England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Court No. 21 The Royal Courts of Justice Strand London WC2A 2LL
		15th November 2010

MR JUSTICE SIMON:

1. In these proceedings, the claimant is claiming payment of £5.2 million odd, together with default compensation of approximately £145,000. These sums were due under an Islamic finance facility contained in what is clearly a lengthy and well-drawn written agreement.
2. The facility was originally entered into on 31st January of 2008 and was then amended and restated on 30th March 2009 by an agreement dated 9th February 2009 to which Mr Gledhill has drawn my attention. He submits that this is in effect a straightforward claim for a debt which has been outstanding since 11th November 2009 when the facility was terminated by the claimant for various defaults by the first defendant. The second defendant is the guarantor.
3. On 28th July 2010, the claimant obtained default judgment under CPR Part 12 for lack of an acknowledgement of service by the defendants. In essence, Mr Gledhill submits that this was a straightforward claim and, in essence, the defendants say that enforceable promises were made that the sum advanced would not be repaid unless an IPO of a company named PIHL took place.
4. This is an application under CPR Part 13.3 to set aside the judgment. There are two bases on which the application is made. First, the defendants have a real prospect of defending the claim. Secondly, that there is some other good reason why the judgment should be set aside. I propose to deal only with the second argument for reasons which will become apparent.
5. The basis on which the application is made might be described as technical. The defendants submit that there has been a failure to comply with the provisions of CPR Part 6.17(2):

'Where the claimant serves the claim form, the claimant – (a) must file a certificate of service within 21 days of service of the particulars of claim, unless all of the defendants…have filed acknowledgments of service within that time; and (b) may not obtain judgment in default under Part 12 unless a certificate of service has been filed.'

No such certificate was filed as required. The claimant submits that CPR Part 6.17(2)(a) is a technical requirement for the purposes of the court record, and it applies for an extension of time for the certificate of service to be filed. Mr Gledhill also makes the submission that none of this matters very much since the matter came before the Judge with evidence as to service and the Judge entered judgment.

6. It is also accepted on the claimant's behalf that there has been another breach of the rules, the failure to serve a response pack. CPR Part 7.8(1) requires that when the particulars of claim or a claim form are served: '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.' No response pack was enclosed.
7. Mr Gledhill frankly accepts that there have been these two breaches of the rules, but he submits that the Court should not exercise its discretion to set aside the judgment since the claimant has a very strong, indeed an unanswerable, claim. He may be right about that. There is plenty to support the claimant's argument in the agreement and in the contemporary documents which contradicts the defendants' argument about enforceable promises to defer payment. There is very little evidence that the representations relied on by the defendants were made. It is striking that there is no witness statement from Mr [Syed Hussain?]. It is also striking that if the defendants are right, it is difficult to see when the sums are to be repaid. I am prepared to make all these assumptions in the claimant's favour for present purposes. Nevertheless, it seems to me that there are at least three reasons why it is appropriate to set aside the judgment in the present case and on the present facts.
8. The words used in Part 6.17 are clear and mandatory. The claimant must file a certificate within 21 days and may not obtain judgment in default if there is a failure to do so. The claimant did enter a judgment in default and in breach of the terms of Part 6.17(2)(b). As I have already mentioned, there was a witness statement proving service before Mr Justice David Steel and Mr Gledhill submits that that is sufficient. In any event, this was not a defect which caused any prejudice. He relies on the powers of the Court under CPR Part 3.10 to rectify errors of this sort. All this may be so and if this were the only matter it might be an appropriate case for the Court's indulgence.
9. However, there is the second matter, which I regard as very much more important in the context of the present case, that there was no compliance with Rule 7.8(1) which again is mandatory. It provides:

'They must be accompanied by…'

The response pack highlights the procedural steps which must be taken to prevent judgment being obtained in default. As Ms Gibbons points out in her skeleton argument, the claimant obtained a judgment in the absence of an acknowledgement of service and it was that very form which should have been included with the papers which were served but was not.

10. It seems to me particularly important when dealing with defendants who are not represented by English solicitors, as these defendants were not at the time, and whose understanding of English procedural law may be less than those who habitually practise in the English Court, that the means of avoiding a default judgment should be made available, as the rules require.
11. The discretionary power of the Court is unconditional and its purpose is to avoid injustice and on these two grounds, but particularly the second ground, I would set aside the judgment.
12. I note that a similar approach was adopted in a similar case by His Honour Judge Coulson QC, as then he was, in Hart Investments Ltd. v Fidler [2006] EWHC 2857 (TCC) at paragraph 15. A dissimilar approach was adopted in a dissimilar case by Mr Justice Christopher Clarke in Asia Pacific v Hanjin Shipping [2005] EWHC 2443 (Comm).
13. There are two further points, neither of which by themselves may add much to the argument but which taken with other points bear some weight. First, the default judgment was obtained in breach of the rules and has had the consequence of placing the claimant at an advantage in relation to a summary disposal on the merits. If the defendant had entered an acknowledgement of service, the claimant would have the burden under Part 24 of showing that there was no real prospect of successfully defending the claim. If the matter were to proceed under Part 13.3, the burden rests on the defendant that it has a real prospect of showing a successful defence to the claim. I note that Mr Gledhill applies under Part 24 for the matter to be heard in default of an acknowledgement of service under Part 24, but I do not think that that is an appropriate way of proceeding in the present circumstances.
14. Secondly, it seems to me that there was not a full compliance with the pre-action protocols which apply in cases such as this, see paragraph 7.1 of the pre-action protocol, page 2377 of the White Book. A letter before action which sets out the nature of the case should be send before proceedings are begun. This may not always be possible where the claimant does not wish to alert the defendant to a claim, for example on jurisdictional or other grounds; but where it is not done and there are foreign defendants, it is, in my view, particularly important that the procedures designed for the protection of those defendants are complied with. If a formal letter before action, setting out the grounds of the claim and the clear implication if the letter was not answered, had been written, I have little doubt that solicitors would have been engaged, as they were once the default judgment was entered.
15. Mr Gledhill has drawn my attention to a considerable amount of correspondence but the correspondence from his instructing solicitors, Messrs Reynolds Porter Chamberlain, in the final letter at tab 11 of 20th April 2010 does not, in my judgment, set out the details of the matter, certainly not in sufficient detail to comply with the protocol. This is a relatively minor matter and, as I have said, I have formed my view on the basis of the first two arguments which have been advanced in opposition to holding this default judgment.
16. In any event, for all the reasons I have given, I propose to set aside the judgment in default. I will hear the parties on any consequent orders to be made. Mr Gledhill and his clients will have to consider whether they wish to proceed by way of Part 24 judgment or whether they seek an early trial of the matter. I rather suspect that there will not be much difference in terms of timing, depending on which way their choice is made. What I propose to do is to hear the parties on the steps that need to be taken, giving his clients the opportunity of deciding which way they wish to go. I also propose to allow the parties time to engage in neutral evaluation in alternative dispute resolution of this matter. It seems to me that relevant time should be set aside for that purpose and it is likely to bear fruit in this case.

Now, do you want to say anything about timetabling at this stage?

MR GLEDHILL: My Lord, I think the next step would probably be an acknowledgement of service. MR JUSTICE SIMON: Yes.

MR GLEDHILL: And then a defence and one would hope that those two things could happen quickly. MR JUSTICE SIMON: Yes.

MR GLEDHILL: Given that the defence has already been drafted.

MR JUSTICE SIMON: How long for acknowledgement of defence, Ms Gibbons? Seven days? MS GIBBONS: My understanding is that the defendants are celebrating Eid. This will take at least this week so seven days, My Lord, we would find quite short.

MR JUSTICE SIMON: Seven days. Yes?

MR GLEDHILL: My Lord, then there is a date for a defence. Again, I mean, that could be eight days virtually.

MR JUSTICE SIMON: Yes.

MS GIBBONS: I would simply put forward here, My Lord, the same reasoning. It's quite difficult-

MR JUSTICE SIMON: No, seven days thereafter. Yes?

MR GLEDHILL: My Lord, we are in Your Lordship's hands about what time is appropriate for ADR. Obviously we will-

MR JUSTICE SIMON: Well, what I had in mind is that you should have an opportunity of considering whether you want to proceed with a Part 24 application. If you do, then we write that into the order but we also write into the order the possibility that you decide, having considered the matter, that it would be better to proceed to trial. So it gives you the opportunity of issuing a Part 24 application, if you wish to do so. Nothing I have said should be seen as discouragement from that course or indeed encouragement in that course. What is certain is that you will need more time than the two hours that this should have taken.

MR GLEDHILL: Yes, My Lord, that's always been certain as we conveyed to the Court whenever we could.

MR JUSTICE SIMON: Yes, I understand that.

MR GLEDHILL: My Lord, it's practically inevitable that we will apply for summary judgment [inaudible] paramount-

MR JUSTICE SIMON: Right, in that case we can forget about any other directions. How long is it going to take?

MR GLEDHILL: Well, I continue to think it is four hours.

MR JUSTICE SIMON: Right. Well, I think we should allow a full day. You can have a full day in January, if that is convenient.

MR GLEDHILL: My Lord, Your Lordship has heard, as it were, a dry run of this.

MR JUSTICE SIMON: Yes.

MR GLEDHILL: Does four hours sound about right to Your Lordship?

MR JUSTICE SIMON: I think probably, not least because I have only heard one side's argument so far and I have not heard all the arguments that Ms Gibbons will deploy.

MR GLEDHILL: I mean, it may be that... I don't want to be criticised for, you know, if it should be a day and-a-half.

MR JUSTICE SIMON: No, no, it is not a day and-a-half but I think it should be a day.

MR GLEDHILL: A day.

MR JUSTICE SIMON: I am prepared to certify that so that you will not be criticised.

MR GLEDHILL: Well, very well, My Lord. Then I will just take instructions, if I may?

MR JUSTICE SIMON: Yes, of course you may.

MR GLEDHILL: Well, My Lord, we would like a day as early as the Court can give it.

MR JUSTICE SIMON: Right. Well, I will make a direction that the parties to attend within seven days on the Commercial Court to fix a date in any event in January 2011. Estimate one day. I am going to say half a day's reading. Okay.

MR GLEDHILL: My Lord, where does that leave us on time for ADR? Your Lordship envisaged that as an alternative to summary judgment.

MR JUSTICE SIMON: Well, I would have thought some time in December if that is possible and the beginning of January.

MR GLEDHILL: And would that be in the sort of standard Commercial Court form?

MR JUSTICE SIMON: Yes, but without a stay of proceedings during that period because it may be the parties will wish to serve further evidence. I should have asked, Ms Gibbons, do you have anything to say about the matter being heard in January? No doubt your clients are as anxious to resolve the matter as the claimants are.

MS GIBBONS: My Lord, I have taken very brief instructions while you have been reviewing the matter with Mr Gledhill. We are pleased to have matters continue in January but I do echo what Mr Gledhill said, just so long as there is at least some window within that period that will allow for ADR.

MR JUSTICE SIMON: Yes. Well, shall I say the second half of January,

first half of February?

MS GIBBONS: My Lord, that would be helpful.

MR JUSTICE SIMON: I think that will give you more flexibility for ADR.

MR GLEDHILL: Well, My Lord, I wouldn't want anything I say being construed as thinking that on our side we think ADR is going to be productive but-

MR JUSTICE SIMON: No, I quite understand.

MR GLEDHILL: -we are in Your Lordship's hands.

MR JUSTICE SIMON: Yes.

MR GLEDHILL: So that would all be the second half of January, the first half of February?

MR JUSTICE SIMON: No, sorry, that is when the hearing will take place.

MR GLEDHILL: Yes.

MR JUSTICE SIMON: The ADR will be before that.

MR GLEDHILL: Before. My Lord, I think that takes us to costs of today.

MR JUSTICE SIMON: Right.

MR GLEDHILL: I have lost comprehensively so-

MR JUSTICE SIMON: Well, you have, and I will hear what Ms Gibbons says about that, but her clients' claim for £44,000 seems to me to be very much in excess of what is appropriate but what about the principle of the matter?

MR GLEDHILL: Well, on the principle, I obviously have to or my clients will obviously have to pay the cost in principle, subject to this point, My Lord: there's some evidence on the merits which the Court is going to be revisiting-

MR JUSTICE SIMON: Yes.

MR GLEDHILL: -on the application in due course for summary judgment. It would be possible to order the claimant to pay the costs of the defendants' application with the exception of the costs of the witness statements going to the merits to be reserved to the Judge considering the summary judgment application.

MR JUSTICE SIMON: Yes.

MR GLEDHILL: And I suggest that a bit diffidently because, you know, we have lost the application and I'm not saying different but, nevertheless, things might look different in January if the evidence... If, for example, Mr Hussain never does sign his statement and my client's evidence is, you know, vindicated on summary judgment, that that would be a reason to reserve the costs of that.

MR JUSTICE SIMON: Yes. Right. Well, Ms Gibbons, what do you say about that?

MS GIBBONS: We seek our costs. I would, looking at the claimant's schedule of costs-

MR JUSTICE SIMON: I have not seen the claimant's schedule. Thank you.

MR GLEDHILL: My Lord, each side has only exchanged schedules just before the hearing so I haven't seen-

MR JUSTICE SIMON: I see. Well, what is the best solution to this? I can see there might be difficulty in resolving this other than as a matter of principle.

MS GIBBONS: My submission is that if one takes a look at the second page and I understand-

MR JUSTICE SIMON: The second page of theirs?

MS GIBBONS: The second page of theirs.

MR JUSTICE SIMON: Yes. Well, nobody is asking you to pay that.

MS GIBBONS: And you can see the grand total there is £114,655.94.

MR JUSTICE SIMON: Yes.

MS GIBBONS: That is for all of the work to date. Mr Gledhill informed me prior to the start of the hearing that the figure in the right-hand column which is £43,284.49 related to all of the work since the default judgment.

MR JUSTICE SIMON: Right.

MS GIBBONS: Now, that's-

MR GLEDHILL: My Lord, I hadn't informed her of that at all.

MR JUSTICE SIMON: Well, I do not think it is going to be very profitable looking at the claimant's schedule of costs because I am not concerned with the claimant's schedule of costs. I am concerned with yours and it seems to me that although you have succeeded on the technical side of the argument, the Court has formed no view as to the underlying merits on which you may well fail so that on any view the costs that you recover should be abated. I am in as good a position as any other Judge who hears the matter in January or February to form a view about that. I think really I need your assistance on what proportion of this you say is attributable to the technical arguments on which you have been successful. It is probably rather difficult. Perhaps I had better just form a view.

MS GIBBONS: It is quite difficult, My Lord. However, what could be said is this: insofar as there have been limited witness statements from the defence in these circumstances, there is not a lot of time that probably would be allocated to that. It is very difficult and I also have some difficulty in understanding how it is that the claimants would claim, if you will, a reserved portion in relation to their witnesses. I don't know who they would be and how, indeed, they could be apportioned since so far as I can see that isn't broken down either.

MR JUSTICE SIMON: No. Well, I am not concerned, as I say, with the claimant's schedule of costs and it may be in due course if they are successful some consideration will need to be given to that but I am concerned with your costs because you are asking for your costs.

MS GIBBONS: Indeed, My Lord.

MR JUSTICE SIMON: And they will take a note of what I have said about that. Right. Do you want to say anything else?

MS GIBBONS: My Lord, no. I believe that probably in these circumstances it is necessary for you to take a view.

MR JUSTICE SIMON: Yes. Thank you very much. This is the application by the defendants for their costs of setting aside the default judgment. I have already set out my view about the merits. A considerable amount of the costs undoubtedly will have gone to consideration of the merits which will be considered hereafter. I therefore have to form a view about the amount of costs which it is reasonable to attribute to the setting aside of the default judgment on the purely technical grounds. The matter was addressed in some detail by the partner, Ms Azarmi, in both correspondence and in her witness statement and it seems to me that that is the starting point, together with the disbursement in relation to Ms Gibbons' brief fee. Looking at the matter as a matter of general impression, but in the light of those considerations, it seems to me that the appropriate sum to award is a sum of £20,000. All other matters to be reserved. How long do you want for that?

MR GLEDHILL: My Lord, we have the same problems with holidays.

MR JUSTICE SIMON: Well, are we talking about the Eid holiday or the Christmas holiday or...?

MR GLEDHILL: I think the former.

MR JUSTICE SIMON: Right.

MR GLEDHILL: My Lord, I'm told that two weeks would be difficult.

MR JUSTICE SIMON: Right. Shall I say 28 days?

MR GLEDHILL: I'm very grateful, My Lord.

MR JUSTICE SIMON: 28 days. I wonder if I could ask you to draw up an order in those terms and I will sign it.

MR GLEDHILL: I'll do that now and I'll supply a draft to Ms Gibbons.

MR JUSTICE SIMON: Very good. Is there anything else?

MR GLEDHILL: I don't believe so, My Lord.

MR JUSTICE SIMON: Thank you very much. I have got another application that is due to come in now so I would be grateful if you could clear the decks as soon as is possible.