By Richard Baird, senior associate
The Eastern Caribbean Court of Appeal has provided welcome guidance to the rules concerning the setting aside of default judgments in Sylmord Trade Inc. v Inteco Beteiligungs AG [2014] ECSC J0324-3. A defendant who adopts an attitude of indifference towards the commencement of proceedings in the British Virgin Islands cannot expect much sympathy upon the hearing of an application to set aside default judgment ordered against it.
Sylmord was served with proceedings commenced in the Commercial Division of the BVI High Court. It failed to file an acknowledgment of service or a defence within the prescribed time. Default judgment was entered against it and duly served. 28 days later, Sylmord applied to set aside the judgment.
The Court of Appeal upheld the trial judge’s decision to refuse to set aside the judgment. Both decisions offer useful guidance as to the interpretation of rule 13.3(1) of the Civil Procedure Rules 2000. Pursuant to that rule, the Court may set aside a default judgment only if three conditions are met.
The first condition is that the defendant must have applied to set aside the judgment as soon as reasonably practicable after finding out that judgment had been entered. There was no challenge to the trial judge’s finding that this condition had been met. He described the steps taken by Sylmord in the intervening 28 day period as “fairly leisurely viewed in the cold light of day”, but accepted that “it is easy for a dispassionate observer to underestimate the turmoil of having to deal with clients at long distance and with language and foreign law complications”. He also noted that rule 13.4(3) requires the application to be accompanied by a draft defence exhibited to a supporting affidavit, and that rule 10.3(1) would ordinarily permit a defendant 28 days from service to file a defence, hence a period of 28 days to apply to set aside the judgment was not unreasonable in the circumstances.
The second condition is that the defendant must give a good explanation for the failure to file an acknowledgment of service or a defence within the prescribed time. There was no challenge to the trial judge’s statement of principle that a “good explanation” must “satisf[y] the Court that the reason for the failure to acknowledge service or serve a defence is something other than mere indifference to the question whether or not the claimant obtains judgment”. However, Sylmord challenged vigorously the trial judge’s finding that no good explanation had been advanced.
Sylmord relied on an explanation given by its in house lawyer that she erroneously believed that some further judicial step was required before Sylmord became obliged to take any part in the proceedings. That explanation was proffered despite the clear words of the notice contained in the claim form, warning of the consequences of not filing an acknowledgment of service. The Court of Appeal agreed with the trial judge that the lawyer’s course of conduct “indicated a conscious decision on her part to ignore, or at least pay scant regard to, the proceedings in the BVI court”. Other explanations were also rejected. Thus, the appeal failed.
The third condition is that the defendant must have a real prospect of successfully defending the claim. It was not strictly necessary for either the trial judge or the Court of Appeal to address this issue, given that the power to set aside judgment under rule 13.3(1) is only engaged if all three conditions are met. Nevertheless, both Courts held that Sylmord had failed to raise any arguable defence to the claim.
Default judgment may also be aside pursuant to another provision, rule 13.3(2), where the defendant satisfies the Court that there are exceptional circumstances. Sylmord argued that exceptional circumstances were present because the proceedings had been commenced in breach of a compulsory arbitration clause. The trial judge held that, far from being exceptional, that circumstance was entirely routine, and that it was Sylmord’s own dilatory conduct that deprived it of an opportunity to apply for a stay of the proceedings.
Both judgments reveal a marked reluctance of the BVI courts to excuse the conduct of those who fail to take proceedings seriously. Both the trial judge and the Court of Appeal were critical of Sylmord’s attitude of indifference towards the proceedings. In contrast, Sylmord’s delay following service of the default judgment was excused on the basis that it was taking active steps to engage with the Court’s processes. The lesson for defendants is clear – ignore proceedings in BVI courts at your peril.
