Summary

The court exercised its discretion to set aside a judgment entered in default of defence, notwithstanding the lack of any good reason for failure to file a defence, on the basis that the defendant had a reasonable prospect of successfully defending the claim on new grounds of appeal which had not been before the court which entered the default judgment.

Facts

The first defendant (D1) appealed against an order upholding a default judgment made against him.

According to the claimant (C), there had been an equal partnership between D1 and the second defendant (D2) with regard to a development project. C paid sums to D1 to enable him to invest in the project, which was run by D2. C claimed that there had also been a partnership between himself and D1 in relation to the profits of the project, according to which D1 would hold C's interest on trust for himself and C equally. When C did not receive a return on his investment, he issued proceedings against both defendants on the basis of the claimed partnership arrangements and sought restitution. D1 failed to file a defence and, in May 2012, C obtained judgment in default. In August 2012, D1 applied to set the judgment aside, claiming that he had only become aware of the claim in mid-July. In a draft defence, D1 denied that there was a partnership agreement between himself and C and said that he had written off the payments he had made to D2. In January 2013, D1 wrote to D2 asserting that he had discovered that the project had made a large profit and claiming that his share amounted to £7 million. In the meantime, C had reached an agreement with D2 to let him out of the action. At a hearing in September 2014, it was held that D1's draft defence fell away because of the agreement with D2 and that he had no real prospect of successfully defending the claim. By that time, D1 was claiming that he had been told by D2 to say that he had written the payments off in order to protect the position of D2, who was paying for his defence. D1 appealed on new grounds, namely that (i) C should not be allowed to obtain judgment for unjust enrichment or restitution when he claimed only to be a conduit for the moneys invested with D2; and (ii) there was a total failure of consideration, the case simply being one of bad investment.

Held

HELD: (1) The evidence in the instant case seemed to support C's case as to the agreements entered into between the parties. It was irrelevant that D1 was a mere conduit for the moneys. The agreement between C and D1 was fulfilled because D1 paid the money over to D2; therefore, there had been no failure of basis. D1 had only been able to enter into an equal share in the project with D2 because of the money received from C. That amounted to receipt by D1 of C's money. C had handed over the money to D1 on the understanding that it would be paid to D2 under the agreement between the defendants and that D1's share in the project was held on trust by D1 for himself and C equally. Under D1's new defence, the contention that there was no receipt to D1's benefit, and therefore no unjust enrichment, was a bad one. Whether the enrichment was unjust depended on whether there had been a total failure of consideration. It followed that there was a defence to the claim for restitution and a real prospect of D1 successfully defending the claim (see paras 47, 53-55 of judgment). (2) Given the untruth of D1's first defence, his maintenance of that position until September 2014 and the lack of any new draft defence, there was no other good reason to vary or set aside the judgment to allow D1 to defend the claim (paras 56-57). (3) CPR r.3.9 gave the court a discretion to grant relief from the adverse consequences of D1's failure to comply with procedure. On the approach in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 W.L.R. 3926, the failure to file a defence was serious and the consequences of that failure must have been obvious to D1, Denton followed. No good reason had been put forward for failing to serve the defence in time. However, on the basis that there was a real prospect of success on the defence, and purely on the basis of the new grounds of appeal, the balance fell in favour of setting aside the default judgment. That conclusion was consistent with the overriding objective of dealing with cases fairly, expeditiously and proportionately to the sums at stake (paras 59, 63-64).

Appeal allowed