England and Wales High Court (Queen's Bench Division) Decisions

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

		7 Rolls Building Fetter Lane London EC4A 1NL
		21 April 2016

1. MR JUSTICE LEGGATT: This is an application by the defendant to set aside a default judgment obtained by the claimant, Mr Rushworth, in this court on 13 October 2015.
2. The claim was begun by a claim form issued on 10 July 2015. I will return in due course in more detail to the nature of the claim, but the brief details stated in the claim form assert that the claim is for services rendered to the defendant and his former wife, Judy Jago, between June 2012 and October 2012 in connection with their ownership of a substantial shareholding in Lorega Ltd and associated companies and their efforts to regain control of the company following a dispute between Malcolm Harvey (the defendant) as chairman and his fellow directors. The value of the claim is stated to be £46,350.
3. The claim has had an unfortunate procedural history. The claim form was served on the defendant by first class post and received by him on 8 October 2014. A question has arisen in the course of argument as to whether the document served by that means was an original claim form stamped by the court office. Nothing to suggest otherwise has been said by the defendant at any stage up until today or put in evidence, and I see no reason to draw any other conclusion from the documents than that the document served was indeed an original claim form.
4. Mr Harvey, the defendant, instructed solicitors, Couchman Hanson. They responded on his behalf on 16 October 2014 taking two procedural points which they contended rendered service of the claim form invalid. First of all, they said that the claim form was not accompanied by a response pack, that is a form by which service may be acknowledged and an intention indicated to defend the claim. Secondly, they complained that the claim form did not contain, nor was it accompanied by, particulars of claim. Moreover, when one looks at the second page of the claim form where the claimant is expected to delete one or other of the words "attached" and "to follow" to indicate whether the particulars of claim are attached or to follow, one sees that, in the document that was served by the claimant, neither of those words had been deleted.
5. The defendant's solicitors took their stand on those procedural points and chose not to enter an acknowledgement of service. On 28 October 2014, the claimant replied to the defendant's solicitors asserting that, contrary to what they said, the claim form had been accompanied by a response pack. He accepted, however, that it had not been accompanied by particulars of claim and said that those would be filed with the court and "served on you before 8 November next".
6. The defendant's solicitors replied on 5 November 2014 suggesting that, when the particulars of claim were served, there should also be served at the same time a further copy of the claim form and a response pack.
7. Particulars of claim were not served as the claimant indicated they would be by 8 November. There is a letter from him dated 17 December 2014 stating that it enclosed a copy of the particulars of claim. It seems, however, that that letter was not received by the defendant's solicitors. The claimant followed it up on 27 February 2015 with a letter referring to his letter of 17 December and saying that, as the defendant's solicitors had not responded, he intended to enter judgment against the defendant. On 2 March, the defendant's solicitors replied saying that they had not received the letter of 17 December 2014. The claimant then on 17 March 2015 sent further copies of the claim form and particulars of claim together with the form for acknowledgement of service. At this point, however, the defendant's solicitors took another procedural objection. They now contended in a letter dated 30 March 2015 that, although the correct documents had now been sent, they had been sent out of time. The basis for that argument was that, under the Civil Procedure Rules, a claim form must be served within four months unless time for service is extended by the court. At this stage, more than four months had elapsed since the claim form was issued and there could be no extension of time. The defendant's solicitors argued on that basis that service was invalid.
8. The claimant for his part took the position that, as the defendant had not entered an acknowledgement of service, he was entitled to apply for judgment in default. He completed a form in May requesting default judgment, but it appears that the form was lost by the court. He tried again in August 2015. On this occasion, his request for judgment in default was placed before His Honour Judge Waksman QC, the Mercantile Judge, who took the view on the basis of such documents as were before him that the procedural requirements for entering judgment in default appeared to be satisfied. Accordingly, the court entered judgment in default on 13 October 2015. A copy of the default judgment was served on the defendant's solicitors who immediately applied on 21 October 2015 to set it aside. Unfortunately, for reasons of which I am not aware, it has taken some time for that application to be listed for hearing in this court.
9. Mr Clerk, who represents the defendant today, submits as his primary argument that the judgment in default must be set aside under CPR 13.2 because it was wrongly entered. The basis for that submission is that it is said that one of the conditions required to be satisfied before a claimant may obtain judgment in default was not in fact satisfied. Those conditions are set out in CPR 12.3. The first condition is that the defendant has not filed an acknowledgement of service or defence to the claim and the relevant time for doing so has expired.
10. It is common ground that the defendant in this case had not filed an acknowledgement of service or defence to the claim. Mr Clerk submitted, however, that the time for doing so had not expired. The basis for that submission is that service of the claim form is said to have been invalid, with the result that time for filing an acknowledgement of service never began to run.
11. To assess the merits of that submission, it is necessary to look at the special rules concerning the commencement of proceedings in the Mercantile Court, which are contained in CPR rule 59. As there set out, the requirements in the Mercantile Court differ in certain respects from the general requirements which apply in other courts covered by the Civil Procedure Rules. In particular, rule 59.4 states:

"(1) If particulars of claim are not contained in or served with the claim form -

(a) the claim form must state that, if an acknowledgement of service is filed which indicates an intention to defend the claim, particulars of claim will follow;

(b) when the claim form is served, it must be accompanied by the documents specified in rule 7.8(1)…"

Those documents, I interpose, are the documents commonly referred to as the "response pack".

12. Rule 59.5 states:

"(1) A defendant must file an acknowledgement of service in every case.

(2) Unless paragraph (3) applies, the period for filing an acknowledgement of service is 14 days after service of the claim form…"

Paragraph (3) then refers to a situation in which the claim form is served out of the jurisdiction which is not applicable in this case.

13. Rule 59.7 states that Part 12 (the part of the CPR dealing with default judgment) applies to mercantile claims with certain modifications. One of those modifications, provided for at 59.7(2) is:

"If, in any Part 7 claim -

(a) the claim form has been served but no particulars of claim have been served; and

(b) the defendant has failed to file an acknowledgement of service,

the claimant must make an application if he wishes to obtain a default judgment.

(3) The application may be made without notice, but the court may direct it to be served on the defendant."

14. Mr Clerk submitted on behalf of the defendant that service of the claim form was invalid because there had been non-compliance with rule 59.4(1)(a) and (b). That is because, in a situation where particulars of claim were not contained in or served with the claim form, the claim form had failed to state that, if an acknowledgement of service was filed, particulars of claim would follow; and there was also a breach of 59.4(1)(b) because the claim form was not accompanied by a response pack.
15. I accept that there was a failure to comply with those provisions of the rules. It is clear from the documents before the court that the particulars of claim were not contained in or served with the claim form. It is also apparent that the claim form did not contain a statement that, if an acknowledgement of service was filed which indicated an intention to defend the claim, particulars of claim would follow. There is a dispute about whether a response pack was served with the particulars of claim on the first occasion when it was served on 8 October 2014. The defendant's solicitors asserted in their immediate letter of response to the claim that no response pack had been provided. Although the claimant asserted the contrary, there is no documentary evidence to support that assertion and I find that he has failed to prove that a response pack was served at the same time as the claim form.
16. However, although there were those failures to comply with rule 59.4, neither of them, as I interpret rule 59, absolved the defendant from the requirement to file an acknowledgement of service. Rule 59.5(1) states unequivocally "a defendant must file an acknowledgement of service in every case". Furthermore, the time for doing so is stated to be 14 days after service of the claim form. Nothing in rule 59.5(2) says that time will only begin to run when a response pack is served. It is clear that a claim form had been served in this case and I see no reason to imply into the rules, in circumstances where they contain no statement to this effect, a requirement that service of the claim form will be deemed not to have taken place if rule 59.4 has not been complied with.
17. As I see it, therefore, what the defendant's solicitors should have done – as well as, if they wished to, taking the procedural objections that they did – was to file an acknowledgement of service to the claim form. However, they chose not to do that. In those circumstances, the condition for entering judgment in default set out in rule 12.3(1) was satisfied because, at the time when judgment in default was entered, no acknowledgement of service had been filed and the relevant time for doing so had long ago expired.
18. The second point taken by Mr Clerk was that there was no application to enter judgment in default and that the claimant should have issued an application notice under Part 23.
19. I accept that it is correct that the rules require an application for judgment in default to be made by a notice filed under Part 23. However, I consider that in substance the claimant did make such an application. The fact that the form that he filled out was a form requesting judgment in default rather than the form prescribed under Part 23 is a pure technicality which does not affect the substance of the matter – which is that an application was made to the court. There was no requirement to give notice of that application to the defendant. What is important is that it was considered by a judge and not merely dealt with administratively in the court office. That did in fact happen in this case and I am satisfied that in those circumstances, although there was a minor procedural irregularity, it does not nullify the judgment in default or provide a ground on which the court should set it aside.
20. I therefore reject the first ground of the defendant's application, which is that the defendant is entitled to have the default judgment set aside as a matter of right.
21. On the defendant's behalf, however, Mr Clerk makes an alternative submission which is that, if I am against the defendant – as I am – on that primary basis of the application, the court should nevertheless exercise its discretion to set aside the judgment under rule 13.3(1). Two alternative grounds for setting aside judgment are provided for in that rule. The first is that the defendant has a real prospect of successfully defending the claim. The second is that it appears to the court that there is some other good reason why the judgment should be set aside. Mr Clerk relies on both of those alternative grounds. He submits that, not only has the defendant a real prospect of successfully defending the claim, but the claimant has no real prospect of succeeding in the claim. He further or alternatively submits that there is in any case some other good reason why the judgment should be set aside, and he relies in that regard on the procedural deficiencies which I have already identified, namely the failure to serve a response pack and the failure to indicate that the particulars of claim would follow.
22. I do not need to consider or decide whether there is some other good reason on that basis to set aside the judgment. I am doubtful that those irregularities would have provided a good reason if the defendant had not been able to show a real prospect of successfully defending the claim. However, I am quite satisfied that the first condition stated in rule 13.3(1) has been met and that there is a real prospect of successfully defending the claim. More than that, I am satisfied that, with the exception of one small part of the claim to which I will come, the particulars of claim which have subsequently been provided by the claimant disclose no reasonable grounds of bringing the claim.
23. The particulars of claim set out what the claimant says is the history of his involvement with and assistance given to the defendant and his estranged wife, Judy Harvey. The claimant states in paragraph 1 that he was first introduced to the defendant's wife through a shared interest and learnt from her that her husband, and consequently herself as well, were in very difficult circumstances because her husband had been threatened with summary dismissal from his position as chairman and chief executive of the family company on allegations of having claimed fraudulent expenses and other payments said wrongfully to have been received as personal benefits. Furthermore, although the majority shareholding of the company was owned equally by Mr and Mrs Harvey, the claimant says that the minority shareholders had effective control of the board through terms of the Articles of Association and the shareholder agreement. The matter was further complicated by the fact that Mr and Mrs Harvey were not on speaking terms and there was a pending divorce.
24. At paragraph 3, the claimant states that, out of sympathy for Mrs Harvey, he offered his assistance in drafting emails to preserve her position. Then at paragraph 4, he describes a meeting which allegedly took place at his club in London with the defendant in early July 2012. It is what took place at this meeting which is the foundation of the claim brought by Mr Rushworth. It was, so he says, the first occasion on which he had met Mr Harvey. The relevant part of paragraph 4 states as follows:

"At this meeting I advised Mr Harvey that he should join forces with his wife to regain control of the company and I was willing to assist them both to achieve this. He had informed me at the meeting that in any event the company would have to be sold to fund his divorce settlement and that they had instructed a firm of accountants to find a buyer. I asked him what did he consider the value of the company to be and he replied with the figure of £20 million. I said to him that I would be interested in selling the company at the usual Lehman scale fee on him and Mrs Harvey regaining control and he agreed to my proposal. Furthermore, he said that he would reward me very well if I were to salvage the situation for him, which he recognised could mean both the loss of his job and the loss of his valuable family shareholding. On a sale at a figure of £20 million, my fee would have amounted to £150,000."

25. The claimant goes on to allege that, following this meeting, he provided substantial assistance to Mr and Mrs Harvey in negotiations held with the minority shareholders. In particular, he flew back from a holiday in Sweden to attend one important settlement meeting on 3 August 2012 and he states that, on the day before the meeting, Mr Harvey asked him to attend and said that he would reimburse the claimant's airfare from Stockholm.
26. According to the particulars of claim, the upshot of the various discussions and negotiations was that an agreement was reached under which Mr Harvey resigned from his position as chairman and chief executive in return for financial compensation of £435,000. There were deducted from that amount certain sums. However, Mr and Mrs Harvey failed to reach agreement on an arrangement which would have given Mrs Harvey voting control on behalf of both of them. As a result, no attempt could be made, at least at that stage, to sell the company. Accordingly, it did not happen that Mr Rushworth was instructed to attempt to broker a sale. Hence the condition which would, according to the agreement which he says was made, have resulted in him earning a fee of around £150,000 upon such a sale was never fulfilled.
27. Once it became clear that there was not going to be an opportunity for him to try to sell the company as he had hoped, Mr Rushworth sent a number of emails in which he asked to be compensated for the substantial amount of work that he claimed to have done. The first such email was sent on 3 October 2012 to Mrs Harvey. At that stage, there had been a falling out between Mr Rushworth and Mrs Harvey. The reason for that and whose fault it may or may not have been is not material for present purposes. However, after setting out his side of events, Mr Rushworth said in this email:

"It is clear that I will not have a future role in the sale of the business as compensation for the considerable amount of time that I have expended over the last three months in assisting you both and I would be glad if we could agree an appropriate fee to compensate me for the work that I have undertaken on behalf of both of you and the payment of my travel expenses from Stockholm to London for the meeting on 3 August which remain outstanding."

28. That email was also sent or forwarded to the defendant, Mr Harvey, who replied to the effect that, although he felt that he and his estranged wife would have been happy to arrange to pay a fee to Mr Rushworth if Mr Harvey had been reinstated, in the way that events had transpired he did not consider that there had been a successful outcome of a kind which might lead him to offer some "success fee" to Mr Rushworth.
29. There was further email correspondence, including in particular emails sent by Mr Rushworth to Mr Harvey on 1 May 2013 and on 28 May 2013 which set out the basis on which Mr Rushworth considered that a fee was payable in compensation for the work which he had done. The crucial passages in those emails were these.
30. In the email of 1 May 2013, Mr Rushworth stated:

"I made it clear to you that as compensation I would wish to dispose of the shares of Judy and yourself in Lorega for which a buyer was being sought at a fee based on the Lehman scale. We agreed that the current value of the company at that time was around £6 million and I informed you that for a small transaction such as this it would be normal for the scale fee to be doubled. To quantify this, my fee would have been at least £300,000 and considerably more if the expected results of a new product launch you informed me about had come to fruition."

He then goes on to say that the reason why control of the company had not been regained was that Mr and Mrs Harvey had failed to agree proposals that had been put forward to achieve this and that, in those circumstances, he was seeking to charge a fee on a different basis for the work that he had done.

31. The second email that I mentioned dated 28 May 2013 gives a broadly similar account of the agreement said to have been reached. The crucial part of the email for this purpose is the paragraph numbered 2, which states as follows:

"It is also true that I did intervene initially to assist Judy 'as a good Catholic' and I met you in my club in that spirit. You and I had a very long conversation about the corporate situation, the allegations made against you, the parties involved and your wish to get on with your life following your divorce. You also informed me that efforts had been made to sell the company by their accountants which had been aborted to date. You also informed me that you were represented by a firm of solicitors in Brighton. I did say that I thought that I could assist you and Judy and you did say that you would reward me very well if I could. I replied that an acceptable reward for me would be the instruction to broker the sale of the company and we did discuss the fee basis for this based on the Lehman scale and what you considered the company to be worth. You had no objection to me performing this service at that time and seemed very happy with such an arrangement."

32. The thrust of the claimant's case, as stated in those emails which I have read and as set out in the particulars of claim from which I quoted earlier, is that, at the meeting which took place at his club with Mr Harvey in early July 2012 an agreement was reached under which he would potentially be rewarded for the assistance that he was offering to give to Mr and Mrs Harvey. The nature of that reward, according to Mr Rushworth, was agreed to be a scale fee in the event that control of the company was regained and the company was successfully sold by him.
33. Insofar as that was the nature of the agreement made between the claimant and the defendant, it is plain that he is not entitled to any remuneration for the work that he did. The nature of the alleged agreement was that he would do that work in return for a promise to be paid a fee in the event that he achieved a successful sale of the company. That did not occur and the condition on which a fee would be payable has therefore never arisen.
34. The alternative bases on which Mr Rushworth seeks to argue that a fee is payable are, first of all, his assertion that at this same meeting, Mr Harvey made a statement that he would reward Mr Rushworth very well if he were to salvage the situation for Mr Harvey. Assuming in Mr Rushworth's favour that such a statement was made, it could not possibly amount to a legally binding agreement. A legally binding agreement has to contain terms of sufficient certainty to be capable of being enforced by the court. To some extent, the court can repair deficiencies by implying in certain circumstances requirements of reasonableness, but a mere statement that Mr Rushworth would be rewarded very well in some unspecified way if he were to salvage the situation, again in some unspecified way, is not capable of amounting to a legally binding agreement.
35. The third way in which Mr Rushworth has sought to justify his claim is by saying that he is entitled to a reasonable remuneration on a quantum meruit basis. He gave the example of a plumber called out to do work in someone's home. If there is no discussion of any fee before the work is done, the implication nevertheless is that the plumber is entitled to claim a reasonable remuneration for his services.
36. I of course accept and agree that that is the implied understanding in the example which Mr Rushworth gave. However, on his own case, there was here a discussion of the basis of his remuneration. It is not therefore a situation in which it can be said that there was some implied arrangement under which he was working for what would later be assessed as a reasonable hourly rate for his time. On his own case, he was working on the basis of an agreement that he would receive a very substantial fee if certain events were fulfilled, which were not in the event fulfilled. That agreement is incompatible with a quantum meruit arrangement.
37. It may be that Mr Rushworth has a moral claim to be compensated for the substantial assistance which he says he gave to Mr and Mrs Harvey, but I am not in a position to make a judgment about that. This court is a court of law and not a court of morals and I conclude that, even if the factual allegations made by Mr Rushworth were to be proved at a trial, they would not as a matter of law entitle him to any compensation.
38. There is a separate agreement that the claimant says was made to reimburse his airfare from Sweden in the sum of £350. In the grounds of resistance which Mr Harvey has served, he has admitted at paragraph 8 that he did agree to pay that amount and that he remains willing to do so. In those circumstances, I do not consider that further time and cost should be wasted in litigating this dispute when the legal position is, in my view, clear. I intend to enter judgment in favour of Mr Rushworth for the amount of his airfare and to strike out the rest of the claim, having first set aside the judgment in default.

(After further submissions)

39. An application has been made on behalf of the defendant for the costs of this action following my decision that most of the claim should be struck out.
40. If the defendant had followed the course of acknowledging service and immediately applying to strike out the claim, I would have considered that the costs should follow. But instead, there has been a procedural song and dance which has strung out this claim for well over a year and would have continued to do so for longer if I had acceded to the proposal made by the defendant that, in the event that the default judgment was set aside, as it has been, there should then be a yet further hearing to deal with the validity of service.
41. I consider that the defendant's approach has significantly contributed to the costs and time which have been wasted in this case and in the circumstances, including the fact that I have given judgment for the claimant albeit only for a small amount, I propose to make no order as to costs.