Rajval Construction Ltd v Bestville Properties Ltd

This is an appeal from an order of His Honour Judge Wilcox QC sitting in the Technology and Construction Court which set aside a judgment obtained in default of acknowledgment of service, provided that the defendants brought £75,000 into court. It raises the question of what the proper approach of the court should be to judgments obtained in default where there has been non-compliance with the requirements of CPR 7.8. That rule provides under the heading "Form for Defence etcetera must be served with Particulars of Claim", 7.8(1):

Part 12 of the Civil Procedure Rules makes provision for default judgments. 12.3(1) provides:

Part 13 then deals with setting aside of default judgments. CPR 13.2(a) provides that the court must set aside a judgment in default of acknowledgment of service if any of the conditions specified in 12.3(1) are not satisfied.

Those conditions were satisfied in the present case because the time for serving an acknowledgment of service had expired and no acknowledgment of service had been served. Mr Hamer for the defendant/appellants sought to say that the mandatory requirement for the service of a response pack with a claim form pursuant to CPR 7.8 should be read into CPR 12.3(1) as a further condition, but that argument would necessitate reading words into CPR 12.3(1) which are not there. I decline to do that and Mr Hamer therefore has to rely on CPR 13.3 which gives the court a discretion to set aside or vary a judgment entered into default if:

“(a)

the defendant has a real prospect of successfully defending the claim; or

(b)

it appears to the court that there is some other good reason why –

(i)

the judgment should be set aside or varied; or

(ii)

the defendant should be allowed to defend the claim."

The short facts of this case are that the defendants ("Bestville"), whose main and perhaps only director is a Mr Prakash Karamchandani, ran a bar or restaurant called The Lancer at 177 to 179 Kenton Road in Harrow in respect of which planning permission had been granted for nine flats above the restaurant and five flats in the car park.

In January 2008 Bestville decided to make use of that planning permission and between 20 March and 7 April 2008 there was an exchange of letters between Bestville and the claimant contractors ("RCL") which resulted in a fixed price contract for the works in a sum of £859,750 exclusive of VAT. This contract incorporated works which would need changes to the planning consent and RCL agreed to obtain consent to those changes. They got permission to relocate a staircase, but it is said they did not realise that that would invalidate the previous planning permission and result in only eight flats rather than nine being able to be constructed.

In any event, on 8 July 2009 RCL sent what they called a final invoice for £77,683.45 minus a retention. On 31 July Bestville responded claiming that the contract work was not completed and on 4 August 2009 Bestville's solicitors, Messrs Desor, came on the scene and demanded that RCL resume work. On 17 August 2009 RCL did resume work but only for two days and they declined to do any further work.

Meanwhile, some of the flats had been occupied but one or more of the lessees complained about the condition of the flats so occupied and on 18 August those complaints were forwarded by Messrs Desor to RCL. Nothing then much happened until 11 November when RCL sent to the defendant's solicitors a final invoice for what they called the balance of sums due to them in the amount of £217,244.38, being £98,000-odd for the contract works and £119,000-odd apparently for extras. Messrs Desor rejected that invoice and said that Bestville had a counterclaim.

On 8 December 2009 RCL issued the claim form in this case with Particulars of Claim set out on the second page. According to CPR 7.8 that therefore required a response pack and in particular a form for acknowledgment of service to be attached and sent to the defendants, but no such response pack was sent.

On or about 15 December 2009 Mr Prakash Karamchandani received the claim form forwarded from his registered office. What he says about the matter is this, in paragraph 39 of his witness statement:

So the position is that on or about 23 December 2009 Mr Karamchandani contacted his solicitors, sending them the claim form. On 4 January 2010 Desor wrote to RCL to say that they were instructed to ask for an extension of time for filing a defence. That letter no doubt arrived on 5 or 6 January, but on 5 January judgment in default of acknowledgment of service was entered in favour of the claimants. On 6 January Desor, unaware of that judgment, pointed out by letter to RCL that no acknowledgment of service form was served with the claim form and they asked for that form to be sent to them immediately. But on the 7th RCL wrote to notify Desor that they had entered judgment in default.

An application to set aside that judgment was made on 18 January. In the course of that application Bestville sought to argue that they had a good defence to the claim on the basis (i) that the work was unfinished; (ii) no extras were ordered and the contract was a fixed price contract; and (iii) that RCL were in breach of contract (a) in not ensuring the planning permission remained valid, (b) in constructing a faulty roof which needed replacement, (c) in failing to provide HNBC certificates which it was asserted they had agreed to do, (d) in failing to complete by the agreed dates and (e) in causing complaints to arise from the lessees.

As I have already mentioned, His Honour Judge Wilcox set aside that judgment on condition that £75,000 was paid into court. He did that on 12 February 2010 because he regarded the defence as lacking in merit, at any rate as far as the alleged breaches of contract were concerned. And now there is an appeal to this court by permission given by Sir Richard Buxton.

There is unfortunately no transcript of any judgment since the hearing of 12 February was not recorded. Mr Seal for the respondents and Mr Thomas Evans who was then appearing for Bestville have agreed a short note of the matters raised by the judge during argument. Mr Evans has provided a fuller note of those matters, which indicates that there may have been no formal reasoned judgment and that after argument the judge merely dictated the terms of order. That note of Mr Evans concludes:

On being asked to approve the two documents that I have referred to, the judge approved the first but said of the second that he had not been informed that the defendant was accessible for instructions to be taken or that on instructions only £25,000 was available. Bestville’s solicitors at the instigation of this court enquired why there was no court recording and the clerk to His Honour Judge Wilcox replied to the enquiry:

If that is indeed the practice of His Honour Judge Wilcox or that of any other judge of the TCC, that practice should in my view cease and the registry of the TCC should henceforth ensure that the tape machines are switched on in court even on Fridays. No doubt it may be said that Friday applications are matters of case management which cannot realistically be the subject of appeal, as indeed the judge indicated on the form on which he refused permission to appeal, but it is with respect not for the judge to preempt the success of any argument about a case management decision by ensuring that no formal judgment is given or that, if it is, no transcript of it can be made.

I would not myself subscribe to the view that any order made on an application to set aside a judgment in default is a case management decision. A decision not to set aside such a judgment subject to any appeal is a final decision which may be of considerable consequence to a defendant. A decision to set aside a judgment on a condition that a substantial sum of money is brought into court looks on the face of it more like the case management decision, but unless the court is satisfied that the defendant can in fact bring that sum into court it is tantamount to a refusal to set aside the judgment and as such is not purely a case management decision. It follows that Sir Richard Buxton was, with respect, right not to feel constrained in giving permission to appeal, albeit that on any view the appeal is against the exercise of the judge's discretion under CPR 13.3.

I turn therefore to the merits of this appeal. The most striking fact in the history of the proceedings is that the claimant served the claim form on the defendant company without any information as to what Bestville was to do about it. No doubt a company director such as Mr Karamchandani should be aware that a formal court document should be dealt with promptly, but he did forward the claim form to his solicitors within eight days of receiving it, which as it happened was the day before Christmas Eve last year. It is not completely surprising that Desor did not deal with the matter until the new year. They then asked for an extension of time for serving a defence, but the claimant entered judgment on 5 January. For a claimant to hold a judgment obtained in this way would in my view have required the rules of court, particularly CPR 7.8, to be observed to the letter.

The judge was clearly aware that no response pack and in particular no form of acknowledgment of service had been served, but to judge from the observations he is recorded as having made in argument he thought that any businessman should be aware that claim forms have to be dealt with promptly. He seems to have regarded the eight days which elapsed between the receipt of the claim form by Mr Karamchandani and the sending of it to his solicitors as not prompt enough. He therefore proceeded to consideration of the merits of the defence.

Since he appears to have given no reasoned judgment, it is impossible to tell what weight he gave to the breach of CPR 7.8 and how he balanced that breach against his view that Bestville would be likely to have been held liable for at least £75,000, but it seems to me that the breach of the rule is a very weighty matter indeed when a claim form is served on a litigant in person, which Bestville was. So indeed was the claimant, but since RCL had been in correspondence with Bestville's solicitors, at any rate since August 2009, it might have been sensible for RCL to have sent a copy of the claim form to those solicitors and no doubt an acknowledgment of service would then have been served even though no response pack had been provided.

CPR 13.3(1) says that the court may set aside or vary a default judgment if (a) the defendant has a real prospect of defending the claim, or (b) if it appears that there is some other good reason why the judgment should be set aside. To the extent that the judge considered 13.3(1)(b), it seems to me that he erred as a matter of law because he did not give the breach of CPR 7.8 the weight that it deserved. It is not clear whether, as Mr Seal for RCL would have it in relation to the evidence of Mr Karamchandani, the judge disbelieved his statement that he did not know he had to file an acknowledgment of service within 14 days or whether he considered that the claim form should have been sent by Mr Karamchandani to his solicitors more swiftly than he did, but in my view Mr Karamchandani should not be disbelieved without cross-examination and eight days is a sufficiently swift response in the situation in which he found himself. If the claimant is in breach of the rules and it is inappropriate to criticise the conduct of the defendant, there is in my view a good case, apparently unrecognised by the judge, for the power given to the court by 13.3(1)(b) to be exercised, regardless of the question whether a defendant could show that he has a real prospect of successfully defending the claim.

Mr Hamer helpfully refers to some observations of May LJ in Godwin v Swindon Borough Council [2002] 1 WLR 997 at paragraph 49 which were not dissented from in Anderton v Clwyd County Council (No 2) [2002] 1WLR 3174. Those observations are as follows:

Mr Hamer also refers to the defamation case of Hughes v Alan Dick & Co Ltd [2008] EWHC 2695 (QB) in which the defendant had apparently not been served with a response pack. Eady J was satisfied that the defendant did have a real prospect of successfully defending the claim, but he said in paragraph 19:

These authorities show the disjunctive nature of CPR 13.3. Although the judge no doubt appreciated this, he gave, as I have said, apparently insufficient weight to the breach of the requirement to serve a response pack. That should, unless he disbelieved the defendant's evidence, have led to the conclusion that the judgment should be set aside without conditions.

I would, therefore, allow this appeal and make an order to that effect.

I agree.

I agree and I wish to endorse my Lord's insistence that all proceedings in the TCC be recorded so that this court can have a proper transcript of all judgments in that court even if the judgment is a case management decision.

So the appeal is allowed.