Conflicting first instance decisions on whether default judgment can be granted where acknowledgement of service filed late

In a recent judgment, the High Court rejected an application for default judgment on the basis that the defendant's acknowledgement of service, though late, had been filed shortly before the application: Cunico Resources NV v Daskalakis [2018] EWHC 3382 (Comm).

The decision turned on the interpretation of CPR 12.3(1), which sets out the conditions to be satisfied before a claimant may obtain judgment in default of an acknowledgement of service. This provision has been the subject of conflicting first instance decisions and we understand it is under review by the Civil Procedure Rules Committee.

In the present case, the judge rejected the submission that default judgment may be granted where an acknowledgement was filed late, even though it was filed before judgment was entered or even before the application for default judgment was made. This contrasts with the most recent decision on the point, in McDonald & McDonald v D&F Contracts Ltd [2018] EWHC 1600 (TCC), which supports the opposite conclusion.

In the present case it was not necessary for the judge to decide whether default judgment could have been entered if the acknowledgement was filed after the application but before judgment. The judge said his own view was that it could not, but he would have decided otherwise in light of the preponderance of views in the prior case law.

In practice, given the unsettled state of the law in this area, and pending clarification by the Rules Committee or a Court of Appeal judgment, defendants should take care to file timely acknowledgements of service and claimants seeking default judgment should act quickly. Where default judgment is entered, a defendant can apply to have it set aside, but the burden of proof will be on the defendant to show that it has a real prospect of successfully defending the claim, or that there is some other good reason why the judgment should be set aside.

Francesca Ruddy, an associate in our dispute resolution team, considers the decision further below.

Background

The claimant, a Dubai-based trading company, brought a claim against two Swiss-domiciled individuals, who used to work for the claimant's group of companies.

The first defendant failed to acknowledge service of the claim within the required time limit. It eventually filed a late acknowledgement of service, almost a month after the deadline and just one hour before the claimant applied for default judgment under CPR 12.3(1), which provides that:

"The claimant may obtain judgment in default of an acknowledgment of service only if (a) the defendant has not filed an acknowledgment of service or a defence to the claim (or any part of the claim); and (b) the relevant time for doing so has expired."

Decision

The High Court (Mr Justice Andrew Baker) refused the claimant's application.

The judge identified three possible interpretations of this provision, namely that it allows the court to grant default judgment:

1. only where, at the time of judgment, there is no acknowledgement of service and the time for acknowledging service has expired (the first meaning);
2. so long as, at the time of filing the application for default judgment, there was no acknowledgement of service and the time for acknowledging service had expired (the second meaning); or
3. where timely acknowledgement of service was not filed, irrespective of any acknowledgement of service later filed (the third meaning).

Since, in the present case, the first defendant had acknowledged service late but before the claimant's default judgment application, the claimant could only prevail if the third meaning was adopted. The judge reviewed in some detail the prior authorities, which reached conflicting decisions on the interpretation of CPR 12.3(1). These authorities included:

• Unilever plc v Pak Supermarket [2016] EWHC 3846 (IPEC) in which the High Court refused to grant default judgment where (as in the present case) an acknowledgement had been filed late but before the application was issued. That was authority for the proposition that CPR 12.3(1) did not have the third meaning.
• McDonald (referred to above) in which the High Court granted default judgment where a defence was filed late but before the application, but also granted a stay of execution to allow the defendant to apply to set aside the default judgment (if so advised) on the basis either that the filing of the defence precluded the grant of default judgment or that there was a real prospect of defending the claim on the merits. That decision could, Andrew Baker J said, be taken as a precedent for the correctness of the third meaning, though it was not entirely clear whether it was meant to be a definitive ruling as to the meaning of CPR 12.3(1) particularly in light of the stay of execution.

The judge opted to depart from the decision in McDonald and to reject the third meaning. A key concern for the court was that the third meaning would make any failure to file a timely acknowledgement of service incapable of cure, thereby conflicting with CPR 3.10, which provides that a failure to comply with a rule or practice direction "does not invalidate any step taken in the proceedings unless the court so orders". The judge noted that CPR 3.10 was not considered in McDonald, and nor was Unilever referred to in that decision. In the circumstances, he did not regard McDonald as a reason to refuse to follow Unilever.

It was not necessary for the court to decide between the first and second meanings, since both would support refusing to grant default judgment in the present case. However, the judge noted that, in his view, the first meaning was the most natural reading of the provision and there were powerful reasons to reject the second meaning. Nevertheless, bearing in mind prior authority which had consistently rejected the first meaning, if he had been required to decide the point, he would, on balance, have adopted the second meaning.