England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		28 July 2016

PART I: INTRODUCTION
PART II: THE BACKGROUND
PART III: THE IMPACT OF FILING A DEFENCE ON AN APPLICATION FOR DEFAULT JUDGMENT
PART IV: THE RELEVANT PRINCIPLES ON AN APPLICATION FOR AN EXTENSION OF TIME
PART V: APPLICATION OF THE RELEVANT PRINCIPLES
PART VI: CONCLUSION

Deputy Master Pickering:

PART I: INTRODUCTION

1. I have before me two applications. The first in time is an application for judgment in default of filing a Defence pursuant to CPR 12.3(2)(a). The second is an application for an extension of time for the filing of a Defence pursuant to CPR 3.1(2)(a). It has been agreed, sensibly, that I should hear the application for an extension of time first. Accordingly, this judgment deals with that application only.
2. I have been assisted by Mr Mather of Counsel for the Claimant and Mr Hill Smith of Counsel for the First Defendant. The Second Defendant was not represented.

PART II: THE BACKGROUND

3. For present purposes, the background can be shortly stated.
4. The Claimant is a retired businessman. The First Defendant is, or purports to be, experienced in wealth management and asset finance. The Second Defendant is a company effectively owned and controlled by the First Defendant.
5. In early September 2013 the Claimant and the First Defendant were introduced to each other. Over the next 21 months the Claimant made nine payments totalling £1,652,320. It is his case that he made such payments at the invitation of the First and/or Second Defendants believing that he was investing in the development of four properties in Surrey. It is further his case that the above monies have been misapplied and that he has been the victim of a substantial fraud perpetrated on him by the First and/or Second Defendants.
6. On 23 November 2015 the Claimant issued the present claim against the First and Second Defendants. On 7 December 2015 he filed and served Particulars of Claim. On 9 December 2015 the First Defendant served an acknowledgement of service. It is common ground that the date for filing a Defence was 4 January 2016. No Defence, however, was filed or served. It would appear that the reason that a Defence was not filed, at least in relation to the First Defendant, was partly due to lack of funding and partly due to the fact that without prejudice negotiations were taking place between the parties. I will return to this later in this judgment.
7. On 11 April 2016 the Claimant issued an application for judgment in default of filing a Defence. That application was listed to be heard on 18 May 2016. On 17 May 2016 - in other words, on the day before the hearing – the First Defendant filed and served a Defence. That document was closely followed by a witness statement from the First Defendant's solicitor setting out the reasons for the delay – namely, the lack of funding and the existence of the without prejudice negotiations.
8. On 18 May 2016 the hearing took place before Master Bowles. It transpired, however, that Master Bowles knew the First Defendant's solicitor socially. The Master therefore recused himself. Before doing so, however, he directed that the First Defendant should issue an application for an extension of time for the service of the Defence by a certain date. It is that application which is now before me.
9. To complete the procedural picture, on 14 June 2016 the First Defendant's solicitor filed and served a further witness statement. On 15 June 2016 the matter came before Newey J who, amongst other things, made an order requiring the First Defendant's solicitor to attend for cross-examination at the hearing before me. That application was not opposed and indeed during the course of this hearing I have heard that cross- examination.

PART III: THE IMPACT OF FILING A DEFENCE ON AN APPLICATION FOR DEFAULT JUDGMENT

10. Counsel for the First Defendant raised two preliminary points. The first related to the impact of filing a Defence on an application for default judgment. CPR 12.3(2) provides (with underlining added):

"(2) Judgment in default of defence may be obtained only (a) where an acknowledgment of service has been filed but a defence has not been filed… and… the relevant time limit for doing so has expired."

11. Put simply, the First Defendant argues that on a literal reading of CPR 12.3(2) by filing and serving his Defence – albeit out of time – it follows that the pre-condition in CPR 12.3(2)(a) is no longer met and that as a result default judgment can no longer be sought. In other words, so the First Defendant argues, an application for judgment in default of a Defence will automatically be defeated whenever a defendant files a Defence – however late. In support of this argument, reliance is placed on Coll v Tattum (2002) 99(3) LSG 26 in which Neuberger J observed that the provisions of the CPR on this point were "not entirely clear" and that "the footnotes to the Rules appear to point in different directions".
12. I reject this argument. In my judgment, the reference to "a defence" in CPR 12.3(2)(a) must be a reference to a Defence which has either been served within the time permitted by the Rules or in respect of which an extension of time has been granted. Where a Defence is served late, unless and until an extension has been granted, a document purporting to be a Defence is not in fact a Defence for the purposes of CPR 12.3(2)(a). To this extent, the note at 15.4.2 of the 2016 edition of the White Book is, in my judgment, wrong.
13. As stated above, it has been agreed that I am to deal first with the First Defendant's application for an extension of time. If I grant that application, it would follow that the application for default judgment could not proceed. If I refuse that application, however, it would follow, in my judgment, that a Defence had not been filed for the purposes of CPR 12.3(2)(a) and that as a result there would be no bar to me considering the Claimant's application for default judgment.

PART IV: THE RELEVANT PRINCIPLES ON AN APPLICATION FOR AN EXTENSION OF TIME

14. The second preliminary point raised by Counsel for the First Defendant related to the applicable principles on an application for an extension of time. In short, while Counsel for the Claimant submitted that the principles to be applied were the same as on an application for relief from sanctions under CPR 3.9, Counsel for the First Defendant submitted that this was not, or at least no longer, the case, and that a broader, more general discretion ought to apply.
15. The starting point on this issue is the decision of the Court of Appeal in Sayers v Clarke Walker [2002] 1 WLR 3095. In that case (which related to an application to extend time for an appellant's notice under CPR 52.4), Brooke LJ stated at paragraph 21:

"In my judgment, it is equally appropriate to have regard to the check-list in CPR rule 3.9 when a court is considering an application for an extension of time for appealing in a case of any complexity. The reason for this is that the applicant has not complied with CPR rule 52.4(2) , and if the court is unwilling to grant him relief from his failure to comply through the extension of time he is seeking, the consequence will be that the order of the lower court will stand and he cannot appeal it. Even though this may not be a sanction expressly 'imposed' by the rule, the consequence will be exactly the same as if it had been, and it would be far better for courts to follow the check-list contained in CPR rule 3.9 on this occasion, too, than for judges to make their own check-lists for cases where sanctions are implied and not expressly imposed."

16. This became known as the "implied sanction" doctrine and was subsequently followed in a large number of cases.
17. Counsel for the First Defendant, however, referred me to Attorney General of Trinidad & Tobago v Matthews [2011] UKPC 38. In that case, the Privy Council disapproved of the "implied sanction" doctrine, albeit that no reference was made to the decision in Sayers. On this basis, so Counsel for the First Defendant submitted, in considering whether or not to grant an extension of time for the filing and service of the Defence, I was not required to consider the more rigorous approach adopted in applications for relief from sanctions.
18. Quite properly, however, Counsel for the First Defendant also referred me to the more recent decision of the Court of Appeal in R (On the application of Hysaj) v Secretary of State for the Home Department [2015] 1 WLR 2472. In that case, Moore-Bick J carried out a thorough review of the authorities including Sayers, the cases that followed and supported Sayers and then, most recently, Matthews. Counsel for the appellant invited the Court of Appeal to find that Sayers "had been misunderstood and misapplied"^[1] and that the approach adopted in Matthews was to be preferred. At [36], however, Moore- Bick J held:

"36. I confess to finding that submission attractive, but having re-examined the authorities I am not persuaded that that course is open to us. As the authorities demonstrate, for the past twelve years it has been consistently understood that in Sayers v Clarke Walker this court deliberately equated applications for extensions of time for filing a notice of appeal with applications for relief from sanctions because in its view the implied sanction of the loss of the right to pursue an appeal meant that the two were analogous. Following the decision in Mitchell the courts have continued to proceed on the basis that applications for extensions of time for filing a notice of appeal should be approached in the same way as applications for relief from sanctions under CPR 3.9 and should attract the same rigorous approach… Whatever one may think of the doctrine of implied sanctions, therefore, particularly in the light of the views expressed by the Privy Council in Matthews , I think that the approach to be taken to applications of the kind now under consideration is now too well established to be overturned. It follows that in my view the principles to be derived from Mitchell and Denton do apply to these applications."

19. In short, therefore, the position as set out in Sayers was confirmed; on an application to extend time the relevant principles are the same as, or analogous to, those to be applied on an application for relief from sanctions.
20. Clearly, therefore, for the purposes of the present hearing it is not open for me to go behind the above finding. This being the case, I reject the First Defendant's contention that I am not bound to consider the principles governing relief from sanctions. On the contrary, so I find, I am required to do so.

PART V: APPLICATION OF THE RELEVANT PRINCIPLES

21. The principles applicable on an application for relief from sanctions are now set out in Denton v TH White Ltd [2014] 1 WLR 3926. It is of course a well-known case which requires me to consider any application in three stages, namely:

(1) the seriousness and significance of the breach or default;

(2) the reasons for the breach or default; and

(3) all the circumstances of the case.

(a) The seriousness and significance of the breach or default

22. I was taken to paragraph [26] of Denton which states:

"26. It was submitted on behalf of the Law Society and Bar Council that the test of triviality should be replaced by the test of immateriality and that an immaterial breach should be defined as one which "neither imperils future hearing dates nor otherwise disrupts the conduct of the litigation". Provided that this is understood as including the effect on litigation generally (and not only on the litigation in which the application is made), there are many circumstances in which materiality in this sense will be the most useful measure of whether a breach has been serious or significant. But it leaves out of account those breaches which are incapable of affecting the efficient progress of the litigation, although they are serious. The most obvious example of such a breach is a failure to pay court fees. We therefore prefer simply to say that, in evaluating a breach, judges should assess its seriousness and significance. We recognise that the concepts of seriousness and significance are not hard-edged and that there are degrees of seriousness and significance, but we hope that, assisted by the guidance given in this decision and its application in individual cases over time, courts will deal with these applications in a consistent manner."

23. It was submitted on behalf of the First Defendant that the breach – the failure to serve a Defence for just over 4 months – was not serious or significant on the basis that no hearing date had been jeopardised. I disagree for 2 reasons. First, the original hearing of the Claimant's application for default judgment was lost. It is true that Master Bowles recused himself because of his friendship with the First Defendant's solicitor but even without that factor the hearing could not have been effective on that date because of the very late service of the Defence and the failure, even then, to have issued an application for an extension of time. Second and in any event, I regard the delay of 4 months in filing the Defence, coupled with the failure to issue an application for an extension of time until directed by Master Bowles to do so, as having had a material impact on the efficient progress of this litigation. I therefore find that the First Defendant's breach or default is indeed sufficiently serious or significant.

(b) The reasons for the breach or default

24. As indicated above, the First Defendant relies on two matters: (1) lack of funding, and (2) the existence of without prejudice negotiations.
25. As for lack of funding, I was referred by Counsel for the Claimant to (once again) the decision in Hysaj. At paragraph [43] of that case Moore-Bick J stated:

"43. …In my view shortage of funds does not provide a good reason for delay. I can well understand that litigants would prefer to be legally represented and that some may be deterred by the prospect of having to act on their own behalf. Nonetheless, in the modern world the inability to pay for legal representation cannot be regarded as providing a good reason for delay…"

26. This being the case, I find that any concerns that the First Defendant may have had over funding cannot amount to a good reason for the delay in filing and serving a Defence.
27. As for the existence of without prejudice negotiations, I was told that there is no authority on this point. It seems to me, however, that such negotiations also cannot amount to a good reason for delay. If it were otherwise it would mean that a litigant could effectively seek to dis-apply or override the Civil Procedure Rules – and put deadlines or other procedural requirements on hold – merely by entering into without prejudice negotiations. That cannot be right. Similarly, from the non-defaulting party's point of view, if I were to hold that without prejudice negotiations could amount to a good reason for failing to comply with a deadline, it might discourage that non- defaulting party from entering into such negotiations – which clearly would not be an attractive proposition.
28. Moreover, there is a practical solution. If a party does wish to save money by putting off a procedural requirement pending the outcome of without prejudice negotiations, the parties can (so far as the Rules permit) agree such extensions between themselves or apply to the Court for an appropriate order. It cannot be the case, however, that simply by entering into without prejudice negotiations a party can unilaterally impose what would effectively amount to a stay on the proceedings.
29. I therefore reject the First Defendant's argument on this point too and find that there has been no good reason for the failure to file and serve a Defence.

(c) All the circumstances of the case

30. Counsel for the First Defendant asked me to consider 4 points.
31. The first two were lack of funding and the existence of the without prejudice negotiations – in other words, the same two points raised in relation to whether or not there had been a good reason for the delay. For the same reasons as given above, I reject these points.
32. The First Defendant's third point was that the law in relation to the appropriate test for applications to extend time is evolving and has been in a state of flux. As Counsel for the Claimant pointed out, however, while that might have been true in the period immediately following the decision in Matthews, the law has been reasonably clear on this point since the decision in Hysaj which was first published in December 2014. Further, it is not clear to me that this would be a good argument in any event. On any basis the First Defendant's solicitor knew that the deadline for filing and serving a Defence was 4 January 2016 and took a conscious decision not to do so until over 4 months later 17 May 2016. I do not accept the Claimant's contention that the First Defendant or his solicitors were being opportunistic or were deliberately seek to ambush the Claimant; I accept that their prime motivation was to save money while without prejudice negotiations were taking place. Nevertheless, it was clearly a conscious decision on their part not to comply with the rules and it seems to me to be hardly material whether it was believed that the appropriate test would be on relief from sanctions principles or whether some other, broader test would apply.
33. The First Defendant's final point was that it would be inherently unsuitable to consider judgment in default (which would be the necessary outcome if I were to reject the application to extend time) where the underlying relief sought was declaratory relief as it is (in part) in the present case. I reject that argument too. On an application for default judgment involving declaratory relief, a court will not simply rubber-stamp the applicant's application but will instead need to scrutinise the claim properly and be persuaded that it is appropriate to grant any declaration sought. Accordingly, the fact that the Claimant seeks declaratory relief is not (in itself) a reason, in my judgment, for extending time for the filing and service of a Defence.
34. I should add that Counsel for the Claimant submitted that a fifth factor which should be considered was the fact that, in his submission, the Defence (or purported Defence) filed by the First Defendant lacked merit and would not meet the summary judgment test. Counsel for the First Defendant argued, firstly, that this was not an appropriate matter to take into account and, secondly and in any event, the Defence did at the very least meet the summary judgment test.
35. As for whether or not the underlying merit (or lack of merit) in a claim or a defence to a claim is a relevant factor to take into account, I was taken (yet again) to Hysaj where at paragraphs [46] and [47] Moore-Bick J stated:

"46. If applications for extensions of time are allowed to develop into disputes about the merits of the substantive appeal, they will occupy a great deal of time and lead to the parties' incurring substantial costs. In most cases the merits of the appeal will have little to do with whether it is appropriate to grant an extension of time. Only in those cases where the court can see without much investigation that the grounds of appeal are either very strong or very weak will the merits have a significant part to play when it comes to balancing the various factors that have to be considered at stage three of the process. In most cases the court should decline to embark on an investigation of the merits and firmly discourage argument directed to them. Here too a robust exercise of the jurisdiction in relation to costs is appropriate in order to discourage those who would otherwise seek to impress the court with the strength of their cases.

47. Support for that conclusion can be found in the recent decision of the Supreme Court in HRH Prince Abdulaziz Bin Mishal Bin Abdulaziz Al Saud v Apex Global Management Ltd [2014] UKSC 64 , in which the court had to consider the extent to which the merits of a claim or defence were relevant to granting relief from the sanction of striking out in default of compliance with an "unless" order. Lord Neuberger, with whom Lord Sumption, Lord Hughes and Lord Hodge agreed, held that, even in a case of striking out, the merits of the claim or defence were relevant only when they were so strong that there was no real answer to them, in other words, in cases where an application for summary judgment could be expected to succeed. In Lord Neuberger's view (paragraph 30):

"…it would be thoroughly undesirable if, every time the court was considering the imposition or enforcement of a sanction, it could be faced with the exercise of assessing the strength of the parties' respective cases: it would lead to such applications costing much more and taking up much more court time than they already do. It would thus be inherently undesirable and contrary to the aim of the Woolf and Jackson reforms.""

36. On the basis of the above authority, it seems to me plain that I can take into account the merits of the underlying claim – but only where it is clear that that claim is very strong or very weak – and only where this analysis can be carried out without embarking on mini-trial.
37. As for the merit (or lack of merit) of the Defence (or purported Defence) in this case, while I do have serious doubts as to its merit, I am not able – without embarking on what would amount to an impermissible mini-trial – to find that it would fail the summary judgment test. In considering all the circumstances of the case in this application for an extension of time, therefore, I do not take into account the merits of the underlying claim or what might be said to be the apparent weakness of the Defence on which the First Defendant now wishes to rely.
38. Over all, therefore, and taking all of the relevant circumstances into account, I am of the firm view that this is not an appropriate case where I should exercise my discretion to extend time for the filing and service of the Defence.

PART VI: CONCLUSION

39. In conclusion, therefore, I reject the First Defendant's application to extend the time for the filing and service of a Defence. I will hear from Counsel as to how the remaining application, the Claimant's application for default judgment, should most appropriately be dealt with.

DEPUTY MASTER PICKERING

Note 1   At [35]    [Back]