#ChooseToChallenge this International Women’s Day
Goldcrest Distribution Ltd v (1) Charles Joseph McCole (2) Mary Orr McCole (3) Jeremy Willmont (Trustee in Bankruptcy of Charles Joseph McCole)
This case concerned the Claimant’s conduct in its application for relief from sanction following a successful default judgment hearing and in the litigation process more generally. The Claimant applied to set aside a default judgment entered against it by the Second Defendant after the Claimant failed to file a defence to a counterclaim.
On 27 February 2015, the Claimant issued a claim against the husband and wife First and Second Defendant seeking possession of a residential property in Ascot (the “Property”) which they had been the joint registered proprietors of since 1996. Prior to this, the Claimant had extended credit to a company that was owned by the First Defendant, secured by a charge executed by the couple over the Property, but the loan was not repaid.
On 29 July 2015 the Second Defendant filed and served her defence and counterclaim, which covered four main points:
1. Firstly, that the charge amounted to a regulated mortgage contract which was unenforceable because the Claimant was not licensed by the Financial Conduct Authority to perform regulated activities;
2. That the charge was void under section 284 of the Insolvency Act 1986 (the “Act”) because it was arranged after a bankruptcy petition had been presented against the First Defendant;
3. That the Property was subject to a trust for the benefit of the First and Second Defendants’ daughter and the Claimant did not take the charge free of trust; and
4. That the Second Defendant had been subjected to undue influence at the hands of the First Defendant and the Claimant had had notice of this.
The counterclaim repeated these points and stated that because of this the transaction granting the charge over the Property was unenforceable, void or voidable. The Second Defendant sought declaratory relief and an order that the charge be set aside.
Despite the Second Defendant making enquiries of the Claimant in October 2015 and informing it that the time for service had long expired, the Claimant did not file or serve a defence to the counterclaim. In November, therefore, the Second Defendant applied for default judgment in respect of the counterclaim. A hearing was listed for mid-December.
Two weeks before the hearing was due to be heard, the Claimant issued an application notice for permission to amend the particulars of claim – this was listed for 14 December, on the same date the default judgment application was to be heard.
At the hearing, Deputy Master Rhys gave judgment for the Second Defendant on the counterclaim, dismissed the Claimant’s claim against the Second Defendant, dismissed the Claimant’s application to amend its particulars, set the charge aside and declared that the charge was void pursuant to section 284 of the Act.
In early 2016, the Claimant instructed new solicitors and in March issued an application seeking an order “to vary the order [of Deputy Master Rhys] as the Claimant has a real prospect of successfully defending the Second Defendant’s counterclaim or there are some good reasons why the Claimant should be allowed to defend the Second Defendant’s counterclaim”. The Claimant also claimed that its previous lawyers had omitted to file a defence, which broadly would have covered the following points:
1. As the credit was provided to a corporate borrower (as opposed to an individual borrower) this was not a regulated mortgage contract and the First Defendant was merely the guarantor;
2. Section 284 of the Act did not prevent the Second Defendant from charging her own beneficial interest in the Property; and
3. The questions of trust and undue influence were triable issues.
Whilst the points raised above certainly created triable issues, and even gave the Claimant a real prospect of successfully defending the counterclaim, the Court had to consider whether the application to vary Master Rhys’ order had been made promptly pursuant to CPR 13.3(2). Master Matthews decided that the Claimant had not applied promptly: firstly, it was usually not right (and wouldn’t stand up in Court) to serve an application notice for such an important order with some evidence in support at the time, then file and serve an additional witness statement several weeks later (which Master Matthews said was akin to having “a second bite at the cherry”). Secondly, if the Claimant had sought alternative legal advice, it should have done so without delay. The Claimant was criticised for waiting a week after the hearing, having lost faith in its lawyers, to contact another law firm and for the new firm for taking nearly three weeks to produce the second batch of witness evidence. Master Matthews held that, whilst these elements were not fatal to the application, they were important considerations to take into account.
Master Matthews also considered the three criteria from the case of Denton v TH White Ltd  EWCA Civ 906, a case which concerns relief from sanctions under CPR 3.9, the first of which was the seriousness of the Claimant’s failure to file a defence to the counterclaim. Because the Claimant waited for six months, despite the Second Defendant’s enquiries and subsequent application for default judgment, to file such a defence, the Second Defendant did not know what was and was not in issue and therefore litigation could not progress. This was held to be a serious failure on the Claimant’s part.
The second Denton element to consider was whether there was a good reason for the failure, for which the burden of proving that there was an explanation fell on the Claimant: simply relying on alleged failures by its legal representatives was found to be an insufficient explanation. As the Claimant had blamed its lawyers, it should have waived privilege to enable a fuller explanation to be given of their conduct. By not doing so, the Claimant had not discharged the burden.
The third element to consider was all the relevant circumstances, including, in particular, promptness. The Master was critical of the Claimant’s “cavalier disregard” for procedural rules as to filing and serving a defence to a counterclaim. The Master said that, even now, the Claimant had failed to explain the delay it had caused, despite the fact that the application was “well-heralded” and the Claimant had had plenty of time to spur itself into action. The Claimant’s actions in simply ignoring the rule requiring a defence to counterclaim to be filed and served went against the overriding object contained within CPR 1.1, so that litigation could not be conducted efficiently, at a proportionate cost and in compliance with rules, practice directions and orders.
The Court chose not to exercise its discretion in granting the Claimant relief and the default judgment therefore stood.
It is important not to underestimate the significance the Court places on the overriding objective when in the midst of litigation. Parties should be mindful of adhering to Court deadlines and being open with it – and each other – when and if they anticipate falling short of any timetables, Court-imposed or otherwise.
Skip to content Home About Us Insights Services Contact Accessibility