England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
(HIS HONOUR JUDGE ARMITAGE QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th December 2010

Lord Justice Longmore:

1. This is an appeal from an order of His Honour Judge Wilcox QC sitting in the Technology and Construction Court which set aside a judgment obtained in default of acknowledgment of service, provided that the defendants brought £75,000 into court. It raises the question of what the proper approach of the court should be to judgments obtained in default where there has been non-compliance with the requirements of CPR 7.8. That rule provides under the heading "Form for Defence etcetera must be served with Particulars of Claim", 7.8(1):

"When particulars of claim are served on a defendant, whether they are contained in the claim form, served with it or served subsequently, they must be accompanied by –

(a) a form for defending the claim;

(b) a form for admitting the claim; and

(c) a form for acknowledging service."

The documents set out at (a), (b) and (c) are familiarly known as the "response pack" which should be served with all Particulars of Claim.

2. Part 12 of the Civil Procedure Rules makes provision for default judgments. 12.3(1) provides:

"The claimant may obtain judgment in default of an acknowledgment of service only if –

(a) the defendant has not filed an acknowledgment of service or a defence to the claim (or any part of the claim); and

(b) the relevant time for doing so has expired."

3. Part 13 then deals with setting aside of default judgments. CPR 13.2(a) provides that the court must set aside a judgment in default of acknowledgment of service if any of the conditions specified in 12.3(1) are not satisfied.
4. Those conditions were satisfied in the present case because the time for serving an acknowledgment of service had expired and no acknowledgment of service had been served. Mr Hamer for the defendant/appellants sought to say that the mandatory requirement for the service of a response pack with a claim form pursuant to CPR 7.8 should be read into CPR 12.3(1) as a further condition, but that argument would necessitate reading words into CPR 12.3(1) which are not there. I decline to do that and Mr Hamer therefore has to rely on CPR 13.3 which gives the court a discretion to set aside or vary a judgment entered into default 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."

5. The short facts of this case are that the defendants ("Bestville"), whose main and perhaps only director is a Mr Prakash Karamchandani, ran a bar or restaurant called The Lancer at 177 to 179 Kenton Road in Harrow in respect of which planning permission had been granted for nine flats above the restaurant and five flats in the car park.
6. In January 2008 Bestville decided to make use of that planning permission and between 20 March and 7 April 2008 there was an exchange of letters between Bestville and the claimant contractors ("RCL") which resulted in a fixed price contract for the works in a sum of £859,750 exclusive of VAT. This contract incorporated works which would need changes to the planning consent and RCL agreed to obtain consent to those changes. They got permission to relocate a staircase, but it is said they did not realise that that would invalidate the previous planning permission and result in only eight flats rather than nine being able to be constructed.
7. In any event, on 8 July 2009 RCL sent what they called a final invoice for £77,683.45 minus a retention. On 31 July Bestville responded claiming that the contract work was not completed and on 4 August 2009 Bestville's solicitors, Messrs Desor, came on the scene and demanded that RCL resume work. On 17 August 2009 RCL did resume work but only for two days and they declined to do any further work.
8. Meanwhile, some of the flats had been occupied but one or more of the lessees complained about the condition of the flats so occupied and on 18 August those complaints were forwarded by Messrs Desor to RCL. Nothing then much happened until 11 November when RCL sent to the defendant's solicitors a final invoice for what they called the balance of sums due to them in the amount of £217,244.38, being £98,000-odd for the contract works and £119,000-odd apparently for extras. Messrs Desor rejected that invoice and said that Bestville had a counterclaim.
9. On 8 December 2009 RCL issued the claim form in this case with Particulars of Claim set out on the second page. According to CPR 7.8 that therefore required a response pack and in particular a form for acknowledgment of service to be attached and sent to the defendants, but no such response pack was sent.
10. On or about 15 December 2009 Mr Prakash Karamchandani received the claim form forwarded from his registered office. What he says about the matter is this, in paragraph 39 of his witness statement:

"I had to go to India around late November to pick up my mother who had been on holiday and had fallen seriously ill. I returned on 4 December 2009 and had to admit her to hospital in England. After my return in addition to having to deal with my mother's serious illness, I had to deal with all the mess the respondent had left behind. My mother was discharged from hospital on 23 December. I cannot recall the exact date I received the claim form which was forwarded to me from the applicant's registered office, but this was around 15 December. I did not know that I had to return an acknowledgment of service to the court within 14 days of service of the claim form. Had I known this, had the respondent sent to me the acknowledgment of service form as he is obliged to, I would have made sure that the papers were passed to my solicitors immediately. The claim form sent to me did not enclose with it the acknowledgment of service form, there were no notes on what I needed to do and unfortunately due to the many matters that I was dealing with the claim was overlooked for a short period. I did not contact my solicitor until just before the Christmas holidays. My solicitor Mr Desor had been away. He wrote to the respondent the first day the offices opened in 2010."

11. So the position is that on or about 23 December 2009 Mr Karamchandani contacted his solicitors, sending them the claim form. On 4 January 2010 Desor wrote to RCL to say that they were instructed to ask for an extension of time for filing a defence. That letter no doubt arrived on 5 or 6 January, but on 5 January judgment in default of acknowledgment of service was entered in favour of the claimants. On 6 January Desor, unaware of that judgment, pointed out by letter to RCL that no acknowledgment of service form was served with the claim form and they asked for that form to be sent to them immediately. But on the 7th RCL wrote to notify Desor that they had entered judgment in default.
12. An application to set aside that judgment was made on 18 January. In the course of that application Bestville sought to argue that they had a good defence to the claim on the basis (i) that the work was unfinished; (ii) no extras were ordered and the contract was a fixed price contract; and (iii) that RCL were in breach of contract (a) in not ensuring the planning permission remained valid, (b) in constructing a faulty roof which needed replacement, (c) in failing to provide HNBC certificates which it was asserted they had agreed to do, (d) in failing to complete by the agreed dates and (e) in causing complaints to arise from the lessees.
13. As I have already mentioned, His Honour Judge Wilcox set aside that judgment on condition that £75,000 was paid into court. He did that on 12 February 2010 because he regarded the defence as lacking in merit, at any rate as far as the alleged breaches of contract were concerned. And now there is an appeal to this court by permission given by Sir Richard Buxton.
14. There is unfortunately no transcript of any judgment since the hearing of 12 February was not recorded. Mr Seal for the respondents and Mr Thomas Evans who was then appearing for Bestville have agreed a short note of the matters raised by the judge during argument. Mr Evans has provided a fuller note of those matters, which indicates that there may have been no formal reasoned judgment and that after argument the judge merely dictated the terms of order. That note of Mr Evans concludes:

"The judge rose. Mr Evans relayed the order and took instructions subsequent to which he spoke to the usher to request permission to go back before the judge to seek to amend the order as to the payment into court. This would not be possible due to limited financial means. Approximately £25,000 would be the maximum which would be raised. Alternatively, he was instructed to seek permission to appeal. The usher conveyed this request which was denied."

15. On being asked to approve the two documents that I have referred to, the judge approved the first but said of the second that he had not been informed that the defendant was accessible for instructions to be taken or that on instructions only £25,000 was available. Bestville's solicitors at the instigation of this court enquired why there was no court recording and the clerk to His Honour Judge Wilcox replied to the enquiry:

"Normally with a few exceptions His Honour Judge Wilcox does not have hearings recorded on a Friday."

16. If that is indeed the practice of His Honour Judge Wilcox or that of any other judge of the TCC, that practice should in my view cease and the registry of the TCC should henceforth ensure that the tape machines are switched on in court even on Fridays. No doubt it may be said that Friday applications are matters of case management which cannot realistically be the subject of appeal, as indeed the judge indicated on the form on which he refused permission to appeal, but it is with respect not for the judge to preempt the success of any argument about a case management decision by ensuring that no formal judgment is given or that, if it is, no transcript of it can be made.
17. I would not myself subscribe to the view that any order made on an application to set aside a judgment in default is a case management decision. A decision not to set aside such a judgment subject to any appeal is a final decision which may be of considerable consequence to a defendant. A decision to set aside a judgment on a condition that a substantial sum of money is brought into court looks on the face of it more like the case management decision, but unless the court is satisfied that the defendant can in fact bring that sum into court it is tantamount to a refusal to set aside the judgment and as such is not purely a case management decision. It follows that Sir Richard Buxton was, with respect, right not to feel constrained in giving permission to appeal, albeit that on any view the appeal is against the exercise of the judge's discretion under CPR 13.3.
18. I turn therefore to the merits of this appeal. The most striking fact in the history of the proceedings is that the claimant served the claim form on the defendant company without any information as to what Bestville was to do about it. No doubt a company director such as Mr Karamchandani should be aware that a formal court document should be dealt with promptly, but he did forward the claim form to his solicitors within eight days of receiving it, which as it happened was the day before Christmas Eve last year. It is not completely surprising that Desor did not deal with the matter until the new year. They then asked for an extension of time for serving a defence, but the claimant entered judgment on 5 January. For a claimant to hold a judgment obtained in this way would in my view have required the rules of court, particularly CPR 7.8, to be observed to the letter.
19. The judge was clearly aware that no response pack and in particular no form of acknowledgment of service had been served, but to judge from the observations he is recorded as having made in argument he thought that any businessman should be aware that claim forms have to be dealt with promptly. He seems to have regarded the eight days which elapsed between the receipt of the claim form by Mr Karamchandani and the sending of it to his solicitors as not prompt enough. He therefore proceeded to consideration of the merits of the defence.
20. Since he appears to have given no reasoned judgment, it is impossible to tell what weight he gave to the breach of CPR 7.8 and how he balanced that breach against his view that Bestville would be likely to have been held liable for at least £75,000, but it seems to me that the breach of the rule is a very weighty matter indeed when a claim form is served on a litigant in person, which Bestville was. So indeed was the claimant, but since RCL had been in correspondence with Bestville's solicitors, at any rate since August 2009, it might have been sensible for RCL to have sent a copy of the claim form to those solicitors and no doubt an acknowledgment of service would then have been served even though no response pack had been provided.
21. CPR 13.3(1) says that the court may set aside or vary a default judgment if (a) the defendant has a real prospect of defending the claim, or (b) if it appears that there is some other good reason why the judgment should be set aside. To the extent that the judge considered 13.3(1)(b), it seems to me that he erred as a matter of law because he did not give the breach of CPR 7.8 the weight that it deserved. It is not clear whether, as Mr Seal for RCL would have it in relation to the evidence of Mr Karamchandani, the judge disbelieved his statement that he did not know he had to file an acknowledgment of service within 14 days or whether he considered that the claim form should have been sent by Mr Karamchandani to his solicitors more swiftly than he did, but in my view Mr Karamchandani should not be disbelieved without cross-examination and eight days is a sufficiently swift response in the situation in which he found himself. If the claimant is in breach of the rules and it is inappropriate to criticise the conduct of the defendant, there is in my view a good case, apparently unrecognised by the judge, for the power given to the court by 13.3(1)(b) to be exercised, regardless of the question whether a defendant could show that he has a real prospect of successfully defending the claim.
22. Mr Hamer helpfully refers to some observations of May LJ in Godwin v Swindon Borough Council [2002] 1 WLR 997 at paragraph 49 which were not dissented from in Anderton v Clwyd County Council (No 2) [2002] 1WLR 3174. Those observations are as follows:

"If the judgment was wrongly entered because the conditions in rule 12.3(1) or (2) and (3) were not satisfied, the court must set it aside under rule 13.2.  In any other case, the court has a discretion under rule 13.3(1) to set the judgment aside or vary it.  The discretion may be exercised under paragraph (a) if the defendant has a real prospect of successfully defending the claim.  That is the obverse of the relevant part of rule 24.2 and may apply whenever the defendant received the claim form and particulars of claim.  Rule 13.3 (1)(b) has a disjunctive alternative, so that the court may set aside or vary judgment entered in default if it appears to the court that there is some other good reason why the judgment should be set aside or varied or the defendant should be allowed to defend the claim.  In my view, this is plainly capable of extending to circumstances where the defendant has not received the claim form and particulars of claim before judgment was entered against him.  It is not an absolute right, but does not have to depend on the defendant having a real prospect of successfully defending the claim. "

I merely add that in principle 13.3(1)(b) is also capable of extending the circumstances where the defendant has not received the documents required to be served on him with the particulars of the claimant's claim according to CPR 7.8. Whether it should so extend or not in any particular case should be a matter for a careful consideration which, with respect to the judge, it does not appear to have received in the present case.

23. Mr Hamer also refers to the defamation case of Hughes v Alan Dick & Co Ltd [2008] EWHC 2695 (QB) in which the defendant had apparently not been served with a response pack. Eady J was satisfied that the defendant did have a real prospect of successfully defending the claim, but he said in paragraph 19:

"Whilst it was clear following notification by the court on 4 July that judgment had been entered into default, there is no doubt in my judgment in the light of the evidence that the defendant company acted with appropriate speed and instructed solicitors and counsel and took advice in time for the hearing before Master Leslie on 9 July. There is no reason there for me to exercise a discretion against the defendants. I think it appropriate that it should be exercised in their favour in accordance with the provisions contained in CPR 13.3(1)(a) and as a matter of fact also in accordance with CPR 13.3(1)(b) 'the other good reason' being the absence of the response pack and the confusion which that led to on the part of relevant employees of the defendant company."

24. These authorities show the disjunctive nature of CPR 13.3. Although the judge no doubt appreciated this, he gave, as I have said, apparently insufficient weight to the breach of the requirement to serve a response pack. That should, unless he disbelieved the defendant's evidence, have led to the conclusion that the judgment should be set aside without conditions.
25. I would, therefore, allow this appeal and make an order to that effect.

Lord Justice Patten:

26. I agree.

Lord Justice Ward:

27. I agree and I wish to endorse my Lord's insistence that all proceedings in the TCC be recorded so that this court can have a proper transcript of all judgments in that court even if the judgment is a case management decision.
28. So the appeal is allowed.

Order: Appeal allowed