Northern Rock (Asset Management) Plc v Chancellors Associates Ltd

This case raises an interesting issue of the jurisdiction of a court of first instance to set aside a judgment obtained by a claimant following the lodging of an Acknowledgement of Service which contains an admission by the Defendant. A (not invariable) practice has grown up of the judgment being entered as if a judgment in default of Acknowledgement of Service or Defence, in effect as an administrative act by the relevant court office without the involvement of any judge.

In July 2005 Northern Rock (Asset management) PLC, the Claimant, engaged the Defendant, Chancellor Associates Ltd, to provide valuations with a view to the Claimant advancing loans to two individuals by way of remortgage in relation to a number of apartments at a property at 3, Broadway, Nottingham. There is no issue that the Defendant provided reports and valuations. By March 2011, the Claimant’s solicitors notified the Defendant that their client was considering proceedings against it for negligence in respect of these valuations. They asked the Defendant to treat their letter dated 11 March 2011 as a notice under the Professional Negligence Pre-Action Protocol and asked for some preliminary disclosure of the Defendant’s files. Following no substantive response, the Claimant’s solicitors wrote on 4 April 2011 to the Defendant suggesting a “Standstill Agreement” to preserve the limitation position. Again there was no substantive response, albeit both these letters received acknowledgements of receipt from the Defendant, who apparently notified insurers but did not instruct solicitors.

The next step was the issue of proceedings by the Claimant, through their solicitors on 15 April 2011, in the TCC. They then served it, the Claim and the Particulars of Claim on the Defendant’s registered office under cover of a letter dated 10 August 2011. The Particulars of Claim identify claims in respect of seven of the apartments and some £600,000 was claimed as damages. It seems that no formal admission practice forms were served therewith. On 12 August 2011, the Claimant’s solicitors wrote to the Defendant inviting it to agree to some amendments to the Particulars of Claim so as to reduce the claim by some £15,000, a draft being attached. On 18 August 2011, the Defendant, still without solicitors instructed, wrote to the Claimant’s solicitors agreeing to the amendment but asking for an extension until 21 September 2011 for the service of the Defence.

On 19 August 2011, the Defendant filed its Acknowledgement of Service at the TCC Court Office and served a copy on the Claimant’s solicitors. The Acknowledgement was unsigned but it had been prepared by a “Legal Assistant”. Unfortunately by mistake, the person who filled in the Acknowledgement ticked the box: “The Defendant admits this claim”.

On 22 August 2011, the Claimant’s solicitors wrote to the TCC enclosing the Acknowledgement of Service and a Request for Judgment; this letter was delivered on the same day. The letter went on to state:

“As this is a claim for an unspecified amount, we would be grateful if judgment could be entered for the Claimant with damages to be assessed”.

The Request for Judgment was in Form N225 which is intended for specified or liquidated sums being claimed. The Claimant’s solicitors ticked the pro-forma statement in it: “The Defendant admits that all the money is owed” but added in handwriting: “Please enter judgment for damages to be assessed”. This letter and Request were only put before the Court after argument had been concluded.

Without reference to any judge, the TCC Registry produced and stamped a “Judgment for Claimant” on 22 August 2011 which on the form states to the Defendant: “You have submitted an admission to the above Claim. It is therefore ordered that you must pay the Claimant an amount to be decided by the Court” The form used was “N30 (HC) Judgment for Claimant (in Default)”.

On 9 September 2011, the Defendant issued its application to set aside this judgment. That application was supported and challenged eventually by several witness statements on both sides. After two occasions on which argument was raised by both parties, the parties reached an agreement that, subject to the Court having jurisdiction, the judgment would be set aside.

CPR Part 14 deals broadly with admissions. Part 14.1(1) identifies that a party “may admit the truth of the whole or any part of another party’s case” and Part 14.1(2) makes it clear that the party "may do this by giving notice in writing (such as in a statement of case or by letter)." CPR Part 14.3 states:

“(1)

Where any party makes an admission under rule 14.1(2)… any other party may apply for judgement on the admission.

(2)

Judgment shall be such judgement as it appears to the court that the applicant is entitled to on the admission.”

The notice to the 2011 Civil Procedure state at Para 14.3.6:

“Unless the defendant consents to judgement being entered (in which case a consent judgement can be obtained in accordance with r. 40.6) the claimant will have to make an application to the court. See, generally, Pt 23”

CPR Part 14 goes on to deal with formal admissions of whole or parts of claims for specified or unspecified amounts of money. Usually these forms are served along with the Particulars of Claim. In these cases which are dealt with in CPR Parts 14.4, 14.5, 14.6 and 14.7, and where the defendant has signed the requisite practice form, the procedure is that the claimant provides a "request for judgment" on receipt of which the court will enter judgment.

CPR Part 23 contains general rules about applications. As the Civil Procedure notes say at Paragraph 23.0.3, an application is to be distinguished from a request, for instance a request for judgement. CPR Part 23.1 defines an application notice as meaning "a document in which the applicant states his intention to seek a court order". CPR Part 23.3 lays down the general rule "that an applicant must file an application notice" unless permitted otherwise by a rule, practice direction or court dispensation. CPR Part 23.4 identifies the general rule as being "that a copy of the application notice must be served on each respondent" unless permitted otherwise by rule, a practice direction or a court order.

Provision is made by a number of the rules for judgement in default. The best-known are judgements in default of Acknowledgement of Service or in default of a defence. These are generally dealt with in CPR Part 12. CPR Part 12.4 sets out the procedure for obtaining a default judgement which involves the claimant filing a request in the relevant practice form. In effect, on filing the requisite form and upon the occurrence of the relevant default, the relevant Court office or Registry will effectively as an administrative act enter judgment for the claimant.

Reference was also made extensively in argument to the Court’s extensive case management powers as set out in CPR Part 3.1, in particular sub-paragraph (2)(m) which allows the Court to "take any other step or make any other order for the purpose of managing the case and furthering the overriding objective".

The wording of the rules set out above makes it clear that where there is an admission made by a defendant (other than under and pursuant to specific sub-rules), the proper course for a claimant to take is the issuing of an application which must then be considered by the court. It is not something which is to be dealt with as an administrative act by the relevant Court office or Registry. The application must be issued (and the appropriate fee paid) and, unless the court orders otherwise, the application is to be served on the defendant who can then respond or not as the case may be. The fact that there has to be an application means that it will be looked at and considered by a judge, be it a district judge, a master, a circuit judge or in the TCC in London a High Court Judge. That provides a safety net which is simply not present if there is an irregular request for a judgement made to the office or Registry in question.

The practice judicially in the TCC in London is usually, where there is an admission other than by way of formal admissions on set forms, that the Judge in Charge for the time being will consider the application and decide whether it should be served; if there is the slightest risk that the admission may be mistaken, uninformed or unclear in extent or scope, the Judge will order that it is served and call for a response by way of witness statement or otherwise from the Defendant, with the Claimant being entitled to respond thereto. The Judge will also provisionally have decided whether the application will be dealt with at a hearing or on a written basis. On occasion and in a clear case, the Judge might enter judgment for the Claimant on a provisional basis by giving to the Defendant the right to apply within a set time to have that judgment set aside. This course might well be appropriate if, for instance, a covering letter from the Defendant accompanying or containing the admission is explicit in accepting liability for all or part of what is claimed.

It follows from the above that, on the facts of this case, the Claimant’s solicitors adopted the wrong course by submitting a request for judgement to the TCC Registry and it was wrong of the Registry to respond to the request by entering judgement. The Request for a judgement form (N225) used by the Claimant’s solicitors was the wrong form because it related in any event to an admission of a specified amount (which arises under CPR Part 14.4) and that is why they amended it to request judgement to be entered for damages to be assessed.

Accordingly, the judgement obtained was irregular and, it is accepted by both Counsel, rightly, that the Court, at first instance, has a jurisdiction and discretion to set aside such an irregularly obtained judgement. There is no dispute, in those circumstances, that the Defendant should have permission to withdraw what was clearly a mistaken admission on the face of the Acknowledgement of Service. That it was a mistake was clear from two things, the first being the Defendant’s letter of 18 August 2011 in that, in asking for an extension of time to serve a Defence, it was clearly suggesting that it had a defence rather than was admitting liability. The second point is that even Ms Brown, as the Claimant’s solicitors’ partner who dealt with the request the judgement, was “surprised to receive the admission”.

There was substantial argument between the parties because initially the Defendant’s Counsel put his argument on the basis of seeking permission first to withdraw the admission in the Acknowledgement of Service and then seeking to set aside the judgement under CPR Part 3.10(3)(b) or CPR Part 3.1(2)(m). In logic, the judgement needs to be set aside first and then permission be given to withdraw an admission.

It would be an extraordinary state of affairs if the Court at first instance did not have the power to set aside an irregularly obtained judgement, secured at first instance. It was argued, initially, by Counsel for the Claimant, that the judgment in this case could not be set aside at first instance and that the only way of it being set aside was by way of an appeal to the Court of Appeal. CPR Parts 12 and 13 address securing and setting aside or varying judgements obtained in default and it is clear, by CPR Part 13.2, that the Court must set aside irregularly obtained judgments in default.

It would similarly be an extraordinary state of affairs if the Court at first instance did not have jurisdiction where a judgement had been obtained irregularly or wrongly on the basis of a mistaken admission to set it aside. Although CPR Part 14 envisages judgements being entered either following applications or where specific sub rules-apply, it does not, as such, contain an express provision whereby such a judgement can be set aside. However, if one takes as an example an unauthorised admission where a person who has no connection with the Defendant mischievously sends in an admission and a judgement is obtained, it would be absurd to think, particularly in the light of the Overriding Objective, that the Court at first instance did not have the jurisdiction to set it aside; certain it is that the Court of Appeal would not welcome being burdened with appeals in those circumstances.

A number of cases were referred to by Counsel. Some were to do with the withdrawal of admissions made prior to proceedings, such as Sowerby v Charlton [2006] 1 WLR 568 which itself quoted the approved unreported decision of Mr Justice Sumner in Braybrook v Basildon and Thurrock University NHS Trust [2004] EWHC 3436 (QB); the current case however is not concerned with admissions made prior to proceedings. Even these cases however do not point to a party being refused permission to withdraw an admission clearly made by mistake at the earliest stage of the proceedings where the withdrawal will cause no prejudice and where there is a properly arguable defence.

The case of Nelson v Clearsprings (Management) Limited [2007] 1 WLR 962 is however helpful. In county court proceedings in that case, the claim form and the particulars of claim were served not at the defendant’s address but at another nearby address; unsurprisingly, the defendant did not appear at the fixed hearing and a possession order was made against it in its absence. It applied to have the judgement set aside and the Court of Appeal confirmed that the judgement should be set aside. Sir Anthony Clark MR (as he then was) said:

“43.

It does not, however, follow that under the CPR the defendant is entitled to have the judgment set aside as of right, ex debito justitiae, or indeed that, if there is a discretion it can be exercised in only one way. It was pressed upon us that such an extreme approach is inconsistent with the overriding objective of dealing with cases justly and that, on an application to set aside a judgment, (albeit irregularly obtained) a claimant might be able to demonstrate that there would be no point in setting aside the judgment and requiring the claimant to issue and serve new proceedings. Take, for instance, a case in which the claim form is served at the wrong address by mistake and in which the claimant cannot satisfy the strict criteria for extending the time for service (see CPR 7.6). If no question of limitation of action arises and there is no other benefit to the defendant in requiring the claimant to start fresh proceedings, it is contrary to the overriding objective that he should be required to do so to no good purpose at all. If he can show that there is no real prospect of his claim failing he should be able to obtain (or retain) his judgment in the current action.

44.

The question is whether the CPR permits such an approach. In our judgment, there are procedural ways in which to achieve that result. It was suggested in argument that there are a number of provisions of the CPR which (in combination) could be deployed to achieve it. They are rules 6.9, 3.1(2)(m), 3.1(7) and 3.10…

46.

Rule 3.1(2) sets out a list of powers which are additional to other powers in the rules or practice directions. It provides that the court has the powers in the list "except where these Rules provide otherwise" and, after setting out a list of specific powers, provides that the court may:

"(m)

take any other step or make any other order for the purpose of managing the case and furthering the overriding objective".

Rule 3.1(7) provides:

"(7)

A power of the court under these Rules to make an order includes a power to vary or revoke the order."

Rule 3.10 (to which we referred earlier) provides:

"Where there has been a error of procedure such as a failure to comply with a rule or a practice direction –

(a)

the error does not invalidate any step taken in the proceedings unless the court so orders; and

(b)

the court may make an order to remedy the error."

47.

It is said that rule 3.1(7) does not apply because "order" in the paragraph cannot include a judgment, that rule 3.10 does not apply because purported service at an address not permitted by the rules is not an "error of procedure" within the meaning of the rule and that rule 3.1(2)(m) is not apt to remedy the position. We accept that, if an application to set aside an irregular judgment were governed by rule 39.3(3) none of these rules would be relevant. Rule 3.1(2)(m) would not apply because it only applies "except where these Rules provide otherwise". Rule 3.10 would not apply for the reasons given in Vinos v Marks & Spencer plc, namely that the general words of rule 3.10 could not extend to enable a court to do what another rule expressly forbade. The same principle would in our judgment apply to rule 3.1(7).

48.

However, once it is held (as we have done) that rule 39.3(5) does not apply to an application to set aside an irregular judgment, those principles do not apply to exclude the application of those three rules. While it is perhaps possible that there is no rule of the CPR which governs an application to set aside such a judgment and that the court's power to do so stems from some more general power to set aside a judgment ex debito justitiae, it seems unlikely that such a comprehensive code does not cover such a situation. We would hold that the attempted service at the wrong address was an "error of procedure" within the meaning of rule 3.10. The court is therefore empowered to make an order to remedy the error, and if rule 3.10 (b) was not thought strong enough to give the court power to make an order to the effect that an irregular judgment should be set aside, the necessary power is available under rule 3.1(2)(m). We do not consider it necessary to consider the vexed question whether the word "order" is wide enough to include "judgment" in rule 3.1(7): for the problems created by the distinctions between "judgments" and "orders" in the CPR see volume 1 of the White Book 2006 at paragraph 40.1.1.

49.

On such an application, in construing the CPR, it is not in our judgment appropriate to hold, on the true construction of the wide and unfettered discretion given by those two rules, that the discretion to set aside an irregular judgment can only be exercised in one way, namely by setting aside the judgment. There may be circumstances in which the overriding objective of dealing with cases justly, which of course expressly includes, by rule 1.1(2), saving expense and dealing with the case in ways which are proportionate, requires the discretion to be exercised differently.

50.

That is not to say that on an application to set aside a judgment in a case of this kind the just order will not almost always be to set aside the judgment. In a case where the proceedings have not been served on the defendant and service has not been dispensed with before judgment, a court could only properly refuse to set aside a judgment where there is no prejudice to the defendant (or, possibly, to some innocent third party who has acted to his detriment in the belief that the judgment was regularly entered)... However, each case depends upon its own facts and there may be circumstances in which it will not be appropriate to set aside the judgment, or at any rate, the whole judgment, as for instance when the defendant has delayed inexcusably in making his application to the court after learning that the judgment had been entered against him.”

I draw from this case as a matter of generality and would any event have concluded that, where a judgement has been irregularly obtained, the Court has a jurisdiction under CPR Part 3.1(2)(m) to set it aside, unless there is another express provision in the CPR which permits the Court to do so. That jurisdiction gives the Court discretion to set aside the judgement if it is fair and just so to do. If there was no real defence, for instance, that could well be a reason to refuse to set aside. That CPR Part 3.1(2)(m) is wide enough is clear from any sensible reading of the Overriding Objective which the Court by CPR Part 1.2 must give effect to when interpreting any rule. Justice will normally demand that a judgment, obtained irregularly on the basis of an obviously mistaken admission in circumstances where there is a properly arguable defence, where the application to set aside is brought reasonably promptly and where there is no prejudice caused by the setting aside, should be set aside.

Counsel for the Claimant referred to a number of other cases including Kojima v HSBC Bank plc [2011] EWHC 611 (Ch) and Ian Oakley Smith and another v QBE Insurance (Europe) Ltd and others [2010] EWHC 3172 (Ch). Both these cases were concerned with regularly and properly obtained judgments and they do not really assist in this case. In any event, a court office or registry only has power to enter a judgment, usually either by default or on the basis of admissions given specified ways, if and to the extent that statute or statutory regulations permit it to do so. If it purports to issue a judgment which it has no statutory authority to do, the so-called judgment is not in reality or in law a judgement at all. The Court would simply be exercising its declaratory jurisdiction to declare that it was not a judgment which that court or registry had any right to issue or enter; again the exercise of that jurisdiction would probably also be subject to CPR Part 1 and the discretion could be brought into play in the same way as I have set out above.

As a matter of courtesy to Counsel, I should mention that, whilst there was oral argument about all of the above, I called at the conclusion of the second hearing for the lodging by the Claimant’s solicitors of their letter and Request for Judgment of 22 August 2011 and it would be fair to say that the information about the full extent of the irregularity only emerged towards the end of the second hearing. Thus it was that some argument was addressed to the Court upon what has turned out to be the wrong premise that the judgment had been regularly obtained.

The judgement in this case was irregularly obtained. The Claimant had no legal right simply to request judgement on the admission contained in the Acknowledgement of Service. The TCC Registry had no legal right to enter a judgement on the basis of that request. What the Claimant had to do, if it wished to take the matter further, was to issue an application which would be put before a judge of the TCC who would then decide whether judgement could be entered on any basis, whether the application should be served on the Defendant and also whether directions should be given in relation to the application. The parties have properly agreed that, if I decide that the Court does have jurisdiction, the judgement will be set aside and the matter will proceed through a timetable to trial. The parties have agreed that the Defendant should serve a Defence, which will take into account the need to comply with the rules and to be supported effectively by a Statement of Truth. The parties should then re-fix a Case Management Conference, preferably before the end of 2011.