SETTING ASIDE DEFAULT JUDGMENTS: SOME COVID-SPECIFIC ISSUES

 

During the Covid-19 lockdown, businesses are at risk of failing to respond in time to legal proceedings. Some will be understaffed and slow to deal with post; others may have closed down completely, with limited or no access to their normal premises.

It remains to be seen whether this will result in a higher than usual number of default judgments being entered. If so, defendants will need to apply to set them aside under CPR Part 13.Jonathan Wright  considers some Covid-specific issues that may arise.

Jonathan Wright

 

Have proceedings been served validly?

(If not, then the default judgment should be set aside as of right: CPR r.13.2.)

Limited companies and LLPs

· There are two provisions for serving a limited company or LLP:

o Either under CPR Part 6, which allows service at the “principal office” or “any place of business of the [company or LLP] within the jurisdiction which has a real connection with the claim”;

o Or alternatively, under s.1139(1) Companies Act 2006 (which also applies to LLPs, by virtue of r.75 Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009). This allows service at the company’s or LLP’s registered office, even if this would not be the address for purposes of CPR Part 6.

See Cranfield v Bridgegrove Ltd [2003] 1 WLR 2441 at para 83, which confirms that Part 6 and s.1139 are independent methods.

· Claimants will often prefer the s.1139 route, for the sake of certainty. This means that it is vital for potential defendants to retain access to post delivered to their registered office during the pandemic.

· When serving on a limited company or LLP under CPR Part 6 rather than s.1139, it is the actual place of business which counts, not the last known place of business. This could be a matter of debate, if a business address is no longer open for trading due to the lockdown but is still used for some other functions. Both claimants and defendants will need to give some thought to what the business address is actually being used for.

Sole traders and partners

· Service against sole traders or partners in a non-limited partnership will often be at their residential address, applying CPR r.6.9, where (in the current lockdown) post is actually likely to be received.

· Both a partner and a sole trader can also be served at their principal or last known place of business, under r.6.9 – but note that there are traps for the unwary in both cases. In the case of a sole trader, this only applies if they are being sued in the name of a business. In the case of a partner, it must be a place of business of the partnership specifically.

· If serving proceedings on a partner or sole trader at a business address, the “last known” place of business will suffice, although if the claimant has “reason to believe” they are no longer doing business there, it must take reasonable steps to ascertain the current place of business – CPR r.6.9(3). Where premises have shut down due to Covid-19, there likely to be arguments about all aspects of these requirements: are closed business premises a place of business at all? If not, are they still the last known place of business? If so, does the mere fact of the Covid-19 lockdown put the claimant on enquiry, without more?

· Businesses that have a website or social media presence, and give clear public information, have a greater chance of defeating attempts at service on locked-down premises. Claimants would do well to investigate potential defendants’ online presence before serving.

Using a solicitor’s address

· Businesses that know they are likely to be the subject of a claim can reduce the risk of non-receipt by nominating a solicitor to accept service under CPR r.6.7(1). If so, the solicitor’s address becomes the compulsory service address, at least for purposes of CPR Part 6.

· Note that it must be the “business address” of a solicitor, so a solicitor working from home will need to give an office address.

· Nominating a solicitor under r.6.7(1) does not exclude a claimant’s right to serve under s.1139 Companies Act 2006. However, nominating a solicitor in this way means that the company/LLP only needs to monitor its registered office post. Any other address (except the solicitor’s) will be invalid for service.

If the claimant has served proceedings validly, without the defendant noticing, and has obtained judgment –

· The defendant will have to apply under CPR r.13(3). The court has a discretion about whether to set aside judgment, following the usual provisions, ie. a defence with a “real prospect” of success, or “some other good reason”.

· It remains to be seen whether non-receipt of proceedings due to the lockdown counts as “some other good reason,” even without a coherent defence. It is unlikely that a court will simply set aside judgment for that reason, without inquiring into the merits. Having said that, a defendant with some arguable defence (but where there is some doubt about “real prospect”) may find that judges are willing to treat non-receipt of the claim as “some other good reason.”

· In either case, the court needs to consider promptness, under CPR r.13.3(2). In some cases, the courts have treated any delay as running from the judgment itself (Standard Bank Plc v Agrinvest International Inc [2009] EWHC 1692 (Comm), para 25), but they can also be persuaded to treat time as running from when the defendant was first notified of the judgment (Core-Export SpA v Yang Ming Marine Transportation Corp & Ors [2020] EWHC 425 (Comm), para 9). It would obviously be artificial for a court to take into account periods when the defendant was unaware of proceedings due to the pandemic. However, it is important for businesses to keep a proper record of when they first had access to a copy of the proceedings or the judgment, and generally to consider what evidence is available to show that they had limited access to their own premises or post.

· Promptness itself is a vexed term; the courts have repeatedly said that this is context-specific. There are a number of completely inconsistent decisions about what time period is prompt or not prompt (for a striking example, see Redbourn Group Ltd v Fairgate Development Ltd [2017] EWHC 1223 (TCC), paras 69-70, where a gap of just 5 days between judgment and the set-aside application was not prompt, given other aspects of the defendant’s conduct). Where businesses legitimately suffer Covid-related delays in (a) getting access to their premises/post, (b) identifying that there are proceedings/judgment against them, and (c) instructing solicitors to make an application, they will need to explain this coherently in their supporting evidence.

It remains to be seen whether a glut of set-aside applications will materialise, once the lockdown eases. If they do, it is easy to imagine these Covid-specific arguments being considered repeatedly. For both claimants and defendants, anticipating the likely issues will be crucial.

New rule from 6th April 2020 onwards

On a final note (albeit not actually related to Covid-19), practitioners should be aware of the most recent amendment to CPR Part 12.3, effective as at 6 April 2020. Now, if default

judgment has not yet been entered, then filing a late defence will defeat a pending request for default judgment. It reverses the decision in McDonald v D&F Contracts Limited [2018] EWHC 1600 (TCC) at para 20.

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