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Companies should not wait to apply to set aside default judgments, says expert, after court makes clear 'Mitchell' principles apply

Companies hoping to have a default judgment against them set aside must be sure to act quickly, an expert has said, after a recent court decision confirmed what courts must consider when considering an application.22 Oct 2014

In a recent decision, the Court of Appeal refused an Italian regional authority's application to have a default judgment against it set aside. Mr Justice Cooke granted the default judgment in July 2012 after the defendant Italian regional authority, Regione Piemonte (Piedmont), failed to acknowledge service of claims brought by two banks seeking declarations of the validity of certain derivative transactions they had entered into with Piedmont. In its judgment, the Court of Appeal said that the guidance set out in recent court cases on when the courts should grant relief from sanctions also applied to applications to set aside default judgments.

"Applications to set aside default judgments can happen in any litigation, and this ruling makes it clear that anyone thinking about making such an application has to act promptly," said litigation expert Francesca John of Pinsent Masons, the law firm behind Out-Law.com.

"It was not clear before this case whether CPR 3.9 of the Civil Procedure Rules (CPRs), which governs relief from sanctions, and the guidelines set down in the Mitchell and Denton cases on such relief  apply to applications to set aside summary judgments made under CPR 13.3, but this ruling makes it clear for the first time that they do. Under the rules, when considering whether to set aside a default judgment the court must consider if the application to set aside was made promptly. If there has been delay in bringing the application, the Denton guidance requires courts to consider the seriousness and significance of the default, the reason for it, and then all the circumstances of the case," she said.

A default judgment is a binding judgment without trial in favour of one party to a civil dispute which is based on the other party's failure to file an acknowledgement of service or a defence. Part 13.3 of the CPRs gives courts a discretionary power to set aside a default judgment on the application of the affected party, either because it has a "real prospect of successfully defending the claim" or where there is some other good reason why the default judgment should be set aside. When deciding whether to exercise this power, the court must consider whether the defendant's application was made promptly.

In a November 2013 case involving Conservative MP Andrew Mitchell the Court of Appeal set out guidance on the factors that judges should take into account when faced with an application for relief from sanctions imposed for failure to comply with any rule, practice direction or court order. In a case involving the Denton family in July, the Court of Appeal provided further guidance aimed at addressing what it considered the misapplication and misunderstanding of the Mitchell judgment. They said that judges should address applications for relief from sanctions in three stages: firstly, by identifying whether the breach is "seriousness or significant"; if it is, secondly, by considering why the default occurred; and thirdly, by evaluating "all the circumstances of the case".

Piedmont had argued that there was "no reason to conclude" that the principles from the Mitchell and Denton cases should apply to its case. It also argued that the requirement for "promptness" included in Part 13.3 should not be regarded by courts when deciding whether to set aside an application for summary judgment as "anything more than a factor".

The Court of Appeal disagreed.

"CPR 13.3 requires an applicant to show that he has real prospects of a successful defence or some other good reason to set the judgment aside," said Lord Justice Christopher Clarke.

"If he does, the court's discretion is to be exercised in the light of all the circumstances and the overriding objective. The court must have regard to all the factors it considers relevant of which promptness is both a mandatory and an important consideration. Since the overriding objective of the rules is to enable the court to deal with cases justly and at proportionate cost, and since under the new CPR the latter includes enforcing compliance with rules, practice directions and orders, the considerations set out in CPR 3.9 [which governs relief from sanctions] are to be taken into account ... So also is the approach to CPR 3.9 in Mitchell/Denton," he said.

Moving on to look at the circumstances of the case, Lord Justice  Clarke said that the judge had been entitled to refuse to set aside the default judgment.

"The judge concluded that the delay in making the applications to set aside the Cooke judgment was both significant and serious and, of itself, sufficient to justify their dismissal," he said.

"As to the delay, he held that Piedmont had failed to act promptly to seek to set aside and that such delay was a very strong factor in favour of dismissing the applications ... The delay was sizeable; and its character provided cogent reason not to exercise the discretion in Piedmont's favour"," he said.