Bloomfield & Anor v Williams & Anor [1999] EWCA Civ 807 (17 February 1999)

MR JUSTICE HIDDEN: There are two appeals from the orders of His Honour Judge Proctor in the Lancaster County Court on 27 May 1998 and 28 July 1998. They arise out of a factual background which starts with the grant by the plaintiffs to the defendants on 1 June 1990 of the tenancy of a private hotel at 67 Marine Road West, Morecambe and Heysham, Lancashire for a term of six years from that date. The tenancy made provision for the rent to be reviewed and imposed certain repairing obligations on the tenant. The initial annual rent was fixed for the first three years of the term at £4,680 payable by equal monthly payments on the first day of each month.

On 19 March 1991 the term of the tenancy was extended by agreement to ten years from 1 April 1990. On 16 August 1991 the defendants assigned the tenancy to Malcolm James Dunkley and Susan Dunkley. Some 5½ years later on 9 January 1997 Mr and Mrs Dunkley surrendered the tenancy to the plaintiffs. No rent had been paid for the period 1 January 1996 to 6 January 1997 and there were certain minor items of disrepair. By that time section 17 of the Landlord and Tenant (Covenants) Act 1995 had come into force on 1 January 1996.

By 26 March, or 3 April 1997 (different dates appear on the pleading) the plaintiffs issued proceedings against the defendants claiming damages for rent arrears and breach of repairing obligations. The rent arrears were particularised at £7,216.00. In May or June of 1997 the plaintiffs issued an application for judgment in default with damages to be assessed on the basis that no defence had been filed by the defendants. On 17 June 1997 the application was adjourned and it was finally heard on 23 September 1997. On that occasion the defendants were not present and Deputy District Judge Flanagan made an order for summary judgment in default of any defence in favour of the plaintiffs against the defendants. That order envisaged an assessment of damages. On 5 December 1997 District Judge Forester listed the assessment of damages for hearing and gave directions.

On 17 March 1998 Deputy District Judge Taylor assessed the damages on hearing solicitors for the parties and gave judgment in favour of the plaintiffs in the sum of £5,166 with costs on scale 1. That order the plaintiffs appealed to the Judge and on 17 May 1998 His Honour Judge Proctor heard the appeal. It is against that decision that the defendants' first appeal is made. Judge Proctor allowed the appeal and assessed damages in the sum of £7,226.99 including rent arrears and interest and an agreed sum of £390 in respect of dilapidations. He ordered the costs of the appeal to be the plaintiffs on scale 2.

On 24 June 1998 the defendants applied to set aside the orders made, first on 23 September 1997 and, second, on 27 May 1998 and applied to strike out that part of the plaintiffs' claim relating to rent arrears. The reason for that application was that by then the defendants' solicitors had become aware of section 17 of the Landlord and Tenants (Covenants) Act 1995. The hearing of that application was on 28 July 1998 when Judge Proctor dismissed the defendants' applications. It is against that order that the second of the defendants' appeals lies.

On 4 September 1998 Judge Smith dismissed the defendants' application for a stay of execution and amended certain orders pursuant to the Slip Rule. On 28 October 1998 the Right Honourable Sir Anthony McCowan granted the defendants leave to appeal against the two orders made on 27 May 1998 and 28 July 1998. As to the defendants' appeal from the order of 27 May 1998 the plaintiff says there were two distinct causes of action in that claim, a claim for rent arrears which was a debt, and a claim for the breach of repairing obligations, which was a claim for damages.

The claim for rent arrears falls to be considered in relation to section 17 of the Landlord and Tenant (Covenants) Act 1995 which came into force on 1 January 1996. The tenancy in the present case was granted before the Act came into force and was not a new tenancy within the meaning of sections 28(1) and 1(3) of the Act. Section 17 applies to both new and other tenancies (section 1(2)). Section 17 applies where a former tenant is as a result of an assignment no longer a tenant under a tenancy but remains bound by a covenant of tenancy under which any fixed charges are payable. Section 17(1)(b) states that rent is such a fixed charge under section 17(6)(a). At common law the defendants remained bound by the covenant to pay rent notwithstanding the assignment of 17 August 1991 as a result of privity of contract. They were therefore a former tenant within the Act.

Section 17 provides that a former tenant shall not be liable to pay any amount payable in respect of any fixed charge unless within the period of six months beginning with the date when the charge becomes due the landlord serves on the former tenant a notice complying with subsection (2). Section 17 provides no power to extend time for the service of a notice under it and the time limit imposed was therefore strict. The plaintiffs had never served any notice on the defendants as required by section 17(2).

That section provides that a former tenant shall not be liable to pay any amount payable in respect of a fixed charge which includes rent, unless a notice is served in accordance therewith. The appellants argue that the service of a section 17 notice is therefore a pre-requisite of the bringing of any action for the recovery of rent from a former tenant, and that as no section 17 notice had ever been served when the action was commenced against them on 3 April 1997, the defendants were not liable to pay any rent to the plaintiffs and the plaintiffs' claim for rent arrears was premature, unarguable and was bound to fail. No subsequent service of a section 17 notice could have saved any part of the claim for rent arrears in that action and a fresh action would have had to have been commenced.

When the proceedings were served on the defendants on 3 April 1997 the only rent in respect of which a section 17 notice could have been served were the rents falling due on 1 November 1996, 1 December 1996 and 1 January 1977. By 1 July 1997 it was too late for the plaintiffs to serve a section 17 notice on the defendants in respect of any rent due under the tenancy. Thus from that date the defendants could under no circumstances ever become liable to the plaintiffs in respect of any rent arrears. By the time the plaintiffs obtained the default judgment on 23 September 1997 and when subsequently damages were assessed the plaintiffs' claim for rent arrears was plainly unarguable and was bound to fail. The appellants submit that Judge Proctor erred in law when on 27 May 1998 he assessed damages as including rent arrears and held the defendants liable to the plaintiffs in respect of rent. The appellants therefore submit that their appeal from Judge Proctor's order made on 27 May 1998 should be allowed and the order should be set aside, save in respect of the sum of £390 which was agreed in respect of the repairing obligation.

The defendants' second appeal from the order made on 28 July 1998 is one from a hearing which was primarily an application to set aside the judgment in default of defence made on 23 September 1997. The application was said to be made under CCR Order 37 rule 4 and Order 13 rule 5. It is, in fact, CCR Order 37 rule 4 which is the only County Court Rule which expressly provides for the setting aside of a default judgment and applies to a judgment entered in a default action pursuant to CCR Order 9 rule 6 which provides the only method by which a default judgment may be entered in the county court.

The appellants say that for reasons unknown, the plaintiffs' legal advisers saw fit, instead of complying with the requirements of Order 9 rule 6(1A) and filing a request for judgment, to make application for judgment to be entered in default against the defendants with damages to be assessed later. The plaintiffs' application resulted in the order made on 23 September 1997. The defendants submit that that order must be regarded as a judgment entered in a default action pursuant to Order 9 rule 6. The only alternative is that it was an irregular order and should be set aside ex debito justitiae. While that order made reference to summary judgment, the defendants say that that cannot be right because an application for summary judgment can only be made where a defendant has filed a document purporting to be a defence under Order 9 rule 14 (1A).

At the hearing before Judge Proctor on 28 July 1998 the judge accepted the plaintiffs' submission that Order 37 rule 4 was not relevant to the application. The defendants submit that if the plaintiffs' argument depended on the plaintiffs failing to fulfil the requirements of Order 13 rule 6(1A) the learned judge was wrong. Alternatively, it is not in the plaintiffs' interest to take this point as it must follow that the order made on 23 September 1997 was irregular. Alternatively again the plaintiffs are estopped from relying upon their own failure to comply with procedural rules so as to deprive the defendants of their ability to have the default judgment set aside.

It follows, they argue, that in all the circumstances Judge Proctor wrongly failed to have any regard to the provisions of Order 37 rule 4(1) and the powers thereby granted to him to set aside or vary a default judgment. He appears to have held that he had no powers at all under Order 37 to set aside or vary the default judgment dated 23 September 1997 and the order made on 27 May 1998 which was consequential upon it. However that power to set aside existed under Order 37 rule 4 and also under Order 37 rule 2, since the order of 23 September 1997 was made in the defendants' absence. Thus, they argue, the application to set aside was not determined upon its merits.

If the judge exercised any element of discretion he only had regard to lapse of time and prejudice, whereas the principles are set out in RSC Order 13/9/18. The overriding principles are the merits of the defence and the avoidance of injustice. It was clear from the exchanges between judge and counsel that the judge was aware that the plaintiffs had obtained the benefit of a judgment to which they had never been entitled. Nevertheless he refused to set aside the default judgment and to set aside his order made on 27 May 1998. He therefore failed to address his mind to the overriding principles on which he should have decided whether or not to exercise his discretion.

The plaintiffs' submissions in relation to the order of 27 May 1998 are that section 17 provides a defence only if the defendant chooses to take the point at the appropriate time. These defendants chose not to and allowed judgment to be entered. If the point had been taken the plaintiffs could have cured the omission in respect of four months' rent. The plaintiff is now out of time but if judgment is set aside the plaintiffs' loss of the cause of action cannot be compensated in costs. The plaintiffs submit that it would be wrong in principle to allow the assessment of damages to be overturned on the section 17 point when the defendants chose to allow the judgment to pass without taking this or any point. The point was never pleaded and was not taken below. They submit that they will suffer irreparable prejudice if the judgment is now set aside.

As to their appeal against the order of 28 July, they stress that the defendants sought to set aside the judgment for damages to be assessed dated 23 September 1997 and the assessment of damages made on 27 May 1998, but they conceded that the plaintiffs were still entitled to damages in respect of the dilapidations element of the claim. Thus the plaintiffs were entitled to preserve the judgment for damages to be assessed and the defendants' arguments went to quantum not liability. The damages had been assessed by His Honour Judge Proctor on 27 May 1998. The application to set aside the assessment came back before him under Order 37 rule 4 and the judge had no jurisdiction to make such an order. The refusal to set aside the judgment was an exercise of judicial discretion and there is a presumption that the judge below rightly exercised his discretion: (see Ossenton (Charles) & Co v Johnston [1942] AC 130 at 148). It is settled principle that the Court of Appeal will not interfere unless it be shown that, for example, the judge exercised his discretion under a mistake in law, or in disregard of a principle, or his conclusion was outside the generous ambit in which reasonable disagreement is possible: (see RSC Order 59/1/142).

The plaintiffs submit that it cannot be said that the judge erred in law since the application to set aside the judge's own order of assessment of damages was not within Order 37 rule 1 and there were no grounds for interfering with the judgment for damages to be assessed. The plaintiffs do not accept that the judge made a finding that he had no jurisdiction under Order 37 to entertain the applications. He found the application was not within the scope of Order 37 rule 1.

The plaintiffs submit that it cannot be said that the judge failed to have regard to his discretionary powers to set aside a judgment in default of defence under Order 37 rule 4, since it is apparent from the transcript that the judge must have considered the discretionary power, the scope of the rule, the merits, the defendants' delays and the likely prejudice to the plaintiffs should the judgment be set aside.

The plaintiffs say that in so far as the defendants may assert the judgment for damages to be assessed was irregular so that the defendants were entitled to have the same set aside ex debito justitiae, the application to the judge was not made under Order 37 rule 5 which would have precluded any application in the circumstances of this case and the defendants have approbated the judgment. Further the judge was right to refuse the application to strike out under Order 13 rule 5. Such application should be made at the earliest opportunity, not after a fully argued assessment of damages hearing, an appeal and nine months after judgment was entered without protest (see Order 13 rule 5 and RSC O18/10/3).

So far as the discretion falls to be exercised afresh, the plaintiffs say that there would still be no power to set aside the order on the assessment of damages in the way contemplated by the defendants' application on 24 June 1998 and there is still no basis for upsetting the judgment for damages to be assessed. The factors to be considered on an application to set aside the judgment in the circumstances of the present case are the failure of the defendants to attend on the hearing when judgment was entered, the reasons for the failure to attend the hearing, the reasons for the nine months' delay in applying to have the judgment set aside, the defendants' conduct since the judgment was entered, whether the parties have acted upon the judgment, the likely prejudice to the plaintiff if the judgment is set aside and the merits of the proposed defence. As to the merits, notwithstanding the proposed defence under section 17 of the Landlord and Tenant (Covenants) Act 1995 there is still no defence which will deprive the plaintiff of the judgment for damages to be assessed. Even now there is no explanation for the defendants' failure to attend the hearing when judgment was entered. Thus, either the inference must be that they chose not to attend the hearing and, if so, it would not be right to set aside the judgment (see Shocked & Anor v Goldschmidt & Ors [1998] 1 AER 372), or there is simply no material before the court on which it can exercise its discretion in the defendants' favour. Ignorance of the law on the part of the defendants' legal advisers may explain, but does not excuse, their delay in applying to set aside the judgment. The plaintiff will suffer irreparable prejudice if the judgment is now set aside.

For my part this was either a default judgment (although somewhat curiously described in the order itself of 23 September 1997 as "summary judgment in default of any defence having been filed") or, alternatively, it was treated at all times by the parties and by the judge as if it were a default judgment. In the first eventuality no problem arises and in the second I would hold that it was not a point which the plaintiffs could take at this stage. In any event, if they did take the point they would immediately be met by an ex debito justitiae argument which would inevitably succeed.

"I am sorry, Mr Brown, I am not going to set aside the judgment because it does not come under the scope of Order 37 rule 1, which is the one we are really dealing with here, and, that being so, your applications under 1 for a stay of execution, for an order that the default judgment be set aside, that the matter be struck out as an abuse of process in part, all those matters are dismissed, and that is it. In view of this lapse of time I think I am right in exercising my discretion, particularly as the plaintiffs may have been deprived of their remedy, in saying that if you want to appeal you go to the Court of Appeal and ask them for leave."

The judge was probably right under the terms of Order 37 rule 1 to conclude that that rule did not apply since this was not a case "where no error of the Court at the hearing is alleged". The judge should have been applying either Order 37 rule 4 or even Order 37 rule 2. Order 37 rule 4 would have allowed him to "set aside, vary or confirm any judgment entered in a default action pursuant to Order 9 rule 6". The plaintiff could not argue that it was not a judgment in default under Order 9 rule 6 because the only argument in support would have been brought into being by the plaintiffs failing to comply with the requirements of paragraph (1A) of that order.

It is quite clear from the terms of the judgment that the learned judge was not considering Order 37 rule 4 and was not exercising his discretion in the manner in which he could have done had he been doing so. In the short judgment the only matters to which he turned in exercising his discretion were lapse of time and prejudice to the plaintiffs in being deprived of their remedy. As to the latter I think he misdirected himself because I accept that a defence could have been served at any time up to 23 September 1997 by the defendants and that defence could have raised the section 17 point leaving the plaintiffs without a remedy in that action.

There were other matters to which the learned judge should have turned in exercising his discretion, in particular the fact that the plaintiffs had gained a judgment for rent arrears of £7,226 for which the defendants were not liable in law under the terms of section 17. As to the reference to the case of Shocked, where it was held that on an application to set aside a judgment given after a trial in the absence of the applicant, different considerations applied than on application to set aside a default judgment. Leggatt LJ cited cases in both categories and in particular Vann v Awford (1986) 130 SJ 682. At page 378 he said of that case:

"The judge declined to set aside a judgment given against the second defendant in default of appearance, and also a judgment given against him when damages were assessed in his absence. He had lied when he said on oath that he had no knowledge of the proceedings. On appeal Dillon LJ considered that, despite the prejudice to the plaintiffs, as there were ample arguable defences the award should be set aside and there should be a fresh hearing. He added: 'Even for lying and attempting to deceive the court, a judgment for £53,000 plus is an excessive penalty defences on the merits'."

I prefer the arguments of Mr Foster to those of Mr Potts. I would allow both appeals. I would exercise my discretion in favour of the defendants and would set aside that part of the judgment awarding the plaintiffs damages in the sum of £7,226.99 for rent arrears and interest, a claim effectively for debt, and would leave untouched the real claim for damages under paragraph 10 of the Particulars of Claim, for the agreed sum of £390 in respect of dilapidations.

LORD JUSTICE POTTER: I agree. In entertaining this appeal I start from the undisputed position that, by the route made clear in the judgment of Hidden J, the plaintiffs have obtained and seek to maintain the benefit of judgment for £7,226.99, when they are entitled in law to only £390, ie the agreed amount of dilapidations. In resisting this appeal, Mr Foster has not sought to justify the mistake made by the plaintiffs' solicitors based on their ignorance of the law in relation to the plaintiffs' entitlement to recover the sums claimed as rent; nor, save as to wasted time and costs, can he point to any prejudice suffered by the plaintiffs by reason of the defendants', and no doubt their advisers', late awakening to the existence of a watertight defence in relation to the claim for rent. For the reasons given by Hidden J, the opportunity for the plaintiffs to claim in fresh proceedings even the final payment of rent due expired on 1 July 1997 by reason of their failure to serve a statutory notice before then. The defendants were at liberty to raise its statutory defence at any time before the default judgment was obtained on 23 September 1997.

Nonetheless, Mr Potts for the plaintiffs, maintains that the judge was right to hold that he had no jurisdiction to set aside the default judgment originally obtained; the appropriate course being for the plaintiffs to try to obtain leave to appeal out of time. In that respect I think the judge was in error for two reasons: first, he was wrong when he said that he was really dealing with an application under Order 37 rule 1. Had the application been so made, his decision would have been correct since it was not a case where "no error of the court at the hearing is alleged". However, the application was made under the terms of Order 37 rule 4 and the judge should have dealt specifically with that ground of application. In that respect it is true that Order 37 rule 4 is, on the face of it, confined to a judgment entered in default "pursuant to Order 9 rule 6". It is also true that prior to obtaining judgment in default, the plaintiffs had not fulfilled the formal requirements of paragraph (1A) of that rule. However, reliance upon that fact, lay ill in the mouth of the plaintiffs, whose own solicitors were at fault in that respect, they having made application to the court that "judgment be entered in default against the defendants or for damages to be assessed at a later date". If it was the case before Judge Proctor (as is not apparent from his judgment) that the plaintiffs did indeed rely on their own non-compliance as defeating the defendants' application, the judge could and should in turn have invoked the terms of Order 27 rule 5(1) to prevent such a manoeuvre, treating the judgment in default as regular under that rule for the purposes of setting it aside. Alternatively, if he did not regard that course as appropriate, it seems to me, as to Hidden J, that the plaintiffs' admission of irregularity which gave the defendants the right ex debito justitiae to have the judgment set aside.

Finally, if all else failed, the judge had the discretion under Order 37 rule 2 to set aside the order as one made in the absence of the defendants. In that respect, Mr Potts relied on the decision in Shocked to support the refusal of the judge to set aside the judgment, on the grounds that the defendants had afforded no satisfactory explanation for absenting themselves from the hearing in default and the subsequent assessment of damages, and should therefore have been refused relief. In that respect, Mr Potts equates the failure to attend the hearing in damages with the failure to attend the trial in Shocked.

It is true, as stated in Shocked, that where application is made to set aside a judgment given in the absence of the party, the focus is less upon the merits of the case than the reasons for absence. However, it is clear that, in the ultimate analysis, the situation remains one for exercise of the court's discretion on consideration of the various features, or "general indications", referred to at page 381 of that decision.

At the end of the day those considerations are aimed at ensuring that the court makes the order which justice requires in all the circumstances. It is plain that in appropriate cases, including the not dissimilar situation in Vann v Awford , referred to in the judgment of Hidden J (and also in the case of Shocked at page 378), an order may be made to set aside a judgment default even when it has been followed by an assessment of damages from which the defendant has also absented himself. In my view that is the proper order to make in this case, together with the necessary consequential orders which have been indicated by Mr Justice Hidden, but as to which I invite the submissions of counsel before making them.

Order: Set aside that part of the judgment in default awarding the plaintiffs damages in the sum of £7,226.99 for rent and arrears and interest and substitute a judgment in the sum of £390. Plaintiffs to retain the orders for costs previously made in their favour save that all such costs shall be on scale 1. In relation to the hearing on 28 July there should be no order as to costs. Defendants to have the costs of the appeal. Legal Aid Taxation of defendant's costs.

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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bloomfield & Anor v Williams & Anor [1999] EWCA Civ 807 (17 February 1999) URL: http://www.bailii.org/ew/cases/EWCA/Civ/1999/807.html Cite as: [1999] EWCA Civ 807

England and Wales Court of Appeal (Civil Division) Decisions