Newland Shipping And Forwarding Limited v Toba Trading Fzc Seyed Majed Taheri Hossein Rahbarian [2014] EWHC 1986 (Comm)

[2014] EWHC 1986 (Comm)Case No 2011 FOLIO 1213
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 18/06/2014
Before
THE HON. MR JUSTICE MALES
Between
NEWLAND SHIPPING AND FORWARDING LIMITEDClaimantTOBA TRADING FZCDefendantsSEYED MAJED TAHERIDefendantHOSSEIN RAHBARIANDefendant
Mr Alan Maclean QC (instructed by Holman Fenwick Willan LLP) for ClaimantMr Peter Ferrer (instructed by Stephenson Harwood LLP) for Third DefendantHearing Hearing date: 13 th June 2014
JudgmentMr Justice Males :Introduction
[1]This is an application by the third defendant Mr Hossein Rahbarian to set aside a default judgment entered by Field J on 15 November 2013. The judgment initially entered was in the sum of US $7,260,382, but that sum was subsequently varied to US $6,605,673 by an order made by Hamblen J on 7 February 2014.[2]This application was made pursuant to CPR 13.2 on the basis that Mr Rahbarian had not been validly served with the proceedings, and also pursuant to CPR 13.3 on the basis that he had a real prospect of successfully defending the claim and/or that there was some other good reason why the judgment should be set aside.[3]However, Mr Peter Ferrer (who represented Mr Rahbarian) abandoned reliance on CPR 13.2, accepting that the proceedings have been validly served on Mr Rahbarian and that this court has jurisdiction. Accordingly the first question is whether Mr Rahbarian has a real prospect of successfully defending the claim (the same test as applies on a summary judgment application) or there is some other good reason why the judgment should be set aside. If so, the court has a discretion to set the judgment aside and, in considering how to exercise that discretion, is required by CPR 13.3(2) to have regard to “whether the person seeking to set aside the judgment made an application to do so promptly.”[4]Further, at least at first instance, it is established (and was common ground before me) that an application to set aside a default judgment pursuant to CPR 13.3 is an application for relief against sanctions: see Samara v MBI & Partners UK Ltd [2014] EWHC 563 (QB) (Silber J); and Mid-East Sales Ltd v United Engineering & Trading Company (PVT) Ltd [2014] EWHC 1457 (Comm) (Burton J). The analysis here is that CPR 10.3 requires a defendant served with a claim form to file an acknowledgement of service within a specified period and that CPR 10.2 provides, as a sanction, that if the defendant fails to do so the claimant may enter judgment.[5]CPR 3.9(1) provides that:
"On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need— (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders."
[6]As is now well known, CPR 3.9 must be applied in accordance with the guidance set out in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537, [2014] 1 WLR 795, delivered on 27 November 2013 two weeks after Field J ordered that judgment be entered against Mr Rahbarian in this case. As Mr Alan Maclean QC who represented the claimant observed, that judgment went round the English legal profession like wildfire. It is possible, however, that its full implications were not pored over with the same intensity in Iran where Mr Rahbarian resides, he being at that time unrepresented in this action.[7]Mitchell has, to say the least, proved to be a controversial decision, but until it is reversed or modified by a higher court it is binding on first instance judges. The guidance which it contains has now been considered (I was told) in over 40 reserved judgments available on the internet. This, I suppose, will make one more. For present purposes a useful summary is provided by Davis LJ in Chartwell Estate Agents Ltd v Fergies Properties SA [2014] EWCA Civ 506 at [34]:
“Regard must of course be had to the totality of the decision in Mitchell. But the guidance can, I think, for present purposes be summarised as follows: i) It is necessary to consider whether the nature of the non-compliance is such that it can be regarded as trivial. ii) If the non-compliance is not trivial, it is necessary to consider whether there is a good reason explaining the non-compliance. iii) The promptness (or otherwise) of an application to court for an extension of time and relief from sanction for these purposes will be material. iv) If the non-compliance is not trivial and if there is no good reason for the non-compliance then the "expectation" is that the sanction will apply. The court has power to grant relief but, if the non-compliance is not trivial and if there is no good reason for it, the expectation is that the factors mentioned in (a) and (b) of the rule will ‘usually trump other circumstances’.”
See, in particular, paragraphs 40-41 and 58 of the judgment of the court. It is also stated (at paragraph 46): ‘The new more robust approach that we have outlined above will mean that from now on relief from sanctions should be granted more sparingly than previously’.” i) It is necessary to consider whether the nature of the non-compliance is such that it can be regarded as trivial. ii) If the non-compliance is not trivial, it is necessary to consider whether there is a good reason explaining the non-compliance. iii) The promptness (or otherwise) of an application to court for an extension of time and relief from sanction for these purposes will be material. iv) If the non-compliance is not trivial and if there is no good reason for the non-compliance then the "expectation" is that the sanction will apply. The court has power to grant relief but, if the non-compliance is not trivial and if there is no good reason for it, the expectation is that the factors mentioned in (a) and (b) of the rule will ‘usually trump other circumstances’.”[8]Chartwell, it should be noted, was a case where the non-compliance was not trivial and there was no good reason for it, but where Globe J’s decision to grant relief was upheld by the Court of Appeal. As Davis LJ explained at [57], the interests of

justice remain a highly relevant consideration:

“It must not be overlooked that the Court of Appeal in Mitchell did not say that the two factors specified in CPR 3.9 will always prevail, as a matter of weight, over any other circumstances in a case where the default is not trivial and where there is no good justification. It is true that it later stated that the expectation is that the two factors mentioned in CPR 3.9 will ‘usually’ trump other circumstances. But it did not say that they always will. That, with respect, must be right. It must be right just because CPR 3.9 has required that all the circumstances are to be taken into account and has required that the application be dealt with justly.”
[9]In addition to this general guidance which applies to relief against sanctions for any kind of failure to comply with rules or court orders, CPR 13.3 cross-refers to CPR 3.1(3), thereby drawing attention to the court’s power to attach conditions to any order which it may make to set aside a judgment. That indicates, to my mind, that when considering the exercise of discretion under CPR 13.3, the court should bear in mind that the entry of a default judgment may operate as an extreme sanction and that justice may be done by making the setting aside of such a judgment subject to conditions, for example as to the provision of security for some or all of the claim. That may represent a more proportionate sanction, requiring a defendant who has hitherto ignored the proceedings to demonstrate his commitment to them by, as it were, putting some of his money where his mouth is. But as ever, what is appropriate will always depend on the particular circumstances of the case.

The background

[10]This dispute has already given rise to a somewhat tangled history. This is set out in the judgment of Hamblen J dated 6 February 2014 [2014] EWHC 210 (Comm) at [3] to [34] which, for ease of reference, I set out below: “Factual Background[3]The Claimant, Newland Shipping and Forwarding Limited, supplied oil products to D1, which is an Iranian owned UAE company engaged in the business of trading oil and gasoline related products. D1 made certain advance payments but failed to pay the full amount due for the cargoes. The cargoes were sold elsewhere. A series of advance payments therefore built up which the parties agreed (by a contract dated 6 February 2011) would be deducted from sums due in respect of a series of five further cargoes, which in each case were to be delivered CFR Iranian Caspian Port.[4]The Second Defendant, Seyed Majed Taheri ("D2"), is said to be the commercial manager, shareholder and an (or the) alter ego of D1. D3 is said to be a board member, managing director and an (or the) alter ego of D1.[5]The Claimant's case is that, rather than waiting for reimbursement to be made in five stages as had been agreed, the Defendants resorted to stratagems to attempt to obtain the cargoes before payment. In the 1213 Action, D1 did obtain a cargo worth over $4 million formerly on board the vessel "TETI". The Defendants gave various reasons for delaying payment until the TETI finally put into port in Neka in Iran. Shortly afterwards, the cargo was arrested by the Iranian Courts in allegedly contrived proceedings between D1 and a company ("Chirreh"), which was (as is common ground) a company controlled by D3's sister.[6]In the 1214 Action, which relates to the delivery of cargo by rail, D1's alleged ruses to obtain the cargo without payment were unsuccessful, and the cargo was eventually sold elsewhere by C in a distressed sale. The claim in this action is only brought against D1.[7]The principal claim in the 1213 Action is for the purchase price of about US$4.5 million, and in the 1214 Action for the purchase price of about US$1 million, together in both actions with damages claims including (in the 1213 Action) a claim for conspiracy and conversion of the goods.[8]In both the 1213 and the 1214 Actions, D1 counterclaims for its advance payments of some US$3.6 million. There is an issue in respect of the counterclaims as to whether the 6 February 2011 contract was a compromise agreement which settled how D1 would recover the advance payments, and (if so) whether D1 (in concert with D2 and D3) acted in repudiatory breach of that agreement. Procedural history[9]The Claim Forms in both Actions were issued on 12 October 2011.[10]The only claim initially advanced under the Claim Form in Action 1213 was a contractual claim for failure to pay the purchase price of US$4,534,120.48 and wrongful repudiation of the contract. The claim was only advanced against D1 as the counterparty under the Contract.[11]Following the order allowing service out of the jurisdiction, the Claimant served Particulars of Claim in Action 1213 dated 26 January 2012. These particulars alleged for the first time unlawful conspiracy and conversion.[12]On 14 May 2012, the Claimant sought to amend the Claim Form in Action 1213 to add D2 as a party to the contractual claim.[13]On 29 June 2012, the Claimant filed its application to amend.[14]On 18 July 2012, D1 and D2 applied to strike out the Claim Form and Particulars in Action 1213, alternatively for an order for summary judgment.[15]The Claimant's application dated 29 June 2012 and D1 and D2's application to strike out/summary judgment was due to be heard on 2 November 2012.[16]Shortly before the hearing on 23 October 2012, the Claimant wrote to D1/D2's solicitors, Stephenson Harwood LLP, requesting an adjournment of both applications as they wished to further amend their particulars and issue applications in relation to joinder and service. D1 and D2 agreed to the adjournment of both applications on that basis and a consent order was drawn up.[17]On 11 January 2013, a further application to re-amend the Particulars of Claim was served and [to] add D3 together with various orders for alternative service.[18]On 8 February 2013, the Claimant's applications dated 29 June 2012, and 11 January 2013 to re-amend and the Defendants' application dated 18 July 2012 came before Cooke J on a CMC. Without prejudice to D1 and D2's application dated 18 July 2012, Cooke J gave permission to serve the amended claim form and amended Particulars of Claim in Action 1213 on D1, D2 and D3.[19]On 22 February 2013 a further short CMC took place before Cooke J. He ordered that the 1213 Action and the 1214 Action be heard together and at the same time. The two Actions were fixed for a 6 day trial commencing on 24 February 2014.[20]D1 and D2's application dated 18 July 2012 was listed for May 2013, but was adjourned by agreement because of ongoing settlement discussions. It was later re-listed for hearing in January 2014, but this was stood out following Field J's order.[21]D1/D2 (but not D3) had already applied for security for costs from the Claimant. The matter came before the Court on 26 July 2013. Popplewell J dismissed the application and gave directions down to trial. He gave the following directions ‘in respect of 2011 Folio 1213’:
‘(a) Standard disclosure is to be made by 20 September 2013, with inspection 7 days after notice. (b) Signed witness statements of fact and hearsay notices in 2011 Folio 1213 are to be exchanged by no later than 25 October 2013.’
[22]There was no need to give directions in Action 1214 as disclosure had already taken place, witness statements had been exchanged and the action was ready for trial.[23]On 30 September 2013, following an agreed extension of 10 days, the parties exchanged disclosure lists. Separate lists of documents and disclosure statements were not provided by D1 and D2. Instead an allegedly deficient disclosure list was provided by Stephenson Harwood LLP (purportedly on behalf of D1 and D2, but contrary to E3.2 of the Admiralty and Commercial Court Guide which requires separate lists from each party). Inspection was provided on 13 October 2013.[24]Exchange of witness statements had been ordered to take place on 25 October 2013. On 24 October 2013, the Claimant's solicitors, Holman Fenwick & Willan LLP ("HFW"), received a letter from Stephenson Harwood LLP indicating that they were no longer acting for the Defendants, and asking that further communications be addressed to ‘Iranian legal counsel’ at two yahoo email addresses that the letter provided. The letter from Stephenson Harwood LLP indicated that their former clients had asked them to pass on a request for an extension of time "for exchange of witness statements and regarding disclosure" of one month. HFW responded indicating that they did not agree to any extension and explained that the Claimant would be sending copies of its statements to Stephenson Harwood LLP to be held in escrow.[25]On 29 October 2013, the Claimant's application seeking judgment against the Defendants for non-compliance with the court's orders was served on Stephenson Harwood LLP. A copy was also sent to the two yahoo email addresses that Stephenson Harwood LLP had provided. The email serving the application informed the parties that HFW's clerk would be attending the listing office of the Commercial Court on the next day to fix a hearing. In the event, no representative of any of the other parties attended. On 1 November 2013, HFW therefore informed all relevant parties of listing arrangements for the hearing.[26]On 30 October 2013 D1 and D2 wrote to the court in the following terms, without copying in the Claimant or HFW:
‘We regret to inform that our solicitor Mr Rovine Pradeep Chandrasekera of Messrs STEPHENSON HARWOOD LLP has caused us some difficulties whilst we do not deny that we had some financial disagreement with each other; 1) He informed us on Wednesday (23rd Oct. 2013) that he had resigned; as a result we didn't have enough time to prepare our witness statement in the two remaining days considering the fact that we could not have any access to new and vital documents in the claimant's disclosure list. 2) He unreasonably refused to submit to us the relevant documents sent by Holman Fenwick Willan LLP during the process of disclosure and to prepare the witness statement to be exchanged on 25th October 2013. Considering the foregoing and the remaining time, it has been impossible for the witness statement/s to be exchanged on time, pursuant to Court Order on 26th July 2013; therefore we need more time to prepare the relevant witness statement. 3) We wrote to the claimant's attorney (via email) on 25th Oct. 2013 regarding this situation and asked him to delay the exchange of the witness statement which was not accepted by him. 4) We asked for several times from our solicitor to request a 30-day adjournment following disclosure documents exchange for witness statement but he did not do so. Finally, we request for a one-month adjournment (extension of time) in order to be able to submit the witness statement.’
[27]On 1 November 2013, an email was received from a Ms Farivar at one of the yahoo email addresses, which requested details of the hearing that would be taking place on 15 November 2013. HFW responded the following day cross-referring to the Claimant's application dated 29 October 2013, and noting that HFW would continue to update Ms Farivar of the time and exact location of the hearing as soon as these details were available.[28]D2 (Mr Taheri) then contacted the Claimant and requested permission to attend the hearing by video link, which the Claimant helped to facilitate. Although D1/D3 were copied into all of the correspondence with D2 relating to his request to attend by video link, no similar request was made by or on behalf of D1 or D3.[29]Also on 8 November 2013, HFW received from Stephenson Harwood LLP an order signed by Males J dated 4 November 2013. This confirmed that Stephenson Harwood LLP had ceased to act for the Defendants, but provided no alternative address for service.[30]Very shortly before the hearing before Field J an email was received from Ms Farivar on behalf of D1/D3 requesting that the hearing be adjourned due to difficulties in obtaining a visa. A similar request was made to the Court on 12 November 2013, but not copied to the Claimant or HFW. It stated that: ‘1. We write to raise this fact that since our former solicitor, Stephenson Harwood LLP, ceased to act for us and an Order made by Males J on 4th November for the removal of Stephenson Harwood LLP from the court record, it is practically impossible for us to represent ourselves in the court hearing listed for 15 Nov. 2013 or to engage a new solicitor to attend the said hearing on behalf of us having regard to the brief time remained. Considering this fact, we seek an adjournment of the above mentioned hearing for a proper time based on the court discretion.[2]As a sign of good faith and in order to not delay the court proceeding, we applied for UK visa to attend 15th Nov. listed hearing; however, we have been unable to obtain the visa yet as it is a time-consuming process and British embassy is not active in Iran so we had to apply for visa through neighbouring countries.[3]As we mentioned in our Application for Adjournment of exchanging Witness Statements dated 30th Oct. 2013, our former solicitor, Stephenson Harwood LLP, unreasonably refused to submit to us the relevant documents sent by Holman Fenwick Willan LLP during the process of disclosure so we were unable to prepare our witness statement on time. We arranged to collect the said documents from our former solicitor in order to make our witness statement. Therefore, the requested adjournment for exchanging Witness Statement is again sought based on the foregoing facts[4]The Original hard version of this Application shall be promptly dispatched to the court office via a first class courier (like DHL).’[31]On 13 November 2013 a letter was received from Andrew Smith J directing that the 15 November 2013 hearing would not be adjourned. This was responding to an adjournment request that had previously been made by D2, although since the letter is sent to the info@tobatrade.com address as well as to D2, it may also have been responding to (and rejecting) D1/D3's request for an adjournment.[32]The hearing went ahead before Field J on 15 November 2013. The Claimant's skeleton argument for the hearing has been provided, but there is no transcript of the hearing or of the ruling made. D2 attended the hearing by video link. D1 and D3 did not attend or appear at the hearing.[33]Field J made the orders against D1 and D3 summarised in paragraph 2 above. He made no such order against D2, although D2 was ordered to provide specific disclosure and it was ordered that if he failed to comply with the timetable set down the Claimant would have leave to apply for judgment.[34]It is unclear whether D2 immediately informed D1/D3 of the outcome of the proceedings. In any event, D1/D3 were served with a copy of the order on 20 November 2013. There was then a delay of a further month until the present application was issued on 19 December 2013. This was probably because of ongoing discussion about fees between D1/D3 and their former solicitors. It appears Stephenson Harwood LLP were not reinstructed until 27 November 2013, and were then not paid until 10 December 2013.” Procedural history ‘(a) Standard disclosure is to be made by 20 September 2013, with inspection 7 days after notice. (b) Signed witness statements of fact and hearsay notices in 2011 Folio 1213 are to be exchanged by no later than 25 October 2013.’ ‘We regret to inform that our solicitor Mr Rovine Pradeep Chandrasekera of Messrs STEPHENSON HARWOOD LLP has caused us some difficulties whilst we do not deny that we had some financial disagreement with each other; 1) He informed us on Wednesday (23rd Oct. 2013) that he had resigned; as a result we didn't have enough time to prepare our witness statement in the two remaining days considering the fact that we could not have any access to new and vital documents in the claimant's disclosure list. 2) He unreasonably refused to submit to us the relevant documents sent by Holman Fenwick Willan LLP during the process of disclosure and to prepare the witness statement to be exchanged on 25th October 2013. Considering the foregoing and the remaining time, it has been impossible for the witness statement/s to be exchanged on time, pursuant to Court Order on 26th July 2013; therefore we need more time to prepare the relevant witness statement. 3) We wrote to the claimant's attorney (via email) on 25th Oct. 2013 regarding this situation and asked him to delay the exchange of the witness statement which was not accepted by him. 4) We asked for several times from our solicitor to request a 30-day adjournment following disclosure documents exchange for witness statement but he did not do so. Finally, we request for a one-month adjournment (extension of time) in order to be able to submit the witness statement.’ ‘1. We write to raise this fact that since our former solicitor, Stephenson Harwood LLP, ceased to act for us and an Order made by Males J on 4th November for the removal of Stephenson Harwood LLP from the court record, it is practically impossible for us to represent ourselves in the court hearing listed for 15 Nov. 2013 or to engage a new solicitor to attend the said hearing on behalf of us having regard to the brief time remained. Considering this fact, we seek an adjournment of the above mentioned hearing for a proper time based on the court discretion.[2]As a sign of good faith and in order to not delay the court proceeding, we applied for UK visa to attend 15th Nov. listed hearing; however, we have been unable to obtain the visa yet as it is a time-consuming process and British embassy is not active in Iran so we had to apply for visa through neighbouring countries.[3]As we mentioned in our Application for Adjournment of exchanging Witness Statements dated 30th Oct. 2013, our former solicitor, Stephenson Harwood LLP, unreasonably refused to submit to us the relevant documents sent by Holman Fenwick Willan LLP during the process of disclosure so we were unable to prepare our witness statement on time. We arranged to collect the said documents from our former solicitor in order to make our witness statement. Therefore, the requested adjournment for exchanging Witness Statement is again sought based on the foregoing facts[4]The Original hard version of this Application shall be promptly dispatched to the court office via a first class courier (like DHL).’[11]To this I would add that Stephenson Harwood came back on the record as the first and third defendants’ solicitors on 7 January 2014 and that on 22 January 2014 they served what they described as Mr Rahbarian’s list of documents in this action.[12]The application made to Hamblen J was an application by the first and third defendants for relief from sanctions under CPR 3.9, the sanction in question being Field J’s order entering judgment against them. In addition they applied under CPR 3.1(7) to vary or revoke the order of Field J. The application under CPR 3.1(7) succeeded in one limited respect in that judgment had been entered for the wrong amount which was duly corrected (see [47] of Hamblen J’s judgment) but otherwise was dismissed.[13]So far as Mr Rahbarian was concerned, the application under CPR 3.9 was held to be ill founded as it should have been made under CPR 13.3. Hamblen J said (at [58] to [60]): “58. It is clear that the judgment entered against D3 is a judgment in default. It was not a judgment entered on the basis of non-compliance with court orders. D3 has never acknowledged service and has therefore never got to the stage of being required to take or of taking steps in the proceedings.[59]Although the application form refers to CPR 3.5 the Claimant's skeleton argument (at para. 27) expressly sought default judgment against D3 and attached a copy of the Claimant's request for judgment in the relevant practice form. The supporting witness statement of Mr Parish similarly sought judgment in default (at para. 32). That was the appropriate application to be making in the circumstances.[60]As a judgment in default, the appropriate procedure for challenging it is CPR 13, not CPR 3.9. No such application has yet been issued. The proper party to the CPR 3.9 application is therefore D1, not D3.”[14]The remainder of Hamblen J’s judgment dealt with and rejected the first defendant’s application under CPR 3.9.[15]On 6 February 2014, when Hamblen J gave judgment, neither Samara nor Mid-East Sales Ltd had yet been decided. It is those cases which demonstrate that the principles which apply to an application for relief against sanctions must also be applied to an application to set aside a default judgment under CPR 13.3. Thus, while I respectfully agree that the application which Mr Rahbarian needed to make to set aside the default judgment against him was an application under CPR 13.3 which application he has now made, broadly speaking the same or similar considerations apply to the present application as would have applied to the application for relief against sanctions which he did make under CPR 3.9.[16]The trial of action 2011 Folio 1214 together with what was left of action 2011 Folio 1213 (in effect, once judgment was entered against the first and third defendants, only the claim against the second defendant Mr Taheri) had been listed to begin on 24 February 2014. Hamblen J’s order provided, however, that the claim against Mr Taheri in Folio 1213 would be adjourned pending resolution of any application by the first and third defendants for permission to appeal from his order and (in the case of Mr Rahbarian) to set aside the default judgment. As to permission to appeal, Hamblen J’s refusal of permission has now been confirmed by the Court of Appeal. As to any new application by Mr Rahbarian, Hamblen J ordered that:
“Any application by the Third Defendant in Action 2011-1213 to set aside judgment in default be made promptly, and be listed to be heard at the same time as the trial of Action 2011-1214.”
[17]In the event this application was issued on 17 February 2014 but only served on the following day, the Tuesday before the Monday on which the trial of Folio 1214 was due to begin. That trial was heard before Leggatt J who delivered judgment on 12 March 2014 upholding the claimant’s claim against Toba Trading FZC for a total of US $334,967.44 but also giving judgment for Toba on its counterclaim for US $2,495,592.60 (see [2014] EWHC 661 (Comm)). Leggatt J did not deal with Mr Rahbarian’s application to set aside the default judgment in Folio 1213. Mr Ferrer said that there was not time to do so at the hearing. Mr Maclean said that the principal reason for the fact that the application was not dealt with was that Mr Rahbarian had left it late to serve his application and supporting evidence and, as a result, needed more time to reply to the evidence served by the claimant in response so that he was not ready to proceed.

Real prospect of success

[18]The claimant’s case is that the defendants endeavoured (in the event successfully) to obtain the cargo on board the vessel “TETI” which was worth over US $4 million without the first defendant (Toba) paying for it, and that they gave various reasons for delaying payment until the vessel put into port in Neka in Iran. Shortly after that, the cargo was arrested in what are said to have been contrived and collusive proceedings between Toba and a company called “Chirreh” which, as is common ground, was managed by Mr Rahbarian’s sister. In summary, the circumstances in which this occurred are said to have been as follows:a. Toba and Chirreh entered into a contract which included a provision for a company called “Sea Road International Transportation Company” to act as arbitrator in the event of any dispute between them.b. Sea Road is a forwarding company of which the second defendant Mr Taheri is a director.c. Chirreh then asserted a trumped up claim against Toba which was purportedly arbitrated by Sea Road, resulting in a ruling in favour of Chirreh.d. It was on the basis of this ruling that the cargo was then arrested in Iranian court proceedings, after which it was discharged into tanks owned or controlled by Toba and/or Sea Road.e. There was then a settlement agreement between Chirreh, Toba and Sea Road in which the right to the cargo was assigned to Chirreh, presumably in settlement of that company’s claim.f. Despite this, however, and for no apparent reason, the cargo was then released by Chirreh to Toba.g. The net result of all this was that Toba succeeded in obtaining the cargo without paying for it.[19]The claimant says that this was clearly a conspiracy in which Mr Rahbarian participated as a director and managing director of Toba and in view of his family relationship with Chirreh. It relies further on a conversation which is alleged to have taken place in Iran on 22 June 2011 between Mr Rahbarian and a Mr Altayev. According to Mr Altayev, Mr Rahbarian made a number of admissions in the course of the conversation, namely that:(1) he had created fake documentation to secure the release of the cargo once it was discharged into shore tanks at Neka;(2) the defendants had persuaded the Iranian Court in litigation with Chirreh to value the cargo at only US $300,000-$400,000 (compared with its actual value of US $4.5 million);(3) the cargo had then been resold to an Afghan buyer at a price close to US $4.5 million;(4) Mr Rahbarian had received the proceeds, which were divided between himself and Mr Taheri; and(5) (in effect) the claimant was welcome try its luck in litigation in Iran, because Mr Rahbarian was impervious to legal action there.[20]Mr Rahbarian has not served a Defence, even in draft, or provided a witness statement, but through his solicitor Mr Rovine Chandrasekera of Stephenson Harwood he denies these allegations and relies on statements made by Mr Taheri. He maintains that there was a genuine dispute between Chirreh and Toba, that it is common in Iran for companies with family connections to do business together and (as a result) to have disputes from time to time, and that it is also common in Iran to appoint as arbitrator a person who is related to one or both parties to the dispute. As to the 22 June 2011 conversation, Mr Taheri’s evidence is that he was present and that although he does not speak or understand Russian, the language in which Mr Rahbarian and Mr Altayev spoke, Mr Rahbarian recounted the conversation to him and did not say anything along the lines alleged by Mr Altayev. He added that in any event what Mr Rahbarian is alleged to have said would not have been true.[21]A further and separate point made on Mr Rahbarian’s behalf is that there is litigation against Toba in Iran in which an entity called Petsaro Chemical AG is claiming an entitlement to the cargo which, if correct, would mean that the claimant did not have title (or a right to possession) which it was able to pass to Toba, and that this would provide Mr Rahbarian with a defence to the claimant’s claim.[22]Mr Maclean submitted that the evidence of a conspiracy involving Mr Rahbarian is overwhelming and that the limited evidence about the Petsaro litigation is too exiguous to make anything of it, while Mr Ferrer submitted that the claim against Mr Rahbarian is convoluted, that there is evidence from Mr Taheri which shows that there is at any rate a serious issue to be tried with a real prospect that the defence would succeed, and that the Petsaro litigation (which is not alleged to be collusive) gives rise to a real doubt as to the claimant’s title to the “TETI” cargo.[23]In my judgment the evidence of collusion between Chirreh and Toba and the involvement of Mr Rahbarian in such collusive litigation appears at this stage to be strong, at any rate as viewed by English law standards, although it is, I suppose, a theoretical possibility that methods of dispute resolution which to an English court would appear (to say the least) rather surprising may be viewed differently in Iran. As for the conversation on 22 June 2011, the admissions said to have been made by Mr Rahbarian are in a way almost too good to be true. While the conversation may have gone as Mr Altayev describes, I would attach relatively little weight to this without the evidence being tested by cross examination. The evidence about the Petsaro litigation is very limited, and it would not be safe to found any firm conclusions upon it, but I do not think it can be altogether ignored.[24]Viewing the matter overall I would conclude so far as liability is concerned that Mr Rahbarian has the kind of flimsy defence which, while it may possibly succeed, would give rise on a summary judgment application to an order for a substantial sum to be provided by way of security. However, while the claimant appears to have a strong case on liability, the quantum of its claim is not straightforward, consisting not only of the value of the “TETI” cargo (something over US $4 million), but also other sums amounting to over US $2 million. While the claim for the value of the cargo would appear to be well founded if liability is established, there appear to be grounds for disputing the claimant’s further damages claims. There is, therefore, a real prospect that the claimant has entered judgment for a sum to which it is not entitled.

Discretion

[25]From the account of the procedural background to this application which is set out above I would draw attention to the following matters which are particularly relevant for present purposes:(1) At all material times until they came off the record in November 2013, Mr Rahbarian was represented by Stephenson Harwood, an experienced firm of English solicitors who must have advised him that if he failed to acknowledge service, judgment was liable to be entered against him in default for the full amount claimed.(2) I can therefore conclude that his decision not to acknowledge service was deliberate and that he was content to take the risk that a default judgment would be entered against him. Mr Ferrer described Mr Rahbarian as having adopted a “head in the sand” approach. Whatever Pliny the Elder may have had in mind when he described the behaviour of ostriches in this way, I doubt that it applies to Mr Rahbarian. He would not have thought that he was out of sight of the claimant, although he may have thought that an English default judgment would not be enforceable in Iran and therefore that he was effectively out of range.(3) The failure to acknowledge service continued for many months.(4) Even after Stephenson Harwood came off the record, Mr Rahbarian was advised by an Iranian lawyer and was kept informed of the claimant’s application to enter a default judgment.(5) The only reason why Mr Rahbarian did not have the benefit of Stephenson Harwood’s advice and representation continuously appears to be that he failed to pay their fees.(6) There was a delay of about a month between Mr Rahbarian learning of the entry of judgment against him and the issue of his application for relief from sanctions. That was the wrong application for him to have made, but that seems likely to have been his lawyers’ error, not his, and in any event as the law has since developed, it has turned out that an application for relief from sanctions raises broadly similar issues as now arise on this application under CPR 13.3.(7) Hamblen J clearly envisaged that this application should be dealt with at the trial of Folio 1214. That expectation was disappointed, in part because Mr Rahbarian did not issue and serve his application for 12 days and in part because there was then insufficient time for the evidence to be completed. However, while that has meant that a further hearing has been necessary to deal with this application, it has had no greater impact. Thus it was apparent, once Hamblen J made his order, that the trial of whatever remained of the present action, Folio 1213, would take place separately from the trial of Folio 1214.(8) In fact the claim against Mr Taheri, the second defendant in this action, is not particularly advanced. If the judgment against Mr Rahbarian is set aside, there should be no difficulty in the two claims being aligned and proceeding to trial together. Mr Taheri served a Defence on 27 January 2014. Mr Rahbarian has not done so, but has provided what purports to be a list of documents.[26]In the light of these facts I consider how the court’s discretion should be exercised, which includes applying the Mitchell guidance and asking the questions summarised in Chartwell and quoted at [7] and [8] above.

Nature of the non-compliance

[27]It is necessary first to identify the non-compliance in question, in order to determine whether it can be regarded as trivial. The non-compliance here was Mr Rahbarian’s failure to acknowledge service. In one sense a defendant, at any rate a foreign defendant, is entitled not to acknowledge service and may wish to do nothing to submit to the jurisdiction of the English court. Indeed CPR 11 contemplates that a foreign defendant who has challenged the jurisdiction of the court unsuccessfully, and whose acknowledgment of service has ceased to have effect, may choose not to file a further acknowledgment of service. That is his right. However, the price of exercising that choice is that a default judgment may be entered against that defendant. Accordingly, in the case of a defendant who is seeking to have a default judgment set aside, the failure to acknowledge service in accordance with CPR 10.3 is to be regarded as a non-compliance with the rules, giving rise to the sanction of a possible default judgment.[28]In the present case Mr Rahbarian’s failure to acknowledge service was deliberate and was persisted in for many months, with knowledge of the risk that a default judgment would be entered. It continued even after he was warned that the claimant would be seeking an order for judgment to be entered at the 13 November 2013 hearing. In the context of an application of this nature, that failure cannot be regarded as trivial, nor was there a good reason for it. Mr Maclean submitted that this should be the end of the matter and that the application to set the judgment aside should be dismissed without further ado, but applying the guidance set out above I do not accept that this is necessarily so.

Promptness

[29]I am required to consider whether the application has been made “promptly”. If not, that is a factor which will count against the defendant. The extent to which it does so will depend on the length and consequences of any delay and the extent to which the defendant can be regarded as responsible for it. In some cases, a failure to act promptly may be decisive, regardless of other considerations.[30]In considering this question of promptness, time can only run from the date when judgment is entered. Until then, no sanction has been imposed from which it is necessary to seek relief and the defendant can always avoid judgment being entered by acknowledging service, albeit late, as CPR 13.2 makes clear. Nonetheless “promptness” will need to be assessed in context, and that context may include the period of time which has gone by and the extent to which the action has progressed against other defendants in the meanwhile, although against that may be set the fact that a claimant can always enter judgment once the time for acknowledgment of service has passed if it wishes to force a defendant to decide whether to apply to set the judgment aside.[31]In the present case there are three relevant periods. The first is from mid-November 2013 when Mr Rahbarian learned that judgment had been entered against him until mid December when his application for relief from sanctions was issued. That was described by Hamblen J as a delay of a month. To the extent that this was exacerbated by the dispute over Stephenson Harwood’s fees and the fact that they needed to be reinstructed, that is a delay for which Mr Rahbarian must be regarded as responsible. However, even a prompt application would not have been issued instantly in view of the need to prepare evidence in support. Mr Rahbarian cannot, therefore, be regarded as at fault in respect of the whole of this period.[32]The second-period is from issue of the application for relief from sanctions which, as already noted, was the wrong application, until the judgment of Hamblen J. I would not regard Mr Rahbarian as being personally at fault for the fact that his lawyers issued an application by reference to the wrong rule.[33]The third period is from 6 February 2014 when Hamblen J gave judgment until 18 February when this application was served on the claimant’s solicitors, a period which needs to be viewed in the context of Hamblen J’s order that any application should be made promptly, in order to be heard at the same time as the trial of Folio 1214. Viewed in that context, service of the application only on 18 February 2014 must be regarded as a failure to act promptly.[34]In the result, therefore, there has been some delay for which Mr Rahbarian must be regarded as responsible, but the period of such delay amounts to no more than a few weeks. That is to be regretted, perhaps even (if robustness is now the order of the day) deplored, but in the context of an action where the claimant could have entered judgment many months ago but chose not to do so and where the claim against the second defendant appears to be some way off being ready for trial with no date fixed, it would be wrong to make more of this than the delay really justifies. The prejudice to the claimant from any such delay is relatively slight, consisting essentially of the costs of the hearing before me which might have been avoided or reduced if the application had been ready for hearing at the trial of Folio 1214 and which Mr Ferrer accepted that Mr Rahbarian would be liable for even if his application to set the judgment aside is successful.

Usual expectation that the sanction will apply

[35]Having found that the non-compliance was not trivial, that there was no good reason for it, and that there has been some (albeit limited) delay in making this application, I must next consider the “expectation” that the sanction will apply on the ground that the need to conduct litigation efficiently and at proportionate cost, and to enforce compliance with the rules, will “usually trump other circumstances”. However, the weight to be attached to that expectation must depend not only on the nature of the non-compliance with the rules, but also on the nature of the sanction and the impact of the non-compliance on the action as a whole. It remains the case that the sanction must be proportionate to the non-compliance and its consequences.[36]The sanctions with which CPR 3.9 is concerned may vary widely in their effect. In Mitchell itself the relevant sanction, contained in CPR 3.14 (which applied in that case not directly but by analogy), was that the claimant could not recover his costs even if he was successful in the action. That was no doubt a grievous blow to the claimant (or more likely in practice, his solicitors) but did not necessarily mean that the action could not proceed. In Chartwell the relevant sanction was that witness statements could not be served which, on the facts of that case (though not in every case), would have meant the end of the action. That was a factor which Davis LJ at [50] expressly held that the judge was entitled to take into account. So here. If the judgment stands, that is by definition the end of the case against Mr Rahbarian. The sanction in play here can therefore be regarded as an extreme one.[37]Of course, it may be said that this is the very sanction provided by the Rules for failure to acknowledge service as the claimant is then entitled to enter a default judgment. I see the force of that point, although the Rules also provide that such a judgment is liable to be set aside pursuant to the exercise of the court’s discretion under CPR 13.3, a specific provision dealing with this situation in addition to the court’s general power to grant relief from sanctions contained in CPR 3.9. It is, therefore, not a complete answer to the point that the sanction of judgment in default is an extreme sanction to say that it is the sanction for which the Rules provide.[38]As for the effect of the non-compliance on the overall conduct of the action, as noted above there should be no difficulty in aligning the claim against Mr Rahbarian with that against Mr Taheri. That the trial date would not be lost if relief against sanctions were granted and that a fair trial could still be had without significant extra cost were regarded as relevant considerations in Chartwell (see [50] of Davis LJ’s judgment). That reasoning also applies here, with greater force as the proceedings against Mr Taheri are not well advanced and no trial date has been set for the claim against him.

Conditions

[39]Moreover, by its express reference to the court’s power to impose conditions, CPR 13.3 invites the court to take account of the possibility that a conditional order may be appropriate. No doubt the conditions which may be appropriate may vary widely from case to case, although one obvious possibility is to require the defendant to provide security for some or all of the claimant’s claim. That will often be appropriate, particularly in a case where the defendant’s merits are thin, where a judgment may be difficult to enforce, or where there is some reason to suppose that the defendant has failed to comply with his obligations in the past, for example by failing to pay his solicitors’ fees.[40]As the possibility that conditions may be attached to any order setting aside a judgment pursuant to CPR 13.3 is expressly referred to in the Rule, and as a condition that security be provided is an obvious candidate, it is incumbent on a defendant who seeks to contend that he could not comply with such a condition, which condition would therefore have the effect of stifling any defence, to provide convincing evidence to that effect. In the absence of such evidence the court is entitled to proceed on the basis that the defendant would be able to comply with such a condition. It would not be fair for the defendant to wait and see whether the court is minded to impose conditions, and only then to contend that he is unable to provide security. If faced with the stark choice between setting the judgment aside unconditionally and allowing it to stand, the court may decide, particularly in the case of a deliberate and material non-compliance, that the latter course is preferable.[41]In the present case Mr Ferrer had no instructions to offer any conditions, but there was no evidence to suggest that Mr Rahbarian would be unable to comply with any reasonably foreseeable conditions which I might impose. Accordingly I proceed on the basis that he would be able to do so.

Conclusions

[42]Drawing the threads together, I take into account the fact that the non-compliance in this case was non-trivial and deliberate, that Mr Rahbarian has been guilty of some delay in making this application, and that although I have held that he has a prospect of defending the claim successfully, that is at best a borderline decision so far as liability is concerned. On the other hand, the claim against him involves serious allegations of dishonesty, to maintain the judgment in default deprives him of any prospect of vindicating his defence and clearing his name, and importantly the judgment may well be for an excessive sum to which the claimant is not fully entitled. Setting the judgment aside will have no real adverse impact on the overall progress of the action in circumstances where the claimant is proceeding against the second defendant but that claim is not well advanced and no trial date has been fixed.[43]In all these circumstances I consider that this is a case where the “usual expectation” referred to in Mitchell should not apply and that justice is best served not by dismissing this application (as the claimant urged) but by the making of a conditional order. The conditions which I propose to impose will ensure that the claimant is secured, at any rate for its claim for the value of the “TETI” cargo and that the costs orders made in its favour so far are satisfied.[44]Accordingly the default judgement against Mr Rahbarian will be set aside provided that:(1) within 28 days from the date of this judgment, he pays into court the sum of US $4.75 million or otherwise provides security in that sum to the reasonable satisfaction of the claimant’s solicitors;(2) within 21 days from the date of this judgment, he makes payment of any outstanding unpaid costs ordered to be paid by him pursuant to the order of Hamblen J; and(3) within 21 days from the date of any order for costs made on this application, he pays to the claimant any costs of this application which I may order him to pay.[45]If any of these conditions is not complied with within the time specified, the default judgment will stand.[46]Finally, I should mention that I was told by counsel that the Court of Appeal is currently hearing some conjoined cases in which the Mitchell guidance is due to be considered further. Neither party requested me to defer delivery of this judgment until after the Court of Appeal has given judgment in those cases. There is, therefore, a risk that the legal framework by which I have determined this application may be, if not dismantled, at least reassembled in the near future, but that is a risk which the parties have agreed to take.

Cited in 4 later judgments