Neutral Citation Number: [2006] EWCA Civ 533

Case No: B1/2005/2408
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM WANDSWORTH COUNTY COURT
HER HONOUR JUDGE KNOWLES

(On appeal from District Judge Wicks)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 04/05/2006
Before :

LORD JUSTICE DYSON
LORD JUSTICE JACOB
and
LORD JUSTICE MOSES 
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Between :

	Estate Acquisition and Development Ltd	Respondent/ Claimant	
	- and -		
	Wiltshire & anr	Appellants / Defendants	

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Patrick McMorrow (instructed by Messrs Hanney Dawkins & Jones) for the Appellant
Gary Blaker (instructed by Messrs Peter Mercadante & Co) for the Respondent

Hearing dates: Thursday 27th April 2006
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Judgment

Lord Justice Dyson :

1.	CPR 39.3(3) provides that where a party does not attend a hearing and the court gives judgment or makes an order against him, the party who failed to attend may apply for the judgment or order to be set aside.  CPR 39.3(5) provides: 
“(5) Where an application is made under paragraph (2) or (3) by a party who failed to attend the trial, the court may grant the application only if the applicant – 
(a) acted promptly when he found out that the court had exercised its power to strike out or to enter judgment or make an order against him;
(b) had a good reason for not attending the trial; and
(c) has a reasonable prospect of success at the trial.”
 
2.	The issue that arises on this second appeal is whether Her Honour Judge Knowles was right to hold on appeal from District Judge Wicks that the defendants did not have a good reason for not attending the hearing on 10 February 2004.  At that hearing, the district judge made an order in favour of the claimant that the lease which the defendants held in respect of 517 Victoria Road, Ruislip, Middlesex (“the Property”) be forfeited, and that the defendants pay arrears of rent of £849.21 and costs in the sum of £1005.38.  It is a striking feature of the case that the effect of the decision of Judge Knowles was that an unencumbered leasehold property worth more than £140,000 was forfeited for a debt of £849.21 in proceedings in which the defendants took no part and of which, as will appear, they had no knowledge.  
The facts
3.	The lease, which was granted for a term of 99 years to the defendants’ predecessors-in-title in 1969, was acquired by the defendants in 1987 with the assistance of a mortgage provided by Nationwide Building Society (“Nationwide”).  The ground rent was £20 per annum.  In addition, the lease required the defendants to pay service charges and insurance premiums as additional rent.  Ms Wiltshire has at material times suffered from a long-term mental illness, known as Obsessive Compulsive Disorder.  This placed considerable strain on the defendants’ relationship and led to Mr Chambers moving out of the Property in about 1995 or 1996.  He first went to live with his parents.   Later, he moved to 368 West End Road, Ruislip where he continues to live to this day.  In about 1996 or 1997, Ms Wiltshire vacated the Property and went to live with Mr Chambers at the Ruislip address.  The defendants never returned to the Property.  
4.	During the time when they were both living at the Property, the rent (including the service charge and insurance premiums) was paid by Mr Chambers.  Thereafter until 2000, these payments were made by Nationwide.  On 14 July 2000, the defendants redeemed the mortgage on the Property and purchased a house in Harefield.   Since then, no further payments have been made.  
5.	The claimant’s agents, Messrs Lawrence and Co, communicated regularly with Nationwide on the subject of the arrears.  They also wrote to the defendants at the Property on many occasions.  They submitted demands for the ground rent, maintenance contributions and insurance premiums.  They were given no other address by the defendants. 
6.	In 1999 there was a problem of water leakage.  The agents wrote to the Property and this did evoke a response from the defendants and the problem was solved.  It was the defendants’ evidence that throughout the whole of the period between their departure from the Property and the commencement of these proceedings, they only visited the property on two occasions.  The first was in 1999 as a result of which the water leak was solved.  The second was an occasion when they made a visit and picked up a letter from Ms Wiltshire’s doctor.  
7.	The district judge accepted the defendants’ evidence that they made only two such visits.  The judge found this evidence “astonishing”, but she did not reject the district judge’s finding as to the number of visits made, or his finding that the defendants did not receive the claim form or notice of the hearing date.  
8.	These proceedings were started in November 2003.   The claim form was served by the court in accordance with CPR 6.5(6) by being sent to the Property, being the defendants’ “usual or last known address”.  Neither the claimant nor its agents had been informed that the defendants were living at the Ruislip address.   It is accepted by Mr McMorrow on behalf of the defendants that the proceedings were properly served on them.  They did not, however, in fact receive notice of the issue of the proceedings or that 10 February 2004 was the date fixed by the court for hearing the claimant’s application for possession.  On that date, the claimant appeared by counsel and the defendants did not appear.  District Judge Wicks ordered the defendants to give possession of the Property on or before 9 March 2004, and pay the arrears of £849.21 and costs which he assessed at £1005.38.  
9.	The defendants did not become aware of what had happened until the end of November 2004 when Mr Chambers’ father passed by the Property and noticed that the windows were being replaced.  When Mr Chambers learnt about this, he contacted Lawrence and Co and sought an explanation.  Thus it was that he discovered what had happened and that he no longer owned the Property.  On 22 December, the defendants applied to the court for an order that the order made on 10 February be set aside.
The District judge
10.	The application was heard by District Judge Wicks.  The issues before him were (i) whether there had been good service of the proceedings and, if yes, (ii) whether the order should be set aside under CPR 39.3(5).  He held that there had been good service of the proceedings by service at the defendants’ last known address: CPR 6.5(6).  He then turned to consider the three limbs of CPR 39.3(5).  He held that the defendants acted promptly when they found that the order had been made against them.  They had a good reason for not attending the hearing because they were not aware of the proceedings.  Finally, they had reasonable prospects of success at trial because they had reasonable prospects of obtaining relief from forfeiture.  
11.	Mr Blaker submitted to the district judge that the defendants’ account that they only visited the Property on two occasions between 1995/96 and 2004 was “incredible”.  He sought a finding that they had probably received notice of the proceedings and that it was more likely than not that they had notice of the hearing and had chosen to ignore it.  In a word, he submitted that they did not have a “genuine and honest” reason for not attending the hearing.  He did not advance an alternative submission to the effect that, even if the defendants were not aware of the proceedings and the hearing date, they did not have a “good reason” for not attending within the meaning of CPR 39.3(5)(b).  In these circumstances, it is hardly surprising that the district judge did not consider this alternative argument.  In the light of the arguments addressed before him, once the district judge had rejected the submission that the defendants were aware of the proceedings and the hearing, it was inevitable that he would conclude that the condition in CPR 39.3(5)(b) was satisfied. 
The judge
12.	The claimant appealed on a number of grounds.  These included that the district judge had erred in holding that the defendants had a good reason for not attending the hearing.  Mr Blaker repeated the submission that he had made before the district judge, but also argued in the alternative that, even if the defendants were unaware of the proceedings and the hearing, they did not have a “good reason” for not attending the hearing.  He relied on Brazil v Brazil [2002] EWCA Civ 1135 and submitted that the mere fact that the defendants were not aware of the hearing date did not afford them a good reason for not attending: it was necessary to go on to consider why they were not aware of it.   
13.	The judge accepted Mr Blaker’s alternative submission and allowed the appeal.  She held that the district judge was wrong simply to look at the fact that the defendants were not aware of the hearing.  She said that he should have applied the test stated by Mummery LJ in Brazil’s case at para 21: 
“The reason for his non-attendance was that he did not know that the trial was taking place on that day. The matter does not, however, stop there. In order to determine whether that was a good reason it is necessary to consider why he did not know of the trial date. The fact that at the time he was acting in person, that he is illiterate and he did not receive the order of the 19th March are clearly relevant factors.”
14.	After referring to this test, the judge said: 
“49. It seems to me, therefore, that when I look at what is said in the case of Brazil, particularly in that paragraph, and having looked at what the District Judge said in his judgment in this case, what he has actually concentrated upon and what he has focused upon is the fact that he is satisfied that the respondents were not aware of the hearing date. What he has not gone on to analyse, and what he should have done, was as to whether there was some good reason for that. Had he done that then I consider that it is inevitable that he would have then had to go back through the history of the matter – as, indeed, I have – and to make finding as to whether or not there had been a change of address notified to the agents; as to what steps the Respondents had taken to ensure that they could have access to post from the property, and he would have had to make appropriate findings.
50. He does not do that. As I say, it is my view that he simply says that they have not been back to the property and that he accepts that evidence. That, I am afraid, does not answer the fundamental question. It does not answer the fundamental question as to whether there has been good reason.
51. I can speculate as to why the Respondents behaved in the way that they did from 1996/1997 right round to the point in time as to when they said they discovered that this order had been made but, whatever the reasons may be, they have not advanced cogent reasons before me as to how it was that they could possibly have behaved in such a way that they made it quite plain that they wanted no trace of themselves to be left anywhere; that they wanted to achieve a situation in which the managing agents could not at any point contact them and, indeed, at the point where they did come into communication in 1999 with regard to the leaking tap, and when a phone number was asked of them, that was steadfastly refused.”
15.	She then went on to deal with the question of whether the defendants had acted promptly.  She said that, although she might not have been as generous to the defendants as was the district judge, she would not disturb his finding on this aspect of the matter.  Finally, she said that she agreed with the district judge that the defendants would have had real prospects of success at the trial.  
The principal ground of appeal
16.	The principal ground of appeal to this court is that the judge was wrong to accept Mr Blaker’s alternative submission and hold that the defendants did not have a good reason for not attending the hearing on 10 February.  Mr Blaker submits that she was right to conclude that they did not have a good reason for not knowing of the hearing date and, therefore, right to conclude that they did not have a good reason for not attending the hearing.  In reaching this conclusion, she was entitled to take into account the fact that they had not notified the claimant of their change of address and had failed to take steps to ensure that they had access to post delivered to the Property.
17.	He submits that in cases where one party (A) owes obligations to another party (B) under a relationship, such as that of landlord/tenant, mortgagor/mortgagee, hire-purchase, or some other continuing commercial contract, A should have in place a system for ensuring that B is able to communicate with him and bring documents and information relevant to the relationship to his attention.  If he does not have such a system in place, then A cannot complain if B takes advantage of the “deemed service” provisions contained in CPR 6.5(6) and serves proceedings without A’s knowledge. Moreover, he submits, if A does not attend a hearing because he is unaware of it, the court will, or at the very least is likely to, find that he did not have a good reason for not attending.  This is because the reason for his being unaware of the hearing is his failure to have a system in place which will ensure that B is able to bring documents and information to his notice.  
18.	I cannot accept these submissions.  In my judgment, they are flawed because they conflate what may be required of A in respect of his legal relationship with B with what is required of A in respect of litigation with B.  There may be many reasons why it is necessary for one party to a relationship to communicate with the other.  Whether A is required to notify B of his address (or telephone number) for the purposes of steps to be taken in connection with their legal relationship will depend on the terms of that relationship.  But litigation stands on an altogether different footing.
19.	I would reject the proposition that the mere existence of a continuing legal relationship of the kind mentioned at para 17 above of itself obliges the parties to the relationship to ensure that they have in place a system for ensuring that, in the event that litigation occurs, they receive communications relating to the litigation.  Mr Blaker cited no authority in support of his proposition.  In my view, it forms no part of our general law.  The obligations of parties in relation to litigation are to be derived from legislation, especially the CPR, and orders that are made by the court.  I leave out of account the possibility that the legal relationship itself may contain a term which expressly deals with litigation. 
20.	The general approach to CPR 39.3(5)(b) was explained by Mummery LJ in Brazil’s case at para 12: 
“There has been some debate before us, as there was before the judge, about what is or is not capable of being a “good reason.” In my opinion the search for a definition or description of “good reason” or for a set of criteria differentiating between good and bad reasons is unnecessary. I agree with Hart J that, although the court must be satisfied that the reason is an honest or genuine one, that by itself is not sufficient to make a reason for non-attendance a “good reason.” The court has to examine all the evidence relevant to the defendant’s non-attendance; ascertain from the evidence what, as a matter of fact, was the true “reason” for non attendance; and, looking at the matter in the round, ask whether that reason is sufficient to entitle the applicant to invoke the discretion of the court to set aside the order. An over analytical approach to the issue is not appropriate, bearing in mind the duty of the court, when interpreting the rules and exercising any power given to it by the rules, to give effect to the overriding objective of enabling it to deal with cases justly. The perfectly ordinary English phrase “good reason” as used in CPR 39.3(5) is a sufficiently clear expression of the standard of acceptability to be applied to enable a court to determine whether or not there is a good reason for non-attendance.”
21.	In my judgment, if the reason for a party’s non-attendance is that he did not know that the hearing was taking place on the day when it did take place, it will usually be necessary to ask why the party was not aware that the hearing was taking place on that day: see para 21 of Brazil’s case.  The mere assertion that the party was unaware of the hearing date is unlikely to be sufficient to constitute a good reason.   It will usually be relevant to inquire whether the party was aware that proceedings had been issued and served.  Once a party is aware that proceedings have been served, he knows that it is likely that steps will be taken in the proceedings and that there will be a hearing or hearings.  Unless he has nominated a solicitor to act on his behalf, he must be taken to expect to receive communications personally from the opposing party and/or the court.  These will include notifications of hearing dates.  If he does not have a system in place for ensuring that such communications are received by him, he is unlikely to be able to rely on the absence of such a system to say that he had a good reason for not attending the hearing.  
22.	Similarly, if a party is aware that proceedings are imminent and he has not established a system for ensuring, so far as practicable, that communications relating to the impending litigation are received by him.  It will be particularly difficult for a party to argue that he had a good reason for not attending if the court concludes that he deliberately avoided receiving such communications in order to frustrate the litigation process.
23.	But what if a party is unaware of the existence or imminence of proceedings and he does not have a system in place to ensure that documents relating to litigation are brought to his notice?  Mr Blaker submits that the fact that the party is unaware of the existence or imminence of litigation is irrelevant.  The mere fact that he does not have in place a system which will, so far as practicable, ensure that documents relating to litigation are brought to his notice is of itself determinative of the question whether he had good reason for not being aware of, and therefore not attending, a hearing date fixed in the course of such proceedings.  
24.	I do not agree.  The premise on which this submission rests is that which I have rejected at paras 18 and 19 above.   A person is under no obligation to make himself amenable to potential claims of which he has no notice.  It must follow that, if he fails to attend a hearing in proceedings of which he is unaware, he has a good reason for failing to attend.
25.	I recognise that it is undesirable to seek to define a “good reason” within the meaning of CPR 39.3(5)(b).  But as Mummery LJ pointed out at para 12 of Brazil’s case, it is necessary to interpret CPR 39.3(5)(b) (as all other rules) so as to give effect to the overriding objective of deciding cases justly: CPR 1.2(b).  Moreover, it must be interpreted so as to comply with article 6 of the European Convention on Human Rights (right to a fair hearing).  I refer to the judgment of Brooke LJ in Goode v Martin [2001[ EWCA Civ 1899, [2002] 1 WLR 1828 para 35. In my view, it is necessary to have both article 6 and the overriding objective in mind when interpreting and applying the phrase “good reason”.  It should not be overlooked that the power to set aside an order made in the absence of the applicant may only be exercised where all three of the conditions stated in CPR 39.3(5) are satisfied.  In addition to the need to show a good reason for not attending, the applicant must have acted promptly and that he has a reasonable prospect of success.  If the phrase “good reason” is interpreted too strictly against an applicant, there is a danger that the interpretation will not give effect to the overriding objective and not comply with article 6. 
26.	In my view, the approach suggested by Mr Blaker (which was adopted by the judge) produces a result that is unjust and unfairly denies a fair hearing to an applicant who, by definition, has a reasonable prospect of success on the merits and has acted promptly to make the application.  In reaching this conclusion, I have not taken into account the enormity of the outcome for Mr Chambers and Ms Wiltshire on the facts of this case: loss of a lease worth more than £140,000 for a debt of £849.21.  I accept as correct what Carnwath LJ said at para 28 in Brazil’s case that “at this threshold stage, the importance to him of the case is not a relevant factor, although that may be very relevant to the exercise of the court’s discretion, once the threshold has been crossed.”  
27.	On the facts of this case, the defendants had done nothing to avoid receipt of communications for the purpose of frustrating the claimant in its prosecution of the litigation.  They had left the Property because of Ms Wiltshire’s health problems and the associated stress.  They may well have been misguided in not making arrangements for their post to be collected or forwarded to their new address and/or in failing to inform the claimant of their new address.  But there is no finding that they failed to take any of these steps in order to avoid their contractual responsibilities, still less that they did so in order to frustrate the claimant in litigation.   They had no knowledge of the litigation or that litigation was threatened.  
28.	I would, therefore, allow the appeal on the ground that the judge adopted the wrong approach to CPR 39.3(5)(b).  On the facts of this case as found by the district judge, the defendants did have a good reason for not attending the hearing of 10 February 2004.  
Other points
29.	The oral argument centred on what I have referred to as the principal ground of appeal.  At the conclusion of that argument, we indicated to counsel that we did not wish to hear them on the other grounds of appeal on which the defendants had been give permission to appeal. 
30.	In his skeleton argument, Mr Blaker did advance further reasons for upholding the judgment of Judge Knowles.  Although he did not develop these points orally, I should deal with them briefly in this judgment.  His first point is that, having held that there was good service under CPR 6.5(6), the judge should have decided that the defendants were deemed to have known about the claim.  I reject this.  Service which complies with CPR 6.5(6) is deemed to be good service.  For the purposes of service, it is irrelevant whether the defendant actually receives and knows about the claim form.  But for the purposes of deciding whether a defendant has a good reason for not attending a hearing, deemed knowledge is irrelevant.
31.	The second point is that the defendants failed to act promptly when they found out that the order had been made.  They found out at the end of November 2004 and, having instructed solicitors, made their application on 22 December.  The district judge held that three weeks was “not an unreasonable period of time.  That is sufficient for them to have acted with alacrity” (para 19).  The judge refused to upset this finding, although she said (para 54) that, if she had been sitting at first instance, perhaps she would not have been quite so generous to the defendants.  In my view, the judge was plainly right not to interfere with this finding of fact by the district judge.  The finding was clearly right, or at the very least one which he was entitled to make.
32.	Mr Blaker’s final point is that the defendants failed to provide any evidence to the court to show that they had a defence to the claim and that they would have been able to obtain relief from forfeiture: there was no evidence of their financial means such as would demonstrate that they could pay the sums outstanding under the lease.  The district judge dismissed this point by referring to the existence of the unencumbered lease (para 20).  The judge thought that it was “unlikely in the extreme” that the defendants would not have been able to raise the sum necessary to avoid forfeiture (para 56).  I agree with both judges on this point.  It is obvious that the defendants could have raised the comparatively small sum required (if necessary on the security of the lease) to obtain relief from forfeiture.  
Lord Justice Moses:
33.	I agree.
Lord Justice Jacob:
34.	I also agree.