Bank of Ireland & Anor v Rafiq

The application notice before the court is for a default judgment in proceedings brought by the claimants (collectively “the bank”) against a former employee, the defendant. The proceedings were brought at the end of 2011 and were served on the defendant shortly after their issue. They seek wide-ranging relief in respect of a number of transactions in which the defendant was allegedly involved whilst in the bank’s employ. She was so employed between May 2005 and February 2011. It is said that a number of loans were made by the bank in which sums totalling £919,708.25 were, at the instigation of the defendant, wrongly paid, as broker’s commission or something similar, to third parties, who had not in fact acted as brokers or in any similar capacity, so that no sums were due to them from the bank. In some cases, it is said, the recipients passed monies back to the defendant. It will thus be seen that the allegations are very serious indeed, based fairly and squarely upon the defendant’s dishonesty.

There are other claims relating to the losses made on the loans. The bank, in respect of the default judgment, proportionately limits its claim to the amount I have just mentioned, £919,000-odd, as it is entitled to do.

The defendant has neither acknowledged service nor served a defence, albeit that she was served on 1 December 2011. It is accepted that she now needs an extension of time under the CPR and that she cannot without an extension of time trump this application by either a late acknowledgment of service or a late defence.

Shortly after the proceedings were served, the bank sought a freezing order against the defendant, which was disposed of, by consent, by the defendant giving undertakings. As one would expect, the undertakings allowed the defendant to spend reasonable sums on legal expenses as well as on living expenses. The defendant had been in receipt of legal advice before proceedings were served, but she could no longer afford that legal advice, and I understand that she is now a judgment debtor of her then solicitors. She appears to have made some not very extensive attempts to obtain legal advice, but without success. She owns a number of properties, which appear to be mortgaged heavily. No solicitor has been willing to take her on so far against the promise of a second charge.

The defendant was told specifically by the bank’s representative in December 2011 when her acknowledgment of service was due and by what date the ensuing defence should be served. The defendant, judged by the contemporaneous correspondence and notes of meetings in December 2011 and January 2012, initially chose not to engage in the litigation process by actively defending the proceedings. She admitted in December 2011, in an apparently unprompted email, liability in respect of part of the sums claimed of £300,000-odd. This appeared to relate to the benefit that she had obtained from some of the transactions, though she now effectively says that, in financial terms, she did not derive a net benefit because all the payments she received from the particular source were, according to her, loans, and therefore repayable. She produced some historical evidence that a loan may have been made from that source predating her employment with the bank, but nothing further by way of detail. The basis upon which she made her admission, and the reasons for now withdrawing it, are not explained. It is evident that, at the time of that admission, the defendant was undergoing other extremely distressing personal circumstances, the details of which I need not go into, but which I have very much in mind. Nonetheless, the defendant, who is clearly a lady of considerable intelligence, engaged rationally in her discussions with the bank and its lawyers and made plain that her position, at least initially, was that she was not going to defend these proceedings at all, though she thought the bank was claiming too much and wished to negotiate the bank down. That was a deliberate choice of hers, influenced, no doubt in part, by the absence of legal representation or the means to employ lawyers. I have to record that in all her discussions at this time, both the bank’s representatives and its lawyers, Messrs Mishcon de Reya, were scrupulously fair in all their dealings with the defendant. One of the bank’s representatives, as already mentioned, ensured that the defendant knew what was expected of her by way of an acknowledgment of service and defence. Mishcon de Reya, the bank’s solicitors, in explaining the meaning and significance of the freezing order undertakings that she was being asked to give, could not have been fairer, and highlighted her need for independent advice.

I mention that because there was a faint hint of criticism of Mishcon de Reya, who suggested to the defendant the possibility that a solicitor might, by taking a second charge over her properties, agree to act for her. As I have mentioned, this has proved so far not to be a practical proposition. That was described by Mr Wilson for the defendant as a naïve suggestion. I regard that as an unfair criticism, if it was intended as a criticism at all. It was put forward as no more than a possibility by a solicitor who was endeavouring to be helpful to someone whom he recognised as not being on a level playing field in terms of legal knowledge and experience with himself.

The bank did nothing to obtain judgment following the failure of the defendant to engage in the litigation. This may, in part, be because they were aware of the difficulties the defendant was facing in her personal life, knowing they would not last for ever. I infer also that one of the reasons was that there was other major litigation involving the same bank personnel and solicitors which was due to be, and was, heard in 2012.

Eventually, the bank applied for a default judgment in July 2012. By this time, the defendant had resolved most of her domestic problems and was back on her feet, in the sense that she had found employment in Monaco. As the bank only seek a money judgment, this is a judgment which could have been entered with the bank abandoning all other claims merely by filing a request under the procedure set out in CPR 12. 4(3). However, as the bank was also seeking a post-judgment freezing order, the application was made under CPR 12.11. That provides:

“(1)

Where the claimant makes an application for a default judgment, judgment shall be such judgment as it appears to the court that the claimant is entitled to on his statement of case.”

I agree with the submission made by the bank that that does not give the court a discretion. However, the defendant is seeking effectively an extension of time for putting in her defence, which does require the court to exercise its discretion one way or the other. Under the CPR amendments, an acknowledgment of service is no longer an absolute requirement. It is open to a party simply to put in a defence, by-passing the acknowledgment of service stage. The defendant has neither acknowledged service, nor put in a defence, but does now wish to put in a defence, which is in draft form, verified by a statement of truth. If I accede to that application and extend time accordingly, the defendant will no longer be in default, and it will be for the bank, if so advised, to seek relief under the summary judgment procedure, if appropriate. Accordingly, the real issue is whether the draft defence should now be allowed in.

The power to extend time derives from CPR 3.1(2)(a). That provides:

“(2)

Except where these Rules provide otherwise, the court may –

(a)

extend…the time for compliance with any rule…(even if an application for extension is made after the time for compliance has expired).”

It was established by the Court of Appeal in Sayers v Clarke Walker [2002] 1 WLR 3095, that, in considering an extension of time, the court must take into account the overriding objective in rule 1, and that in cases of any complexity the court should also have regard to the matters set out in rule 3.9, which concerns relief against sanctions. The overriding objective requires the court to try cases justly. Rule 3.9 contains the well-known checklist, (a) to (i), which the Court of Appeal has recently reminded us is not a box-ticking exercise, but a process which must be gone through as part of the court’s exercise of a discretion, not giving any particular factor any specific weight, but balancing all the factors, and addressing the question: is it just and appropriate for relief against sanctions to be granted, or (what amounts to the same thing in this case) for there to be an extension of time for service of the defence.

I was referred by both sides to the early authority of Neuberger J (as he then was) in Coll v Tattum, an unreported decision of 21 November 2001, and the subsequent decision of Briggs J in Lexi Holdings plc (in administration) v Shaid Luqman & Others [2007] EWHC 2497 (Ch). Those cases suggest, as Briggs J put it, “as a rule of thumb”, that once a defendant comes forward with a defence which, on its face, would, if the allegations are made out, defeat the claim, then ordinarily the court should not consider the merits but should let the defence in, as to deprive the defendant of the opportunity of defending the case on the merits would be disproportionate. Neither case considered the 3.9 checklist as such. In the case of Neuberger J’s decision that did, of course, pre-date the Court of Appeal’s elucidation to which I have referred. Further, Briggs J, having identified “the rule of thumb” then departed from it, as he himself acknowledged. In my judgment, there is no rule, whether of thumb or otherwise, that requires the court, faced with a long delay, to let a defence in which is apparently bona fide and arguable. What the court must do is go through all the circumstances, as rule 3.9 requires, including the factors in the checklist, allotting an appropriate degree of weight to the requirements of the rules themselves.

The first item on the checklist that the court is enjoined to consider is the interests of the administration of justice. This requires the parties, and the court, to pay proper regard to the rules of court. It is not open to a defendant to superimpose upon the rules a leisurely timetable of the defendant’s own choosing. Moreover, a defendant who takes a conscious decision not to engage in proceedings runs the very real risk of being held to that decision.

In this case there is a draft defence. It has been subjected to some detailed criticism by the bank. I do consider that the merits of that defence are a factor to take into account. If, for example, there was a strongly arguable defence, that would militate in favour of the defendant being allowed to advance it. If per contra there was a shadowy defence, that would point in the other direction. What, it seems to me, is wrong is that I should simply take the defence at face value, though I accept that the submission gains some support from the two first instance decisions to which I have referred.

At face value, the defence contains allegations which, if made good, clearly would amount to a defence. In particular, as regards commission payments, of which 33 are alleged, the defence pleads expressly:

“The Defendant only gave instructions for payments of introduction orarrangement fees from the Bank's NFA to persons who she believed to be entitled to them as the introducers or facilitators of lending transactions;”

The NFA, I should explain, is the acronym applied to the account out of which the relevant payments were made. The defence continues:

“The Defendant did not misappropriate and was not party to the misappropriation of monies paid from the Bank's NFA; and”

It goes on to say:

“To the extent that the Defendant is now able, given the lapse of time, she addresses in Schedule One to this Defence the alleged illegitimate payments referred to in the Schedule. She does so in the order of and by reference to their similar listing in paragraphs 136 to 139 of the First Affidavit of Mr. Murphy made on behalf of the Bank.”

The telling thing about that schedule is that it is written, in parts, in the first person. That is to say, it is the defendant’s product. It is something that she could have done a very long time ago. The schedule is criticised for want of particularity and for, it is said, lack of conviction, and other inconsistencies in the written evidence are pointed to. All this amply demonstrates that the defence is not bound to succeed. However it is not bound to fail either if it goes forward. It is a relatively rare case where the court can conclude that a defendant has been dishonest on the basis of untested evidence and without the defendant being heard. Had, therefore, the defendant put forward this defence in time, I have grave doubts whether it could have been struck out. But that is not the test. She is trying to put it in now, in February 2013, having flouted the rules for no good reason, even though told expressly of the time limits which applied to her. Her reasoning at the time was that she wanted to negotiate with the bank. She thought she was better off that way. She expressly declared that she would not appear in court except as a witness for the bank. Now she wants to take them on by defending this claim, as the tactics she adopted have not succeeded.

I have already dealt with the first item of the 3.9 checklist, the interests of the administration of justice, referred to in 3.9(1)(a). It has been said quite recently in Fred Perry (Holdings) Ltd v Brands Plaza Trading Limited [2012] EWCA (Civ) 224 [2012] FSR 28 [2012] 6 Costs LR 1007 that the court has been over tolerant of delays, and that the administration of justice requires compliance with court orders or, as in this case, the Rules: see especially paragraphs 15 and 16. It has also been said in a slightly different context in Tinkler v Elliott [2012] EWCA (Civ) 1289, in paragraph 32 in particular, that an opponent to a litigant in person should not expect excessive indulgence to be shown to the litigant in person. That is precisely what the defendant is seeking in this case. So the starting point in the balancing exercise that I have to carry out is that there has been a wholly excessive delay, undertaken deliberately, which the defendant cannot expect the court simply to excuse out of sympathy for her predicament, or the natural desire of any tribunal to try cases on the merits.

Returning to the checklist, the next item I am required to consider under 3.9(1)(b) is whether the application for relief has been made promptly. Self-evidently it has not. It was first intimated in a hearing in November 2012, following the defendant having had the good fortune of being provided with the services of counsel through the Bar Pro Bono Unit. That was not prompt. Everything since has been dealt with by Mr Wilson and Miss Rogers, who are counsel appearing for the defendant, professionally and with reasonable promptness, judged from their perspective. But that does not excuse the defendant’s behaviour in this case.

The next item I have to consider under 3.9(1)(c) is whether the failure to comply was intentional. I have answered that. This was a deliberate decision of the defendant not to engage in these proceedings, prompted, at least in part, because she acknowledged liability in a substantial sum.

3.9(1)(d) requires me to consider whether there is a good explanation for the failure. There is none. I do not overlook the appalling pressures that the defendant was under for part of the time, but that did not take away her powers of reasoning, and she came through those by the spring of 2012 and still did not engage actively in these proceedings.

3.9(1)(e) is largely irrelevant. That refers to “the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant pre action protocol”. As the defendant has not hitherto engaged at all, I do not consider that to be relevant. Some criticisms were directed towards late service of evidence by the defendant on this application, but it appears that those were consensual extensions and they add nothing in my judgment.

3.(9)(1)(f) requires me to consider “whether the failure to comply was caused by the party or his legal representative”. Manifestly, the failure to comply is wholly attributable in this case to the defendant.

3.9(1)(g) is irrelevant. That requires me to consider whether the trial date, or the likely trial date, can still be met if relief is granted. I say it is irrelevant because, not having engaged at all, we are no nearer a trial today, or a likely trial date, than we were on 1 December 2011, when the proceedings were served. That itself is an appalling state of affairs, but not expressly within (g). It is, however, part of all the circumstances that I am enjoined to consider in the opening paragraph of the Rule. That is one reason I observed that the court must not allow a defendant to superimpose upon the Rules a leisurely timetable of the defendant’s own making.

I can consider 3.(9)(1)(h) and (i) together: (h) refers to the effect which the failure to comply had on each party, and (i) refers to the effect which the granting of relief would have on each party. So far as the bank is concerned, the effect of the failure to comply, i.e. not serving a defence or acknowledging service, has been largely neutral, save in the respect that I have already mentioned, namely that it is no nearer a trial date than it was in December 2011. The bank has also had the protection of the freezing order undertakings over the period of delay. The effect of granting relief, i.e. extending time, would be to enable the defendant to defend, which ordinarily would be a significant factor and would cause no obvious prejudice to the bank. Nevertheless, that has to be balanced against all the other factors that I have mentioned and, in my judgment, the court’s disapproval and rejection of this extended period of delay in all the circumstances outweighs the injustice to the defendant in now, unless I grant an extension of time, being unable to defend. The defendant will find herself in the position that she herself chose to be in in December 2011 and early 2012, when she explained that she would not defend the proceedings.

In the circumstances, I am not minded to grant an extension of time or relief against sanctions. For once, the Rules should take precedence. I will accordingly grant judgment in default for the sum mentioned earlier of £919,708.25, and will hear counsel as to any other consequences such as interest and costs.

I leave the case with some observations regarding the respective legal teams. I am grateful to all the lawyers involved in this case for the careful presentation of the documents and arguments. My thanks in that respect are quite general. Special mention must be made of Mr Wilson and Miss Rogers, who acted with skill, unflagging perseverence and commitment on a wholly pro bono basis. Their lack of success is despite their best efforts.

I have also mentioned, and repeat, the particular admiration for the way in which Mishcon de Reya treated the defendant in their dealings with her. Without ever compromising their loyalty to their client, they were assiduous to be as helpful as they could towards her, recognising the disadvantages she was under as a litigant in person.

These are both shining examples of the best features of the legal profession in this country.