Delay fatal to setting aside default judgment in spite of fraud allegations (Gentry v Miller)

The Court of Appeal has allowed an appeal and dismissed an insurer’s applications under CPR 13.3 and CPR 39.3, applying the Denton principles, to set aside a default judgment. The has given useful guidance on how courts should approach relief from sanctions applications where the defaulting party had delayed in seeking such relief but seeks to contend it has evidence to allege the claim was a fraudulent one. Following this judgment, the insurer will ‘have to pursue what remedies it can by way of a new fraud action'.

Practical implications

Practical implications arising from this judgment include:

• in determining applications under CPR 39.3 and/or CPR 13.3, the court will first consider the 'express requirements' under the relevant rules and then, given the application is for relief, apply the Denton three-stage test
• delay in applying to set aside a judgment or order is a pre-condition and/or relevant factor under:
  • CPR 39.3(5)(a)◦
  • CPR 13.3(2)
  • Denton stage three
• a failure to apply promptly can, as in this case, be fatal to such an application. In seeking to avoid this:
  • come prepared to address each element of that delay including, for example (as in this case) why a solicitor was not instructed sooner and/or why it took so long to commence an investigation
  • consider the date from which time can be deemed to start running. In this case there was a distinction between the date on which the judgment or order was made and the date on which the insurer said it became aware of it
• careful consideration may need to be given to identifying which is the relevant breach for the purposes of any application for relief. Generally speaking it will be the breach which resulted in the application of the original sanction
• when seeking to rely on allegations of fraud as grounds for setting aside a judgment or order, be aware:
  • default judgments can not be set aside simply on grounds viable allegations the claim was brought fraudulently can now be made
  • allegations of fraud should be investigated as expeditiously as possible
  • the court will seek to balance the need for finality in litigation as against the desirability of allowing the allegation of fraud to be tried
• courts may, to a certain degree, be sympathetic where a party mistakenly (but obviously so) refers to an incorrect judgment in its application to set aside. Here, the court was prepared to accept it was reasonable to treat the application as one to set aside the default judgment even though it referred to the order for an interim payment
• take appropriate steps to protect your position. Here it was noted the insurer had, among other things:
  • neither instructed solicitors nor taken any other steps to protect its position despite having admitted liability and, therefore, certainly by that stage, being aware of the 'risk of proceedings'
  • failed to estimate the hire charges that were escalating and to appreciate these took the claim above the £10,000 low value claim threshold—practitioners should always consider the effect developments in the claim have on the value of the claim and, therefore, the scheme or track within which it should be proceeding
  • not been proactive in discovering what orders had been made—something they ought to have done given it ought to be have been obvious that such adverse orders affected them
• consider ways in which you can seek to substantiate key allegations. Here, the Court of Appeal observed the insurer had 'produced no evidence to substantiate' the contention that it had not received all key communications from the appellant's solicitors. It referred to the fact that the applicant had 'failed to provide any evidence of the procedures that it adopts in dealing with its post or give any reason why the numerous letters sent to it ... might have failed to reach its file'
• interested and/or non-parties, including but not limited to insurers, should:
  • as above, be pro-active from an early stage and, where appropriate, take steps to seek to protect your position. This is particularly so when it is obvious they will be affected by decisions in the claim even though they are not a party to that claim
  • consider the potential advantages and disadvantages of not attending certain hearings in the claim. Here, although their being a non-party caused an anomaly for the purposes of seeking to set aside the default judgment under CPR 39.3(5), the Court of Appeal found the insurer 'could not be regarded as having been in a better position than its insured' particularly as the insurer had been in a position to be able to protect its interests but had failed to do so
• insurers are to be treated as professional and experienced litigators. Further, given they are in a 'particularly good position to conduct litigation efficiently and proportionately and to comply with rules and orders', there is a high level of expectation as to their compliance and of their understanding of the steps that need to be taken and the consequences of their failing to take them