Use of Denton on an Application to Set Aside Default Judgment in the TCC

In Tideland Ltd v Westminster City Council [2015[ EWHC 2710 (TCC) (a judgment dated July 2015 but only just published), the TCC made a decision to set aside default judgment regarding a £7m claim . The judgment provides useful guidance on using the Denton test on an application for relief from sanctions under CPR 3.9 in the context of an application to set aside default judgment under CPR 13.3.

Default Judgment – quick reminder

CPR 12 deals with default judgment and CPR 12.1 tells us that default judgment means judgment without trial where a defendant –

  • has failed to file an acknowledgment of service or
  • has failed to file a defence.

CPR 12.3 states that a claimant may obtain judgment in default of an acknowledgment of service only if the defendant has not filed an acknowledgment of service or a defence to the claim (or any part of the claim and the time for doing so has expired.

A claimant may not obtain default judgment if the defendant has applied to have the claimant’s statement of case struck out under CPR 3.4 or has applied for summary judgment under CPR 24 or if the defendant has satisfied the whole claim.

CPR 13 sets out the procedure for setting aside or varying judgment entered under Part 12 (default judgment).

CPR 13.3(1) sets out the circumstances where the court may set aside or vary a judgment entered under CPR 12. These include:

  • if the defendant has a real prospect of successfully defending the claim or
  • it appears to the court that there is some other good reason why the judgment should be set aside or varied or the defendant be allowed to defend the claim

CPR 13.3(2) states that in considering whether to set aside or vary a judgment, the court must have regard to whether the person seeking to set aside the judgment made an application to do so promptly (my emphasis).

Background

The Claimant company, owned a large freehold property which was mortgaged and tenanted. After signs of movement, the Claimant was advised that it was too dangerous for the tenants to remain and the property was vacated. The Claimant was forced to enter into loan agreements at high interest rates to continue the mortgage payments. Subsequent investigations revealed however, that the cause of the damage to the property, was overgrown tree roots caused by two large trees that were 15 metres away from the property. The Claimant wrote to the Defendant informing it of a potential claim, leaving several messages for its legal department. The Claimant sent a pre action protocol letter to the Defendant including technical reports and offering site inspection before remedial works were carried out. The Defendant failed to respond. The Claimant issued and served a claim form and when the Defendant local authority failed to file an acknowledgment of service, the Claimant obtained judgment in default. A 4 day hearing was fixed to determine the damages payable and issues of causation.

Once the Defendant became aware of the judgment, it instructed external solicitors to appliy for a stay in order to investigate the merits of a defence. It became apparent that correspondence from the Claimant had been passed between the Defendant’s legal team and its insurance department with no one taking ownership and ultimate responsibility for the file. The stay was refused and it was directed that any application to set aside the judgment would be heard at a Case Management Conference in respect of the damages hearing. The issues to be decided were:

  • Whether the application to set aside judgment in default was made promptly within the meaning of CPR 13.3 (2)
  • Whether the Defendant’s incompetence in dealing with this matter meant that the delay in applying to set aside was unreasonable
  • Whether relief from sanctions should be granted.

Decision

It was accepted that the Defendant had a real prospect of successfully defending the claim, pursuant to CPR 13.3(1). The issue was therefore whether the Defendant had made its application to set aside “promptly” as set out in CPR 13.3(2).

Mr Justice Edwards-Stuart believed that although the Defendant had failed to respond to all to the Claimant’s correspondence about the claim, which had culminated in the default judgment, the Defendant should not in effect be punished twice (failure to acknowledge the claim, failure to act promptly).

He felt that the Defendant had acted promptly in seeking to set aside judgment, having made the application two months after judgment was entered and also in having sought a stay and disclosure of documents. When seeking to set aside default judgment, the court said that it was not necessary to act with the utmost speed possible, just with all reasonable speed. It could not be said that the Defendant local authority had failed to act with reasonable speed.

Regarding the test enshrined in “Denton”, acknowledgment of service was important and failure to file such an acknowledgment was serious and would lead to judgment in default. However, this did not mean that a failure to serve an acknowledgment would always be serious; this was a question of fact.

Failure to file an acknowledgment of service was a breach and one which was not minor or insignificant. Further, the Defendant had over many months failed to respond to the Claimant.

However, failure to file the acknowledgment had been caused by the Defendant’s “inefficiency”, rather than showing a deliberate disregard for the rules. Although there was no good reason for the breach, in all the circumstances, the court believed it was just to grant the relief sought and set aside the default judgment. The court said that:

  • If the judgment were allowed to stand, the Defendant would be deprived of a good defence. On the merits, this was a substantial claim and one where there was a real prospect of a successful defence being mounted;
  • It was likely that the Defendant would be uninsured if the judgment stood;
  • The Defendant’s failures were not deliberate in the sense that it showed a complete disregard for the rules; it was due to the Defendant’s “incompetence”;
  • There would be no delay in resolution of the claim hence no prejudice suffered by the Claimant – the question of liability could be dealt with during the 4 day hearing which had been listed to determine damages.

The Defendant’s application was therefore granted

Points to Note

A Defendant party should seek to make an application to set aside a default judgment promptly and without delay in order to avoid a situation where judgment entered in default is upheld against it.