Peirce Capital Ltd v William Peirce Stewart

• Jurisdiction: Bermuda
• Judge: Ian RC Kawaley CJ
• Judgment Date: 30 March 2016
• Court: Supreme Court (Bermuda)
• Docket Number: CIVIL JURISDICTION 2015: No. 131
• Date: 30 March 2016

[2016] SC 33 Civ

In The Supreme Court of Bermuda

CIVIL JURISDICTION 2015: No. 131

Between:

Peirce Capital Ltd

Plaintiff

and

William Peirce Stewart

1 ^st Defendant

and

Barbara K Stewart

2 ^nd Defendant

Mr David Kessaram, Cox Hallett Wilkinson Limited, for the Plaintiff

Mr Henry Tucker, Appleby (Bermuda) Limited, for the 1 ^st Defendant (‘D1’)

Mr Bruce Swan, Apex Law Limited, for the 2 ^nd Defendant (‘D2’)

REASONS FOR DECISION

(in Chambers)

Default Judgment-application to set aside-defence with real prospects of success-re-litigation of issues decided in New York divorce proceedings between the Defendants-undertaking by plaintiff to enforce local judgment in conformity with New York equitable distribution order

Introductory

1 By a Specially Endorsed Writ of Summons issued on March 30, 2015, the Plaintiff, a Bermudian company controlled by D1, sought to recover sums lent to the Defendants in connection with their purchase of a property known as “Chelston” by way of two sets of transactions. The amounts claimed were US$24,200,000 and US$ 19,485,628.60, together with statutory interest and costs.

2 D2 entered an appearance on May 27, 2015 and D1 entered an appearance on June 30, 2015. Under Order 18 rule 2(1), the Defendants had 14 days after they entered an appearance to file a defence. Under Order 19 rule 2 of the Rules, the Plaintiff was entitled to enter judgment in default of defence for its liquidated claim should no defence be filed within the requisite period assuming no extension of time was granted by the Court. D2's Defence was accordingly due on June 10, 2015. D1's Defence was due on 14 July 2015.

3 On July 6, 2015, the Plaintiff entered Judgment in Default of Defence against D2 for the sums of US$ 24,200,000 and US$19,485,628.60, together with costs to be taxed. On July 20, 2015, the Plaintiff entered Judgment in Default of Defence against D1 for the sums of US$ 24,200,000 and US$19,485,628.60, together with costs to be taxed.

4 On July 20, 2015, D1 ineffectively filed her Defence, two weeks after judgment had already been entered against her and almost six weeks after it was due to be filed. A Summons seeking to set aside the Judgment in Default of Defence against D2 was issued on September 9, 2015. Directions were given in respect of this application on September 17, 2015.

5 The application was substantively heard on February 10, 2016, but adjourned to afford the Plaintiff an opportunity to furnish undertakings to meet concerns expressed by D2 that the Plaintiff might seek to recover the full judgment debt of approximately US$43.6 million from D2. These concerns, which were based on a background of acrimonious divorce proceedings and the fact that D1 controlled the Plaintiff, seemed to me to have more substance than D2's proposed Defence. The Plaintiff, supported by D1, gave the undertakings sought by the Court on March 17, 2016, essentially that the Default Judgment would be enforced in the same proportions that each Defendant was held in their divorce proceedings to be liable for the loans related to Chelston (70% D1 and 30% D2).

6 On March 17, 2016 I dismissed the Summons to set aside the Default Judgment and made the following costs awards:

• (a) the Plaintiff's costs of the application to be paid by D2 and taxed if not agreed;

• (b) D1's costs after March 9, 2016 when the undertaking was offered to be paid by D2 and taxed if not agreed.

7 I now give reasons for my said decision.

The legal test for setting aside a regular default judgment

8 In the “Plaintiff's Skeleton Argument”, Mr Kessaram submitted:

‘ 8. It is insufficient to show a merely “arguable” defence such as would justify leave to defend under Order 14. The defence must have a real prospect of success and “carry some degree of conviction”:Alpine Bulk Transport Co. Inc.-v-Saudi Eagle Shipping Co. Inc., The Saudi Eagle(1986) 2 Lloyds Rep. 221at 223…

9 In those cases where the defence relies upon an assessment of facts, this requirement involves forming a provisional view of the probable outcome of a trial of the defendant's factual allegations:Allen v Taylor(1992) P.I.Q.R. 255.The editors of the White Book suggest that the test will not be satisfied unless the defendant has produced credible affidavit evidence which demonstrates a real likelihood that he/she will succeed in proving the facts essential to his/her defence: see p. 160 1999 White Book.’

10 Mr Swan did not challenge these principles. They have been applied in the local courts on numerous occasions: e.g. Interinvest (Bermuda Ltd) Ltd-v-Dobie[2010] Bda LR 41(CA); Wakefield and Accardo-v- Marshall and others[2010] Bda LR 53 (Wade-Miller J); Ball-v-Lambert[2001] Bda LR 81 (Simmons AJ). I applied the principles approved in the aforementioned cases in Bridgewater-v-Accounting and Management Services[2015] Bda LR 2. In Interinvest (Bermuda Ltd) Ltd-v-Dobie an application to adduce fresh evidence on appeal with a view to challenging a summary judgment entered by way of default was refused by the Court of Appeal for Bermuda. Ward JA (having approved the defence with ‘ real prospects for success’ test for setting aside a default judgment (at paragraph 2) stated:

‘13… The advancement of technical points which have more value as student examination questions should not be encouraged where the result would be to produce more delay and would defeat the ends of justice.’

11 The Bermudian Courts have never apparently applied the more diluted test for setting aside suggested by dicta in Allen v Taylor(1992) P.I.Q.R. 255. I accordingly applied the principles set out in the passage of the 1999 White Book (at page 160) upon which Mr Kessaram relied:

‘The preferred view is that unless potentially credible affidavit evidence demonstrates a real likelihood that a defendant will succeed on fact no “real prospect of success” is shown and relief should be refused..’

The proposed defence in outline

12 The key elements of the proposed Defence filed by D2 after Judgment in Default was entered against her are as follows:

• (1) liability for the sum of $24,200,00, a claim based on a 1999 $5 million mortgage and a 2005 deed of further charge is denied on the grounds that the power of attorney used to enter into the agreements on D2's behalf had at all material times been revoked;

• (2) liability for $19,485,628 is denied on the grounds that D2 never entered into any agreement in 2011 with the Plaintiff;

• (3) she had no personal knowledge of the relevant transactions which were all entered into by D1 acting alone.

13 The Plaintiff's case was that these issues had been determined against D2 in her divorce proceedings against D1 in the New York State Court and that although these findings were not strictly binding on the Plaintiff, it was improbable that this Court would reach a different conclusion. D2 only formally sought to re-litigate these issues. However, in the course of argument, as an aside, Mr Swan complained that even if she...