Newland Shipping And Forwarding Limited v Toba Trading Fzc Seyed Majed Taheri Hossein Rahbarian

An application to set aside a default judgment under CPR 13.3 engages the same or similar considerations as an application for relief from sanctions under CPR 3.9. A deliberate and non-trivial failure to acknowledge service, without good reason, is a serious default. It does not, however, determine the application automatically. The court must assess promptness, proportionality, the nature and consequences of the sanction, the merits of the proposed defence and the effect on the proceedings as a whole. A default judgment is an extreme sanction. Where justice requires, it may be set aside conditionally, including on terms requiring security for the claim and payment of costs.

The claimant brought proceedings concerning the alleged non-payment for an oil cargo and alleged collusion in obtaining it. Default judgment was entered against the third defendant, Hossein Rahbarian, in November 2013, later corrected as to amount. An earlier application under CPR 3.9 was held to have been made under the wrong rule. The third defendant then applied under CPR 13.3 to set aside the judgment, arguing that he had a real prospect of successfully defending the claim or that there was another good reason to do so.

The issues were whether the defence passed the real-prospect threshold, whether the application was made promptly, how the deliberate failure to acknowledge service affected the discretion, and whether a conditional order would provide a proportionate resolution.

1. Application allowed conditionally. The default judgment against the third defendant was set aside subject to payment into court or provision of security of US$4.75 million, payment of outstanding costs, and payment of any costs ordered on the application. Failure to comply with any condition would leave the default judgment standing.
2. The failure to acknowledge service was the relevant non-compliance. Although a foreign defendant may choose not to acknowledge service, the consequence is that a default judgment may be entered. Here the failure was deliberate, continued for many months and occurred with knowledge of the risk. It was therefore neither trivial nor supported by good reason.
3. Promptness was assessed from the date judgment was entered. The defendant was responsible for some delay, particularly the late service of the present application, but the delay amounted to only a few weeks in the context of the proceedings and caused relatively little prejudice.
4. The guidance in Mitchell v News Group Newspapers Ltd and Chartwell Estate Agents Ltd v Fergies Properties SA required consideration of the seriousness of the default, any good reason, promptness and the circumstances identified in CPR 3.9. The expectation that the sanction will usually apply is not absolute. Its weight depends on the nature of the sanction and its effect on the action as a whole. The sanction here was extreme because it ended the claim against the defendant.
5. The defendant had a real, although borderline, prospect of defending liability. The claimant’s case appeared strong, but the damages claim was not straightforward and might have resulted in judgment for an excessive sum. The allegations involved serious dishonesty, and setting aside the judgment would not materially disrupt the proceedings. In those circumstances, a conditional order best served justice. CPR 13.3 expressly permits conditions, and security was appropriate given the thin merits, enforcement concerns and prior failure to pay solicitors’ fees.

First-instance decision. The judgment records earlier procedural orders and an earlier decision of Hamblen J, but no appeal from this judgment.