Default judgment - it pays to be proactive

The High Court refused an application to set aside a default judgment in Ince Gordon Dadds LLP v Mellitah Oil and Gas BV [2022] EWHC 997 (Ch). It did so on a relatively narrow basis relating to the fact that the defence and counterclaim could be pursued even if the default judgment was not set aside. Of more general interest, however, was the judge’s application of the test laid down in Denton v TH White [2014] (the Denton Test) and his findings on the elements that must be established to set aside a default judgment under the Civil Procedure Rules 1998 (CPR).

Background

Ince Gordon Dadds (Ince) is a firm of solicitors who were instructed to act for Mellitah Oil and Gas BV (Mellitah) in several arbitrations. Mellitah is a joint venture whose primary activity is managing oil and gas infrastructure.

Mellitah complained about Ince and questioned some of its invoices. After the retainer was terminated, Ince issued proceedings for its unpaid invoices.

Mellitah did not file an acknowledgement of service or a defence, so Ince sought and obtained default judgment. Solicitors appointed by Mellitah wrote to Ince stating that they would be applying to set aside the default judgment. They also said that the claim would be defended on the basis that the invoices were disputed and on the grounds of professional negligence.

The parties agreed to confidentiality restrictions on inspection of the court file, in part because some of the arbitration proceedings were still ongoing. In addition, Mellitah undertook to notify Ince of an award in the arbitrations within seven days.

There was a lengthy delay before the set aside application came before the court. In the period between its issue and the hearing, Mellitah’s solicitors served on Ince an arbitral award some six months after it was made.

The application

Where the court has discretion under the CPR to set aside default judgment, the applicable test is:

1. does the defendant have a good prospect of successfully defending the claim, or
2. is there “some other good reason” the default judgment should be set aside.

The court must also have regard to whether the application was made promptly.

Mellitah’s defence was based on two limbs: (1) it disputed the invoices and wanted them to be assessed; and (2) the invoiced sums were outweighed by Mellitah’s defence/counterclaim for alleged professional negligence.

The judge concluded that the professional negligence allegations were “either shadowy/flimsy, or have no real prospect of success”. As to the dispute on the invoices themselves, although he was not convinced that Mellitah would meet the statutory requirements to obtain an order for assessment, he felt that he could not discount that possibility, and that Mellitah might obtain some reduction on assessment. The judge therefore concluded that there was “a very thin basis” on which the defence might succeed.

He concluded that the application had been made sufficiently promptly, and then considered the application in light of the Denton Test, which can be summarised as follows:

• Was the breach serious and significant?
• If so, was there a good reason for it?
• If there wasn’t, the court should consider all the circumstances so as to enable it to deal justly with the application, including the need (a) for litigation to be conducted efficiently and at proportionate cost and (b) to enforce compliance with rules, directions and orders.

The judge viewed Mellitah’s failure to file its defence by the deadline as a “serious and significant” breach, also, taking into account its failure to respond to the letter of claim. Mellitah justified these failures on the basis of various organisational failings but unsurprisingly, the judge did not consider these to constitute a sufficiently good reason for the breach.

The third stage of the Denton Test applies only if the first two stages go against the applicant, but the judge considered it anyway. Mellitah’s failure to prosecute its application timeously was a significant factor against it in considering the need to conduct litigation efficiently. The judge also noted Mellitah’s failure to notify the court and Ince of the arbitral award within seven days on the question of compliance with rules, directions and court orders. This failure was exacerbated by the absence of an apology.

Comment

Those on the wrong side of a default judgment should note the court’s scrutiny of Mellitah’s proposed defence and the way in which its conduct was examined in the course of considering the Denton Test. The judgment is a clear reminder of the importance of having a good prospect of defending the claim in any application to set aside a default judgment and that the applicant’s actions between then and the application hearing will be carefully considered. Applicants will also need to satisfy the court that their application was made promptly.

In addition to meeting the test set out in the CPR, defendants applying to set aside a default judgment will also need to meet the Denton Test: if the breach in question is serious (such as a failure to file an acknowledgment of service or a defence) they will need to show that there was good reason for it.

What is most striking in this judgment is the contrast in the parties’ approach: Ince’s quick, decisive actions benefitted them in allowing them to obtain a default judgment, whilst Mellitah’s lackadaisical approach was subject to negative judicial opinion. Whilst Mellitah’s dallying was not determinative in this application it could have been in different circumstances. The lesson here is that, when it comes to default judgment, be it obtaining one or applying to set one aside, it pays to be proactive.