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Out of time appeal allowed against refusal to set aside a possession order

The court can set aside a judgment (including a possession order) obtained at trial in a party's absence pursuant to Part 39.3 of the Civil Procedure Rules (Part 39.3), if the three conditions set out at Part 39.3(5) are satisfied being:

  • The application has to be made promptly;
  • There must be good reason for the absence from the original hearing; and
  • There has to be reasonable prospects of success at the trial.

In Lukan v Ghana Commercial Finance Ltd, Lukan entered into a loan secured against his property. The lender subsequently obtained a possession order and judgment against Lukan in his absence in Nigeria. Lukan unsuccessfully appealed against the order and the lender took possession.

Lukan was later informed that the lender and its associated companies did not have a consumer credit licence and there were a number of cases involving those companies including Barons Finance Ltd v Makanju. These cases suggested that many of the loans that had been made were to vulnerable people under severe financial pressure, were not compliant with the Consumer Credit Act 1974 (the Act) and were therefore unenforceable. Lukan sought again to set the possession order aside.

The court held that all three conditions under Part 39.3(5) were satisfied:

  • The application had been made promptly;
  • Lukan had good reason for the absence from the original hearing - he was unwell in Nigeria; and
  • There were reasonable prospects of success at trial. Lukan had demonstrated that the property was his home and that the loan agreement was substantially non-compliant. It did not state its duration, the total payable, the annual percentage rate or the total charge and so s65 of the Act applied so it could not be enforced without a court order.

The possession order was set aside.

Things to consider

Case law provides that, when dealing with an application to set aside under Part 39.3, the court should not be overly rigorous when considering whether the applicant had good reason for not attending trial or has delayed in applying to have the order set aside. If the applicant satisfies those two conditions and has a good arguable case it should proceed to have its case considered on the merits.

Deed of trust set aside as a transaction at an undervalue

The court has recently considered the value of an unenforceable assurance in an application to set aside a transaction at an undervalue.

In Gendrot v Chadwick and another (Joint trustees in bankruptcy of Hagan), the trustees in bankruptcy (TIBs) obtained an order to set aside a deed of trust transferring a bankrupt's beneficial ownership in three properties to his wife, Gendrot, as a transaction at an undervalue pursuant to s339 of the Insolvency Act 1986. One of the properties was the matrimonial home. The trust deed recited that Hagan was thereby providing financial security for his wife and son. Gendrot alleged that the consideration for the transfer was assurances she had given that she would allow Hagan to continue to see their son following their separation. The district judge considered that the assurances amounted to no consideration, or substantially less consideration in value than the value of the properties, and set the deed of trust aside. Gendrot appealed.

The issues on appeal included:

  • Whether the declaration of trust in the trust deed could be considered separately in relation to each of the three properties;
  • If so, whether Hagan's equity in each property could be looked at separately. His equity in the matrimonial home was alleged to be about £12,000 and Gendrot argued that the value of the assurances she had given was not significantly less than £12,000 in value; and
  • Whether the district judge had erred in the exercise of his discretion in setting the deed of trust aside and in not deferring or staying the order for sale of the matrimonial home. 

The High Court held that:

  • The trust deed could not be interpreted as effecting three separate dispositions or gifts. There was only one transaction effected by the deed of trust;
  • Even had that not been the case, the court considered that Gendrot had not given valuable consideration in money or money's worth. Giving up the right to pursue a claim can be valuable consideration but that right had to be given up in an enforceable way. There was no evidence of any binding, enforceable agreement (either in the deed or in any collateral agreement) between Gendrot and Hagan as to access to their son which remained entirely dependent on Gendrot's goodwill; and
  • The fact that the property was the matrimonial home occupied by the wife and a child in full-time education would only exceptionally be sufficient reason not to make an order in the trustees' favour setting aside the trust deed.

Things to consider

Although the sale of the matrimonial home was a serious and wretched outcome for Gendrot and the son, it is not uncommon in cases of bankruptcy. Without more, it does not amount to exceptional circumstances sufficient to postpone or stay an order for immediate sale. If it were otherwise, anyone nearing insolvency would be incentivised to gift his/her beneficial interests in property to a spouse or partner to put it beyond the reach of creditors.

A trio of cases on offers under Part 36

Three recent cases on offers made under Part 36 of the Civil Procedure Rules (Part 36) are worthy of note to those making and receiving offers to settle.

Ensure the wording of the offer complies with Part 36

In James v James, Underwood and James, the defendants made a 'claimant's' Part 36 offer in relation to its counterclaim which, if not beaten at trial could entitle them to the enhanced costs provisions under Part 36.17. This includes indemnity costs, interest on costs and damages up to 10% above base rate and an additional sum not exceeding £75,000 (Part 36.17(4)).

Following trial, the defendants were held to be the successful party for the purposes of any costs order. Unfortunately for the defendants, their offer included a term as to costs which was inconsistent with the wording and effect of Part 36.13(1), albeit not by very much. Essentially, the offer sought recovery of costs if accepted for a longer period than provided for by the wording of Part 36.13.

The court refused to accept that the offer was a valid Part 36 offer and so refused to order the enhanced costs provisions that would otherwise have followed. The offer would still be taken into account however when the court exercised its general discretion on costs.

The courts will, where possible, construe an offer clearly expressed as intended to comply with Part 36 as doing so, but will not inevitably do so. This judgment shows the importance of ensuring that if any costs consequences are referred to in a Part 36 offer (and they don't have to be), they reflect exactly the wording of Part 36.13. Failure to do so, even in a minor way, can lead to the offer being defective and valuable costs provisions lost.

What level of concession is needed to constitute a genuine offer?

Where a Part 36 offer is not beaten at trial, then pursuant to Part 36.17 the court must consider whether it would be unjust to make the Part 36 costs award that would otherwise follow - indemnity costs, enhanced interest and an additional sum not exceeding £75,000 for a successful claimant (Part 36.17(4)); costs and interest from the end of the relevant period (being 21 days from when the offer is made (the Relevant Period)) for a successful defendant (Part 36.17(3)).

The court must consider a number of criteria. Since April 2015, this includes whether the offer was a genuine attempt to settle the proceedings (Part 36.17(5)(e)) which envisages an element of concession in the offer. This amendment was introduced to deal with the issue of claimants making very high settlement offers not in a genuine attempt to settle but designed to secure the enhanced costs provisions of Part 36.

What level of concession is required? There have been relatively few cases on the point so far but in JMX (A child) v Norfolk and Norwich Hospitals NHS Foundation, the court held that a claimant's offer to accept 90% of the value of the claim was a genuine attempt to settle which was not beaten at trial. The court rejected the defendant's argument that a 10% reduction was a token discount as it was a significant under-evaluation of the risks of litigation and so the offer could not have been a genuine attempt to settle.

The court found that the claimant's team regarded the claim as very strong but was prepared to offer a modest discount to secure absolute certainty of obtaining substantial compensation. It was a genuine offer to settle and it would not be unjust for the usual Part 36 costs consequences to flow.

This is a helpful decision providing an indication as to what might be a valid element of concession. However, each case will be fact specific and what might be a small but genuine concession in an open and shut case may not be sufficient in a more finely balanced one.

Withdrawing an offer during the relevant period

The court has provided some guidance on the 'change in circumstances' that is required to permit an offer to be accepted, or withdrawn, where the court's permission to do so is required.

This was an application made in private while a trial was in progress. The case had been case managed with another case involving similar issues in which a judgment had very recently been handed down. This prompted the claimants to seek the court's permission to accept the defendant's Part 36 offer. The defendant sought to withdraw the offer arguing that following the judgment in the other case, the claimants' claim was now very weak and the legal outlook had changed significantly.

The Commercial Court held that Part 36.10, which applies where the maker of a Part 36 offer (offeror) applies to withdraw the offer during the Relevant Period (as defined above), also applied indirectly where the recipient of the offer requires the court's permission to accept it when a trial is in progress (Part 36.11(3)(d)).

It held that the offer could only be withdraw if the court was satisfied that there had been such a change of circumstances since it was made that it would be unjust not to give permission. It considered that there was nothing unjust in this instance of holding the defendant to its offer which had been made just before trial and with the knowledge the judgment in the other case was likely to be given during the trial.

The court found that the judgment given in the other case did not change the legal landscape and did not constitute a sufficient change in circumstances to make it unjust for the claimants to accept the offer. Different defendants were involved on different facts in that case and that decision did not constitute a binding precedent on this case. A higher court decision on a fundamental point adverse to the claimants would be needed before it could be said to have changed the legal landscape. As the court had not yet heard the evidence in this claim, it could not take a view on the merits of the claim or any change of circumstances from the way the trial had progressed so far.

The court would not exercise its discretion in favour of permitting withdrawal of the offer. Permission was given to the claimants to accept it.

The judgment indicates that even at such a late stage, settlement is to be encouraged. A change of circumstances will not be lightly found to permit an offer to be withdrawn.

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Are you happy that you know what is required? In this article we go back to basics of contract formation and tell you what you need to know.

Insolvency Litigation Update - February 2018

In our update this month we take a look at two cases dealing with funding issues in matters involving insolvent companies and applications for security for costs.

The first case involves an application for details of non-party funders and funding arrangements for the purpose of making a security for costs application. The second involves the question of whether an After the Event (ATE) insurance policy could be taken into account in a security for costs application and, if so, whether it would provide the defendant with sufficient protection.

Both cases highlight key issues insolvency practitioners need to be aware of when considering commencing, or indeed continuing with, litigation on behalf of an insolvent company.