Denton tests apply when determining application to set aside default judgment

In FXF v English Karate Federation Ltd & Anor [2023] EWCA Civ 891 the Court of Appeal clarified that the tests for relief from sanctions set out in Denton v TH White Ltd [2014] EWCA Civ 906 (Denton) also apply to an application to set aside default judgment.

Background

The claimant sought damages from two defendants. Despite being granted extensions of time, the second defendant, the Ishinryu Karate Association (IKA), failed to file its defence by the deadline. The claimant initially succeeded in her application for a default judgment to be awarded against the IKA. However, this judgment was subsequently set aside following an application by the IKA made nearly 2 months after default judgment had been granted. The claimant appealed this decision on the basis that the Master had failed to apply the correct legal test to his discretionary decision.

The Denton tests in applications for relief from sanctions

The Civil Procedure Rules (CPR) and the courts may impose sanctions on a party who fails to comply with a rule, practice direction or court order. In 2014, the case of Denton outlined the 3 stages the court must go through when deciding whether to grant a party relief from such sanctions:

1. Identify and assess the seriousness and significance of the breach of the relevant rule, practice direction or court order;
2. Consider the reasons why the default occurred; and
3. Evaluate “all the circumstances of the case”.

In this application, the claimant argued that when deciding to set aside the default judgment under CPR 13.3 (which contains a separate and distinct test for the setting aside of a default judgment), the Master had failed to apply the Denton tests to the exercise of his discretion. The claimant contended that if the court had properly applied the Denton tests, it would have found that the default judgment should stand.

The IKA, however, argued that the Denton tests did not need be applied because: (i) an application to set aside a default judgment is distinct from an application for relief from sanctions, and (ii) the “ethos” of Denton is already captured by the CPR’s overriding objective, “even though its specific tests are not applicable”.

The Court of Appeal’s decision

Having considered various conflicting authorities cited by the parties, Vos MR held that the Denton tests do apply to an application to set aside default judgment, like any other application for relief from sanctions. However, the Master had understood that and had applied the Denton tests and exercised his discretion appropriately. He was therefore correct to set aside the default judgment, resulting in the claimant’s appeal being dismissed.

Vos MR definitively set out the right approach for the court to follow when asked to determine an application to set aside default judgment under CPR 3.13:

1. Under CPR 3.13, the court must consider whether the defendant has a real prospect of successfully defending the claim or there is some other reason why the judgment should be set aside or the defendant should be allowed to defend the claim;
2. Also under CPR 3.13, the court must have regard to whether the party seeking to set aside the default judgment made its application to do so promptly; and
3. Once the court has considered the first 2 factors above (which go to merits and delay in making the application to set aside judgment) the court must then consider the Denton tests in relation to the pre-judgment delay and the reasons for it, including all the circumstances of the case. While Vos MR determined the list of relevant factors is not closed, he stressed as “critical” the “need to focus on whether the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost, and the need to enforce compliance with rules and orders.”

Key takeaways

This judgment resolves the previous confusion arising from conflicting case law and confirmed that the Denton tests do apply when considering an application to set aside default judgment. The court clarified that default judgments are “obviously a sanction”, as they are granted against a defendant for failing to comply with a particular rule – in this case, the obligation to file a defence. The tests which apply to applications for relief from sanctions therefore also apply to an application to set aside default judgment.

The case also highlights that the courts will consider all the relevant circumstances, as per the third Denton test, when deciding whether to set aside a default judgment. The judge gave a final stark word of warning to all defendants – although the court in this instance ruled in favour of the IKA, Vos MR commented that parties to litigation should “make absolutely sure that they comply with the rules in the CPR… [and] expect no indulgence from the court if they do not.”

With thanks to Kirsty Bailey for her assistance in preparing this post.