London Borough of Camden v Makers UK Ltd

When setting aside a regular default judgment, the court may impose conditions, including security for costs, under the Civil Procedure Rules. Conditions must further justice between the parties and must not punish the defaulting party. A condition preventing adjudication is permissible only in a very rare or exceptional case. The statutory and contractual right to refer a construction dispute to adjudication at any time is generally not displaced by concurrent court proceedings. A party’s insolvency, and the possibility that an adjudication award may later be stayed, do not ordinarily justify restraining adjudication. Security for costs may be considered where a counterclaim extends beyond the defence, but timing and proportionality remain important.

The claimant obtained judgment in default after the defendant failed to serve its defence in time. The defendant accepted that it had a real prospect of defending the claim and applied to set aside the judgment. The claimant accepted that basis but sought conditions preventing further adjudication on issues covered by the proceedings and requiring security for the costs of the defendant’s counterclaim.

The application arose against the background of an earlier adjudication in which the defendant had succeeded on liability issues, the defendant’s substantial insolvency, and the claimant’s concern that any future monetary adjudication award would be difficult to recover. The central questions were the court’s jurisdiction to impose conditions, the relevance of insolvency, and whether the proposed conditions were justifiable.

1. Default judgment set aside. The defendant had a real prospect of successfully defending the claim within CPR Part 13.3. No other good reason for setting aside was established, but that was unnecessary once the real-prospect ground was accepted.
2. Under CPR Part 13.3 and CPR Part 3.1(3), the court had jurisdiction to attach conditions when setting aside a regular default judgment. That discretion was controlled by the overriding objective. Conditions must be imposed to do justice between the parties, not to punish a procedural default.
3. A construction-contract party has a statutory right under section 108(2)(a) of the Housing Grants, Construction and Regeneration Act 1996 to refer a dispute to adjudication at any time. The right remains available while court or arbitration proceedings concerning the dispute are pending, unless the dispute has been finally resolved. The reasoning in Herschel Engineering Ltd v Breen Property Ltd [2000] EWHC 178 (TCC) was correct and was followed.
4. It would be a very rare case in which a condition on setting aside should prevent or limit the exercise of that statutory or contractual right. The overriding objective, including equal footing, saving expense and proportionality, generally concerns the court proceedings and does not ordinarily authorise interference with adjudication rights. The possibility that an award would be stayed because of insolvency did not make this an exceptional case.
5. The defendant was insolvent on the evidence, and the principles summarised in Wimbledon Construction Co 2000 v Derek Vago [2005] BLR 374 indicated that enforcement of a future monetary award would probably be stayed. The defendant’s financial position differed materially from that at the time of contracting, and its insolvency was not shown to be substantially attributable to the claimant’s non-payment. That finding did not justify restraining adjudication, particularly because later financial information or a parent-company guarantee might alter the enforcement position.
6. Security for costs was refused at that stage. Although the court could impose such a condition where the counterclaim went beyond the defence, the parties had agreed to a liability trial first and substantial counterclaim costs would not yet be incurred. Any security application was better considered after judgment on liability.
7. The claimant was ordered to pay the defendant £5,000 in costs. The default caused the application, several issues had been unsuccessfully contested, and the claimant had acted reasonably.