CPL Industrial Services Holdings Ltd v R & L Freeman & Sons (A Firm)

On an application under CPR Part 3.9 to set aside judgment entered after breach of an unless order, the court must consider each relevant circumstance. The merits must be assessed correctly. A refusal of relief cannot stand where an erroneous conclusion that there is no defence decisively influences the discretion, even if other factors were considered. At this stage, it is sufficient to show a real issue or real prospect of success warranting a trial. A closely connected counterclaim should proceed with the claim where the same issues require determination at trial.

The defendants operated sand and gravel and haulage businesses. After negotiations concerning termination of a supply agreement, the parties disputed whether a binding agreement had been concluded and whether its terms included a haulage contract, formal documentation and VAT arrangements.

The claimants commenced proceedings for money allegedly due under the original agreement or damages. The defendants served a defence and counterclaim but failed to serve witness statements by the deadline in an unless order. The statements were received approximately half an hour late, and judgment in default was entered. His Honour Judge Cracknell refused to set aside that judgment, principally because he considered the defence had no merit. The defendants appealed, raising whether that discretionary decision could stand and whether the counterclaim should continue.

Lord Justice Thomas gave the leading judgment, with Lord Justice Tuckey agreeing. The appeal was allowed, the judgment in default was set aside, and the claim and counterclaim were allowed to proceed to trial.

1. Under CPR Part 3.9, the court must consider each circumstance in subparagraphs (a) to (i) that appears relevant. The approach identified in Woodhouse v Consignia [2002] EWCA 275 and Oberon v Baguette [2002] EWCA 710 requires disciplined consideration of the relevant factors, including the access-to-court consequences of refusing relief.
2. The judge had treated the merits as decisive but had summarily concluded that the defendants had no possible defence. That conclusion was wrong. There were real issues as to whether the March meeting produced an immediately binding agreement or contemplated further written agreement, and whether the haulage arrangements had been finally agreed, including any reservation concerning subcontracting. Those issues gave the defendants a real prospect of success and required a trial. The appellate court expressed no concluded view on the merits.
3. Although the defendants were in breach, circumstances explaining the default could be considered, there was no prejudice to the claimants, and liability could still have been tried. Since the erroneous merits assessment was a decisive consideration, the exercise of discretion could not stand.
4. The counterclaim was closely bound up with the claim. Issues concerning the proper counterclaimant, repayment, set-off and the scope of any agreement should be resolved at trial. It was therefore wrong to strike out the counterclaim.
5. The appeal was not allowed conditionally. The defendants were ordered to pay the claimants’ costs of the hearing below; the claimants were ordered to pay the appeal costs, except in relation to the application to adduce fresh evidence.

• Court of Appeal (Civil Division): Allowed the defendants’ appeal, set aside the judgment in default, and directed that the claim and counterclaim proceed to trial, with an indication that the case be heard in the Mercantile Court in Leeds.
• High Court, Queen’s Bench Division: His Honour Judge Cracknell refused the defendants’ application to set aside judgment entered after breach of the unless order.