HHJ Paul Matthews:
Introduction
- This is my judgment on an application by the defendant by notice dated 27 March 2018 to set aside a judgment in default dated 8 January 2007, in the sum of £35,884.75 together with £530 costs, totalling £36,414.75. The judgment was given in relation to a claim, in respect of which the claim form had been issued on 5 December 2006, for the repayment of monies paid by mistake by the claimant to the defendant. The particulars of claim made a claim in the sum of £33,050, together with interest of £2581. On 3 April 2018 District Judge Rowe ordered that the application be listed before me.
- The application notice is supported by a witness statement made by the defendant dated 28 March 2018. I interpolate that the defendant had also made an earlier witness statement in related bankruptcy proceedings, to which I will also refer in due course. The application to set aside was opposed by the witness statement dated 25 June 2018 of Charlotte Anne Gage, but further supported by the witness statements of the defendant dated 29 June 2018 and of Herold Buddington dated 29 June 2018.
- This latter evidence was served very much at the last minute. But the claimant did not seek an adjournment in order to respond to it. I also record here that I was not asked to order cross-examination of any witness, and none was tendered for cross-examination. In the absence of cross-examination, the court is not entitled to reject any written evidence as being untrue, unless on the basis of all the evidence before the court it considers that that written evidence is simply incredible: see eg Long v Farrer & Co [2004] BPIR 1218, [57]-[61], applied in Shierson v Vlieland-Boddy [2005] 1 WLR 3966, CA, [56], Coyne v DRC Distribution Ltd [2008] EWCA Civ 488, [58]. I was not invited to disregard any of the written evidence on that basis, and do not do so.
- The application was heard by me on 3 July 2018. The defendant/applicant was represented by Thomas Steward of counsel, and the claimant/respondent by Samuel Parsons of counsel. I am grateful to them both for their cogent and interesting arguments. One point which arose during the hearing, concerning the phrase "other good reason" in CPR 13.3 (1) (b) was left over for short written submissions. I received these from both sides on 4 July 2018, and I have taken them into account in preparing this judgment. Finally, I record that, although this claim was originally brought in the County Court, because of the legal issues raised for decision, I decided, without objection from the parties, to transfer it to the High Court.
Background
- This claim arises from a payment made by the claimant to the defendant on 8 December 2005 in the sum of £177,000. It is common ground that the payment was made to the defendant by mistake. Exactly how the mistake occurred has not been explained, but it is also common ground that the claimant was at the time acting as solicitor for the defendant's company. On 12 December 2005 the claimant notified the defendant that the payment had been made by mistake. On 14 December 2005 the defendant repaid to the claimant the sum of £143,975. That therefore left a shortfall of £33,025. The defendant's case is that this sum is accounted for by a payment on a cheque in the sum of £25,000 to Herold Buddington, which was cleared on 13 December 2005, the repayment (by way of automatic set-off) of an overdraft to the defendant's bank of £8000 and the sum of £25 as a transaction fee required by the defendant's bank to send the sum of £143,975 back to the claimant.
- The defendant's evidence is that at the time of the mistaken payment he had a temporary overdraft facility from his bank with a limit of £8000. This facility was temporary because the defendant was expecting to receive £120,000 from a transaction involving the sale of land. (This is not in fact supported by any contractual or other documents to show that that sum was due to the defendant at about that time, or indeed that that sum ever arrived in his bank account). The bank allowed the facility on condition that when the funds arrived they would first be used to clear the overdraft in full, and the facility would then be withdrawn.
- This evidence is in contrast to what is stated on the defendant's bank statement for the period up to 14 December 2005 (at least), which shows an overdraft limit of "nil". Nevertheless, it is possible that a temporary facility may have been put in place and terminated before the date of this statement. As I have said, it is not possible for me to reject the defendant's evidence on this point unless I consider it 'incredible' (which I do not). But the statement also shows that at the date of the mistaken payment on 8 December 2005 the account was overdrawn in the sum of £6998.72. Between that date and the date on which the balance of funds was returned to the claimant on 14 December 2005, further debits to the account were made in the sums of £57.75 (cheque), £53.90 (cheque), £10.21 (direct debit), £500 (cash withdrawal at ATM), £35 (cheque), and £55 (cheque). A further £300 cash withdrawal was debited immediately afterwards, together with a fee for the use of an ATM. These amounted in total to a further £1011.86, which, added to the existing overdraft would have pushed it just over the £8000 limit to £8010.58. (There was an additional debit of £250 for a returned cheque, but this appears to be the counterpart to a cheque paid in for the same amount on 8 December 2005.)
- On 16 January 2006 the claimant wrote a letter to the defendant by post addressed to him at 46, The Deans, seeking repayment of the outstanding sum. The claimant received no reply to this letter, and sent a further letter as a "chaser" on 30 January 2006. The defendant responded to this letter by email on 6 February 2006, in which he told the claimant that he had not received the letter of 16 January 2006. During the hearing, I was told by the defendant's counsel, on instructions, that the letter of 30 January 2006 was sent to the defendant also by email, and the claimant's counsel did not demur. Although there is no formal evidence to that effect, I see no reason not to accept that statement. On that basis, the claimant would have known that the defendant claimed not to have received the first letter and was responding to the second letter by email, that second letter having been sent to the defendant by email. The claimant responded to the defendant's email later the same morning, attaching a copy of the letter of 16 January 2006, and stating that this was sent to the same address as the letter of the 30 January 2016, and it had not been returned through the post undelivered. The defendant responded with a further email to the claimant, saying that he would contact his solicitor about the matter.
- In his witness statement of 28 March 2018, the defendant says at paragraph 1.4 that he moved from 46 The Deans in late January 2006, when the property he was renting was repossessed from his landlord, who had not kept up his mortgage payments. A similar statement (though more compressed) appears at paragraph 3 of the witness statement made by the defendant in the bankruptcy proceedings on 26 February 2018. However, despite sending two emails to the claimant on 6 February 2006, and despite stating that he did not receive the first of the two letters sent to him by the claimant, the defendant nowhere mentions in those emails to the claimant that he has moved from the address to which the letters were sent, whether by way of explanation of the failure to receive the letter of 16 January 2007 or otherwise.
Procedure
- According to the Notice of Issue (N205A), sent to the claimant, and received by it on 13 December 2006, the claim form in this matter was served by the court by first class post on the defendant at the address considered by the claimant to be the last known residence of the defendant, namely 46 The Deans, Portishead, North Somerset. It was sent out on 12 December 2006, so if it was properly served it was deemed to be served on 14 December 2006 (in accordance with the then CPR r 6.7 (1)). However, the defendant was at that date no longer resident at that address, and so the claim form was returned in its envelope undelivered to the court. The notice issued by the court of the return of that document to it is dated 2 January 2007. It too was sent to the claimant.
- But on the same day, 2 January 2007, the claimant made its request for judgment in default of acknowledgement of service. This request was made in the space provided in the bottom half of the notice of issue of the claim. In response to that request, a default judgment was issued by the court on 8 January 2007, and a copy was sent to the defendant himself at the same address as the claim form. On 16 January 2007, however, the court sent to the claimant a further notice of returned documents saying that the judgment envelope had been returned marked "gone away". It appears that, thereafter, some enquiries were made by the claimant in relation to tracing the whereabouts of the defendant and enforcing the judgment which had been obtained, but it is a curious feature of this case that nothing further substantive in the matter occurred until 2017, some ten years later.
- On 4 August 2017 the claimant issued a statutory demand under the Insolvency Act 1986 against the defendant. It is to be noted that this statutory demand was addressed to the defendant at the same address as 10 years previously, namely, 46 The Deans. That demand was not satisfied, and on 24 October 2017 a petition for the defendant's bankruptcy was presented. Paragraph 10 of that petition claimed interest on the original judgment debt for 6 years, namely £17,232.55. On 12 December 2017 District Judge Rowe made an order for substituted service of the petition by email. On 30 January 2018 she made a further order adjourning the petition to the first available date after 15 February 2018. On 31 January 2018, the court issued a notice of hearing to the parties, informing them that the hearing would be held on 3 April 2018. However, and as I have already said, on 27 March 2018, the defendant issued the present application notice to set aside the judgment. Accordingly, when the matter came before District Judge Rowe on 3 April 2018, she ordered that the application to set aside be listed before me and that the bankruptcy petition should be listed for further hearing at least 28 days afterwards. In fact that has now been listed for 13 August 2018.
Service of the claim on the defendant
- There is an issue about service of the claim form on the defendant. According to the witness statement of Charlotte Gage, for the claimant,
"14. … Office Copy Register Entries were obtained for the defendant's residential address at 46 The Deans, Portishead BS20 6EQ which showed that the register had not been updated since 31 October 2005 and showed a Mr Veale as the registered proprietor. The claim was issued on 5 December 2006 and served on the defendant at his last known residential address. The defendant had not advised that he had left the property and therefore the claimant had no reason to believe the defendant no longer resided at the property…
15. The Office Copy Register Entries provided by the Defendant in his previous statement indicate that the current Registered Proprietors purchased the property on 10 August 2006 but the entries relating to this transfer were not entered on the Register until 15 December 2006, after the Claim was issued."
- The evidence of Ms Gage is limited. Since it was the court which served the claim form (by post), her evidence does not refer to the method of service nor to the sending out a response pack. The physical court file from 2006-07 is no longer available, and all that the court now has are limited computer records. I must assume that the court staff enclosed the relevant response pack. What is clear from the computer record is that a judgment in default in Form N30 was indeed issued subsequently, on 8 January 2007. Paragraph 4.1 (1) of the Practice Direction to Part 12 of the CPR requires that the court must be satisfied that the particulars of claim have been served on a defendant before a default judgment can be issued. It is part of the 'checklist' procedure which court staff follow when a request for default judgment is received. But since the court serves the claim form, there would be no need for a certificate of service. The fact and date of service would be noted on the file.
- However, there is a further issue to be considered. Service on the defendant was to be effected by post. At that date the then CPR rule 6.5 (4), (6) permitted (as CPR rule 6.9 (2) now permits) service on an individual being sued as such by post at his "usual or last known residence". The current sub rule (r 6.9(2)) is made subject to sub-rules (3)-(6) of rule 6.9. Sub rule (3) provides that, where a claimant has "reason to believe" that the last known residence is an address at which the defendant no longer resides, he must take reasonable steps to ascertain the defendant's current residence. At the hearing I heard argument on whether the claimant in this case had such "reason to believe". In order to answer this question, it would be necessary to consider the events that took place nearly one year earlier, shortly after the mistaken payment and the partial repayment, and which I have already set out (see [8]-[9] above). But of course the version of the rule that needed to be considered was that in force in 2006. I was supplied at the hearing with a copy of the original 1998 version of rule 6.5. Since the hearing I have checked for the exact form of the rule in force in 2006. It is not materially different from the 1998 version, though very different from the version currently in force, introduced largely in 2008. The version in force in 2006 does not contain any equivalent to the current r 6.9(3)-(6). There is therefore no need to consider whether the claimant had such "reason to believe".
- If it had been necessary to decide the question, I would have held as follows. The position in February 2006 was that the claimant was told by the defendant by email on 6 February 2006 that the defendant did not receive the letter of 16 January 2006. The claimant knew that the letter had not been returned undelivered. The defendant could have explained, but did not, that the reason he did not receive it was that he had moved away. In my judgment, this would not amount to "reason to believe" on the part of the claimant that the last known residence is an address at which the defendant no longer resides. What had happened was potentially explicable on that basis, but was also explicable on the simpler basis that the letter of 16 January had been mis-delivered by the post office. At best, it amounted to a matter which might be further investigated. Unfortunately, the claimant did not do so.
Jurisdiction to set aside default judgment
- Accordingly, I hold that there was good service of the claim form in this case. On that basis, the defendant accepts on this application that CPR rule 13.2 does not apply, because (surprising as it may seem at first sight) the default judgment was not wrongly entered under CPR part 12. The claim form was properly served on the defendant at his last known residence, and the conditions in CPR r 12.3(1), (3) were satisfied. Accordingly, the defendant relies solely on CPR rule 13.3. This relates to the discretion of the court to set aside judgment in default.
- It reads as follows:
"(1) In any other case, the court may set aside or vary a judgment entered under Part 12 if –
(a) the defendant has a real prospect of successfully defending the claim; or
(b) it appears to the court that there is some other good reason why –
(i) the judgment should be set aside or varied; or
(ii) the defendant should be allowed to defend the claim.
(2) In considering whether to set aside or vary a judgment entered under Part 12, the matters to which the court must have regard include whether the person seeking to set aside the judgment made an application to do so promptly."
The words "In any other case" in r 13.3(1) refer to cases in which r 13.2 does not apply.
- It will be noted that the phrase "real prospect of successfully defending", which appears in rule 13.3 (1) (a), is the same in substance as that which appears in the relevant rule concerning summary judgment. On the other hand, it will also be noted that the phrase "some other good reason", which appears in rule 13.3 (1) (b) is not the same as the phrase "some other compelling reason" which appears in the relevant rule relating to summary judgment (emphasis supplied). It is common ground that on an application of this kind the court should not attempt to conduct a mini trial: ED&F Man Liquid Production Ltd v Patel [2003] EWCA Civ 472, [10]. It is also common ground that it is for the defendant to show that there is a "real prospect of success" or "some other good reason", and not for the claimant to show that they do not exist: ibid, [9].
Issues arising
- The issues which arise in this case therefore are the following:
1. Is there a real prospect of the defendant succeeding in defending this claim if the default judgment is set aside?
2. As part of the first issue, the claimant has made a number of allegations that the defendant has acted in bad faith. Do these affect the question whether there is a real prospect of success for the defendant?
3. If there is no real prospect of the defendant's succeeding in defending, is there some other good reason to set aside the judgment? If so, should the court take into account the circumstances in which the claim form came to be served on the defendant at an address at which he was not then resident.
4. In relation to the same question, there is the question of the claimant's delay in enforcing the judgment itself.
5. Finally, there is the question of the possible delay by the defendant in applying to set aside the judgment once he became aware of it.
Real prospect of success
- The first question is whether the defendant has a real prospect of successfully defending the claim if the default judgment is set aside. In the present case it is common ground that the money paid into the defendant's bank account was paid by mistake. The cause of action available to the claimant in such circumstances was formerly known as quasi-contract, then restitution, but is now called unjust enrichment. It is common ground between the parties that, subject to defences, the claimant in this case has a claim in unjust enrichment against the defendant for that part of the mistaken payment which he did not repay. The question is whether the defendant is entitled to rely on change of position as a defence to the claim. The defendant relies on three matters, already mentioned. These are (1) the payment of a cheque of £25,000 to Herold Buddington, (2) set off by the defendant's bank of his overdraft of £8000, and (3) the fee of £25 charged by his bank for the defendant to re-transfer the remainder of the mistaken payment after the first two items were deducted.
- The evidence in relation to the first item is set out partly in the witness statement of the defendant of 28 March 2018, and partly in the witness statement of Mr Buddington dated 29 June 2018, to which I have already referred. This was to the following effect. On "multiple occasions" Mr Buddington, who had known the defendant since 1994, had made loans to the defendant for business projects. At least 2 of them had been repaid in full within six months. Mr Buddington has always lent funds to the defendant "with the full knowledge that the funds were on risk in the associated projects". I understand that to mean that Mr Buddington realised that the loans were precarious, in the sense that the defendant would rely on the success of his projects in order to be able to repay them. I do not understand that to mean that by lending money to the defendant, Mr Buddington was taking an equity stake in the project concerned. Nor do I understand it to mean that the money would only be repaid if the project was successful. There is a big difference between having an obligation which you cannot satisfy (because you have not made the money you thought you would) and not having to repay money at all, because the contingency on which the loan was to be repaid has not occurred. In my judgment, the material before me in this case demonstrates that the intention of the parties was the former and not the latter.
- In early 2005, the defendant borrowed £25,000 from Mr Buddington for a project involving land for which planning permission would be required. When Mr Buddington lent the money, at the same time he received a post-dated cheque from the defendant for repayment, dated in the first week of December 2005. Mr Buddington was due to be away at that time, and so asked his daughter to bank the cheque in December, which she did. The cheque cleared on Tuesday 13 December 2005. At that moment, the defendant's bank account was substantially in credit, although without the mistaken payment it would have been about £7000 overdrawn.
- There was no expert evidence on this point, but, as I know from my own experience of banking transactions at that time, if the cheque cleared on Tuesday, 13 December 2005, that means that the cheque must have been paid into the bank not later than Friday, 9 December 2005, and maybe earlier (unless, which does not appear from the evidence, Mr Buddington's and the defendant's banks were the same and the cheque was paid in at the defendant's branch; in that case it would clear more quickly). Once the claimant had made known to the defendant the mistaken payment, the defendant contacted Mr Buddington to see if the money could be re-lent, but by then Mr Buddington had committed the funds "to a family member" and was not in a position "to help" the defendant. However, in 2010 Mr Buddington again funded a project with the defendant, and he is now a shareholder in both of his current limited companies.
- In relation to the second item, when the mistaken payment of £177,000 was made on 8 December 2005, the defendant's current account with Bank of Scotland was in overdraft in the sum of £6998.72. This wiped out the overdraft and produced a positive balance of £170,001.28. But, as I have said, further debits to the account up to the date of the repayment to the claimant amounted in total to a further £1011.86, which, added to the existing overdraft would have pushed it just over the £8000 limit to £8010.58. However, I do not see why the overdraft repaid out of the mistaken payment should be any greater sum than £6998.72, even if the agreed overdraft limit was £8000. The amount outstanding at any time (and therefore repaid by the netting-off of the mistaken payment) is a matter of fact. The fact that, as between the defendant and his bank, the latter would have allowed him to overdraw even more makes no difference. He had not borrowed that further money at that stage. The mistaken payment did not pay off a notional borrowed sum of £8000. So any debits after the mistaken payment, even though within the overdraft limit and made before the repayment of the remaining balance, are in my judgment irrelevant.
- In relation to the third item, when the payment back to the claimant of what was left of the mistaken payment took place, on 14 December 2005, the sum transmitted was £143,975, rather than £144,000, because £25 was deducted as a fee to the bank for the transfer to take place immediately.
Change of position
- In this state of facts, the question arises whether the defendant is entitled to rely on the defence of change of position. This defence was recognised for the first time in English law in the decision of the House of Lords in Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548. In that case, Lord Goff of Chieveley said (at 580C-G):
"I am most anxious that, in recognising this defence to actions of restitution, nothing should be said at this stage to inhibit the development of the defence on a case by case basis, in the usual way. It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer. These are matters which can, in due course, be considered in depth in cases where they arise for consideration. They do not arise in the present case. Here there is no doubt that the respondents have acted in good faith throughout, and the action is not founded upon any wrongdoing of the respondents. It is not however appropriate in the present case to attempt to identify all those actions in restitution to which change of position may be a defence. A prominent example will, no doubt, be found in those cases where the plaintiff is seeking repayment of money paid under a mistake of fact; but I can see no reason why the defence should not also be available in principle in a case such as the present, where the plaintiffs money has been paid by a thief to an innocent donee, and the plaintiff then seeks repayment from the donee in an action for money had and received. At present I do not wish to state the principle any less broadly than this: that the defence is available to a person whose position has so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively to make restitution in full. I wish to stress however that the mere fact that the defendant has spent the money, in whole or in part, does not of itself render it inequitable that he should be called upon to repay, because the expenditure might in any event have been incurred by him in the ordinary course of things. I fear that the mistaken assumption that mere expenditure of money may be regarded as amounting to a change of position for present purposes has led in the past to opposition by some to recognition of a defence which in fact is likely to be available only on comparatively rare occasions."
- The defence was further refined, in the context of payments of debts, by the Court of Appeal in Scottish Equitable plc v Derby [2001] 3 All ER 818. In that case, a life assurance company overpaid the amount due under a pension policy, and sought to recover it, and the defendant payee sought to rely on the defence of change of position. He had used part of the money to pay off a mortgage debt. Robert Walker LJ (with whom Simon Brown and Keene LJJ agreed) said:
"35. Mr Weatherill submitted that the payment-off of the mortgage was a change of position, but I cannot accept that submission. In general it is not a detriment to pay off a debt which will have to be paid off sooner or later: RBC Dominion Securities v Dawson (1994) 111 DLR (4th) 230. It might be if there were a long-term loan on advantageous terms, but it was not suggested that that was the case here; and as the judge said (at p 803f) the evidence was that the house was to be sold in the near future."
- The reference to "a long-term loan on advantageous terms" may be a reference to the dicta of Millett LJ in Boscawen v Bajwa [1996] 1 WLR 328 at 341, where he considered that a charity to which funds had been distributed in the well-known case of Re Diplock [1948] Ch 465 and which had used those funds to discharge an existing mortgage, had changed its position because it had
"in all innocence used the money to redeem a mortgage held by its bank, which, no doubt, was willing to allow its advance to remain outstanding indefinitely so long as it was well secured and the interest was paid punctually."
- In the present case, it was submitted for the defendant that he had borrowed unsecured from Mr Buddington, who was content to take the risk of the project failing and not being repaid, whereas he now found himself facing a claim in restitution where the creditor was not content to take that risk, and wanted to be paid in any event. I reject that submission. As I have already said, on the evidence before me Mr Buddington did not take any equity participation in the project of the defendant. He remained a simple creditor, and the defendant his simple debtor. Mr Buddington did not agree in advance that, if the project embarked upon by the defendant failed, the debt would be written off. The most that can be said on this evidence is that Mr Buddington and the defendant were friends, and trusted each other, and that no doubt Mr Buddington would look sympathetically upon any request by the defendant for time to pay or other indulgence if the business venture did not work out.
- In strict law, on the material before me, there can be no doubt that the legal position of Mr Buddington was such that he would have been entitled to insist upon repayment on the due date. The fact that the identity of the creditor changes, and the debtor may not have such an easy ride, is simply one of the vicissitudes of life. It is comparable to the case where a creditor dies, and the heir is less accommodating to the debtor, or the creditor becomes bankrupt, and the trustee in bankruptcy seeks to realise the assets of the estate for the benefit of the bankrupt's creditors. In my judgment, the fact that the defendant, however unwittingly, used some of the money mistakenly paid to him to repay the debt he undoubtedly owed to Mr Buddington does not mean that he changed his position for the purposes of defeating the claim in unjust enrichment against him.
- There is a further point. Even if the defence were available, the defendant must show at least a sufficient causal link between the mistaken payment and the change of position. I have already mentioned the decision of the Court of Appeal in Scottish Equitable plc v Derby [2001] 3 All ER 818. In that case Robert Walker LJ said:
"30. The judge noted the view, put forward by Andrew Burrows (The Law of Restitution (1993) pp.425-8) that there is a narrow and a wide version of the defence of change of position, and that the wide view is to be preferred. The narrow view treats the defence as 'the same as estoppel minus the representation' (so that detrimental reliance is still a necessary ingredient). The wide view looks to a change of position, causally linked to the mistaken receipt, which makes it inequitable for the recipient to be required to make restitution. In many cases either test produces the same result, but the wide view extends protection to (for instance) an innocent recipient of a payment which is later stolen from him (see Goff & Jones, The Law of Restitution, 5th ed (1998) p822, also favouring the wide view).
31. In this court Mr Stephen Moriarty QC (appearing with Mr Richard Handyside for Scottish Equitable) did not argue against the correctness of the wide view, provided that the need for a sufficient causal link is clearly recognised. The fact that the recipient may have suffered some misfortune (such as a breakdown in his health, or the loss of his job) is not a defence unless the misfortune is causally linked (at least on a 'but for' test) with the mistaken receipt. In my view Mr Moriarty was right to make that concession. Taking a wide view of the scope of the defence facilitates 'a more generous approach ... to the recognition of the right to restitution' (Lord Goff in Lipkin Gorman at p581; and compare Lord Goff's observations in Kleinwort Benson v Lincoln City Council [1999] 2 AC 349 at p385 A-F)."
- This is not strictly speaking a decision on the point, because it is based on a concession, and there is perhaps more to be said than is mentioned here for the view that detriment should be required. Nevertheless, the reality is that the law has now, at least provisionally, moved to a position in which it is only necessary to show a causal link, rather than detrimental reliance, provided that the change of position so caused renders it inequitable that the payee should be required to repay the sum concerned.
- At the time that the defendant gave the post-dated cheque the mistaken payment was many months in the future. And it was not the defendant who put the post-dated cheque into the banking system. According to the evidence of Mr Buddington, relied on by the defendant, it was Mr Buddington's daughter who paid it into his account in early December 2005. On the material available to me, it is likely that it was paid in on about the same day as the mistaken payment was made. The defendant does not put forward any evidence to suggest that he knew of (or even anticipated) the mistaken payment before the post-dated cheque was paid in. The payment of the cheque was a pure coincidence. In other words, the defendant did nothing in reliance on or awareness of the mistaken payment to bring about the payment of the post-dated cheque, and so neither is the payment of the cheque sufficiently causally connected to the mistaken payment. It is true that, but for the mistaken payment, the post-dated cheque would not have been paid, but payment was effected by the bank without the knowledge of the defendant. The defendant had nothing to do with it.
- Similar reasoning applies to the payment of the overdraft as to the payment of the cheque to Mr Buddington. First of all, the defendant did not change his position by paying off the overdraft, because he merely substituted one unsecured creditor, entitled to immediate repayment, for another. In relation to the bank, there is no shadow of a defence in the evidence filed based on the willingness of the creditor to write off the debt if the business venture does not succeed. High street banks do not operate in this way. Secondly, no sufficient causal link has been shown between the mistaken payment and the 'repayment' of the overdraft. The defendant did not decide, knowing of the payment in, to pay off his overdraft. It happened automatically, without his knowledge. The fact that the bank may (if it did) decline to reinstate the overdraft facility, thus enabling the defendant to use money borrowed to pay off the unjust enrichment claim is irrelevant in law. It is entirely separate.
- So far as concerns the payment of the fee charged by the bank for the transfer of the funds back to the claimant, the matter is different. If the defendant had had the whole sum paid to him still in his possession, and had agreed to return it immediately, a question would arise as to who should pay any costs of the transfer. Now the defendant committed no wrong by receiving the money by mistake. The mistake was the claimant's. The defendant does then come under an obligation in the present circumstances to restore what he has received by mistake. But that does not mean that he should come under any greater liability than the liability to restore the funds. In particular, he should not be responsible for the costs of reversing the transaction. Of course it might have been possible for the defendant to send a cheque, at little or no cost to himself. But that would have taken much longer than a telex transfer, and in fact would have been less secure. The defendant cannot be criticised for making a CHAPS transfer back to the claimant when the claimant insisted on being immediately repaid. Accordingly, if there is a cost associated with the transfer, and that cost is not unreasonable, then the defendant is entitled to be reimbursed that cost. There is in such a case (to that extent) a real change of position causally connected with the payment. Accordingly, in principle the defendant has at least an arguable defence to the claim so far as relates to the fee of £25.
- Given my conclusions on the first two (and more important) parts of the claim, that means that it is unnecessary for me to go on and consider whether in relation to them the defendant acted in bad faith, as alleged by Ms Gage's witness statement at paragraph 28, and should therefore be deprived of the benefit of any defence of change position. In any event, it would be hard to do this at a summary stage of the proceedings, without any disclosure, cross examination and so on. As to the £25 charge, I do not see how any question of bad faith can taint that. The claimant asked for the return of the funds, the defendant instructed the bank to return what was left, and that was the (not unreasonable) charge made for doing so.
- The defendant makes a further argument, which is that the court should not conclude that there is no real prospect of successfully defending the claim, because it is a developing area of the law, and according to the English system you need the benefit of a trial finding facts in order to be able to address this in a concrete way: see eg AK Investment v Kyrgyz Mobil Tel Ltd [2012] 1 WLR 1804, [84]. I reject that submission. The relevant facts for the purposes of the argument are asserted by the defendant in his and in Mr Buddington's witness statement. I have already accepted that those witness statements contain assertions as to facts which are not incredible. I have therefore to assume for present purposes that they are true. Accordingly, the position would not be any better for the defendant if there were a trial.
Other good reason
- I therefore turn to the question whether there is any other good reason for setting aside the judgment or allowing the defendant to defend the claim. First, I remind myself that the test is not whether there is any other compelling reason (in relation to summary judgment), but whether there is any other good reason. In the present case the claim form and the particulars of claim were sent by post to the defendant's former address, and then returned undelivered to the court. The evidence, which I accept and on which basis I proceed, is that the defendant was unaware of both the claim form and the judgment until August 2017. The question is whether this is a sufficient basis by itself for holding that there is a good reason for setting aside the judgment.
- In Godwin v Swindon Borough Council [2002] 1 WLR 997, the Court of Appeal had to deal with a case about service under the then CPR rule 6.7, dealing with deemed service. (This is now dealt with by recast rules 6.14 and 7.5.). In this case the claim form and particulars of claim did in fact arrive at the defendant's offices on the last day for service. But the then CPR rule 6.7 deemed those documents to have been served the next day, which would have been out of time. The Court of Appeal held, that, on the true construction of the rules, service was indeed out of time. But the court went on to deal with the power of the court to set aside a default judgment.
- May LJ said:
"49. … In any other case, the court has a discretion under rule 13.3(1) to set the judgment aside or vary it. The discretion may be exercised under sub-rule (a) if the defendant has a real prospect of successfully defending the claim. That is the obverse of the relevant part of rule 24.2 and may apply whenever the defendant received the claim form and particulars of claim. Rule 13.3(1)(b) has a disjunctive alternative, so that the court may set aside or vary judgment entered in default if it appears to the court that there is some other good reason why the judgment should be set aside or varied or the defendant should be allowed to defend the claim. In my view, this is plainly capable of extending to circumstances where the defendant has not received the claim form and particulars of claim before judgment was entered against him. It is not an absolute right, but does not have to depend on the defendant having a real prospect of successfully defending the claim. The court therefore has sufficient power to do justice in these cases and will, no doubt, normally exercise this discretion in favour of a defendant who establishes that he had no knowledge of the claim before judgment in default was entered unless it is pointless to do so. The defendant, for instance, may have no defence to the claim, but may justifiably want to have the judgment set aside on the basis that, had he known about the claim, he would have satisfied it immediately without having an embarrassing judgment recorded against him. There may also be questions of costs…"
Pill LJ gave a separate judgment, but agreed with this analysis (at [76]). It seems that Rimer J also agreed, in his own judgment, at [64], but this is less clear. Nevertheless, it is therefore established that CPR rule 13 (1) (b) allows the application to set aside to be made on the grounds that the applicant did not know about the claim form.
- However, in Akram v Adam [2005] 1 WLR 2762, CA, a claim form was served by post at the defendant's usual residence, but not received by the defendant, nor returned undelivered either. A judgment in default was obtained. The Court of Appeal held that the claim had been properly served, and the judgment could only be set aside under rule 13.3 as a matter of discretion. In paragraph 35 of his judgment, Brooke LJ (with whom both Jonathan Parker and Keene LJJ agreed) quoted almost the whole of paragraph 49 from the judgment of May LJ in Godwin v Swindon Borough Council [2002] 1 WLR 997, including the whole of the extract cited above, and continued:
"In the present case it would have been pointless to set aside the judgment, for the reasons given by Judge Yelton."
The appeal was therefore dismissed. So although the fact that the defendant never received the claim form is a relevant factor in deciding whether as a matter of discretion to set aside a default judgment, on its own it is not enough. It may not be necessary to show an arguable defence, but it is necessary to show how setting aside the judgment will serve some useful purpose, such as in relation to reputational or costs issues.
- In the present case there is no arguable defence, save as to the £25 fee. So, as to the balance of the claim, I ask myself whether there is any other good reason why, given that the claim form was not received by the defendant, the judgment should be set aside. The judgment is now being used as the foundation of bankruptcy proceedings. If the defendant had known about the claim and the judgment earlier than August 2017, he would have had more warning of the possibility of the threat of bankruptcy, but in my judgment that is not enough. There is no evidence to show that the threat of being made bankrupt today is more potent to the defendant than it would have been ten years ago, so I need not decide whether that would have been enough. There is no indication in the evidence that the defendant would have paid up straight away and avoided the threat of bankruptcy and all these proceedings. On the contrary, he has not paid up. He says he wishes to fight. I am afraid that this looks very much as though the defendant is simply trying to frustrate the enforcement of the judgment entered against him: cf Nolan v Devonport [2006] EWHC 2025 (QB), [16]. Nor is it a good reason that the claimant has delayed so long before seeking to have the defendant made bankrupt. The claimant is entitled to enforce the judgment, or not, during such period as the rules allow. In my judgment there is here no "other good reason" to set aside the default judgment.
Promptness
- If there were a good reason, in accordance with CPR r 13.3(2), it would be necessary to consider whether the defendant had acted promptly in applying to set aside the judgment. The defendant's evidence is that he first became aware of the judgment on 4 August 2017. His application to set it aside was issued on 29 March 2018. This is nearly nine months later. In Regency Rolls Ltd v Carnall, unreported, 29 March 2000, at [45], the Court of Appeal dealt with an application under CPR rule 39.3(3). Rule 39.3(5) provided that an application for an order to set aside an order dismissing a claim and restore proceedings made by a party who failed to attend a trial might be granted by the court:
"only if the Applicant -
(a) acted promptly when he found out the court had exercised its power to strike out or to enter judgment or enter an order again him…"
- The court held that a delay of 30 days was not 'prompt' for this purpose, and refused to set aside the judgment. Simon Brown LJ said:
"I would accordingly construe 'promptly' here to require, not that an Applicant has been guilty of no needless delay whatever, but rather that he has acted with all reasonable celerity in the circumstances. That said, I too would regard the Appellant here as having failed even in that obligation. 30 days was altogether too long a delay before making this Part 39 application. Having regard to the long, and generally unsatisfactory, history of the proceedings to that point, the application plainly could, and in my judgment reasonably should, have been issued well before it was."
- Regency Rolls Ltd v Carnall was cited in Hart Investments v Fidler [2006] EWHC 2857 (TCC). This was an application to set aside default judgment under both CPR rr 13.2 and 13.3. Judge Peter Coulson QC (as he then was) held at [26] that 59 days was at the "outer edge" of what was acceptable. In fact the judge set aside the judgment under the mandatory ground in r 13.2, but added that he would have done so under r 13.3 as a matter of discretion, on the basis that, on the particular facts of the case, a "good reason" had been shown. These facts included a failure to serve a response pack with the claim form, confusion over whether service could be effected by fax, difficulties in calculating the "two days" after posting before service was deemed to take place, the wrong date given in the certificate of service and a premature request for a default judgment. None of this however applies in the present case.
- The defendant did take legal advice from solicitors in August 2017. The defendant does not say whether or not he was then advised to apply to set aside the judgment. Later, he ceased to be advised by solicitors, and acted in person. Later still, he instructed his current solicitor, and shortly thereafter he issued the application at the end of March 2018. On any view this is not prompt. No satisfactory explanation has been given for the delay. The fact that the defendant was not represented might justify taking a little longer before issuing an application, but not nine months. The rules are drafted so as to ensure that there is some finality in litigation of this kind. Accordingly, even if the defendant had an arguable defence to the whole claim I would not have set aside the judgment. Given that he has an arguable defence only in relation to £25 of the claim, I am the more satisfied that it is right not to do so.
Conclusion
- In all the circumstances, and for the reasons given above, I dismiss this application.
