Factual and Procedural Background
The claimant lent a total of €35 million to Company A, owned and controlled by the first defendant and his brother. In 2017, joint provisional liquidators were appointed to Company A. The claimant alleges that the two brothers agreed, both orally and in writing, that in exchange for the claimant refraining from asserting creditor status in the liquidation, they would personally procure payment of the sums due by 1 September 2019. The claimant asserts it fulfilled its side by not proving in the liquidation, but the defendants failed to procure payment, leading to a claim for damages. The second defendant, the son of one of the brothers, was joined as representative of his father’s estate following his death in 2020.
Procedurally, the claim was served on the first defendant in Cyprus in March 2022. Default judgment was entered against him in August 2022 for €45 million after no defence was filed. Service on the second defendant was delayed, requiring multiple extensions and alternative service methods, eventually deemed effected in August 2023. The second defendant filed an acknowledgment of service indicating an intention to challenge jurisdiction but failed to file the challenge within the deadline set by an Unless Order dated 29 November 2023, which barred him from defending the claim if he missed the deadline. The second defendant filed the jurisdiction challenge one day late, attributing the delay to an innocent mistake by solicitors. The first defendant also applied to set aside the default judgment and challenged jurisdiction. The Judge granted relief from sanctions to the second defendant and set aside default judgment against the first defendant, allowing both to challenge jurisdiction and defend the claim. The claimant appeals both decisions.
Legal Issues Presented
- Whether the court erred in granting relief from sanctions to the second defendant for non-compliance with the Unless Order, thereby dismissing the claimant’s application for judgment in default.
- Whether the court erred in setting aside the default judgment entered against the first defendant and extending his time to challenge the court’s jurisdiction.
Arguments of the Parties
Claimant's Arguments
- The proportionality of the sanction in the Unless Order must be taken as given, as it was agreed by the parties and imposed by the court, and the Judge impermissibly re-opened this issue.
- The Judge failed to adequately consider the need to enforce compliance with court rules and the importance of efficient, proportionate litigation, ignoring the post-Denton culture of compliance and the lengthy time available to the second defendant.
- The Judge erred in granting relief for well-intentioned incompetence, which should not usually attract relief from sanctions, especially when the failure is attributable to the party’s representatives.
- The second defendant should have been required to provide a candid explanation of how the procedural default arose, including his knowledge of the proceedings and ability to instruct solicitors.
- The second defendant’s approach of leaving matters to the first defendant undermines the importance of observing court rules and timetables and reflects an outdated culture of non-compliance.
- The Judge failed to give adequate weight to the first defendant’s lack of promptness in applying to set aside the default judgment.
- The Judge improperly gave weight to the fact that proceedings would continue against the second defendant, thereby undermining the finality of the default judgment against the first defendant.
Defendants' Arguments
- The second defendant argued that the Unless Order failed to comply with the required court practice direction by not specifying the exact date for filing the jurisdiction application, contributing to the inadvertent late filing.
- The delay was caused by an innocent mistake of solicitors who misunderstood the deadline based on the date of the court seal rather than the date of the order.
- The first defendant contended that the default judgment should be set aside to allow the real issues to be decided on the merits, relying on a principle that less weight should be given to promptness where the claim continues against a co-defendant.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Denton and others v TH White Ltd [2014] EWCA Civ 906 |
Mandated a three-stage test for relief from sanctions: (1) seriousness of non-compliance; (2) reason for default; (3) all the circumstances including need for efficiency and compliance. |
The Judge applied the Denton principles in granting relief from sanctions to the second defendant, considering the seriousness of the breach, the inadvertent mistake as reason for default, and the overall circumstances. |
| Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 |
Well-intentioned incompetence generally does not attract relief from sanctions unless the default is trivial. |
The Judge considered this principle but found the circumstances justified relief despite the failure being due to solicitor error. |
| Marcan Shipping (London) Ltd v Kefalas [2007] EWCA Civ 463 |
Before making an unless order, the court must carefully consider whether the sanction is appropriate; conditional orders should not be deployed unless justified. |
The appellate court confirmed that the Judge did not question the proportionality of the sanction per se but considered whether relief was just in the particular breach. |
| Eaglesham v Ministry of Defence [2016] EWHC 3011 (QB) |
Unless orders should be enforced strictly and mean what they say. |
The Judge acknowledged the importance of enforcing unless orders but balanced this against the short delay and inadvertent nature of the breach. |
| Trading in Compliance Ltd v Dewse [2001] C P Rep 46 |
Failure of a party’s representative should be treated as that of the party for relief from sanctions. |
The Judge recognized this but considered the broader circumstances before granting relief. |
| Standard Bank plc & Anr v Agrinvest International Inc & Ors [2010] EWCA Civ |
Promptness in applying to set aside default judgment is a critical factor, with greater weight post-CPR amendments emphasizing efficiency and avoidance of delay. |
The Judge acknowledged the first defendant’s delay but nonetheless exercised discretion to set aside judgment; the appellate court disagreed with this exercise. |
| Hussain v Birmingham City Council and anor [2005] EWCA Civ 1570 |
Where a claim continues against co-defendants, less weight may be given to promptness in setting aside default judgment as finality is less significant. |
The appellate court rejected the application of this principle as a broad “Co-Defendant principle” and found it inapposite to the facts, emphasizing the importance of promptness. |
Court's Reasoning and Analysis
The court applied the Denton three-stage test to assess relief from sanctions for the second defendant’s failure to comply with the Unless Order. The non-compliance was serious because it was a breach of an unless order, but the breach was only one day late and caused no disruption. The reason for default was an inadvertent mistake by solicitors miscounting days based on the date of the court seal rather than the date of the order. The court also considered the overall circumstances, including the lack of clear specification in the Unless Order of the exact deadline, which contributed to the error.
Regarding the first defendant, the court recognized that he had a real prospect of successfully defending the claim and considered CPR 13.3, which allows setting aside default judgment if there is a real prospect of defence or other good reason. Although the first defendant had delayed 16 months in applying to set aside the judgment without good reason, the Judge exercised discretion to set aside the judgment to allow the case to proceed on the merits, partly influenced by the fact that proceedings were continuing against the second defendant.
On appeal, the claimant’s arguments were rejected concerning the relief granted to the second defendant. The appellate court found no error in the Judge’s exercise of discretion, highlighting the short delay, inadvertent solicitor error, and deficient wording of the Unless Order as justifications. However, the appellate court allowed the appeal against the setting aside of judgment against the first defendant, finding that the Judge gave insufficient weight to the lack of promptness and improperly relied on the continuation of proceedings against the co-defendant to justify setting aside the judgment.
Holding and Implications
The court’s final decision was to DISMISS the claimant’s appeal against the relief from sanctions granted to the second defendant and to ALLOW the claimant’s appeal against the setting aside of default judgment entered against the first defendant.
The immediate effect is that the second defendant remains relieved from the sanctions imposed by the Unless Order and may continue to challenge jurisdiction and defend the claim. Conversely, the default judgment against the first defendant is reinstated, reflecting the importance of promptness in applying to set aside default judgments, notwithstanding the continuation of proceedings against co-defendants. The decision does not establish new precedent but reinforces established principles regarding relief from sanctions, the importance of clarity in court orders, and the weight of promptness in setting aside default judgments.