England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		14th May 2002

Mr Justice Langley:

THE APPLICATION
1. J.P. Morgan Chase Bank (to which I shall refer as the Bank) apply to set aside a Default Judgment entered by the Claimant (to which I will refer as MEA) on 20 March 2002. The judgment is for a sum of £12,164.097.
THE FACTS
2. The claim and judgment arose in these circumstances.
3. On 17 October 2001 the Bank issued a Guarantee in favour of MEA at the request of a company called Nepco Europe Limited. The Guarantee was security for the performance of Nepco’s obligations under a contract made with MEA in July 2001 for the design and construction of a power station in the Isle of Man.
4. By the terms of the Guarantee (in which MEA was described as “the beneficiary” and Nepco was described as “the Principal”) the bank irrevocably undertook to pay forthwith to MEA any sum or sums nor exceeding in total a sum just short of £12m:

“upon receipt by us of your demand in writing stating (A) that the principal is in breach of his obligation(s) under the contract, and (B) the respect in which the principal is in breach, together with a certified copy of written notice given by the beneficiary to the contractor under the contract specifying the breach and the beneficiary’s intention to make demands under this Guarantee.”

5. The Guarantee also provided that:

i) “Any demand for payment must contain the signature of one of your directors which must be authenticated by your bankers or by a Notary Public;”

ii) It was to be governed by English law and the parties submitted to the non-exclusive jurisdiction of the English courts; and

iii) It was subject to the Uniform Rules for Demand Guarantees published as number 458 by the ICC.

6. On 14 December 2001 MEA presented a letter of demand for the full amount of the Guarantee and three documents said to constitute the requisite written notice to Nepco.
7. The letter of demand:

i) Stated that Nepco was in breach of its obligations under the contract in failing to proceed with the works with due expedition and without delay because it had abandoned the site on 1 December 2001 and ceased to carry out the works;

ii) Recorded that it “enclosed a certified copy of the written notice given by us … to the principal …” and

iii) Was signed by Michael J Proffitt as “Chief Executive” on behalf of MEA with the signature duly certified.

8. The “enclosed” written notice consisted of:

i) A letter dated 3 December 2001 (bearing a typed signature only of Mr Proffitt) to Nepco at an address in Stokesley, North Yorkshire, which referred to Nepco’s “demobilisation” and obligation to proceed with the works;

ii) A similarly signed and addressed letter dated 4 December referring to Nepco’s failure to remedy the situation and asserting that the demobilisation “may be” a breach of contract;

iii) A further similarly signed and addressed letter dated 13 December referring to the two previous letters and repeating “our position that you are and remain in breach” of contract and giving notice of MEA’s intention to make demands under the Guarantee.

9. Each of these three letters bore a notarised certificate that it was “a true copy of the original letter”.
10. On 20 December the Bank rejected the documents on the ground that they did not appear on their face to conform with the terms of the Guarantee. The letters referred to a number of supposed discrepancies in both documents including:

i) As regards the 13 December notice to Nepco that it was unsigned, not on MEA letterhead, did not specify the breach of contract and was sent to Stokesley and not the address for Nepco stated in the Guarantee (a London address);

ii) As regards the demand letter that it was not signed by a director of MEA, and was inconsistent with the notice.

11. The Bank’s letter also referred to the fact that the covering letter with the demand from MEA to the Bank had stated that it was a term of the contract between MEA and Nepco that the Guarantee would not be called until 42 days after the breach of the contract relied upon.
12. The Bank’s rejection of the documents led to an exchange of correspondence in which MEA took issue with the Bank’s grounds of rejection but the Bank maintained its position. This correspondence concluded with a letter from MEA dated 1 February and a letter from the Bank dated 14 February. In its letter MEA gave its reasons for challenging the Bank’s grounds for rejecting the documents and stated that unless the Bank confirmed payment by 15 February MEA would pursue the claim through the courts. The Bank’s letter repeated its stance that the demand did not comply with the Guarantee despite the contents of MEA’s letter.
13. MEA’s solicitors (Masons) drafted a claim form and particulars of claim. I have seen MEA’s copy of both documents stamped by the court with the date 25 February.
14. There is evidence, which there is no reason at all to doubt, from a legal assistant employed by Masons that she personally posted the claim form, particulars of claim and response pack by prepaid first class post at a post box in London in the morning of Wednesday 27 February. The addressee was a Mr Lawes at the Bank’s address in London Wall. Mr Lawes is an employee of the Bank and a person designated in the Companies Register by the Bank to accept service of process at the London Wall address. Service on the Bank was, therefore, deemed to have been effected on the second day after posting, namely on 1 March: CPR Part 6.2 and 6.7. A certificate of service to that effect was provided to the court on 6 March.
15. The CPR therefore required the Bank to file an Acknowledgement of Service on or before 15 March: Part 10.3.
16. Just as there was no other prior warning of the proceedings, save the letter of 1 February, nor a request to the bank to nominate solicitors to accept service, so the posting of the claim forms and other documents was followed by silence and 15 March came and went without any contact between the parties.
17. On 20 March, without warning, MEA entered judgment in default of an Acknowledgement of Service for the sum to which I have referred which included interest of over £78,000 and fees and costs of £630. On 21 March, MEA’s solicitors sent, by way of service upon the Bank, to Mr Lawes, a copy of the judgment. The letter stated that unless payment was made by 28 March the solicitors were instructed “to enforce the judgment”.
18. The next day, Friday 22 March, the Bank’s solicitors (Slaughter & May) sent a fax to Masons which stated that they were instructed by the Bank and that:

“Mr Lawes and our client have no record of the service of any Claim Form in this matter. We should therefore be grateful if you could provide evidence of service….”

19. The letter pointed out that the Bank contested the claim, would seek to set aside the judgment, invited MEA to consent to that course and, if not, to consent not to enforce the judgment pending an application.
20. Mr Hapgood submits that common sense should have demonstrated to MEA and Masons on receipt of this fax that something had gone wrong, in all probability a failure of the postal services.
21. Masons responded to Slaughter & May’s fax by fax on Monday 25 March. They said the claim form had been validly served by post on 27 February and was “conclusive”. They refused to consent either to the judgment being set aside or to a stay pending an application by the Bank. Slaughter & May replied by fax the same day. They repeated that the Bank believed it had a good defence to the claim and continued:

“There is no trace of the claim form, particulars of claim and response pack having been received by Mr Lawes or anyone else at our client’s offices. We are happy to obtain a witness statement from Mr Lawes to confirm this. In the light of this, we request your client to reconsider its refusal to set aside the default judgment bearing in mind its obligations under CPR 13.5”

22. There was no response before the Bank issued an application the next day to stay execution. The application was supported by a witness statement from a partner in Slaughter & May. Mr Lawes signed a witness statement on 27 March and on 28 March the present application was issued.
THE SUBMISSIONS
23. Mr Hapgood submitted that MEA’s conduct was such (“arcane, absurd and unreasonable”) that this court should reflect its disapproval by granting the application without any investigation of the merits albeit he of course maintained that there was a good or at the very least arguable defence to MEA’s claim on the Guarantee. He relied on the obligation on a Claimant, under CPR Part 13.5, itself to seek to set aside its own default judgment or at least to apply to the court for directions in a case where it “ had good reason to believe that the particulars of claim had not reached” the defendant before the judgment was entered. Alternatively he relied on the provisions of CPR Part 13.3(1)(b) that there was “some other good reason” for the court to conclude that the judgment should be set aside. He submitted that it was plain that the Bank had not been in any way at fault, it was a reputable and well known financial institution which had made it perfectly clear that it denied liability on specified grounds which were bona fide raised and fully stated. He submitted that the lack of response to the claim form and the total improbability of the Bank permitting or even risking a default judgment to be entered against it in such an amount and in the circumstances I have described should readily have led to the conclusion that there was “good reason” for MEA to believe and accept that the particulars of claim did not reach the bank before MEA entered judgment. The plainly appropriate course was for the procedural position to be rectified leaving MEA to proceed with its claim as it saw fit but not to permit it to proceed as if it had already obtained a valid judgment.
24. Miss Prevezer submitted that service was valid, MEA was entitled to enter the judgment and the judgment was valid. She submitted MEA was entitled to take and act on the view that the defences were spurious and to require credible evidence that the particulars of claim had not been received. There was no point in MEA acting under CPR 13.5 because the Bank was already taking steps to set the judgment aside and the court should now address the merits and do so on the basis of the valid judgment MEA held.
CONCLUSION
25. In my judgment, as I indicated at the end of the hearing, Mr Hapgood is entitled to succeed on this application substantially for the reasons he advanced. MEA’s submissions seem to me to miss the point. Not only did Slaughter & May offer to provide a witness statement to confirm that the claim was not received but whatever MEA’s views of the merits of the Bank’s defences it cannot sensibly have thought that the Bank was simply content not to respond in any way to the claim and to allow a default judgment to be entered against it. It is apparent now, and has been so in commonsense at least since Slaughter & May’s fax of 22 March, that the proceedings did not in fact reach the Bank and in no sense was it at fault. That is not the situation to which a default judgment of this sort is intended to apply. There should in those circumstances have been no question but that the situation should have been rectified by the judgment being set aside albeit, no doubt, on terms as to the date on which the proceedings should be treated as served and the timing of the filing of an acknowledgement of service. The CPR are intended to enable justice to be done, not to enable a party to try to seek advantage from an order or judgment which it has or ought to have realised was obtained in circumstances which were inappropriate.
26. I shall therefore order that the judgment be set aside and will hear the parties on any consequent orders unless those can be agreed.