Watson v Bluemoor Properties Ltd

Where a company’s claim or counterclaim has been struck out because it was not represented at trial, the court should not assume that the merits are hopeless without adequate examination. In deciding whether to set aside the order, the court must address promptness, a good reason for non-attendance and a reasonable prospect of success. A clear pleaded breach may require investigation even if recoverable damage remains uncertain. Reserved costs should also be examined on their merits, particularly where a substantial claim has later been abandoned.

The defendant had obtained planning permission to build a house subject to an agreement requiring demolition of a bungalow on adjoining land. After the house was built, the claimant brought proceedings for an injunction and damages. The bungalow was later demolished, and the damages claim was abandoned. The defendant counterclaimed that the house breached sale covenants because variations had not been approved.

At trial, the defendant’s director could not represent the company because he was bankrupt. The counterclaim was struck out under Part 39(3), and costs were awarded against the defendant. The High Court refused to set aside that order under Order 39.3(5), accepting a good reason for non-attendance but considering the counterclaim to have no reasonable prospect of success. The central issue was whether permission to appeal should be adjourned so that the merits and costs issues could be properly investigated.

1. Application adjourned. The application for permission to appeal was adjourned for hearing on notice before two Lords Justices, with the appeal to follow immediately if permission were granted. Interim costs orders were stayed pending further order.
2. The unusual circumstances in which the company’s representative was prevented from appearing meant that the counterclaim’s merits had not been examined at trial. The judge below had accepted that there was a good reason for non-attendance, but it was unclear why he considered the counterclaim to have no reasonable prospect of success.
3. The allegation that the house had been built on three floors rather than two appeared to be a clear and striking allegation of breach. Whether that breach caused recoverable damage required further investigation, but uncertainty about damage did not make the pleaded claim hopeless. The fact that the counterclaim had not previously been struck out was also relevant.
4. The costs of the original claim had been reserved. Since the proceedings had included a claim for damages exceeding £50,000 which was later abandoned, there was an arguable question whether that claim had inflated the costs. The costs issue had not been properly investigated before either lower-court order.
5. Rather than grant permission immediately on incomplete papers, the court directed an adjourned hearing allowing the claimant to provide relevant material without causing the expense of a further separate appeal hearing.

• High Court, Chancery Division: Master Moncaster declared the defendant in breach of covenant, dismissed an application to strike out parts of the counterclaim and reserved costs. His Honour Judge Rich later struck out the counterclaim under Part 39(3) when the company was unrepresented and awarded costs.
• High Court, Chancery Division: Mr Leaver QC refused to set aside the order under Order 39.3(5), accepting a good reason for non-attendance but finding no reasonable prospect of success.
• Court of Appeal (Civil Division): The application for permission to appeal was adjourned on notice before two Lords Justices, with any appeal to follow immediately if permission were granted. Interim costs were stayed.