Claim No 2008 Folio 82
Neutral Citation Number: [2008] EWHC 2023 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT 

The Royal Courts of Justice
The Strand
London WC2A 2LL 
Date: Monday, 11 August 2008
Before:
THE HONOURABLE MR JUSTICE BLAIR
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BETWEEN:
ESR INSURANCE SERVICES LIMITED
(In Administration)
Claimant 
‑v‑
(1) WENDELL CLEMONS
(2) DAVID BEDFORD
(3) PLEX PARTNERS ONE LLC
(4) ANJEN INTERNATIONAL HOLDINGS LIMITED
(5) BERMIER PLATINUM ENTERTAINMENT INC
(6) BLACK PEARL ENTERTAINMENT
(7) MANCHESTER HOLDINGS INC

Defendants
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(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
190 Fleet Street, London EC4A 2AG
Tel No:  020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
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Mr Tom Smith (instructed by Clifford Chance LLP) appeared on behalf of the Claimant. 
Mr Nigel Hood (instructed by Sanders Witherspoon) appeared on behalf of the Second Defendant.  
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Judgment

1.	This is an application by the claimant for judgment in default of acknowledgment of service pursuant to CPR Part 12.3(1).  In brief, the allegation as set out the amended claim form of 10 June 2008 is that the claimant is an insurance broker.  It entered into contracts with the first defendant, Mr Wendell Clemons, who appears to carry on business and live in the State of Tennessee, for the provision of surety bond insurance and reinsurance policies from underwriters.  There are three such underwriters named in the claim form, and the nature of the claim is that the first defendant fraudulently misrepresented to the claimant that he had authority to write business on behalf of these underwriters when, as he was aware, he had no such authority.  The other defendants were allegedly involved as set out.
2.	The matter was begun in January of 2008 and was followed by a freezing order against the defendants then named.  There were further inquiries then instituted by the claimant, which went into administration on 8 February 2008, it is said, on the basis of the matters that have given rise to this litigation.
3.	On 10 June 2008, before Mr Justice Christopher Clarke, the claimant had obtained permission to amend the claim form, which it did quite substantially, both in relation to the allegations made and in relation to the one of the parties, which was deleted, and certain others that were added.  At the same time, Mr Justice Christopher Clarke gave permission to serve the amended claim form out of the jurisdiction and ordered that all the defendants were to have 22 days from date of service to respond.  All the defendants save the second defendant are out of the jurisdiction, either in the United States or, in the case of one defendant, in the Bahamas.
4.	Service of the amended claim form was effected on 12 June 2008 and there is evidence before the court that shows this to have happened.  None of the defendants served acknowledgments of service and, as a result, this application to sign judgment in default was brought by the claimant on 7 July 2008.  The application notice is clearly marked with the following:
"The hearing of this application will take place on 11 August 2008 before the Commercial Court of the Royal Courts of Justice." 
5.	Permission was given by Mr Justice Christopher Clarke on 16 July to serve that application out of the jurisdiction.  Again, there is evidence before the court that service was made on each defendant.
6.	The matter can conveniently be dealt with by reference first of all to defendants one and three to seven, who are out of the jurisdiction.  In one form or another it is alleged that they are connected with the first defendant.  I shall then consider the position of the second defendant, who is within the jurisdiction, and, as I shall explain, has been represented before me by Mr Hood this morning.
7.	I should also say that by reason of CPR Part 58.8, this being a Part 7 claim in the commercial list, where a defendant fails to file an acknowledgment of service, the claimant need not serve particulars of claim before he may obtain or apply for default judgment.  However, the claimant is, of course, restricted to a default judgment on the basis of the statement of case, here the claim form, see CPR, part 12.1.
8.	It is plain in my judgment that the circumstances in which a judgment in default can be obtained have arisen so far as the first and the third to seventh defendant is concerned.  The defendants have been duly served.  They have neither filed an acknowledgment of service nor a defence, and the relevant period for doing so has expired.  
9.	It follows that, so far as these defendants are concerned, the claimant is entitled to judgment in default as follows: a judgment in the principal sum of £2,661,892.24, together with interest which I am told has been calculated at a rate of 8 per cent from the date upon which each of the payments premia were made to the first defendant or the various companies which comprise the third to seventh defendants.  
10.	I should mention that the background of this claim is on the basis that the claimant is entitled to recover these payments of premia, because it is obliged to pass them on to the parties for which the insurance was effected, but in reality not effected at all, as alleged in the claim form.  The amount of interest on 11 August 2008 amounts to £595,060.93.
11.	That deals with all the defendants apart from the second defendant, who, as I have said, is within the jurisdiction.  When one looks at the claim form so far as he is concerned, it is asserted that he was a director of the claimant, see paragraph 2.  I was told orally this morning that this is not quite right.  He resigned as a director in March 2006 and was reappointed on 27 July 2007.  However, Mr Smith submits, maybe rightly, that he remained subject to fiduciary duties throughout.
12.	In his case, the position is different, because on 27 July, about three weeks out of time, he filed or purported to file an acknowledgment of service by which he indicated an intention to defend all of the claim.  By a witness statement that is presently unsigned but which I am told will be signed during the course of the day, supported by a skeleton argument, the second defendant says simply this: he was under a misunderstanding, he says, as to the necessity of the filing of an acknowledgment of service.  When he realised that judgment might be signed against him, he did so, albeit late.  He is in straitened circumstances and is subject to a freezing order, but nevertheless, has managed to obtain through a third party funds which have enabled him to obtain legal advice.  That legal advice was obtained only on Friday, 8 August, in other words just before the hearing today on Monday, 11 August.  It is submitted that it is only fair that in those circumstances, judgment in default should not go against him.
13.	In that regard he makes an application for the extension of time for the acknowledgment of service to 31 July 2008.  That application has not yet been filed, but again I'm told that it will be filed with the court today, and will proceed on that basis. 
14.	Mr Smith in helpful submissions, both written and oral, has taken me to a draft statement by the second defendant, which is made, according to the date on it, on 29 March 2008.  What he submits is that there really is no point in the court allowing this matter to go forward, because, on the basis of the second defendant's own statement, there is no prospect of any successful defence of the claim.  He accepts that he cannot proceed on the basis of the pleaded claims in fraud or conspiracy, but says that the claim can be limited.  
15.	The claim is not presently limited in the claim form, but he has made it clear that the administrators, for the purposes of dealing with this matter in the most sensible, expeditious and indeed economical way, would be prepared to limit it to a claim in relation to breach of fiduciary duty, that is abandoning all claims based on conspiracy or fraud, and limiting it in terms of amount to the sums in relation to premia attributable to the improper business from August 2006.  That makes a total of £1,396,199.38, as to which there is also a claim for interest.  I need not, I think, go through the statement to see how he makes good his argument, but in particular, if one looks at pages 33 of the statement at the bottom, and 34 at the bottom and continuing over to page 35, Mr Smith submits that, really, it is perfectly plain that the second defendant has accepted that he knew or suspected or was reckless as to whether the first defendant had authority to transact this business from August 2006 at the latest, and that therefore, to that extent, there being no defence, the matter should end here.
16.	I had considerable sympathy, I have to say, with that submission, though I am in some doubt as to whether he is right that a default judgment can be entered where there has in fact been an acknowledgment, albeit late.  But even if that is so, it seems to me that it would be unfair on the second defendant to allow judgment to be entered against him in default in circumstances where he has in fact filed an acknowledgment and where he has only just had the benefit of legal advice.   
17.	It is submitted by Mr Hood, and I believe submitted with considerable force, that he is unable at this point in time to give sensible advice to his client as to whether in fact the administrator is correct to say that, at least as limited, there is no defence to a claim in the lesser sum, and that therefore the amount that would be spent by the second defendant on lawyers defending the claim would simply be amounts that are further waste.  It seems to me he must have an opportunity to consider that with his lawyers, and it is in everybody's interest that he would be able to reach an informed conclusion.
18.	Mr Smith rightly did not seek today to advance the summary judgment application that was foreshadowed in his skeleton argument.  However, he made it clear that the administrators would wish, if I give permission to file the acknowledgment of service out of time, to proceed to summary judgment and would seek, as it were, tight directions with that in mind.
19.	Given, as I have indicated, that I am going to extend time to file the acknowledgment of service, a summary judgment application becomes possible and I will hear counsel as to any points of detail in a moment.  But in principle, my view is that the administrators should have permission to file summary judgment proceedings tomorrow.  I see no reason why they should not do so on the basis of the existing evidence.  That will need to be set out in the order, I think.
20.	The second defendant will need time to put in evidence in response if he decides that that is a course that it is his wish, or in his interests, to take.  Mr Smith has asked for a very tight turnaround time of about two weeks.  Mr Hood has asked for six weeks.  It is August, and the fact of the matter is that people do go on vacation at this time of year.  I would prefer to have a situation in which Mr Bedford can take realistic advice as to what is in fact the best way forward for him in the position in which he finds himself, rather than make the timetable so tight that in practice proper advice is hampered.  So I propose to allow four weeks for the evidence in response, two weeks for any evidence from the administrators in response to that, and as present, subject to hearing from Mr Hood, I think that, as Mr Smith suggests, a day for the hearing is probably about right.