Thiscompany Limited & Ors v David John Welsh & Ors

An application to set aside default judgment under Civil Procedure Rules 1998, rule 13.3, requires consideration of the defendant’s real prospect of successfully defending the claim and the promptness of the application. If that threshold is met, the court applies the three-stage Denton test. Failure to serve a defence is ordinarily serious or significant, and a mistaken understanding of the applicable time limit is not generally a good reason. The court must nevertheless evaluate all the circumstances, including prejudice, the overriding objective and the need for compliance. In the circumstances, justice required the default judgment to be set aside.

The claimants brought proceedings concerning alleged breaches of directors’ duties, consultancy and employment obligations, negligence, unjust enrichment and dealings with property. The defendants failed to serve a defence by the applicable deadline after mistakenly believing that the particulars of claim had been served out of time. Default judgment was entered without notice. The defendants promptly applied under rule 13.3 to set it aside and supplied a draft defence.

The claimants accepted that the proposed defence had a real prospect of success. The court therefore considered the seriousness and significance of the default, the reason for it, and all the circumstances, including whether the default judgment had been improperly obtained without notice.

1. Application granted. The default judgment was set aside and the defendants were permitted to defend.
2. Under Civil Procedure Rules 1998, rule 13.3, the court first considers the merits and promptness. A real prospect of successfully defending the claim is a threshold condition. If satisfied, the court applies the Denton stages and evaluates all the circumstances, including the rule 3.9 factors. The claimants accepted that the draft defence crossed the threshold, and the application was prompt.
3. Failure to serve a defence is serious or significant. The defendants’ mistaken view that the particulars of claim were late did not provide a good reason. The applicable Circuit Commercial Court time limits were available in the Rules and the White Book, and the defendants had been told when the defence was due.
4. The claimants were under no duty to explain their position or advise the defendants. Rule 1.3 requires parties to help the court further the overriding objective, not to help each other. The correspondence did not amount to procedural game-playing or misleading conduct.
5. The court held that rule 59.7(3) permitted an application without notice only where no acknowledgment of service had been filed. Notice should therefore have been given unless dispensed with. However, the judgment was not set aside solely on that ground because the court had knowingly made the order without notice.
6. Promptness, the absence of material prejudice, the defendants’ cooperation and the serious consequence of depriving them of an otherwise defensible claim outweighed the seriousness of the default and absence of a good reason. Refusing relief would not serve justice or the overriding objective.