Ipsum Capital Ltd v Lyall & Ors

Service of a defence by email is ineffective where the receiving party has not previously indicated in writing that it will accept service electronically. Nevertheless, conduct suggesting acceptance of earlier electronic service may explain a genuine procedural mistake and is relevant to relief from sanctions.

On an application under CPR 13.3, the court first considers whether the applicant has real prospects of a successful defence or another good reason to set aside default judgment. If that threshold is met, the court exercises its discretion having regard to all the circumstances, including promptness and the CPR 3.9 factors. A defence based on fraudulent misrepresentation or undue influence may satisfy the threshold where the circumstances require factual investigation.

The claimant sought sums allegedly due under personal guarantees given by the defendants in respect of company borrowing and later assigned to the claimant. Default judgment was entered after the defendants attempted to serve a defence and counterclaim by email shortly before an unless-order deadline.

The defendants applied to set aside the judgment. They relied on alleged fraudulent misrepresentation concerning the nature of the documents signed, inadequate independent legal advice, and undue influence affecting the wives who had guaranteed their husbands’ liabilities. The issues were whether the claimant was estopped from disputing electronic service, whether relief from sanctions should be granted, and whether default judgment should be set aside under CPR 13.3.

1. Electronic service and estoppel. Practice Direction 6A, paragraph 4.1 required the claimant or its solicitors previously to indicate in writing willingness to accept service by email. Earlier acceptance of an application by email did not amount to an unequivocal representation that email service would be accepted generally or that the right to object had been surrendered. The defendants therefore failed to establish estoppel.
2. Real prospect of success. The court applied the approach in Regione Piemonte v Dexia [2014] EWCA Civ 1298. The defendants’ evidence concerning Mr Rai’s role, the circumstances in which the guarantees were signed, the absence of payment or a formal retainer for legal advice, and the defective confirmation on the guarantee required explanation. The defence of fraudulent misrepresentation was not fanciful and could, if proved, entitle the defendants to rescind the guarantees.
3. Undue influence. Applying the principle in Barclays Bank v O’Brien and Etridge, it was arguable that the creditor was put on inquiry where wives guaranteed their husbands’ liabilities and the transaction was not facially to the wives’ financial advantage. If the wives established undue influence, misrepresentation or another legal wrong and inadequate protective steps by the creditor, the guarantees could in principle be set aside.
4. Relief from sanctions. The court applied the three-stage test in Denton: the breach was serious and significant because it concerned an unless order; the default resulted from a genuine misreading of the service rules, contributed to by the claimant’s earlier conduct; and the claimant had received the substance of the defence within the ordered period. Considering all the circumstances, including the non-fanciful defence and the claimant’s subsequent reply, the court granted relief from sanctions and set aside the default judgment.