Royal Bank of Scotland Invoice Discounting Ltd & Anor v Manuel

On an appeal against refusal to set aside judgment in default, the defendant need only show a realistic prospect of establishing a defence. The proposed defence must be more than speculative, but it need not be certain or likely to succeed.

Where a claimant has contractual discretion to compromise a debt, the agreement may nevertheless leave questions as to whether the claimant acted reasonably and mitigated its loss. A guarantor’s liability remains dependent on the principal debtor’s liability unless the guarantee clearly provides otherwise. A judgment sum should not ordinarily be required as a condition of setting aside judgment where payment would probably stifle a genuine defence.

The claimants obtained judgment in default against the defendant under guarantees relating to invoice-discounting agreements with companies of which he had been managing director and majority owner.

A Master refused to set aside the judgment, concluding that the defendant had little or no real prospect of successfully defending the claim. The defendant appealed. The appeal concerned whether proposed defences relating to advance payments, set-off, stock arrangements, mitigation of loss, and a separate claim involving XC Trains disclosed a realistic prospect of success.

1. The appeal was allowed and the judgment in default was set aside. The defendant had shown realistic, rather than merely fanciful, prospects of defending material parts of the claim.
2. The invoices relating to the first three Bombardier payments appeared to breach the contractual requirement that a debt relate to an actual bona fide sale and delivery. However, there was a realistic prospect that the defendant could establish that the advances had been repaid through engineering work, discounts, deliveries, stock arrangements, or a combination of those matters.
3. Even if the claimant had a contractual discretion to collect and compromise debts, that discretion did not remove the ordinary duty to mitigate loss. There was a realistic argument that the claimant could have recovered more by acting reasonably. It was not subject to an absolute duty to involve the defendant, but it might have been unreasonable not to approach him, depending on the information available from other sources.
4. The guarantee provisions preserving liability despite indulgence did not establish liability where the principal debtor was not liable. The claimant’s recovery against the guarantor could not exceed the liability of the principal debtor.
5. The proposed defence concerning XC Trains was also not unarguable. There was scope for an agreement collateral to the written contract, waiver, and consideration arising from the delivery of incomplete equipment which conferred a real benefit.
6. The court admitted the defendant’s further calculations because it would be unjust not to consider them, particularly given that he was a litigant in person. A payment condition was inappropriate because the defence was not sufficiently speculative and requiring payment would probably stifle it. Further directions were to be given for pleadings and disclosure.

1. High Court (Queen's Bench Division): appeal from the decision of Master Kay QC dated 7 September 2010. The High Court allowed the appeal and set aside the judgment in default.