Page v Champion Financial Managementltd & Ors

A default judgment against one defendant does not generally prevent another defendant in the same proceedings from advancing a defence inconsistent with that judgment. The court must balance the desirability of consistent judgments against the co-defendant’s right to defend itself. Where the co-defendant is not a privy of the defaulting defendant, the doctrine of res judicata will ordinarily not prevent the defence. No wider general rule requiring consistency between judgments was established. The court also held that the claim against the defaulting defendant could be dealt with separately for the purposes of CPR 12.8(2)(a). Had the contrary conclusion been reached, the default judgment would nevertheless have been set aside under CPR 13.3 because the resulting injustice would substantially outweigh the delay.

The claimant brought professional negligence proceedings concerning financial advice relating to investments in Scion and Stocksearch. The First Defendant failed to acknowledge service, and the claimant obtained default judgment against it. The Fifth Defendant, the First Defendant’s principal under section 39(3) of the Financial Services and Markets Act 2000, disputed that the First Defendant had been negligent or in breach of contract.

The preliminary issue was whether the Fifth Defendant could advance that defence notwithstanding the default judgment against the First Defendant. The Fifth Defendant also applied, in the alternative, to set aside the default judgment under the Civil Procedure Rules.

1. Inconsistent defence permitted. The Fifth Defendant was entitled to defend the claim on the basis that the First Defendant was neither negligent nor in breach of contract. The default judgment against the First Defendant did not bind the Fifth Defendant, which was not its privy.
2. The desirability of consistency between judgments was outweighed by the public policy interest in allowing a co-defendant to defend itself. The circumstances in which a co-defendant is precluded from advancing an inconsistent defence should remain limited and will typically involve the application of res judicata.
3. The authorities concerning third-party procedure, contribution, finality and avoidance of inconsistent judgments did not establish an overarching rule applicable to this case. The reasoning in Ex parte Young In re Kitchen (1881) 17 Ch D 668 was analogous and supported the Fifth Defendant’s position. The approach in Otkritie International Investment Management Ltd v Urumov & Others [2012] EWHC 890 (Comm), that a default judgment has effect only against the defaulting defendant, was also adopted.
4. On the actual conclusion, CPR 12.8(2)(a) applied because the claim against the First Defendant could be dealt with separately from the claim against the Fifth Defendant. The claims were not alternative claims within CPR 12.8(2)(b).
5. Had the preliminary issue been decided differently, the default judgment would have been set aside under CPR 13.3. Although promptness is important, the Fifth Defendant had a real prospect of defending the claim and would have suffered substantial injustice if bound by a judgment obtained without its involvement. The court would not, however, have acted under CPR 3.3.

Costs were left for agreement or further submissions.