Summary

A judge had been entitled to reject an application to set aside a default judgment, even though the applicant had a real prospect of successfully defending the claim, where the application had been made almost a year after judgment. Permission to appeal against the rejection of the application was therefore refused.

Facts

An Italian regional authority sought permission to appeal against a refusal to set aside a judgment made in favour of the respondent banks.

The authority had entered into derivative transactions with the banks. The transactions were governed by English law and jurisdiction. The authority's district auditor subsequently reported that the transactions might violate Italian law. The banks instituted proceedings in England seeking declarations as to the validity of the transactions. The authority chose not to respond to those proceedings, but instead commenced proceedings under Italian law seeking to have the transactions declared void. The English courts declared the transactions valid and the banks obtained default judgment. Almost one year later, the authority applied to set aside that judgment. The application was rejected. The Italian court concluded that jurisdiction to deal with the matter rested in England. The authority subsequently entered into a settlement with one of the banks under which it agreed that the transactions were valid and enforceable.

The authority submitted that the judge had erred by (1) placing too much weight on the delay in making the application to set aside the judgment; (2) applying the test in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 to the application; (3) failing to properly consider the merits of its defence; (4) finding that the authority had capacity to enter into the transactions; (5) rejecting the authority's assertion that the banks were making secret profits.

Held

(1) CPR r.13.3 required an applicant to show that he had real prospects of a successful defence or some other good reason to set the judgement aside. If he did, the court's discretion was to be exercised in the light of all the circumstances and the overriding objective. The promptness of the application was a mandatory and important consideration. It followed that a court could refuse to set a judgment aside even if the defendant showed a real prospect that he might succeed in his defence at trial. The merits of any defence were never irrelevant, but the court was engaged in an exercise of weighing delay against merits, which included considering the nature and extent of the delay, the reason and any justification for it, the strength of the defence and the justice of the case (paras 34-36, 40).

(2) When exercising its discretion under r.13.3 the court had to have regard to the overriding objective. Since the overriding objective was to enable the court to deal with cases justly and at proportionate cost, and since r.1.1 (2) (f) included enforcing compliance with rules, practice directions and orders, the considerations set out in r.3.9 were to be taken into account. The approach to r.3.9 in Mitchell and Denton v TH White Ltd [2014] EWCA Civ 906 was also to be taken into account, Mitchell and Denton applied. The judge had concluded that a defendant who deliberately ignored proceedings duly instituted and properly served did so at his peril, particularly where that defendant had expressly agreed on English law and jurisdiction to govern the relationship. Whatever merits existed in the Italian process provided no justification for the decision of the authority to ignore the declaratory action issued by the banks. The judge had been fully entitled to reach that view. The delay was sizeable, and its character provided cogent reason not to exercise the discretion in the authority's favour (paras 40-45).

(3) The authority had a real prospect of showing a violation of Italian legislative provisions which had been promulgated with a view to allowing public authorities access to the capital markets, but were subject to some express limitations (paras 65, 83).

(4) The authority's case on capacity was unpromising. The district auditor's report had not concluded that the authority lacked capacity to enter into the transactions. Further, the settlement agreement, which acknowledged the validity of the transactions, was irreconcilable with the proposition that the transactions were void ab initio. Two Italian courts had ruled against the authority, finding that it entered into the transactions in its private law capacity, and did not regard the authority as lacking capacity. The authority did not have a real prospect of establishing want of capacity (paras 84-86, 91-95, 98).

(5) The judge's decision in relation to secret profits was correct. The authority had argued that under the terms of the interest rate swap, in particular the collar, a valuation of the floor and cap as at the date of the agreement would produce a negative value which was not declared by the banks. The authority had characterised that as a secret profit or a secret commission. That characterisation was not accurate. The negative value relied on was in reality an assessment, on the basis of some model, of how at inception it was estimated the contract would turn out over its very long term. The authority might not have had the model at the time but it was not obligatory on the banks to disclose any negative value produced by them (paras 112-113).

(6) The authority had not established that the judge's refusal to set aside the default judgment was wrong. Whilst in limited respects there was a realistic prospect of establishing non-compliance with Italian law, that was not sufficient to justify setting aside the judgment. The extent and character of the delay alone afforded good grounds to refuse to set the judgment aside even if the defence had a real prospect of success (para.126).

Application refused