Paseana Ltd v Lextrex Holdings Ltd & Ors

On an application to set aside a default judgment, a real prospect of successfully defending the claim is distinct from an arguable defence. Procedural inaccuracy, or even dishonesty, is not an absolute bar. The court must consider the overriding objective, all the circumstances and the potential injustices to the parties. It may set aside the judgment subject to a proportionate condition.

After a business sale, the former managing director and a non-executive director, who had guaranteed the company’s liabilities, became subject to default judgments. Following the company’s liquidation, they applied to set those judgments aside.

The District Judge refused the applications because the company had not applied to set aside the judgment against it. The High Court judge dismissed their appeals, relying on inaccurate or dishonest explanations for their defaults and the inadequately supported defence. The guarantors appealed to the Court of Appeal. The central issue was whether those procedural explanations justified refusing relief despite a real prospect of successfully defending the claim.

1. Appeal allowed. The default judgments against Mr Evans and Mr Ellison were set aside, subject to payment of £5,000 into court within 14 days as a condition of further defending the claim.
2. Under Civil Procedure Rules 1998, rule 13.3, the relevant threshold was a real prospect of successfully defending the claim; an arguable defence was insufficient. The applications had been made promptly.
3. The judge was entitled to find that the explanations for the defaults were inaccurate and insufficiently explained. It was unnecessary to decide whether they were dishonest.
4. That procedural conduct was not an absolute bar. The court had to consider the overriding objective and rule 3.9, including all the circumstances and the potential injustices to both parties: Hussein v Birmingham City Council [2005] EWCA Civ 1570.
5. The proposed defence was substantially consistent with correspondence sent about nine months before proceedings began. The procedural inaccuracies therefore should not have been treated as determinative. A costs sanction was appropriate, and a payment condition was justified because part of the claim appeared likely to be indefensible.

• Court of Appeal (Civil Division): Appeal allowed; the default judgments against the guarantors were set aside subject to payment of £5,000 into court within 14 days.
• Reading County Court, HHJ Harris QC: Appeals from the District Judge’s refusal to set aside the default judgments were dismissed on 7 December 2009.
• Reading County Court, District Judge Henson: Applications to set aside the default judgments were dismissed on 22 June 2009.