Court of Appeal decision shows importance of applying promptly to set aside a default judgment

The Court of Appeal has held that default judgment should not have been set aside where a defendant delayed 16 months before applying to set aside. It has, however, upheld a decision granting relief from sanctions against another defendant who was one day late complying with an unless order, where the mistake was caused in part by the order failing to specify the precise date for compliance: Leadingway Consultants Ltd v Saab [2025] EWCA Civ 582.

The decision underlines that a defendant seeking to set aside a default judgment must make a prompt application to do so. The court firmly rejected the suggestion that a lack of promptness will be readily outweighed by the fact that there are ongoing proceedings against another defendant. It recognised, however, that if there will in any event be a trial of the very same issues as are engaged by the claim in which the default judgment was made, that is a factor that the court may take into account.

The decision also emphasises that breach of an unless order is serious, and that an innocent mistake does not automatically mean relief from sanctions will be granted. However, in this case the court was sympathetic to a defendant whose minor delay in compliance with an unless order was the result of his solicitors confusing the date of the court seal for the date of the order. The court noted that this error was unlikely to have occurred if the parties had complied with a court practice direction which indicates that parties should, wherever possible, specify the date (rather than a time period) for compliance with an unless order in the order itself. 

This decision illustrates the importance of specifying a precise date for compliance with an unless order, and (where a date is not specified) taking care in calculating the relevant time period for compliance. In particular, where an order specifies a number of days from the date of the order, that does not necessarily mean the date shown on the court seal. It also shows the dangers of waiting until the last minute to comply with an unless order. 

Background

The claimant lent €35 million to Saab Financial (Bermuda) Ltd under two written placement agreements in 2012 and 2014. The company was owned and controlled by the Ayoub Farid Michel Saab and his brother, Fadi Michel Saab. 

The company went into liquidation in 2017. The Saab brothers agreed that they would personally procure that the debt owed to the claimant would be paid in full. In exchange, the claimant would refrain from asserting creditor status in the liquidation. The Saab brothers allegedly failed to uphold their promise, and the claimant claimed damages for breach of contract against the first brother ("D1") and the administrator of the second brother's estate ("D2").

The claimant served proceedings on D1 in Cyprus, but D1 failed to file an acknowledgment of service. Judgment in default was entered in August 2022 and was served personally on D1. 

The claimant served proceedings on D2 in Cyprus in August 2023, following various failed attempts by the Cyprus authorities and an order for service by an alternative method. In contrast to D1, D2 acknowledged service and indicated his intention to challenge jurisdiction. 

The parties subsequently agreed to multiple extensions of time for D2 to file a jurisdiction challenge. They ultimately agreed an unless order stating that D2 would have 21 days to file a jurisdiction challenge, failing which D2 would be prohibited from challenging jurisdiction and defending the claim.

The unless order was drafted by the claimants. It did not comply with CPR PD40B para 8.2 in that it did not specify the date by which the jurisdiction challenge must be filed – rather, it said "within 21 days…of the date of the order…". The unless order was dated 29 November 2023 and stamped with the court seal dated 30 November 2023.  Therefore, 21 days after the date of the order (29 November 2023) expired on 20 December 2023, but D2 did not file his application until 21 December 2023 because his solicitors had, in error, counted days from the date the order was sealed rather than the date the order was made. 

D2 applied for relief from sanctions and a retrospective extension of time to file his jurisdiction challenge. In the same application, D1 applied to set aside the default judgment that had been entered against him sixteen months earlier. 

The High Court granted both applications. The claimant appealed. 

Decision

The Court of Appeal allowed the claimant's appeal against the decision to set aside judgment in default against D1, but dismissed the claimant's appeal against the decision to grant D2 relief from sanctions. Phillips LJ delivered the leading judgment, with which Moylan LJ and Bean LJ agreed.

Judgment in default

CPR 13.3(2) provides that the court must have regard to whether the person seeking to set aside a judgment made a prompt application to do so. The claimant contended that the judge had failed to give this factor any or adequate weight. The Court of Appeal rejected that argument, as the judge had clearly taken D1's delay into account. There was, however, more force in the claimant's criticism that the judge had erred in concluding that other matters outweighed the lack of promptness.

In particular, the judge had taken into account the fact that, since the claim against D2 was continuing, the default judgment did not result in an end to the proceedings as a whole. On appeal, D1 argued that the judge had properly applied the so-called "Co-Defendant principle", ie that the court should attach less weight to promptness in setting aside a default judgment where the same claim would continue against a co-defendant in any event. (This principle was said to be derived from Hussain v Birmingham City Council [2005] EWCA Civ 1570).

The Court of Appeal held that Hussain neither established nor purported to establish a general "Co-Defendant principle". It merely indicated that the weight to be given to a lack of promptness would be reduced where there would in any event be a trial of the very same issues as were engaged by the claim against the defendant who was seeking to set aside default judgment. But even then the lack of promptness might still outweigh all other considerations.

The facts of the present case were very different from Hussain. At the time of the hearing to set aside default judgment, that judgment had been in existence for 16 months, and the proceedings against D2 had only just reached the point of a jurisdiction challenge. It was difficult to see how the pending proceedings against D2 could justify setting aside the default judgment against D1 in those circumstances. 

Although the judge’s decision to set aside judgment against D1 was made in the exercise of his discretion, he had not identified any factor reasonably capable of outweighing the claimant's delay. Accordingly, the appeal was allowed. 

Relief from sanctions

The Court of Appeal agreed with the High Court judge's application of the Denton principles (outlined here). The judge had correctly recognised that the breach of an unless order is indeed serious and that well-intentioned incompetence is not usually a reason for relief from sanctions, unless the default is trivial. However, the judge had granted D2 relief from sanctions because his solicitor's delay in filing was very short, and because the solicitors had genuinely believed that they were meeting the deadline. 

The Court of Appeal noted that the claimants were also partly to blame for drafting an unless order which was not compliant with the relevant CPR Practice Direction, thereby contributing to the confusion as to the correct filing date and ultimate breach of the unless order. 

The Court of Appeal concluded that the judge's decision to grant D2 relief from sanctions was well within the reasonable scope of his discretion.