Lombard North Central Plc v European Skyjets Ltd

On an application to set aside a default judgment, the court must assess the defendant’s real prospect of success together with the nature and explanation of any delay. Promptness is important under CPR r 13.3(2), but it is not an absolute precondition to relief. Strong merits and the overall justice of trying the dispute may outweigh substantial delay.

Where acceleration of a long-term loan has severe consequences, there is an arguable requirement that a default notice identify the relevant event of default. A lender may not necessarily rely retrospectively on historic or alternative defaults which were omitted from the notice. A trivial payment default, an inaccurate statement of indebtedness, possible estoppel and possible relief from forfeiture may together provide a real prospect of defending the acceleration.

Lombard advanced approximately US$8.77 million to European Skyjets Ltd under a secured aircraft loan agreement. After alleged payment defaults, Lombard served a notice terminating the agreement and accelerated the debt, stating arrears of approximately US$294,000. Skyjets contended that the true sum due was only US$179.99 and that the notice omitted other alleged events of default later relied upon by Lombard.

A default judgment was entered against Skyjets in January 2014. After Skyjets and its parent company were restored to the register and liquidators appointed, Skyjets applied under CPR r 13.3 to set aside the judgment. Deputy Master Leslie refused the application, principally because the notice was valid and the application had been delayed. The central issues were whether the proposed defence had a real prospect of success, whether alternative defaults could be relied upon, and whether the delay nevertheless justified relief.

1. Appeal allowed. The default judgment was set aside. Consequential directions concerning Skyjets’ counterclaim and Skytime’s joinder were reserved for further submissions.
2. Skyjets had a real prospect of showing that the acceleration provision was not triggered. The court did not finally decide that a de minimis exception formed part of the contract, but held that the argument had a real prospect of success in the unusual circumstances, particularly because the alleged default was only US$179.99 and Lombard had materially misstated the indebtedness.
3. There was also an arguable case that the inaccurate statement of account, viewed against the parties’ dealings, supported a duty of care in tort, estoppel, or another restriction on Lombard’s reliance upon the small sum. The implied-term argument appeared substantially weaker. Possible relief from forfeiture was also a matter suitable for trial.
4. There was a real prospect of success in arguing that, as a matter of construction, an event of default could not be relied upon if it was absent from the default notice. The notice’s purpose and the objectively understood meaning of unilateral notices required consideration under Mannai Investment Co Ltd v Eagle Star Assurance Co Ltd [1997] AC 749. The issue was especially important because acceleration transformed a long-term repayment obligation into an immediate liability.
5. The omitted matters—historic arrears, alleged maintenance breaches and asset-cover issues—each raised factual or legal issues with a real prospect of success. Receipt of previously late payments did not necessarily preserve a right to terminate under the general non-waiver clause.
6. On delay, CPR r 13.3(2) requires promptness to be considered, but promptness is not a condition precedent. The court must weigh the nature and extent of delay, its explanation, the strength of the proposed defence and the justice of the case. The Deputy Master materially underrated both the merits and the explanation, which included restoration difficulties, liquidation, document retrieval and funding.
7. The demonstrated prejudice to Lombard was insufficient to outweigh the merits and the need for a trial. The case involved factual conflicts and uncertainties that required fuller investigation.

• High Court (Queen’s Bench Division): appeal from the decision of Deputy Master Leslie dated 5 July 2019. The appeal was allowed and the default judgment was set aside.
• Earlier proceedings: Master Kay QC dismissed Lombard’s summary judgment application on 14 May 2015 and identified a real dispute concerning Skyjets’ liability.