England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT
(Her Honour Judge Frances Kirkham
(sitting as a deputy High Court judge))

		Royal Courts of Justice Strand London WC2 Monday 29th January, 2001

1. LORD JUSTICE SEDLEY: Lord Justice Jonathan Parker will give the first judgment.
2. LORD JUSTICE JONATHAN PARKER: This is a renewed application by CPL Mechanical & Pipe Installation Specialists Ltd ("CPL"), the claimant in the action, for permission to appeal against an Order made by Her Honour Judge Kirkham, sitting in the Birmingham District Registry (Technology and Construction Court), on 13 October 2000. By her Order, the judge dismissed an application by CPL to set aside a judgment in default obtained by the defendants in the action, Durr Industries Incorporated ("Durr"), on their counterclaim. Permission to appeal was refused by Sedley LJ on the papers on 8 December 2000. On this application CPL appears by Mr Soofi Din of counsel.
3. The background to the matter is briefly as follows. In June 1997 a contract was entered into between CPL and Durr for the supply by CPL to Durr of labour, plant and expertise in relation to the installation of a pretreatment and electrocoat paint system at Ford Motor Co's plant at Dagenham. Durr was the main contractor for the project; CPL was one of the subcontractors. The agreed contract price was £264,000. To date Durr has paid a total sum of £237,600 under the contract.
4. In or about November 1997 work ceased on the site. The precise circumstances in which that occurred are, it appears, a matter of dispute. On 11 February 1998 CPL issued the writ in the present action, claiming the balance of £26,400 due in respect of the contract price together with some £168,000 in respect of alleged wasted time and costs, together with other claims. CPL's total claim amounts to £194,457 plus interest. On 10 June 1998 CPL went into liquidation. On 5 May 1999 Durr served a Defence and Counterclaim, alleging failure of performance by CPL under the contract. A schedule to the Pleading listed some 70 specific alleged failures. By its Counterclaim, Durr claimed damages amounting to some £96,000 excluding VAT. The time for service of a Defence to Counterclaim expired on 19 May 1999, with no Defence having been served. Durr accordingly applied to enter judgment in default on the Counterclaim, and on 30 June 1999 judgment in default was duly entered on the Counterclaim for damages to be assessed. It is accepted by CPL that the default judgment was properly entered. On 8 July 1999 the default judgment was served on CPL. CPL's solicitors indicated at that stage that CPL would be applying to set it aside. However as will appear, no such application was in fact made until many months later. On 14 July 1999 CPL made a Part 36 offer, taking into account its Counterclaim. On 28 April 2000 CPL applied for the action to be transferred to the Technology and Construction Court. The action was at that point automatically stayed under the transitional provisions of the Civil Procedure Rules. On 17 July 2000 CPL applied for the stay to be lifted and the action to be transferred to the Technology and Construction Court. On 18 August 2000 Her Honour Judge Alton made that order, and gave CPL until 1 September 2000 to apply to set aside the default judgment. On 31 August 2000 the application to set aside the default judgment was issued. On 13 October 2000, as I have already said, the application was dismissed by Her Honour Judge Kirkham, that being the order against which CPL now seeks permission to appeal.
5. The judge began her careful and detailed judgment by recording that she had allowed both parties to put in further evidence which had been provided late. She also recorded that she had given CPL the opportunity to apply for an adjournment, but that CPL had declined that opportunity. In view of the primary point put forward by Mr Din in support of CPL's application for permission to appeal, I shall have to return to this aspect of the matter later in this judgment. Then, having set out the factual chronology, as I have just summarised it, the judge referred to the relevant provisions of the Civil Procedure Rules. Part 12 deals with default judgments. Part 13 deals with setting aside or varying a default judgment. Rule 13.2 provides that the court must in certain circumstances (none of which exist in this case) set aside a default judgment. Rule 13.3 is in the following terms:

"(1) In any other case, 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."

6. The judge went on to say that she had "very much in mind" the overriding objecting of the Civil Procedure Rules in ensuring, so far as practicable, that matters are dealt with expeditiously and fairly.
7. The judge then turned to the question of delay. She recorded that CPL had not sought to excuse the very substantial delay which had occurred prior to the issue of its application to set aside the default judgment. Rather, CPL (through Mr Din) had merely drawn her attention to the reason for that delay, namely the fact that at the material time negotiations were taking place. The judge continued:

"However, as [CPL] accepts, negotiations of that sort are not sufficient reason not to take the necessary procedural steps in an action including, of course, serving a defence to a counterclaim."

8. She then addressed a submission made by Mr Din that Durr had itself been guilty of delay. The judge concluded, plainly correctly in my view, that there was no reason why Durr should progress the action. She continued:

"In circumstances where [CPL] is in liquidation, although I have no evidence as to what funds, if any, may be available to the liquidator, it is entirely understandable that [Durr] should not consider it worthwhile pursuing an assessment of damages claimed by its counterclaim. Having put itself into the procedural position that it did, it was entirely understandable that [Durr] should take no steps."

9. The judge then turned to CPL's delay in applying to set aside the default judgment, concluding that such delay was, as she described it, "simply unacceptable".
10. She then turned to consider whether there was evidence that CPL's delay had caused prejudice to Durr, and concluded that Durr had suffered no substantial prejudice by reason of the delay, given the prejudice inevitably inherent in a delayed hearing of the action itself. She continued:

"In my judgment, however, the question of prejudice is not determinative. Part 13.3(2) makes it clear that the Court must consider whether the party has made its application promptly. I must take the claimant's delay into account in any event, pursuant to Part 13.3(2), whether or not the defendant has been prejudiced by the delay."

11. In my judgment, that is plainly a correct interpretation of Rule 13.3(2).
12. The judge then turned to the merits of CPL's proposed defence to Durr's counterclaim. She approached this aspect of the case on the footing that it was for CPL to demonstrate that the defence which it sought to put forward to the counterclaim had a real prospect of success. In considering this question the judge referred to a witness statement of a Mr Wallbank, a former director of CPL, and to a draft Reply and Defence to Counterclaim which was placed before her, together with a schedule of comments by CPL on the various items in respect of which Durr had counterclaimed. She also referred to a statement by Mr Guise, a director of Durr, to which he exhibited a number of documents. I shall have to return to the contents of this exhibit in a moment.
13. Having carefully considered the evidential material before her, the judge concluded that in respect of three of the items the subject of the counterclaim, CPL had demonstrated that it had a defence which had a real prospect of success. Those three items totalled some £18,000. The judge acknowledged that that was a substantial sum, and more than merely de minimis. In the light of that conclusion, the judge considered whether it would be appropriate to set aside the judgment in part, that is to say in relation to the three items in respect of which CPL had demonstrated that it had a real prospect of success. However, she concluded that the substantial delay of which CPL had been guilty was in effect an overriding factor in the exercise of her discretion. In connection with this delay, she said this:

"In my judgment a delay of 14 months, even of 10 months if the claimant's case were accepted, is inexcusable, notwithstanding the prospect of success of items with a value of just over £18,000. In my judgment, given the serious delay by the claimant in bringing this application and bearing in mind the possible, though I do not put it very high, prejudice to the defendant in its witnesses having been dispersed, the judgment on the counterclaim should not be set aside."

14. Mr Din makes a number of criticisms of the judgment. However, before I come to those, I must record the primary ground on which Mr Din seeks permission to appeal. It is, in summary, that the argument on liability under the contract was presented to the judge in an insufficient and indeed inaccurate way, in that inadvertently a relevant contractual document was not the subject of argument before the judge. In order to explain this it is necessary to refer in the first place to the Defence and Counterclaim of Durr. Paragraph 2 of the Defence pleads as follows:

"2. The said appointment [that is to say the appointment of CPL as subcontractors] is evidenced by the Defendant's letter dated 2nd June 1997, which incorporated the following as contract documents:

15. 1. The Defendant's scope of works dated October 1996;"
16. I need not read any more of that pleading.
17. The argument before the judge proceeded on the basis that the relevant scope of works was a document dated 9 October 1996, and it is on that basis that the judge expressed her conclusions on the question whether and to what extent CPL had a defence to the counterclaim which had a reasonable prospect of success. However, in the exhibit to Mr Guise's witness statement (which was, as I understand it, served very shortly before the commencement of the hearing) there is included a scope of works similar, but not identical to, the original scope of works dated 9 October 1996; this second document being dated 17 October 1996.
18. Mr Din very frankly accepts that he was not alert to the existence of this document, although he commendably does not in any way criticise Durr for the way in which this document was adduced in evidence. Nor does he suggest that he was misled by Durr, save to the extent that both parties addressed the judge on the basis of the scope of works dated 9 October 1996. He also points to the letter of 2 June 1997, referred to in paragraph 2 of Durr's Defence and Counterclaim, which in turn refers simply to a scope of works "dated October 1996". There was therefore nothing to alert him at the time to the fact that there was in evidence a later scope of works which in certain respects appears to be, indeed plainly is, inconsistent with the scope of works dated 9 October 1996.
19. As I indicated earlier, the judge had specifically invited CPL to apply for an adjournment if it required one, but CPL did not do so. Mr Din once again very frankly accepts that had he been aware of the existence of the scope of works dated 17 October 1996 and of the fact that it was in certain respects inconsistent with the scope of works dated 9 October 1996, then he would indeed have applied for an adjournment, or at all events addressed the judge differently by relying upon those inconsistencies to limit the liability of CPL under the contract. In the event, he submits that the matter was presented to the judge, albeit inadvertently, on a false basis and that there is a further relevant contractual document, the contents of which, at least on a prima facie basis, would appear to throw doubt on certain of the judge's conclusions as to the extent of CPL's liability under the contract. That is the first and primary basis upon which Mr Din submits that the judgment is susceptible to challenge on appeal.
20. Turning to the judgment itself, he submits that the judge adopted a wrong approach in that she embarked upon what was in effect a mini-trial, a course which is not to be undertaken on an application to set aside a default judgment. He also refers to the judge's references to the burden of proof, suggesting that this too indicates that the judge was adopting a wrong approach to the application. It is not a matter (he says) of proof: the applicant merely has to show that there is a real prospect of successfully defending the claim. Mr Din also complains that Durr's counterclaim was insufficiently particularised and (associated with that) that the judge proceeded on the basis that it was for CPL to provide the necessary details to satisfy the judge that it had a defence to the counterclaim. Mr Din also submits that the judge failed to understand the counterclaim or the draft defence to it, and wrongly concluded that CPL had not shown a real prospect of defending the claim in its entirety. He further relies on the fact that the judge expressly found no substantial prejudice to Durr arising out of the very long delay of which CPL was admittedly guilty. He further submits that the Defence to Counterclaim raises issues as to the true construction of the contract, issues which in themselves call for, indeed require, a factual investigation of the matrix of circumstances against the background of which the true meaning of the contract is to be determined. In addition, he submits, the Defence to Counterclaim raises a number of factual issues which can only be satisfactorily resolved at a trial.
21. I turn first to the criticisms of the judgment, leaving aside for the moment Mr Din's primary point in relation to the second scope of works. In this regard I make initially two general points. Firstly, it is for the party applying to set aside a judgment in default to demonstrate not merely that an issue has been raised which may be arguable but that the proposed to defence to the claim has a real prospect of success. Secondly, Rule 13.3 gives the court a discretion whether or not to set aside a judgment and (as sub-paragraph (2) of the Rule makes clear) in exercising that discretion the court must take into account any delay in applying to set aside the judgment. As indicated earlier, and as the judge correctly observed, delay must be taken into account whether or not it is accompanied by prejudice.
22. Turning now to the specific criticisms made of the judgment in this case - and once again leaving aside for the moment the submissions based upon the second scope of works - in my judgment the judge correctly approached the matter on the basis that it was for CPL to demonstrate that its defence had a real prospect of success. This required her to form at least a provisional view as to the merits of the proposed defence. Her references to burden of proof mean, as I read them, no more than that. As to lack of particularity in the counterclaim, it is to be noted that at no stage has CPL applied for further information or clarification of the pleading. Nor, as I have already indicated, does the absence of prejudice arising from delay mean that a default judgment must necessarily be set aside. In my judgment the judge approached the matter correctly and was entitled to conclude, in her discretion and on the arguments addressed to her, that the judgment should not be set aside, notwithstanding that CPL had demonstrated a real prospect of successfully defending part of the claim and notwithstanding that CPL's delay had caused no additional prejudice to Durr. The judge took these factors into account in conducting the balancing exercise required by Rule 13.3.
23. Accordingly, I would not grant permission to appeal on any of those grounds. It remains, therefore, to consider Mr Din's primary ground based upon the second scope of works document.
24. As I have already described, both sides addressed the judge on the basis that the scope of works dated 9 October 1996 was the relevant document; and it was upon that basis, very naturally, that the judge gave her judgment. Mr Din has very frankly accepted that, as I indicated earlier, had he been aware of the significance of the second scope of works as incorporated in the exhibit to Mr Guise's witness statement, he would have addressed arguments to the judge based upon that document. It is of course impossible for us to say to what extent those arguments might have resulted in some different conclusions on liability. Nevertheless, Mr Din submits that the fact that the judge, through no fault of hers, addressed the issues upon the basis solely of the original scope of works means that the judgment is in effect vitiated and that permission ought on that ground to be given.
25. I should say straightaway that there is no blame to be attached to either of the advocates in the hearing before the judge for the fact that the arguments were presented to the judge upon the basis solely of the original scope of works.
26. In my judgment, it would not be appropriate for this court to grant permission for this matter to be reopened. It is unfortunate that in litigation situations sometimes arise which with hindsight could or might have been avoided. That, however, does not seem to me to be sufficient reason for reopening a judgment which, for the reasons which I have endeavoured to give, seems to me to be unchallengeable by this court as an entirely proper exercise by the judge of her discretion on the basis of the arguments addressed to her.
27. It is of course the case that the default judgment, being a judgment for damages to be assessed, leaves open all issues of quantification and accordingly that remains an area which will have to be explored at a further hearing. But for the reasons I have given, I do not consider that it would be appropriate to grant permission to appeal in order to allow the arguments on liability to be reopened by allowing references to a document upon which no argument was based and to the existence of which it would appear that the judge was never alerted.
28. For those reasons, I would refuse permission to appeal.
29. LORD JUSTICE SEDLEY: I agree. I would add only my own appreciation of Mr Din's measured and helpful submissions to us this morning.
ORDER: Applications for permission to appeal and for permission to rely upon further evidence refused. (Order not part of approved judgment)