Appeal No. UKEAT/0652/05/ZT

EMPLOYMENT APPEAL TRIBUNAL
58 VICTORIA EMBANKMENT, LONDON EC4Y 0DS

	At the Tribunal
	On 9 December 2005

Before
HIS HONOUR JUDGE PETER CLARK
(SITTING ALONE)

THE PESTLE & MORTAR  	APPELLANT

MISS M J TURNER 	RESPONDENT

Transcript of Proceedings

JUDGMENT

	APPEARANCES

For the Appellant	MR T WALKER
(Solicitor)
Messrs McKinnells
Solicitors
188 High Street
Lincoln LN5 7BE	
For the Respondent	MR RAOUL DOWNEY
(of Counsel)
Instructed by:
Messrs Wilkin Chapman
Solicitors
P O Box 16
New Oxford House
Town Hall Square
Grimsby DN31 1HE	

SUMMARY

Practice & Procedure:  Appearance/Response & Review

Review of default judgment.  Construction of ET Rule 33 (5) and (6).  Need to consider balance of prejudice in exercise of discretion (Pendragon v Copus).

HIS HONOUR JUDGE CLARK

1.	This is an appeal by the Pestle & Mortar, the Respondent, before the Hull Employment Tribunal, against a judgment of a Chairman, Mr D P Burton, sitting alone on 29 June 2005 dismissing the Respondent’s application for a review of a default judgment entered in favour of the Claimant, Mr Turner.  Mr Burton’s judgment was promulgated with reasons on 6 July.  

Background
2.	The Claimant was employed by the Respondent as a bar person from 3 December 2004 until 1 January 2005.  On 4 March 2005 she lodged her claim form with the Tribunal, complaining of automatically unfair dismissal on the grounds of pregnancy and unlawful sex discrimination.  The time for entering a response is 28 days - Employment Tribunal Rules of Procedure 2004 (“the Rules) Rule 4(1) - unless time is extended on application by the Respondent under Rule 4(4) read with Rule 11.  Such an application was made within the 28 day period on the grounds of a director’s ill-health and an extension of time was granted until 26 April 2005.  On 21 April Mr Walker’s firm was instructed and on 25 April, a Monday, the response form was posted first class to the Employment Tribunal.  It did not arrive until 28 April; two days late.  Had it been faxed to the Tribunal on 25 or 26 April, it would have been lodged in time.  

3.	Mr Walker tells me today, and I accept, that the response form was faxed; but instead of being faxed to the Tribunal, it was faxed to ACAS in error.  The response was not accepted by the secretary as being not presented within time (Rule 6.2B) and a Chairman, Mr C T Grazin, entered a default judgment under Rule 8 on 13 May 2005.  On 20 May the Respondent’s solicitors applied for a review of the default judgment pursuant to Rule 33.  That was the application which came before Mr Burton.  

The Tribunal Judgment
4.	The Chairman referred specifically at paragraph 5 of his reasons, to Rules 33(5) and (6).  As to Rule 35(5), he was satisfied that on the face of the response lodged late the Respondent had a reasonable prospect of successfully responding to the claim or part of it.  Rule 33(5) provides so far as is material:  
 “A Chairman may revoke or vary all or part of a default judgment if the Respondent has a reasonable prospect of successfully responding to the claim or part of it”.  
Rule 33(6) continues:
“In considering the application for a review of a default judgment, the Chairman must have regard to whether there was a good reason for the response not being presented with the applicable time limit”.  
The Chairman found that no good reason was provided for the delay.  The Respondent, he found, had wholly ignored its obligations to deal with the claim expeditiously.  At paragraph 8 of his reasons he said this:  
“Mr Walker urges me to the view that Rule 33(6) only makes reference to one of the factors that I have to take into account.  I agree with that.  I do however believe that the use of word ‘must’ as opposed to the word ‘may’ (as appears in Rule 33(5)) must be intended to convey that the issue of whether there is a good reason for delay is a significant factor in determining whether a Default Judgment is to be set aside”.  

On balance he concluded that it would not be just to turn a “Nelsonian eye” to the Respondent’s failures.  The default judgment stood.  

The Appeal
5.	Mr Downey, now appearing on behalf of the Claimant (who represented herself below) submits that it is not open to the Employment Appeal Tribunal to interfere with the Chairman’s exercise of discretion in the absence of perversity in the Wednesbury sense or a patent misdirection in law.  I agree.

6.	Since the judgment below in this case, the President Burton J heard and determined an employer’s appeal in Pendragon v Copus (EAT/0317/05 – 11 July 2005).  The principal issue in that appeal was whether the Tribunal had jurisdiction to review a default judgment.  It did.  However, the President also indicated that, in deciding whether to exercise discretion in reviewing a default judgment where the Respondent has failed to put in a response in time, the principles laid down by Mummery P in Kwik Save Stores Ltd v Swain [1997] ICR 49 dealing with the failure to enter a Notice of Appearance in time under the old rules apply.  The President referred to his statement of the principles in Moroak v Cromie [2005] IRLR 535, paragraphs 26-28.  In short, in exercising the discretion, a Chairman should take account of all relevant factors including the explanation or lack of explanation for the delay and merits of the defence, weighing and balancing them one against the other and reach a conclusion which was objectively justified on the grounds of reason and justice and, in doing so, to balance the possible prejudice to each party.  

7.	Mr Walker submits first that there was good reason for the failure to meet the 26 April deadline.  It was reasonable to expect a letter posted first class on 25 April to arrive the next day.  That is just in time.  I do not accept that contention.  Reflecting the modern day realities of the postal system, Tribunals follow the position in the Civil Courts that a document served by first class post is deemed to be served on the second day after it was posted (CPR 6.7(i)); here, on 27 April.  I am quite satisfied that on 25 April the Response ought to have been sent to the Tribunal by fax.  From what I am told today that was Mr Walker’s intention but that was not put into practice in his office.  In my view, the Chairman was perfectly entitled to find that no good reason had been put forward for the delay for the purposes of Rule 33(6).  

8.	Secondly, he relies on Pendragon for the proposition that here the Chairman has failed to consider the prejudice to the parties when balancing the merits of the defence with the absence of good reason for the delay in arriving at a just conclusion.  Here, he submits that progress of the case, so far as the Claimant was concerned, was delayed, if at all, by two days.  On the other hand, the Respondent will be prevented from defending a claim for unlimited damages, a defence which the Chairman found has a reasonable prospect of success.  Further, he focuses on paragraph 8 of the Chairman’s reasons.  He submits that in contrasting the words “may” and “must” in Rule 33(5) and (6) respectively, the Chairman has misconstrued the intention behind Rule 33 to the extent that he has unduly elevated the factor of lack of good reason for the delay above that which was intended.  

9.	Dealing with the last point first, it seems to me that Rule 33(5) uses the word “may” to give a discretion to the Chairman to consider revoking or varying a default judgment only if the Respondent has a reasonable prospect of successfully defending.  That is the gateway to the discretion.  That is why the word “may” is used.  It sets up the discretion.  However, the use of the word “must” in sub-rule 6 merely imports that in exercising that discretion, a Chairman must take into account whether or not there was a good reason for the delay.  It identifies a mandatory factor but it does not, in my view, contrary to the approach of the Chairman, elevate it into a significant factor as he put it: that is to say a factor which necessarily weighed more heavily in the balance than the other factors.  

10.	Returning to the submission made by Mr Walker as to the question of prejudice, Mr Downey accepts, based on Pendragon and on the authorities more generally, that in exercising this discretion, which is a just and equitable discretion, it is necessary to look at the balance of prejudice.  He submits that the Chairman did so in this case; I cannot accept that contention.  It seems to me that the Chairman took into account the effect any delay would have on the Claimant, but has not put into the balance the draconian effect on the Respondent of his refusing the review application.  It is necessary only to look at Rule 9 which provides (following on from Rule 8 dealing with default judgments) that 
“A respondent who has not presented a response to a claim (that is the position in which this Respondent is placed) or whose response has not been accepted shall not be entitled to take any part in the proceedings except….”

and then are set out four steps which may be taken including an application for review.  It is therefore apparent that the effect of the default judgment, as it stands, is to preclude the Respondent not only from defending as to liability, but also as to remedy in this claim for unlimited damages.  

11.	In my judgment, the Chairman accordingly fell into error in two respects.  First, he misconstrued the effect of the words “may” and “must” respectively in Rule 33(5) and (6) and thereby misdirected himself into elevating the lack of a good reason for the delay to a status which it does not command under the Rules and secondly, he failed to take into account the balance of prejudice in particular the prejudice suffered by the Respondent as a result of the default judgment standing.  

12.	For these reasons, I shall allow this appeal.  The question then arises as to what course I should take.  I have canvassed with the advocates whether or not the case should be remitted to a Chairman for rehearing.  Mr Walker urges me to deal with the matter myself under the powers granted by Section 35(1) of the Employment Tribunals Act 1996 and I did not understand Mr Downey to dissent from that course.  Thus, exercising the discretion which was vested in the Chairman, I have reached the conclusion that this review application ought to succeed and the default judgment be set aside.  

13.	My reasons are as follows.  Accepting the Chairman’s finding that this response has a reasonable prospect of success, I take into account that no good reason has been provided for the delay although I also take into account the fact that the actual delay was some two days and that an attempt, or at least instruction was given for the response to be faxed in time and due to an administrative error, it was faxed to the wrong person.

14.	So far as the balance of prejudice is concerned, I accept Mr Downey’s submission that the Claimant has suffered prejudice in that she will lose a default judgment.  However, set against that, the draconian effect of a default judgment preventing the Respondent from taking any effective part in these proceedings, and thus having the opportunity to defend both as to liability and remedy, seems to me to outweigh the prejudice to the Claimant.  The actual amount of delay in the case caused by the late lodging of the response is, in my view, immaterial and certainly would not prevent a fair trial of this claim.  Thus, for those reasons, I shall allow the appeal, set aside the Chairman’s order, allow the review application and set aside the default judgment.  The matter may now proceed on its merits.