High Court dismisses default judgment application

29/08/23

Mr Justice Michael Green has given the latest judgment in the ongoing RAKIA v Azima litigation. The judgment considers whether the Court should grant default judgment in multi-party litigation, in circumstances where some parties oppose elements of a claim but others do not.

Background

In 2016, the sovereign wealth fund of Ras Al Khaimah (RAKIA) brought proceedings against Mr Farhad Azima, alleging that he was liable in fraudulent misrepresentation and conspiracy.  Mr Azima denied those allegations on their merits.  He also alleged that RAKIA had hacked his emails and other confidential data, and had placed it on websites as a pretext for its possession of the data, bringing a counterclaim.

Following a trial in 2020, Mr Andrew Lenon QC (sitting as a Deputy Judge of the High Court) found Mr Azima liable in respect of misrepresentation and conspiracy, but found that RAKIA’s liability for the hacking had not been established, and dismissed Mr Azima’s hacking counterclaim (“the First Judgment”; see here).

In an appeal in March 2021 the Court of Appeal rejected Mr Azima’s appeal in relation to RAKIA’s claims (see here). However, the Court of Appeal upheld Mr Azima’s appeal against the dismissal of his hacking counterclaim. It stated that while Mr Azima could pursue that counterclaim, the findings made in respect of RAKIA’s claims would stand irrespective of the outcome of that counterclaim.

Mr Azima’s hacking counterclaim was remitted to the Chancery Division for retrial.  Mr Azima then joined as defendants to the hacking counterclaim several other parties including Mr Neil Gerrard, who had acted as RAKIA’s solicitor (now retired); Dechert LLP, the firm in which Mr Gerrard had been a partner; and Mr James Buchanan, who had the management of RAKIA’s affairs.

In 2022, RAKIA withdrew its instructions to its solicitors and ceased to have any involvement in the proceedings.

Later in 2022, Mr Azima amended his counterclaim against RAKIA to seek to have the First Judgment on RAKIA’s claims set aside, on the grounds that it had been obtained by fraud (“the Set-Aside Counterclaim”).

RAKIA has continued not to participate in the proceedings and has never served a defence to this claim. However, Dechert, Mr Gerrard and Mr Buchanan have done so, arguing that the conditions for setting aside the earlier First Judgment are not satisfied.

Mr Azima’s application

Mr Azima sought default judgment on his Set-Aside Counterclaim, on the basis that it was brought only against RAKIA and RAKIA had not served a defence. That application was opposed by Dechert and Mr Gerrard.

Mr Justice Michael Green first considered the Privy Council’s recent decision in Lux Locations Ltd v Yida Zhang [2023] UKPC 3. In that case Lord Leggatt  analysed the correct approach on a contested default judgment application and concluded that even if no defence had been served the Court still should not grant default judgment if there was “material before the court…which would justify setting such a judgment aside”.

Mr Justice Michael Green then concluded that it was inappropriate to grant default judgment in the circumstances of this case, finding in particular that:

• Dechert and Mr Gerrard had standing to oppose the default judgment application, since they were parties to the existing proceedings and their interests would be affected if default judgment was granted.
• There was a “good reason” for not granting default judgment. There was “no serious risk” of Mr Azima facing an unfair trial of the Set-Aside Counterclaim as a result of RAKIA not participating in the proceedings. By contrast, Dechert and Mr Gerrard would be prejudiced if default judgment was granted, since they had sought to rely on the substance of the First Judgment as part of their defence to the hacking counterclaim, and there was at least a serious issue to be tried as to whether they were entitled to do so.
• Further, the Court should “consider carefully” whether a default judgment was appropriate in circumstances where the Set-Aside Counterclaim alleged that an earlier judgment had been procured by fraud. Granting default judgment on this type of claim would prevent “the sort of scrutiny that such allegations would ordinarily receive”.

The default judgment application was therefore refused in relation to the Set-Aside Counterclaim.

The Judge separately granted default judgment on the hacking counterclaim against RAKIA, which was not opposed by any parties before the Court.

The High Court’s judgment is here.