J H Rayner (Mincing Lane) Ltd & Ors v Federative Republic Of Brazil

A default judgment should ordinarily be set aside where the defendant shows a merits defence carrying some degree of conviction. Substantial delay and serious criticism of the defendant’s conduct do not, by themselves, justify refusal. A court must identify a very special feature before allowing the judgment to stand, although it may impose stringent conditions. The focus is justice between the parties rather than punishment for default. Under the Brussels Convention 1968, Article 39 permits protective measures only during the appeal period; after that period, enforcement depends on the enforcing state’s domestic law.

Citoma obtained a default judgment against Instituto Brasileiro Do Cafe for more than £19 million. Moore-Bick J later permitted Brazil to intervene, substituted it for IBC, set aside the judgment on terms, and stayed the action because Brazil was a clearly and distinctly more appropriate forum. Citoma appealed only against setting aside the default judgment.

The appeal concerned the effect of the seven-and-a-half-year delay, alleged deliberate tactical default, enforcement steps in Italy, commercial certainty, the merits of Brazil’s proposed defence, and the interpretation of Article 39 of the Brussels Convention 1968.

Lord Justice Waller delivered the leading judgment. Lord Justices Chadwick and Peter Gibson agreed, and the appeal was dismissed unanimously.

1. Appellate restraint. The appeal challenged the exercise of a discretion. The Court applied the ordinary principle that intervention requires the judge to have been plainly wrong or to have reached a conclusion outside the generous ambit within which reasonable disagreement is possible.
2. Merits and delay. Brazil had a defence on the merits carrying some degree of conviction, which was the relevant threshold. The court gains little from examining prospects beyond that threshold. The passage of time alone, even a delay of five years or more, does not preclude setting aside a default judgment.
3. Conduct and special features. Once the merits threshold is met, there is a very strong inclination to set aside the judgment, even where the defendant’s conduct has been deliberate or seriously criticised. Refusal requires a very special feature, although stringent terms may be imposed. The alleged tactical decision was not established at a level materially less favourable to Brazil than the judge had found. The complexity and international character of the litigation made the distinction from cases such as Vann v Awford and Oilike Ltd v Reid comparatively small.
4. Article 39. Article 39 of the Brussels Convention 1968 had to be read as a whole. Its power to take protective measures was confined to the period specified for an appeal. Once that period expired, Citoma could use the full enforcement powers available under Italian law, but Article 39 itself did not authorise the seizures. The judge was entitled to treat the loss of the execution right as an inevitable consequence of setting aside the default judgment.
5. Privilege and conditions. The Court expressed considerable doubt about drawing adverse inferences from a claim to legal professional privilege, since that could undermine the privilege. It also declined to impose different conditions: the setting of conditions was peculiarly a matter for the first-instance judge, and the proposed payment into court had not been properly raised in the appeal.

The order setting aside the default judgment therefore stood, together with the conditions imposed by Moore-Bick J and the stay of the English proceedings.

1. Court of Appeal (Civil Division) — dismissed Citoma’s appeal against the order setting aside the default judgment: [1999] EWCA Civ 2015.
2. High Court of Justice, Queen’s Bench Division, Commercial Court — Moore-Bick J permitted Brazil to intervene and be substituted for IBC, set aside the default judgment on terms, and stayed the action on forum non conveniens grounds.