England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
IN THE TECHNOLOGY AND CONSTRUCTION COURT

		The Royal Courts of Justice, Strand, London
		19th July 2005

 


19^th July 2005

HIS HONOUR JUDGE PETER COULSON QC
1. Background. This is an application by the first defendants to set aside the judgment in default of defence entered against them on 24^th June 2005. I propose to set out the background facts and then go on to consider the three broad submissions made by Mr. Grant, who appeared on behalf of the first defendants. Those were:

   (a) the irregularity of the judgment that was obtained;

   (b) the first defendants' conduct; and

   (c) the first defendants' prospects of successfully defending the claim.

2. The claim form was issued on 25^th May and served on 26^th May. The claim relates to an alleged agreement by the first defendants to pay the claimants fifty per cent of the profit on the sale of some land in East London. This claim is said to arise on the basis of an agreement under seal made on 6^th April 2004. A variety of remedies, including a declaration and an account, are sought in the claim form.

3. The claim against the second defendants has not been served and I am told that the second defendants no longer exist. The claim against them is therefore no longer pursued and I make no further reference to them in this judgment.

4. The first defendants acknowledged service on 2^nd June 2005. The first defendants had twenty-eight days from the date of service of the claim form to serve their defence. Therefore, the time for service expired at 4 p.m. on 24^th June 2005.

5. A case management conference was fixed by the TCC Registry to take place on 5^th July 2005. Although at one point the first defendants' solicitors seemed a bit surprised at the promptness of that hearing, it is standard practice in the TCC to fix the first CMC early, leaving it to the parties, if they wish, to seek an adjournment, for instance until after the service of the defence. One of the reasons for this practice is that, because of the thorough ground work required by the TCC pre-action protocol, the parties to TCC litigation usually have a good idea of each other's position at the very outset of the proceedings.

6. On 22^nd June, the first defendants' solicitors sought in writing an extension of time for the service of their defence. The extension was sought until 8^th July. On the same day, there was a telephone conversation between Miss Hoath, the first defendants' solicitor, and Mr. Gwillim, the claimants' solicitor, during which an extension of time was discussed. It seems clear to me that no extension of time was agreed during that conversation. It also seems clear to me that Mr. Gwillim, as I would expect, indicated to Miss Hoath that he may well be prepared to agree to such an extension provided that he had sufficient time to consider any defence before the case management conference. Thus the length of any agreed extension may have depended upon whether or not anybody sought to adjourn the case management conference and, if so, what new date was fixed.

7. This view of that conversation is borne out, so it seems to me, by Mr. Gwillim's letter to Miss Hoath, dated 23^rd June, in which he said:

   "We note the request set out in your letter in relation to an extension of time for filing of your client's defence in this matter. We also note that you were unaware that a CMC is currently set down for 5^th July 2005. We refer to the letter sent by the Registry clerk of the TCC, copy attached. As you will note, this letter was sent to our respective firms on 7^th June 2005. The court is to fix a CMC following the filing of an acknowledgment of service or a defence, whichever occurs earlier. We note that you filed such an acknowledgment of service on 6^th June 2005. We are prepared to consider a reasonable extension of time for the filing of your client's defence provided it still allows us sufficient time to prepare for the CMC."

8. The first defendants applied to the court in writing to adjourn the CMC on 23^rd June 2005. Unfortunately, that application was not copied to the claimants' solicitors, which meant that I considered the application without knowing that the claimants had instructed their solicitors to oppose any such adjournment. I regard that as a major oversight on the part of Miss Hoath, but I do not consider that, in the event, it has had any serious consequences.

9. On the same day - that is, 23^rd June 2005 - the first defendants made a written application pursuant to which they formally sought an extension of time for the service of their defence. The extension sought was fourteen days, which would have taken the date for the defence to 8^th July. On 24^th June, the hearing of the application to extend time for the service of the defence was fixed by the TCC Registry to take place on 5^th July. I was unaware of that application when, also on 24^th June, I adjourned the CMC to today's date.

10. Despite a number of attempts to telephone Mr. Gwillim on 24^th June, Miss Hoath was unable to speak to him to finalize the extension of time which she sought. Eventually, Miss Hoath faxed Mr. Gwillim on that day to say:

    "As we explained in our previous letter, our client will not be in a position to serve its defence before Friday, 8^th July. We understand your client's difficulties in granting extensions in circumstances where the court have of their volition listed the matter for a case management conference on 5^th July 2005. Consequently, we wrote to the court yesterday explaining our difficulty with service of the defence and requesting that the case management conference be adjourned until the first available date after 8^th July. We understand that the court have agreed to do this and the CMC has been re-listed for 19^th July. In the interim, we had issued an application for an extension of time for service of the defence until 8^th July to be heard on 5^th July. This was on the assumption that the court would not move the case management conference. In light of the above, we would now invite you to grant us the requested extension until 8^th July. If this is acceptable, we will of course vacate the hearing on 5^th July. If the extension is not granted and your client is minded to attempt to enter judgment, we reserve the right to bring all the relevant correspondence to the court's attention at any hearing. We await your urgent response."

11. After 4 p.m. on 24^th June, the claimants entered judgment in default of defence. They informed the first defendants' solicitors of this in a letter written on the same day, although the letter was not received by the first defendants' solicitors until 27^th June. On 28^th June, Miss Hoath sent Mr. Gwillim a detailed letter setting out the first defendants' case. The defence and counterclaim were served on 30^th June and, on the same day, the first defendants issued an application to set aside the default judgment.

12. Miss Hoath's statement in support of the application was served on Wednesday, 13^th July. Mr. Grant, who as I have mentioned appeared on behalf of the first defendants today, filed a helpful skeleton argument at lunchtime yesterday. The claimants indicated their position by way of a statement from Mr. Gwillim and certain other documents which were provided yesterday afternoon. From a perusal of those documents, it was plain that the claimants opposed the setting aside of the default judgment.

13. The judgment in default. Mr. Grant's first point is that the judgment should be set aside as of right, because it was irregular. There were four separate points that he relied on in support of this contention:

    (a) Because of the nature of the claimants' pleaded claims, they could only have sought judgment under CPR Part 23, which would have necessitated a notice to the first defendants, and that consequently the application for judgment in default under CPR Rule 12.4(i)(a) was invalid;

    (b) The absence of a certificate of service at the time that the default judgment was entered made it irregular;

    (c) Under CPR 12.8 the court is prevented from entering judgment against one defendant and not the other; and

    (d) Alleged deficiencies in the Particulars of Claim.

14. The first of these points is, in my judgment, the most important. CPR 12.4 provides:

    "(1) Subject to paragraph 2 a claimant may obtain a default judgment by filing a request in the relevant practice form where the claim is for:

    "(a) a specified amount of money;

    (b) an amount of money to be decided by the court;

    (c) delivery of goods where the claim form gives the defendant the alternative of paying their value; or

    (d) any combination of these remedies.

    (2) The claimant must make an application in accordance with Part 23 if he wishes to obtain a default judgment:

    (a) on a claim which consists of or includes a claim for any other remedy; or

    (b) where Rule 12.9 or Rule 12.10 so provides.

    (3) Where a claimant:

    (a) claims any other remedy in his claim form in addition to those specified in paragraph 1; but

    (b) abandons that claim in his request for judgment,

    he may still obtain the default judgment by filing a request under paragraph (1)."

15. It is plain that the philosophy behind Rule 12.4 is to ensure that default judgments are confined to relatively straightforward cases where the claim is for a specified sum of money or an amount of damages. As I have indicated, in the present case the claim form seeks a declaration; an account of all profits that have come into the hands of the first defendants; payment of any amount found due following the taking of that account; all proper accounts, inquiries and directions; delivery up and production of various record and invoice books; damages and interest. I think it is clear, therefore, that this is not a claim of the type envisaged by Rule 12.4(1). This is a claim for a wide range of remedies, some of which, such as the taking of an account, are reasonably unusual.

16. Accordingly, it seems to me that this claim did not and could not fall within Rule 12.4(1) and that meant that if the claimants were not abandoning any of these claims - and there was and is no indication that they are - the application for judgment should have been made under CPR Part 23. That, so it seems to me, is not just idle pedantry, because of course an application under Part 23 would have required the claimants to give notice to the first defendants of what they were seeking to do. Therefore, it seems to me there can be no doubt that the claimants have gained an advantage in using what is effectively the wrong rule to obtain their default judgment.

17. I therefore conclude that the judgment is irregular and cannot be allowed to stand.

18. In the light of that decision, it is unnecessary for me to consider the other jurisdictional points taken by Mr. Grant, save to say that I can see force in his point that the absence of a certificate of service at the time that judgment was entered might also be enough to conclude that the judgment was irregular. I note that CPR 6.14 makes clear that such a certificate is a mandatory requirement. I appreciate the point that is made by Mr. Gwillim to the effect that this is something that is capable of being cured, but it does not detract from the fact that the rule makes clear that the certificate of service is a mandatory requirement.

19. I should add that, in my view, whilst it is open to parties to litigation to try and utilize the CPR to improve their position in the proceedings and to maximize any advantage accruing to them, when they endeavour to do so they have to ensure that their own position is beyond criticism. Therefore, I do not criticize the claimants for seeking to enter judgment in default, but, because they have used the wrong rule and gained an unfair advantage in so doing, I think it is entirely appropriate for the court to find that they are not entitled to the judgment that they obtained. Therefore, I am bound to conclude that the judgment should be set aside as of right.

20. Conduct. If I am wrong about that, it becomes necessary to consider CPR 13.3. That provides:

    "(1) In any other case the court may set aside or vary a judgment entered under Part 12 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."

21. Dealing first with my general discretion under 13.3(1)(b), I move on to the second of Mr. Grant's three areas, namely the first defendants' conduct.

22. In the round, I have concluded that the first defendants, and effectively this means their solicitors, could not have done more to prevent judgment being entered in default. Amongst other things:

    (a) They issued an application to extend the time before the original twenty-eight day period had expired. I am amazed at how often solicitors do not do that.

    (b) They obtained in general terms an indication from the claimants' solicitors that they may be prepared to grant a short extension, subject to various conditions relating to the CMC;

    (c) They warned the claimants' solicitors in the letter of what might happen if judgment in default was entered;

    (d) They set out a detailed defence within a few days of judgment having been entered; and

    (e) They issued their application to set aside promptly.

23. In all those circumstances, it seems to me that there is plainly good reason why I should allow the defendants to defend this claim.

24. In addition, from a wider perspective I would be concerned if litigants in the TCC operated on the basis that they could, as a matter of routine, enter judgment in default of defence in circumstances where the defendants had sought to extend the time for the service of that defence and an application had been listed to be heard at a date in the future. That does, so it seems to me, potentially usurp the jurisdiction of the court, because it prevents the court from dealing with the merits of that application.

25. Accordingly, for these reasons, I consider that the first defendants' conduct was such that I should, in order to do justice between the parties, exercise my discretion in allowing the first defendants to defend the claim. They have, therefore, made out the ground under 13.3(1)(b).

26. Merits. Finally, there is the question as to whether or not the first defendants have a realistic prospect of successfully defending the claim. This was Mr. Grant's third broad area of submission. Of course, it is not strictly necessary for me to consider this in view of my conclusions on the other aspects of this application. However, both Mr. Grant and Mr. Gwillim spent some time dealing with the merits and it is therefore sensible if I set out in outline terms my reasons for the conclusion that I have reached that the first defendants do have a realistic prospect of successfully defending the claim.

27. Ultimately, the reasons for that are simple and straightforward. The claim is put on the basis of a document allegedly dated 6^th April 2004 and setting out, so it is said, the parties' agreement. On the documents that I have seen, there is a realistic doubt as to whether that contract was agreed by the parties in those terms or at all.

28. The relevant history is as follows.

    (a) On 6^th April, the claimants sent to a company called Cleveland Development Co. Ltd., not the second defendants, a draft loan agreement. This identified the loan in the sum of £300,000 and it also provided a capital return of £750,000, which was to be shared equally.

    (b) It does not appear that this document was ever accepted by Cleveland Development Co. Ltd. On 6^th April, they returned to the claimants a proposed agreement in very different terms. This draft agreement was in the name of the two defendants. The sum of the loan was £300,000. The profit share was fifty per cent, but the £750,000 had been relegated to an aspirational rather than a binding figure.

    (c) On 19^th April 2004, a slightly different version of this agreement was prepared by the first defendants. Amongst the differences was the fact that the loan was now £350,000. This document was sent to the claimants under cover of a letter which referred to the loan agreements and said, "Please return the agreements to us duly executed by yourselves." It seems to me that this was an offer to the claimants for them to accept the agreement in those terms. Clearly, if a few days later, the claimants had returned a copy of that agreement duly signed, then that would be the end of the matter and there would be a binding contract between the parties.

29. On the basis of the documents that I have, that did not happen. Instead it appeared that one or other or perhaps both of the parties were keen to alter the terms of the proposed agreement set out in the version signed by the first and second defendants (but not the claimants) on 19^th April. The parties disagree as to who was trying to alter the agreement. The claimants say it was the first defendants; the first defendants say it was the claimants. I cannot resolve that dispute without evidence, but, on the basis of the documents, it seems to me that the first defendants have at least a realistic prospect of demonstrating that it was the claimants who wanted to change the agreement and who therefore did not accept the existing version as sent to them by the defendants on 19^th April. I say that for a variety of reasons.

    (a) On 21^st July 2004, the claimants sent Mr. Lafayedney, the principal person behind the first defendants, two revised loan agreements and also what they described as "the signatory page of the loan agreement that has now been superseded." The document that was enclosed with this letter was very similar to the original version of the loan agreement which Cleveland Development Co. Ltd. had rejected. It is worth noting that this proposed agreement was again in the name of Cleveland Development Co. Ltd.

    (b) After the claimants sent the new agreement to Mr. Lafayedney, they chased him on a regular basis for a response. By this time, of course, the loan had been made and it was therefore perhaps unsurprising that the claimants were keen to identify the relevant loan agreement. The chasing letters are dated 16^th and 27^th August, 27^th September and then, later on in the year, 4^th November, 16^th November, 23^rd November and 10^th December. All of these letters asked for the loan agreement, which must be a reference to the new version sent on 21^st July, to be signed and returned by Mr. Lafayedney. It is worth noting that these letters were all sent to the Cleveland Development Co. Ltd.

    (c) During the early stages of this year, on the face of the documents, the claimants were still chasing for a signed agreement. Things were now becoming quite urgent because, so it seems, the loan was paid back. So if there was not in law a binding contract between the parties, the claimants would face the prospect of not having in place a binding profit sharing arrangement. Accordingly, on 23^rd March, the claimants sent Cleveland Development Co. Ltd. a revised loan agreement in similar terms to the one sent the previous July. Again, it proposed a contract with Cleveland Development Co. Ltd. The first defendants wrote on 7^th April, making it plain that Cleveland Development Co. Ltd. had no involvement now that the loan had been fully repaid. The letter, certainly reading between the lines, is an indication that, on Mr. Lafayedney's view of things, he owed no further sums to the claimants. On 8^th April, the claimants made one final effort to get a signed loan agreement. They sent a new loan agreement to the first defendants this time and asked them to sign it "as a matter of extreme urgency": "extreme urgency" was in bold and underlined. Again, there was no response.

    (d) On 14^th April, the claimants then wrote to say to the first defendants that in fact there was a binding agreement between the parties in the form of the document that had been sent out by the first defendants almost exactly a year ago. There is a dispute between the parties, which I do not need to resolve, as to whether or not the 14^th April letter enclosed a version of the loan agreement from the previous April which had been signed by the claimants. What may matter more for present purposes is that, on the basis of the documents which I have, that was the first time that the claimants had sent a copy of the signed loan agreement to the defendants.

30. Accordingly, it seems to me that there is a realistic prospect of the defendants being able to demonstrate that the claimants' correspondence in the latter part of 2004 and the early part of 2005 was triggered by a concern on their part that there was in place no binding agreement in respect of the profit sharing arrangement. Of course, if that is right, the contract as alleged by the claimants is not made out and, given the basis on which the claim is presently put, the claim will fail. Therefore, it seems to me that the other ground under 13.3(1), namely 13.3(1)(a), is also triggered by the defendants.

31. Finally, I should say that even if all of that were wrong, I do not consider that the claimants are going to be overly prejudiced by my decision to set aside the judgment, given my intention that in the autumn, either in late September or late October, there will be a hearing by way of a preliminary issue pursuant to which I will decide whether or not there was, in fact, a contract between the parties.
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