Dubai Financial Group Llc v National Private Air Transport Services Company (National Air Services) Ltd

Where a court retrospectively validates alternative service, it must specify a period for acknowledging service, admitting the claim or filing a defence. Until that period has expired, the defendant is not in default. A default judgment entered immediately upon validation is therefore wrongly entered and must be set aside under the Civil Procedure Rules 1998.

A defence does not cease to be arguable merely because it is raised late. Where the defence has a real prospect of success, the court may set aside default judgment on terms requiring the judgment sum to be secured pending determination of the claim.

The buyer exercised a contractual option requiring the seller to repurchase a share in an aircraft. After negotiations failed, the buyer issued proceedings and delivered the claim documents to the seller in Saudi Arabia. No response pack was included and the seller did not acknowledge service.

HHJ Mackie QC retrospectively declared the earlier steps to be good alternative service and immediately entered default judgment for the buyer. Flaux J refused to set that judgment aside, although he reduced the amount to reflect an arguable claim concerning management fees.

The seller appealed. The principal questions were whether a default judgment could validly be entered without specifying a period for acknowledging retrospectively validated service, and whether the seller had an arguable defence that the repurchase option had not been validly exercised.

1. Appeal allowed and default judgment set aside. Treacy and McCombe LJJ formed the majority on the procedural issue. When a court retrospectively validates alternative service under rule 6.15(2) of the Civil Procedure Rules 1998, rule 6.15(4)(c) requires it to specify a period for responding. A defendant has no obligation to acknowledge unauthorised service before validation. If no response period is specified, no relevant time has expired for rule 12.3(1)(b). The resulting default judgment is wrongly entered and must be set aside under rule 13.2(a). Due process requires the defendant to receive an opportunity to respond after the procedural obligation has been validly triggered: paras 27–32, 36–42.
2. Abela v Baadarani [2013] UKSC 44 did not require a different result. That case did not concern default judgment and the defendant had acknowledged service. Kaki v National Private Air Transport Company [2015] EWCA Civ 731 was also distinguishable. It concerned summary judgment and did not decide the effect of rule 6.15(4) where no period for acknowledgment had been specified: paras 31, 45–47.
3. Longmore LJ dissented on that procedural issue. He considered that retrospective validation regularised the earlier proceedings and that simultaneity alone could not make the default judgment irregular. In his view, omission of a response period or response pack was potentially relevant only to the discretion under rule 13.3: paras 12–23.
4. All three Lord Justices agreed that the seller had an arguable defence for the purposes of rule 13.3(1)(a). The late assertion of a material default under the operative agreements did not, by itself, make the defence unarguable. Whether the seller had waived the point or was estopped required examination of consideration, representation and reliance, or the elements of estoppel by convention. The judgment sum was to be secured in court or in a suitable joint solicitors’ account, and the seller was allowed seven days from hand-down to acknowledge service: paras 24–26, 48.

1. Court of Appeal (Civil Division): The appeal was allowed. The default judgment was set aside, the judgment sum was ordered to be secured, and the seller was given seven days to acknowledge service: [2016] EWCA Civ 71.
2. High Court, Commercial Court: Flaux J refused to set aside the default judgment. He held that service had been validly authorised retrospectively and that the judgment was regular, but reduced the judgment sum because the seller had an arguable defence concerning management fees. No citation is stated in the judgment.
3. County Court judge sitting in the Commercial Court: HHJ Mackie QC retrospectively declared the claim documents to have been validly served and entered default judgment for US$10,356,041.92. No citation is stated in the judgment.