A guide to setting aside default judgment

A default judgment it is a judgment which has been obtained by a claimant by default because the defendant has failed to respond to the claim.  The judgment is granted without the court considering any evidence or submissions from the defendant.

When a claim is brought in the County or High Court, and the defendant to that claim fails to respond within the specified time limits, either by filing an acknowledgment of service and/or a defence to the claim, a default judgment can be entered against a defendant.

Consequences of a default judgment

A default judgment can be enforced against the defendant in the same way as a judgment obtained following a final court hearing, and can therefore be used to obtain a charging order against the defendant’s property, to instruct bailiffs to recover the debt, to apply for an attachment of earnings order or the commencement of bankruptcy (if the debt is £5,000 or more) or insolvency proceedings (if the debt is £750 or more).

What action to take if default judgment has been entered against you

Defendants that consider default judgment has been entered wrongly against them or have failed to respond to the claim and now wish to defend the claim, must act promptly and apply to the court to set aside the default judgment.  The court will only set the judgment aside if the grounds for setting aside judgment are met.

The steps you will need to take:

1. Identify what happened – did you receive the claim and ignore it? Or have you never received the claim? Make enquiries to check whether the claim may have been sent to a postal address associated with you and/or whether a third party or employee is aware of receipt.
2. Collect the evidence to support your position – if you did respond to the claim, but your response appears to have been lost, what evidence do you have that it was sent? If you did not respond to the claim within the time limits, can you explain why?  If you have been out of the country or in hospital for a period of time, collect evidence to show this.
3. What is your position in respect of the claim – do you dispute it or do you accept that you owe money to the claimant and if so, how much? If you dispute the claim, what is your defence?  Collect any evidence you have to support your defence.
4. Speak to a solicitor quickly to obtain advice on:

1. 1. Making an application to set judgment aside if appropriate;
   2. Your prospects of setting judgment aside;
   3. The merits of any defence you have; and
   4. If you admit the claim, what options you have for negotiating time to pay and how to avoid the judgment formally registered against you

It is important that you can show the court that you satisfy the grounds for setting judgment aside and this, to some extent, may require you to explain what your defence is and why you have reasonable prospects of defending the claim.  We recommend that you seek legal advice if you need to apply to set judgment aside because you only have one opportunity to do so.  It is also important to note that, even if the judgment is for a small amount of money, if the value exceeds the thresholds for insolvency proceedings mentioned above are met then further consequences can follow if a judgment remains unpaid.

Applying to set aside default judgment

As soon as you become aware that you need to apply to the court to set aside judgment, it is usually sensible to contact the claimant or their solicitors to inform them that you intend to defend the claim and to seek their consent to set aside the judgment.  Providing them with a copy of your proposed defence may encourage the claimant to agree to the application.

It is important to note that only the court can set aside the judgment and so you will need to make an application to the court regardless of whether consent is obtained, but seeking the claimant’s consent may mean that the claimant chooses not to oppose the application and/or decides not to attend the hearing which will reduce the costs incurred by the claimant. 

If consent is refused by the claimant, but your application is successful, your attempt to seek consent may place you in a better position when the court is deciding costs.  If you are applying to set aside judgment because of your own error, rather than an error made by the claimant, it is likely that you will be ordered to pay your own and the claimant’s costs associated with the application but seeking the claimant’s agreement to the application, as mentioned above, may help to reduce the costs that they incur.

The court rules for setting aside or varying a judgment are set out in Civil Procedure Rule 13.

If default judgment has been entered incorrectly then the court will set it aside, although an application will usually need to be made.  If default judgment has been entered correctly, the defendant can still apply to set the judgment aside but will need to convince the court that the test for setting judgment aside has been met.

Circumstances in which default judgment must be set aside.

Failure to file an acknowledgement of service

Judgment must be set aside if:

• The defendant filed an acknowledgment of service within the time limits
• The defendant applied for summary judgment before default judgment was entered
• Before default judgment was entered, the defendant filed and served on the claimant an admission of liability to pay all the money claimed
• The whole of the claim was satisfied prior to default judgment being entered

Failure to file a defence

Where the defendant has failed to file a defence the court must set aside default judgment if:

• A defence was in fact filed within the time limits
• The defendant had applied for summary judgment before default judgment was entered
• Before default judgment was entered, the defendant filed and served on the claimant an admission of liability to pay all the money claimed
• The whole of the claim was satisfied prior to default judgment being entered

Circumstances where the court may set judgment aside

The court may set aside default judgment if:

• The defendant can show that it has reasonable prospects of successfully defending the claim; or
• It appears to the court there is some other good reason why:

- the judgment should be set aside or varied; or

- the defendant should be allowed to defend the claim.

The rules specifically state that in considering whether to set aside a judgment, the court must have regard to whether the person seeking to set aside the judgment acted promptly. This is a mandatory consideration for the court and therefore it is imperative that an application to set aside judgment is made promptly.   It is also open to the court to attach conditions to any order that it makes.

It is not enough to simply show that there is a potential argument against the claim. The defendant will have to show that it has a realistic prospect of defeating the claim.  It is often therefore helpful for the defendant to have a draft defence ready to file with the court which sets out what the defence is and the details of any facts which are disputed and why.  This will enable the court to more easily assess whether the defence has real prospects of success.

In considering an application to set aside judgment the court’s discretion must be exercised in accordance with the overriding objective to deal with cases fairly.

The process for setting aside default judgment

1. Collect the evidence to support your application (including an explanation as to why you did not respond to the claim within the time limits and why you have prospects of defending the claim)
2. It is usually sensible to contact the claimant or their solicitors to inform them that you intend to defend the claim and seek their consent to set aside the judgment. You will need to make an application to the court regardless of whether consent is obtained, but seeking consent may mean that the claimant does not oppose the application, potentially reducing the costs of the application.  If consent is refused by the claimant, but your application is successful, your attempt to seek consent may place you in a better position when the court is deciding costs.
3. An application will need to be made quickly to the court to set aside judgment which your solicitor can prepare for you. Alternatively you can access the application form N244 from the court website.  There is a guidance note on how to complete the form.  The application will need to set out why default judgment should be set aside, and evidence that the grounds for setting aside have been met.
4. The application will need to be sent to court with the court fee of £255 (if applicable) and to the claimant or their solicitors, if solicitors are appointed.
5. Written confirmation will be received from the court that the application has been received. It is likely that the court will schedule a hearing to consider the arguments for setting the judgment aside. The claimant may oppose your application and make submissions in opposition. The court may also set additional directions for the parties to follow.  

Recent case studies

The following recent applications we have made on behalf of clients to set aside default judgment highlight some of the issues that can arise.

Defective claim form and incorrect service address

Company A Ltd issued a claim against a sole trader Mrs X for £100,000 for breach of warranty following the purchase of Mrs X’s business. Shortly before issuing the claim, the claimant had changed it’s name from A1 Ltd to A Ltd.  The claim form, however, stated the name of the claimant incorrectly as Company A1 Ltd.  Company A1 Ltd, by chance, existed as another entity which was unconnected to the dispute.  The claim was sent to an address that Mrs X had previously resided at, rather than her current address.  The address was a block of flats but no flat number was specified.  The claim was not acknowledged or defended by Mrs X and the Claimant obtained default judgment.  The claimant subsequently served a statutory demand on Mrs X (threatening bankruptcy proceedings in the event that payment was not received within 21 days) and sent to her a copy of the default judgment by WhatsApp message. Mrs X applied to set aside the default judgment on the following grounds:

• The claim form (and therefore the default judgment) was defective, naming the incorrect claimant;
• The claim was served on the incorrect address – it was not the last known address because the claimant had knowledge that Mrs X had moved house approximately 3 years ago;
• The claimant had not complied with the pre-action protocol;
• There was a real prospect of successfully defending the warranty claim because the business had not achieved the expected growth in turnover as a result of the claimant’s own inaction rather than as a result of the defendant’s breach of warranty; and
• Upon receipt of the WhatsApp message, Mrs X immediately contacted the claimant and explained that she had not received the details of any claim

An application was also made to set aside the statutory demand on the basis that the claim form and therefore the default judgment was defective and that the defendant had not been properly served with the claim form.      

Set aside of default judgment and stay of execution

We have recently assisted a large organisation that found itself on the receiving end of a default judgment after the claimant attempted to serve the court proceedings at an address operated by the organisation’s mail processing provider. 

The organisation only discovered that the proceedings had been issued when it discovered the existence of the default judgment. We made an application to the court to set aside the default judgment on the grounds that both the address at which the proceedings were served was not an appropriate address for service and our client had a real prospect of successfully defending the proceedings.

Shortly thereafter, an enforcement officer arrived at premises operated by the organisation, with a large lorry seeking to seize goods including computers and other equipment, in order to satisfy the unpaid judgment. We then successfully made an urgent application to the court to stay execution of the warrant  until the hearing of the separate application to set aside the judgment.   

The claimant later consented to the setting aside of the default judgment, which was recorded in a consent order which also provided for procedural directions including the filing of a defence by our client.

Set aside of default judgment due to COVID-19 pandemic

Melanie Stanley v London Borough of Tower Hamlets [2020] EWHC 1622 (QB)

In the above case the High Court recently set aside default judgment after the proceedings were served on an empty office during the COVID-19 lockdown period.  The rules relating to service of proceedings permit a claimant to serve court proceedings on a defendant by post to their last known address.  In the Stanley case, however, Mr Justice Knowles found that the claimant’s solicitor “knew or should have known [the defendant’s offices] were shut and the [defendant] was highly unlikely to be in a position to respond”. The court took the view that the claimant’s solicitor “was at fault for not checking whether service by post was still possible and feasible” and that it would have been “unconscionable” to have allowed the claimant to benefit from the “unprecedent health emergency” of COVID-19 and that whilst it was noted the Claimant had not deliberately sought to gain an unfair advantage over the defendant as a result of the lockdown, the claimant’s solicitor had “exercised poor judgment”.  The court therefore took that view that had it not been for the COVID-19 crisis and the defendant’s offices being shut, the defendant would have responded to the claim on time.

It is worth pointing out that the service of the claim on an empty office during lockdown was not the only reason for setting the judgment aside and this argument alone is unlikely to be enough to successfully set aside judgment – as required by the test, the court was also satisfied that the defendant had a real prospect of defending the claim based on the evidence supporting the application to set aside judgment.

Top tips for avoiding default judgment being entered against you.

• Ensure that someone is responsible for opening post daily at all residential or business locations
• if you receive notice of court proceedings being issued against you, do not ignore it. You must respond within the time limits specified. Speak to a solicitor for advice on the claim and what steps to take next
• Don’t leave it until the last minute. Leave sufficient time for your response to be received within the time limits.
• Your response to the claim form must be sent to the address for the response on the claim form and the court
• Keep a record of any responses you send to the court and the claimant so that you have evidence that you responded to the claim. Sending the forms by email as well as post (with proof of postage) may assist in proving that you responded to the claim.
• Keep a record of any telephone conversations you have with the claimant or their solicitor and the court. Whilst you have to respond to a claim form formally in writing, any telephone calls you have may be helpful to your position if something goes wrong.
• If you use an invoice handling provider or mail room facility, ensure there are robust processes in place to filter out official court documents such as claim forms or enforcement notices so that these documents can be brought to your attention as quickly as possible

Glossary

Acknowledgement of service – a court form which acknowledges receipt of a claim form.  You should complete the form and return it to the court and the claimant within the time period specified.  When filed and served correctly, this form provides you with further time in which to file a defence.

Attachment of earnings - this is a method by which money is taken from a person’s wages to pay a judgment debt.  The employer is required to make payments to the court, which in turn sends the payment to the judgment creditor.

Defence – a document setting out in brief detail the reasons why you dispute the claim.

Overriding objective  - the objective to deal with cases justly and at proportionate cost

Warrant of Execution – a court document which entitles an enforcement officer (bailiff) the power to visit your home or business to collect the money owed or seize goods to the value of the money owed.