Goldcrest Distribution Ltd v McCole & Ors

Under CPR rule 13.3, a default judgment may be set aside where the applicant has a real prospect of successfully defending the claim or where there is some other good reason. The court must also consider promptness and the Denton principles. A serious and unexplained failure to serve a defence, coupled with delay, may justify refusing relief even where several triable issues exist.

A default judgment on a counterclaim does not automatically amount to default judgment on the original claim. It may nevertheless create an issue estoppel, but only as to matters necessarily and precisely decided. Declarations should generally not be made without inter partes argument, save in the clearest cases. The court may make one on a default application where the affected party was represented, argument was heard, and no injustice results.

The claimant sought under CPR rule 13.3 to vary a deputy master’s order granting the second defendant judgment in default on her counterclaim, setting aside a charge over the parties’ home, declaring it void under section 284 of the Insolvency Act 1986, and dismissing the claimant’s claim against her.

The claimant argued that it had a real prospect of defending the counterclaim. The issues concerned regulated mortgage legislation, the effect of bankruptcy on the charge, a possible trust for the parties’ daughter, and undue influence. It also argued that declaratory relief and dismissal of the original claim were impermissible. The central questions were whether rule 13.3 was satisfied, whether relief should be granted in the discretion of the court, and what estoppel arose from the default judgment.

1. Application dismissed. The claimant had real prospects of successfully defending each of the four substantive issues raised in the counterclaim. The matters concerning the trust, notice, trustees’ powers and undue influence were unsuitable for summary determination. The claimant also had an arguable case that the regulated mortgage provisions did not apply because credit was provided to a corporate borrower.
2. The claimant’s arguments concerning section 284 of the Insolvency Act 1986 were likewise triable. Section 284(6) required consideration of whether the bankrupt held the property on trust. Depending on the facts, the transaction might create an equitable charge over the second defendant’s beneficial interest, or a charge over trust property in accordance with the trust.
3. A default judgment on a counterclaim does not itself require dismissal of the claimant’s original claim. However, the judgment may create an issue estoppel. Following New Brunswick Railway Co Ltd v British and French Trust Co Ltd [1939] AC 1, Kok Hoong v Leong Cheon Kweng Mines Ltd [1964] AC 993 and Pugh v Cantor Fitzgerald Ltd [2001] EWCA Civ 307, the estoppel is confined to what the default judgment necessarily and precisely decided.
4. Here the counterclaim concerned the document executed on 2 July 2014 and sought relief against its entire legal effect. The necessary and precise determination was that the document created no valid security binding on the second defendant, whether at law or in equity. The claimant was therefore estopped from pursuing its claim against her in respect of that transaction.
5. The modern rule is that declarations should not ordinarily be made without argument inter partes, but they may be made in a clear case. The deputy master heard argument for the claimant, had the relevant material, and was entitled to make the declaration. The claimant’s delay was not prompt, its failure to serve a defence was serious, and its explanation blaming former lawyers was inadequate and unsupported. Applying the Denton criteria, the court refused relief.