Terra RAF Trans Traiding Ltd v Assaubayev & Ors

On an application to set aside a default judgment under Civil Procedure Rules 1998 Part 13.3, the defendant need show only a real prospect of successfully defending the claim. The question is comparable to that on summary judgment, but the court must assess whether a trial is required rather than decide the merits finally. Allegations involving dishonesty, disputed oral evidence, incomplete disclosure and potentially unjust enrichment commonly point towards a trial. A defendant may satisfy the threshold without showing that success is likely. Where service is challenged, the court must set aside a judgment wrongly entered under Part 13.2, but it may decline to resolve disputed service issues if the judgment should be set aside under the discretionary power in Part 13.3.

The claimant brought claims principally in fraudulent or negligent misrepresentation, with a possible unjust enrichment claim, arising from an alleged advance of approximately US$5 million. Default judgment was entered against the first defendant after attempted service in England and Kazakhstan. Following a freezing order, the first defendant paid more than US$5.8 million into court and applied to set aside the judgment. The claimant opposed that application and sought payment out.

The first defendant challenged service and relied on a draft defence disputing the alleged representations, the contractual effect of the loan documents, causation and the amount of loss. The court considered both mandatory relief under Part 13.2 and discretionary relief under Part 13.3.

1. The first defendant’s application was granted. The claimant’s application for payment out was refused. Costs were not decided immediately and were to be addressed after submissions.
2. Under Civil Procedure Rules 1998 Part 13.2, the court must set aside a default judgment where it was wrongly entered because the requirements for service were not satisfied. The court was not required to determine the competing evidence and expert opinion concerning service in England and Kazakhstan because the application succeeded on the alternative discretionary ground.
3. Under Part 13.3, the relevant question was whether the first defendant had a real prospect of successfully defending the claim or whether there was some other good reason to set aside the judgment. The court applied the approach summarised in Varsani, approving the approach of the deputy judge on the Stolzenburg basis, and treated the question as analogous to that on summary judgment. The threshold was not whether the defendant was likely to win.
4. The first defendant showed a real prospect of success in that limited sense. The claims were not straightforward contractual claims because the first defendant had not entered into the loan or guarantee. They depended on disputed allegations of misrepresentation and potentially unjust enrichment. The parties’ accounts differed materially as to what was said at meetings, the claimant’s evidence was incomplete, further disclosure was required, and live witnesses would need to be evaluated.
5. Allegations involving dishonesty generally point towards a trial, although they do not make a trial inevitable where the evidence is exceptionally clear. The first defendant’s payment of more than US$5.8 million into court was also a significant factor in assessing the bona fides of the applications.