McDonald & Anor v D&F Contracts Ltd

This is an application for judgment in default. It is made specifically on the basis that the defendant has failed to file in time either an acknowledgement of service or a defence. In the event that that application is unsuccessful there are alternative applications for summary judgment and/or striking out of the defence which had, as will become apparent, been filed (albeit out of time).

This is, in a number of respects, a rather unusual case. The claimants, Mr. and Mrs. McDonald, are represented by solicitors and counsel, Mr. Cheung, although solicitors have not, no doubt to conserve costs, appeared on this application. The defendants are a construction company, D&F Contracts Limited. They are not legally represented and they have not appeared on this application which has proceeded in their absence.

The claimants are the owners of a property at 1 Regent Terrace in Edinburgh. They wanted to carry out substantial refurbishment work to the property and make it their home. The defendants tendered for the works in the sum of £633,473 including VAT. It is pleaded that on 15November 2013 architects acting for the claimants accepted that tender by a letter of intent that incorporated the JCT Standard Form of Building Contract Without Quantities 2009 edition. It therefore appears to be the claimants’ case that, despite its title, the effect of the letter of intent was to form a contract, although I understand from Mr. Cheung this morning, that that may not always have been the position.

I have not, however, been provided with any further detail of the contract. In accordance with Practice Direction 16 at paragraph 7.3:

“Where a claim is based upon a written agreement: (1) a copy of the contract or documents constituting the agreement should be attached to or served with the particulars of claim …”

But that is not what has been done in this case. In at least one little respect, that has caused me some concern on this application.

The works began on site in November 2013. There was, apparently, a programme that formed part of the agreement, under which the works were to be completed by 24 July 2014. The claimants’ case is that during the course of the works they had concerns about defective works, omitted works, lack of co-ordination, delay, and out of sequence working causing further delay. I take that from paragraph 11 of the Particulars of Claim. By December 2014 the works remained incomplete. On 5 December the claimants asked the defendant to leave site and on 7 December, by their architect, they accepted what they allege to be the defendant’s repudiatory breach as terminating the contract.

The claimants say that they then became aware of further problems (which I will return to shortly) and that as a result of the defendant’s breaches they have suffered loss and damage. I have, on this application, a statement of Ms. Heaps of the claimants’ solicitors, DWF. She says that on 15 November 2016, that is about two years later, a letter of claim was sent to the defendant. There were further attempts to engage in correspondence, but no response was received at all.

I was aware from the papers before me that there had, in the interim, been an adjudication. Mr. Cheung has helpfully provided me this morning with copies of the decisions in two adjudications, both dated 24 June 2015. One relates to an application for an interim payment which resulted in a decision in favour of the defendant which has not, in the event, been paid by the claimant. The other decision relates, as I understand it, to a valuation which was post termination and may have been closer to a final account claim. That resulted in no further award in the defendant’s favour.

In September 2017 the claimants issued these proceedings in the Technology & Construction Court in London. These proceedings, including the Claim Form and Particulars of Claim, were served on the defendant whose registered office is in Scotland. I have been provided with a copy of the certificate of service to the effect that the documents were served on 15 September 2017 so that the deemed date for service was 19 September 2017. Rules 6.3(2) and 6.35(2)(a) therefore apply so that, as Ms. Heaps rightly says in her statement, the date for filing of an acknowledgement of service or Defence was 21 days from the date of service of the Particulars of Claim, that is 10 October 2017. If an acknowledgement of service had been filed, the date for filing the Defence would have been 35 days from the date of service of the Particulars of Claim, that is 24 October 2017.

It is quite clear that no acknowledgement of service was filed so the date for filing of a defence was, in the event, 10 October 2017. No defence was filed by that date. However, on 31 October 2017 a document that purports to be the Defence was filed. It is dated 19 October 2017 but was not filed until later.

On 1^st November, apparently unaware of the filing of that Defence, the claimants made a request for judgment in default under rule 12.4(1), in default of acknowledgement of service. On an administrative basis the court declined to enter judgment because there was a Defence on file. This application was therefore made on 26 January 2018. I note that that procedure for an application to the court where a request for judgment has been refused is not expressly contemplated by or covered by the rules. But it has the effect that the issue of whether there is a Defence which would defeat an application for judgment in default is brought before the court.

The primary application, as I have said, is therefore for judgment in default of acknowledgement of service (or defence) under CPR Part 12.3. It is, I think, important to note, that judgment in default of acknowledgment of service is a procedural term used where there has been no acknowledgment of service or defence filed within the time prescribed. The rules do not require acknowledgement of service before the defence but give the defendant the option of filing his defence within 14 or, in this case, 21 days, in accordance with Rule 15.4 or of filing an acknowledgement of service within that time limit and thus obtaining more time to file the defence.

In this case there was no acknowledgment of service and the purported defence was out of time. The claimants’ case, therefore, is that they are simply entitled to have judgment in default of acknowledgement of service. The total sum claimed is £848,640.81 plus interest, a sum of over £200,000 being calculated in the Particulars of Claim. Judgment is sought for the full amount.

There are two issues that arise that I have raised with Mr. Cheung this morning. The first is a procedural one. A document has been filed which is called “The Defendant’s Defence”. It was filed before the first request for judgment in default was made. There is authority in the decision of Popplewell J in the case of Taylor v. Giovani Developers Limited [2015] EWHC 328 (Comm) that the late service of an acknowledgement of service does not cure the failure to serve it in time. If an application for judgment in default is made at a time when no acknowledgement of service has been filed, then the court will enter judgment in default. It will consider the position at the time the application was made and the subsequent filing of an acknowledgement of service cannot cure the position.

That is a view with which Phillips J in Almond v. Medgolf Properties Limited, an unreported case from May 2015, agreed. So do I. If the position were otherwise it would make the ability to seek judgment in default of acknowledgement of service pointless, because any application could simply be met with the late filing of the form.

The same logic must apply to the late filing of the defence. However, the position in this case is that the application was made after a defence was filed, albeit that defence was late. The view expressed by the editors of the White Book in the notes at paragraph 12.3.1 is that that should make no difference. But they refer to two authorities which doubt that position.

That approach was followed in a decision of Deputy Master Pickering in the case of Billington v. Davies [2016] EWHC 1919 (Ch) which Mr. Cheung has referred me to. In that case the Deputy Master was expressly concerned with the filing of the defence rather than the acknowledgement of service. He recited the defendant’s arguments as follows:

“… the first defendant argues that on a literal reading of CPR 12.3(2) by filing and serving his defence – albeit out of time – it follows that the pre-condition in CPR 12.3(2)(a) is no longer met and that as a result default judgment can no longer be sought.”

[– I pause to observe that that rule, 12.3(2)(a), is the one that applies where there has been an acknowledgement of service but the defence is then served late. But for the purposes of my consideration of this issue that does not seem to me to be a material difference.]

The Deputy Master went on:

“In other words, so the first defendant argues, an application for judgment in default of a defence would automatically be defeated whenever a defendant files a defence – however late. In support of this argument, reliance is placed on Coll v Tattum (2002) 99(3) LSG 26in which Neuberger J [as he then was] observed that the provisions of the CPR on this point were ‘not entirely clear’ and that ‘the footnotes to the Rules appear to point in different directions’.”

The Deputy Master rejected this argument. He said that in his judgment “the reference to ‘a defence’ in CPR 12.3(2)(a) must be a reference to a Defence which has either been served within the time permitted by the Rules or in respect of which an extension of time has been granted”.

I have said that doubt has been cast on that position by other authority. That includes the decision of Blair J in the ESR case to which Popplewell J referred and also the decision of Phillips J in Almond v. Medgolf. In that case Phillips J considered the second ground on which Popplewell J rejected the submission in the Taylor case, namely that an acknowledgement of service which was out of time would not fall within Rule 12.3 and was effectively invalid. He said this at paragraph 13:

“That further reasoning on the face of it creates an inconsistency with the first line of reasoning, because if an acknowledgement of service is invalid for the purposes of CPR 12.3 if out of time, then that would be an answer regardless of whether acknowledgement of service was filed prior to the application notice. It would also entail that a claimant would be entitled to automatic default judgment where permission of the court is not required, even if there is an acknowledgement of service on file where the request for judgment was presented, putting the court offices in the position of having to determine whether acknowledgement of service was valid or not.”

Therefore, he rested his decision on the first of Popplewell J’s grounds. He considered it unnecessary to decide the second point but expressed “some doubt whether the default judgment could be entered where there had, in fact, been acknowledgement of service, albeit late, prior to the application notice”.

On that issue, my own view is that the approach of Popplewell J and indeed of Deputy Master Pickering is to be preferred. If the acknowledgement of service or the defence is served after the relevant time limit has expired, the conditions for the application of Rule 12.3(1) have occurred. If a late acknowledgement of service or defence is filed then there needs to be an application for an extension of time for it to be a valid acknowledgement of service or defence within the meaning of the Rules. If there is not, then it seems to me that Rule 12.3(1) applies and cannot be displaced, without more, by the late filing of the relevant document.

If judgment in default is then entered, it may be set aside in accordance with CPR Part 13.3, if the defendant has a real prospect of successfully defending the claim. The onus is on the defendant to make that application. If judgment in default were not entered, because there was a late defence, it would still be open to the claimant to make an application for summary judgment if the claimant considered that the defendant had no real prospect of successfully defending the claim. But, in this scenario, the onus would be on the claimant to make the application. The denial of judgment in default, therefore, would shift that procedural burden from the defaulting party and it does not seem to me that that should be the proper outcome of the application of Part 12.

The application that comes before me is one in effect to resolve the issue of whether there has been an acknowledgement of service or defence within the meaning of the Rules and is not one where I am being asked to exercise a discretion as to whether judgment in default should be entered. The problem that Phillips J envisages is an administrative one. If at the time of the application the court offices see that there is an acknowledgement of service or defence on file, then they can do what they did here that is refuse to enter judgment and the claimants can do what they did here, which is make an application to a Judge to decide the issue.

It follows from my view on that matter that the claimants are entitled to have judgment in default and I will, in due course, so order. The defendants may then apply to set aside that judgment under Part 13. That application will be made on the basis that either one of the conditions in Part 12 had not been satisfied, which would potentially open up the issue that I have just dealt with, or could be made on the basis that the defendant has a real prospect of defending the claim.

On the basis of what is before me on this application alone, I consider that such an application by the defendant might well be successful in whole or in part and that is what is so unusual about this case. I will therefore explain that point in a little more detail.

The Particulars of Claim plead the claimants’ case as follows:

Under paragraph 18:

Up to this point there is therefore a claim for about £235,000 that would appear to be a claim for remedial works, additional costs of completion and overpayment. But the total claim is for over £800,000 and the vast part of the further sums claimed are set out in paragraph 19. The first claim is a small claim for “lost management time in attending the site to oversee the works” which amounts to about £5,000 for travel and hotel costs. It is an assumption on my part, but I am assuming that that is a sum the claimants say they expended in travelling to Edinburgh that they would not have expended if things had gone well and to time.

There is a claim for “loss of rental income from the property” which is, on the face of it, inconsistent with the pleading that it was intended to be the claimants’ home. The period for this lost income is not specified. That is of some relevance because there is also a claim for loss of rental income on the claimants’ London flat because they were able to go into occupation of the Edinburgh property from September 2014 to May 2015. So the claim for loss of rental income on the Edinburgh property only makes sense as a claim for loss of rental income between 24 July (the date for completion) and some date in September 2014 (when they would have vacated their London flat) implying that the claimants’ position is that they would have completed the works and then rented out the property for a couple of months before moving in and at a very significant rental cost. That may be their case, but none of that is articulated on the face of the Particulars of Claim. 29. There is also a claim for additional storage for a period of nine months.

I have concentrated on those claims because all of them are in the nature of unliquidated claims for damages for delay. The JCT Standard Forms include provision for liquidated damages for delay. Those claims may therefore be unsustainable if there is provision for liquidated damages in the JCT Contract but I have, as I have said already more than once, not been provided with a copy of the contract which ought to have been served with the Particulars of Claim so I am unable to form any view as to whether that is the position here.

There is then a claim for £6,000-odd for “refinancing costs” and a claim for £19,000-odd for “legal costs following adjudication wilfully and unnecessarily brought by the defendant”. The first claim might be regarded as commonplace, the second claim is not. The adjudications which I am now aware of are firstly one in which the claimants were ordered to pay £25,000 to the defendant. There was no challenge to that decision on the face of the Particulars of Claim and no basis on which the claimants’ costs in that adjudication could be recovered as damages from the defendant. The second adjudication is the one that related to the post-termination costs and where nothing was awarded to the defendant. But again there is nothing to indicate why the costs of that adjudication, if indeed that is what is being claimed, should be recoverable from the defendant as damages for breach of contract.

There is next a claim for £127,000 for “loss of amenity”. The Particulars of Claim give no indication whatsoever as to what the nature or extent of that loss of amenity is. It is well established that awards for loss of amenity are in any event of modest value, commonly a few thousand pounds. It is almost inconceivable that there could be a valid claim for £127,000.

Lastly, there is a completely vague claim for “loss of investment opportunity” with no indication whatsoever of what that opportunity is or why or how it has been lost. That claim is said to be calculated at 5% compound interest and at 8% capital gross on the sum of £800,000 giving a claim for £215,000. The claim and the figures appear to have been plucked from thin air. 33.

There is lastly a claim for interest to which I will return.

As I have said – albeit late – the defendant did file a document which purported to be a defence. I have regard (but am not going to recite them) to the provisions of Part 16.5 in respect of the substance of a defence. In this case the defence said this:

“There is no back up of any of the figures contained in the claim. We have not received the documents listed. The claimant has not paid our adjudication award dated 24 June 2015 in the sum of £25,325.25.”

That is clearly not a defence of the nature one would expect and hope to see in litigation of this nature. It is exceptionally brief. It does not deal with any of the allegations made. It does not appear to take any issue with the allegations of breach. But what it does not admit is the losses claimed. In my judgment and faced with the vagueness of the Particulars of Claim, the statement that “there is no backup of any of the figures contained in the claim” can and should be construed as putting the claimants to proof under Part 16.5(3) and in any event the defendant is taken to do so under sub-paragraph (4). The defendant has every reason to do so here because of the nature of the Particulars of Claim. The statement that “We have not received the documents listed” is unclear as to whether that is referring to the court documents (although that would seem unlikely given that the defence was filed) but could be a reference to the documents referred to in the particulars of claim as being letters of claim which were unresponded to by the defendant although, as Mr. Cheung points out, that is also unlikely given that all correspondence has been to the same address.

The relevance of this background, in my view, is this. The claimants’ position is that the conditions under Rule 12.3 and met and they are entitled to judgment in default. The fact that there is a defence filed does not change that position. I have expressed the view that I agree with that and that I will enter judgment in default.

But the Particulars of Claim are defective in that they fail to comply with the Practice Direction. The claim is poorly framed. It is in part incoherent or, on the face of it, unsustainable in law. It is patently significantly overstated. The claim for interest is made on the basis of the wrong statute, the County Courts Act, and claims interest at 8% which, in this day and age, is also an overstated figure. The defendant has sought, albeit out of time, to put the claimants to proof of these claims.

Taking all these factors into account I am going to deal with this application in this way. I will enter judgment in default for the principal sum in total. I will stay execution for a period of 28 days making some allowance for the Easter period. Within that period the defendant may make an application to set aside and, if necessary, for any further stay of execution. That, as Mr. Cheung fairly says, places the onus on the defendant to make the application to set aside judgment in default and to explain why they have a defence to these claims.

I should, in fairness to Mr. Cheung, also observe that he had no part in the drafting of the Particulars of Claim of which I have been rather critical. There is no criticism whatsoever of him. On the contrary, he has done his best to explain to me this pleading and its background in circumstances where he has limited instructions as to its origins.

I will deal with costs in a moment but, so far as the order is concerned, what I propose to do is to draw up the order and include with it a much briefer version of the observations that I have made in the course of this judgment. I will say, in essence that the claimants’ claim appears in a number of respects to be overstated; that the defendant’s defence appears to intend to put the claimants to proof; and that the defendant may, within the period of the stay of execution, make an application to set aside the default judgment. I will phrase that so that it is clear that I am not limiting the time period in which an application to set aside is to be made it is simply that if it is made within the 28 days the defendant has the benefit of the stay during that period.

I will summarily assess the costs in the sum of £7,500. I will order those to be paid in 28 days as well but, obviously, there is no stay attached to that because they are the costs of this application which you have found yourselves in the position of making because of, apparently, no engagement by the defendant. I will give the defendant a little bit longer to pay so that everything is happening in the same timeframe rather than focusing their attentions on paying the costs bill when they should be focusing the defendant’s attentions, if they wish to do so, on formulating an application to set aside this judgment.