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Cite as: [2004] IEHC 129, [2005] 1 ILRM 34

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HC 263/04

THE HIGH COURT

Record Number: 2003 No. 1215 S

Between:

Allied Irish Banks Plc.

Plaintiff

And

Robert Lyons and Josephine Lyons

Defendants

Judgment of Mr Justice Michael Peart delivered the 21^st day of July 2004:

Although the Notice of Motion in this case is on behalf of both defendants, Counsel has indicated to the Court that it is being moved in fact only on behalf of the second named defendant. This is therefore an application by the second named defendant only, who is the wife of the first named defendant, to set aside a judgment obtained by the plaintiff Bank against her, which was obtained by the plaintiff in default of appearance pursuant to the provisions of O.13 of the Rules of the Superior Courts ("RSC").

The plaintiff bank commenced these proceedings by way of Summary Summons issued on the 7^th October 2003 to recover the sum of €136,417.03 from both defendants on foot of a joint current account. The plaintiff's solicitors had written to both defendants on the 15th March 2003 seeking payment of the amount due, indicating that if payment was not received within 7 days proceedings would be instituted. There is no evidence that either defendant sought advice or took any step to address the situation at that time.

The proceedings were served personally on each defendant on the 10^th November 2003, whereupon they attended at their solicitor's office in mid-November 2003 in order to seek his advice in relation to the matter. It appears that nothing happened on foot of that visit until their solicitor took the unnecessary step, on the 22^nd December 2003, of writing to the plaintiff's solicitors seeking an extension of time within which to enter an appearance to that Summary Summons. That step was unnecessary because O. 12, r 13 RSC provides:

"A defendant, save in actions for the recovery of land, may appear at any time before judgment. If he appears at any time after the time limited for appearance, he shall not, unless the Court shall otherwise order, be entitled to any further time for delivering his defence or for any other purpose than if he had appeared within the time limited for appearance." (my emphasis)

At any rate, that request was transmitted to the plaintiff's solicitor by fax, and was replied to by faxed letter of the same date advising the defendants' solicitors that as judgment papers were lodged in the Central Office on the 28^th November 2003, they were unable to facilitate the request for what is described therein as "your request for Late Appearance". The word "unable" must be read as "unwilling" since there would have been no impediment to them acceding to the request if they were so instructed by their client, even if such a consent to late appearance was necessary, which it was not, given the provisions of O. 12, r. 13 RSC.

The Christmas break intervened, and by letter dated 7^th January 2004 the plaintiff's solicitor wrote a letter addressed to both defendants stating that judgment had been obtained against them. That judgment was obtained in default of appearance on the 16^th December 2003. This would have been on foot of the papers lodged in the Central Office on the 28^th November 2003. It is clear therefore that after the defendants consulted their solicitor in mid-November 2003 and before judgment was given on 16^th December 2003, there was a window of opportunity within which the defendants could have entered an appearance to these proceedings, had it been realised that no letter of consent to late appearance was required. I should just refer to the fact that the letter dated 22^nd December 2003 made no reference to the fact that by that date, being the same date on which the defendants' solicitor sought an extension of time to enter an appearance, judgment had already been granted against the defendants. Nothing turns on that at this stage, but I would have thought that it was an opportunity to so inform the solicitors of the fact. As it happened the defendants themselves were written to by letter dated 7^th January 2004.

By letter dated 21^st January 2004 the defendants' solicitor sought the plaintiff's consent to setting aside the judgment, and the plaintiff's solicitor wrote back stating that the plaintiff was prepared to consent but only on terms that the amount of the judgment be lodged in the High Court. That condition is apparently not capable of fulfilment by the defendants.

The defendants' solicitor has very fairly conceded in his affidavit that he was under the impression that before the plaintiff could obtain judgment they would be required to issue a motion in that regard. He says that at all times the defendants intended to defend these proceedings and put forward a bona fide defence. Details of what that defence might be are not specified in that solicitor's affidavit, but the second named defendant, whose application alone this is to set aside the judgment, states that in June 2000 and again in December 2000 the plaintiff Bank agreed with her husband to increase the overdraft facility, first to the sum of €20,000 and in December 2003 to €60,000. She avers that she was not aware of this fact and has no recollection of receiving any letter from the bank to this effect. She says that her husband deals with all the Bank Statements which would have been sent out addressed to them both, and that she was never aware of the extent of the indebtedness.

It is also a fact that the facility letters dated respectively 16^th June 2000 and 18^th December 2000 are addressed only to the first named defendant. In respect of the first facility letter dated June 2000 no security was required for that loan. In respect of the December 2000 facility, security is stated to be firstly a solicitor's letter of undertaking to hold the Lease of certain premises in Crown Alley, Temple Bar, Dublin, and an assignment of a life policy on the life of only the first named defendant.

It appears that on the 7^th July 2004 the plaintiff registered its judgment as a mortgage against property owned in the sole name of the second named defendant. She has been the sole owner of that property since 12^th June 2001, the same property having been in the joint ownership of both defendants up to that point since August 1986.

The rule under which this application is brought is O.13, r 11 RSC which provides:

"Where final judgment is entered pursuant to any of the preceding rules of this order it shall be lawful for the court to set aside or vary such judgment upon such terms as may be just."

Clearly a wide discretion is given to the Court in its task of achieving justice between the parties, but the interests of both parties must be taken into account in the weighing exercise undertaken by the Court in considering the interest of each party, and not simply the hardship and distress pleaded on behalf of the applicant in this case. In some cases where judgment has been obtained in default of appearance, there has later been found to have been some irregularity in the manner in which judgment was obtained, such as where service was not properly effected on the defendant. In such a case of an irregular judgment, it has been held that it is not necessary for the defendant to make out a good defence to the plaintiff's claim in order to seek to have it set aside. In the present case such a situation does not exist. The plaintiff's judgment is not irregular in any way, and in fact the application is not moved on that basis. It is accepted that the plaintiff was entitled to obtain the judgment in question.

In the present case where it is simply being asserted that the judgment was obtained by surprise or perhaps more correctly, by mistake on the part of the applicant's solicitor, it is necessary that the Court be satisfied, before it will order that the judgment be set aside, that there is at the least a possible defence to the claim which has a reasonable prospect of success. In my view the Court does not need to be satisfied that the defendant will succeed, but that there is a point which has areal prospect of success. Counsel for the plaintiff has referred the Court to the decision in The Saudi Eagle [1986] 2 Lloyd's Rep 221 where it was held that in an application to set aside a judgment, the standard to be applied to a defendant's alleged defence is that it should be more than an 'arguable case', and that it is necessary to show that the alleged defence has "a real chance of success". I adopt that standard for the purpose of this case. I will deal with that aspect of the case in due course.

But I need to deal first with the question as to whether what happened in this case amounts to the plaintiff obtaining judgment by surprise or by some mistake which can be taken into account by this Court. There is no doubt that a mistake was made, but that mistake was not made by the defendants themselves, but by their solicitor. He has accepted that he was under a wrong impression that before the plaintiff could obtain judgment, the plaintiff would have to move for judgment by way of motion, and that nothing would therefore happen without notice to him or at least his clients, even though no appearance was entered. That was simply wrong. One could say that the consequences of this error might be capable of giving rise to a cause of action against the solicitor, and that such be the remedy in the present case, rather than requiring that the judgment be set aside so that the mistake can be nullified and the parties or at least the second named defendant be returned to the situation which would have pertained had the error not occurred. The question which the Court must consider in the face of such an argument is whether that meets the justice of the case. In such a situation the second named defendant would be put to the hazard of suing her solicitor and discharging the burden of proof which would rest with her in succeeding in an action against her professional adviser, and to the appropriate standard. That would take a considerable length of time and of course there is no guarantee of success. In the interim while such proceedings were making their way to a hearing the second named defendant would no doubt be involved in much expense, as well as having all the stress and uncertainty attendant upon that litigation. In the interim also, the plaintiff would retain its judgment on foot of which it could proceed to take steps lawfully open to it in order to enforce it. In the present case we know that a judgment mortgage has been registered in very recent times against property in her sole name, and given that this step was taken at a time when the plaintiff was aware that this motion was to be heard, it is reasonable to assume that the plaintiff would take whatever steps are open to it to obtain payment on foot of its judgment, and this would include presumably proceedings on foot of the judgment mortgage in order to obtain an order for the sale of her house. These therefore are the consequences of leaving the second named defendant only with a possible but not guaranteed remedy against her solicitor in negligence.

The alternative remedy for the present situation is that, provided the Court can be satisfied that there is a defence put forward which has a real prospect of success, the judgment should be set aside so that the claim can be defended as if the error had not occurred, but on such terms as are reasonable in the context of the present case and which protect the plaintiff as far as possible from the obvious prejudice it would otherwise suffer from losing the judgment which it lawfully obtained through the efficiency and diligence of its lawyers.

I am satisfied that the plaintiff's solicitors acted in an entirely proper manner in this case. They informed the defendants' solicitor that their clients would not consent to a late appearance, and went on to inform them that papers were already lodged in the Central Office to obtain judgment. That ought to have alerted the solicitor to the imminent peril to which the defendants were exposed. However, there was no obligation on the plaintiff's solicitor to go beyond that, and perhaps advise the solicitor that no such consent was required and that an appearance could be entered at any time up to the actual granting of judgment, The plaintiff's duty is owed to his own client and there is no duty owed to the other side. Indeed, such has not been contended in this case.

Judgment was certainly obtained by surprise, but only in the sense that the defendants thought that their solicitor was taking care of their interests. I accept that when they left their solicitor's office, they would have been under the impression that the necessary steps would be taken to protect their interests as far as reasonably possible. I prefer to base my decision on the fact that a mistake has occurred, even if the cause of that mistake was more than mere oversight or inadvertence. I do not believe that justice would be properly achieved by simply leaving the second named defendant with a possible remedy against her solicitor, given the other alternative of setting aside the judgment on some terms which balance the plaintiff's prejudice by so doing.

As far as the possible merits of the second named defendant's defence are concerned, there is no doubt in my view, and from the evidence before me, that while the first borrowing from the plaintiff was something the second named defendant must have been aware of, the situation on the face of the documents is that the two increases in the level of borrowings which were sanctioned by the bank in June 2000 and again in December 2000 were notified in writing only to the first named defendant. There has been no letter produced to this Court by the plaintiff which indicates that the second named defendant was privy to the discussions about these increased facilities or that she was written to in the usual way following the facility being approved. It is also relevant that her property was not required to be put up as security for the increased facility, and neither was any policy of insurance required to be taken out in respect of her life. The purpose of the increased facilities is not specified in the facility letters, but it has at no time been alleged by the plaintiff that the purpose of the facilities was to improve the second named defendant's property, or otherwise for the benefit of the second named defendant.

It would no doubt require discovery of documents from the Bank to establish the extent if any to which the second named defendant was aware of or participated in discussions with the plaintiff bank for the purpose of the increased facilities, but it is at least relevant for the purpose of this application that the plaintiffs have not exhibited any such evidence. They have on the other hand exhibited letters addressed to both defendants wherein they express their concern about the state of indebtedness, and certainly in one of these letters which is dated 7^th September 2001, there is a reference to the Assistant Bank Manager's telephone conversation with the second named defendant. But that in my view is not sufficient to dislodge at this stage the possibility of success by the second named defendant in her defence of the plaintiff's claim. I am therefore satisfied that a sufficient defence has been made out for the purpose of this application, and I am satisfied that the judgment against her should be set aside.

The remaining question is upon what terms if any the order should be made. As I have said the plaintiff obtained its judgment in a proper fashion. That judgment has been secured against property of the second named defendant by way of judgment mortgage. Again this is a step the plaintiff was perfectly entitled to take. If this judgment is set aside the basis for that judgment mortgage is removed, and the plaintiff will have lost a significant measure of comfort in the event that the judgment, if subsequently granted against the second named defendant, is not otherwise discharged. Counsel for the second named defendant has indicated to the Court that the second named defendant is willing to leave the judgment mortgage in place as a term of having the judgment set aside, but that it is unreal in the sense I have stated, namely that without a judgment in place, there can be no enforceable judgment mortgage, and the Court has also been informed that the second named defendant does not have the necessary means from which to make any lodgement into court of a sum of money as a condition.

It seems to me that since the second named defendant indicated a willingness to leave the present judgment mortgage in place, she must be taken also as being willing to undertake that she would not dispose of, or even contract to dispose of, her property pending the determination of this case, and further that in the event of judgment being granted against her in these proceedings, she would not attempt to dispose of that property for a period of six weeks thereafter, so that the plaintiff can again put in place a judgment mortgage in order to again secure their position in that regard. The imposition on the second named defendant of such a requirement is in my view a reasonable balance to be struck between the second named defendant's desire to be returned to the same position as if the error on the part of her solicitor had not occurred, and the plaintiff's position at the present time, being that of a holder of a regularly obtained judgment which has been secured in the form of a judgment mortgage over property which could be sold, in the absence of these undertakings, before the proceedings have been determined.

I therefore set aside the judgment obtained on the 16^th December 2003 as against the second named defendant only, provided the undertakings outlined above are given to this Court, either personally by the second named defendant, or on her behalf after her legal advisers have had an opportunity to obtain the necessary instructions.