the requests for documentation were reasonable, and that on the face of it at least the obdurate attitude of the plaintiff's solicitors was unreasonable. Consequently I would reverse the judge's decision on this particular aspect.

I would not give leave to defend the whole claim. A substantial part of the claim has already been paid. The defendant has already paid as much as she asserts that she is liable to pay. Consequently I think she should be given the opportunity to defend as to the balance. An order has already been made that she should bring the whole of the claim into court. The amount in issue between the parties seems to range between £5,000 and £7,000 plus VAT. In my view the justice of the case requires that the defendant should be given leave to defend that part of the claim which is still in dispute, that the plaintiff should be permitted to take out of court such an amount as would bring the amount recovered up to the round figure of £30,000 and that there should be leave to defend as to the balance. In view of the amount involved, I would remit this claim to the County Court for the determination of the outstanding sum. To that extent the appeal should be allowed.

LORD JUSTICE ROBERT WALKER: I agree.

LORD WOOLF, MR: I also agree.

Order: Appeal allowed. Matter to be remitted back to County Court as to outstanding sum. No order as to costs of appeal.