HC Deb 12 July 2000 vol 353 cc1036-42

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Mike Hall.]

2.40 am
Mrs. Anne Campbell (Cambridge)

I am pleased to have this opportunity to raise the case of my constituent, Derek Birch, and to tell the House how he has been disadvantaged and prevented from seeking justice because of the way in which the law on default judgments is currently framed; he now faces ruin, with payment of all costs. I shall begin by filling in the background to the case. I should make it clear that I do not expect my hon. Friend the Minister to comment on an individual case. I raise Mr. Birch's case to illustrate a specific point in law that my hon. Friend might want to reconsider in the light of events.

Mr. Birch has a lifelong dream of owning a horse, and he has a passionate and consuming interest in dressage and drag hunting. In early 1996, his trainer, Angela Niemayer, told him that she had found just the horse for him and strongly urged him to inspect the horse—Waltrap—at the Russian Horse Society in Epsom. Mr. Birch made it plain that he was looking for a horse trained in and skilled at dressage. He was told that the previous owner, a Cambridge lawyer, Mr. Duncan Samuel, was too busy to ride the horse himself.

Susan Hodges, a friend of Mr. Birch, accompanied him when he inspected the horse. The woman from the RHS who sold him the horse is called Mrs. Lansley, and Mr. Ron Meddes, a director of the RHS, was also present. According to Miss Hodges, Mrs. Lansley understood very well that Mr. Birch was looking for a dressage horse and she went to some lengths to convince both Mr. Birch and Miss Hodges that Waltrap would be entirely and eminently suitable for Mr. Birch's purposes.

In 1996, Mr. Heathcote, a veterinary practitioner, examined Waltrap for the purpose of ascertaining the horse's suitability for Mr. Birch's purposes. The horse was passed fit for Riding club/competition/medium level dressage/drag hounds mount. Letters from Mr. Heathcote confirmed that he discussed Mr. Birch's needs at length with the RHS, especially with Mrs. Lansley. In August 1996, Mr. Birch entered a contract with Duncan Samuel and/or the RHS for the purchase of the horse for £5,500. His cheque paying for the horse was made payable to Regine Lansley of the Russian Horse Society. The horse's previous owner, Mr. Samuel, was company secretary to the society at the time of the sale.

Unfortunately for my constituent, it transpired that five months prior to the sale, in March 1996, the horse had been diagnosed as osteoarthritic, osteochondritic and a false rig. I understand that the latter term applies to a horse that is castrated late and badly, which can make the horse dangerous and often results in the horse having to be destroyed. Mr. Alan Heath, a veterinary surgeon employed by Mr. Duncan Samuel, made the diagnosis, but that was, of course, not revealed to my constituent until some time later. The revelation took the form of a statement made by Mr. Heath to Surrey trading standards officers.

Waltrap was clearly not worth £5,500 and was not at all suitable for drag hunting or dressage. There is evidence suggesting that, under Mr. Samuel's ownership, the horse had never been formally schooled; it had never attended formal instruction, never hunted and never hacked, nor even left the yard. Mrs. Niemayer, who had recommended to Mr. Birch that he should buy the horse, later admitted that she had received a commission on the sale, although she refused to disclose how much she had been paid.

According to both counsel and solicitors, that would appear to prove that the vendor and his agent knew at the time of the sale that the horse was unsound and unsuitable for Mr. Birch's purposes. However, no mention was made of the conditions from which the horse was suffering. It should be made clear that the conditions do not necessarily give rise to continuous symptoms and that they are quite likely to escape detection during an inspection, especially if the horse has been doctored. There is evidence to show that Waltrap had been diagnosed and treated with a palliative drug of long-term effect while it was still in Mr. Samuel's ownership.

I know little about horses, but I am told that the degenerative joint diseases with which the horse had been diagnosed are progressive and incurable. The treatment that had been given to the horse did nothing and could do nothing to stop or slow down the progress of the disease. However, the drug that was administered made it difficult for even a qualified vet to diagnose the condition.

Following the discovery that Waltrap was unsuitable for the purpose for which he had been purchased, my constituent complained to the trading standards officers in Cambridge. They referred the complaint to Surrey trading standards officers, as that was where the Russian Horse Society was based.

Following a lengthy investigation, Surrey trading standards officers decided not to prosecute. The reasons for that were interesting in the circumstances. A letter from Mr. Ray Tapping, the legal manager of Surrey trading standards—I think that he still is—to Mr. Birch in June 1999 indicated that, in the absence of interviews with Mrs. Lansley and Mr. Meddes, and evidence from Mrs. Niemayer, there were too many questions and doubts.

Those potential witnesses had exercised their right to remain silent, so making it difficult for Surrey trading standards officers to investigate Mr. Birch's allegations properly. Mr. Birch is disappointed that the lengthy negotiations with Surrey trading standards officers led nowhere, and he is still keen that they should resume their investigations and commence proceedings under the Trade Descriptions Act 1968.

Mr. Tapping also advised that that best venue for deciding the matter was the civil courts, and indicated that he would be willing to release the evidence obtained by the Surrey trading standards investigating officer, subject to the necessary witness order by a court.

That is what happened, and after proceedings were issued, an attempt was made to dissolve the Russian Horse Society, which had transformed itself into Russian Horses Ltd. in August 1998. That was obviously done to escape the civil proceedings which Mr. Birch had commenced against it. However, he managed successfully to avert that action by contacting Companies House. It is worth mentioning that the company is also known as Alex Crown Ltd., Eurovet Ltd., Anglo-Russian Export Ltd. and possibly other names as well. Mr. Birch's solicitors issued proceedings in September 1998 against three defendants—Duncan Samuel, the Russian Horse Society and Angela Niemayer Eastwood.

Judge Blomfield sat in judgment on the case. He said that he would like the action to be tried on its merits because it seemed clear that there were triable issues against Samuel, but he could not allow the case to be brought. There had been an election to pursue the second defendant. That choice was a bad one, as that defendant, the Russian Horse Society, had no assets as by that time they had been transferred to one of its sister companies, Eurovet Ltd. That defendant was therefore incapable of meeting a claim for compensation, however justified that would have turned out to be.

Under the provisions of the civil procedure rules, part 13.3(1)(b), the judge had the discretion to set aside the default judgment against the second defendant and had he done so, Mr. Birch's lawyers would then have been able to pursue the other defendants in the case. However, it was obviously a tactical error to choose the second defendant rather than the first. The judge said that the only reason for setting that default judgment aside was to enable the first defendant to be pursued. He said that he was persuaded that, if he did so, it would run counter to the underlying ethos of the Woolf reforms. It would also have the effect of prolonging litigation and adding uncertainty where Woolf seeks to provide a greater degree of certainty and clarity.

Unfortunately for my constituent, therefore, the judge had to strike out the case not only against the Russian Horse Society, but against the other defendants as well. Under part 13 of the new civil procedure rules, that also means that no other defendant could be tried. My constituent is therefore unable to seek redress for the expenses that he has incurred.

It is clear that my constituent has been badly advised by his solicitors in electing to pursue the Russian Horse Society. One course of action is open to him—to sue his solicitors for failing to check that the Russian Horse Society or Russian Horses Ltd., now Eurovet, was still a going concern, and for failing to warn him of the consequences of electing that defendant.

Mr. Birch finds it somewhat ironic that had he been a litigant in person, the court would have been duty bound to warn him of the consequences of the action that he pursued. Unfortunately, he now has no resources left to pursue his claim against his previous solicitors. He owes many thousands of pounds in court costs and is a long way from finding the justice that he deserves.

The purpose of this Adjournment debate is to ask my hon. Friend to look again at the procedure in default judgments in the light of this unfortunate case. Will he see whether the rules for discretion could be widened to allow a judge to set aside a default judgment when he feels that there is clearly an action that should be tried, as in this case?

I am well aware that if my hon. Friend can accede to this request, it will unfortunately not help Mr. Birch. However, there are several ways in which he could be helped. One would be for Surrey trading standards officers to re-open their investigation against the Russian Horse Society and Duncan Samuel. I know that that is not likely at present, but if new evidence emerges, I hope that they will be encouraged to do so.

There have been allegations that witnesses have complained of threats and intimidation from Samuel. The Office for the Supervision of Solicitors has been asked to investigate, and Mr. Birch has submitted copies of letters from witnesses. However, the response has not been encouraging, and the OSS says that it will take some time to allocate a caseworker to the case. It is clear to me and to many other people that self-regulation of the legal profession is not working well at present, and that there needs to be another body to which people can complain.

I hope that my hon. Friend will be able to respond in a way that recognises the truly awful situation of my constituent, Derek Birch, and offers him some hope of a full investigation. I also ask my hon. Friend to consider whether there is a case for revising the guidelines concerning the new civil procedure rules in the light of this case.

2.52 am
The Parliamentary Secretary, Lord Chancellor's Department (Mr. David Lock)

As my hon. Friend the Member for Cambridge (Mrs. Campbell) acknowledges, I must respond to the debate with some delicacy in the light of the particular case that is before the court. I cannot comment on the circumstances or intervene in an individual case, and it would not be right or proper for me to do so, particularly as that case may be the subject of appeal or enforcement proceedings hereafter. Nothing that I say should be taken to express any view on the facts of the case, which I get only from my hon. Friend's observations.

I have considerable sympathy for anyone who brings a case before the court and is unhappy with the result. The role of the courts, however, is to adjudicate cases on the evidence before them and on the course of action presented by those facts, not to advise claimants or suggest other avenues of action for them to explore. That would be incompatible with the principle of judicial independence and the duty of the judge to remain strictly impartial as between the parties before him.

Default judgments in the civil courts, which my hon. Friend mentioned, have been available for many years. They are an important feature of the civil justice system. They enable claimants to obtain a judgment for money due to them in a relatively simple and easy way, while providing important safeguards for defendants. In essence, the process seeks to balance the needs of the parties in a proportionate manner, while dealing with cases justly.

I have listened carefully to my hon. Friend, but must tell her that the Government have no plans to reform the law on default judgments, not least because Lord Woolf's substantial review of the civil justice system considered the issue only recently. For reasons I shall detail shortly, the issue that my hon. Friend is concerned with relates not so much to default judgments as to agency.

Prior to the review, default judgments were available in the High Court and the county court, although the procedures differed slightly. In the High Court, judgment was available for both default of acknowledgement of service and default of defence. In the county courts there was no acknowledgement of service, so there was scope for judgment only in default of defence.

Following the review, and as part of the civil justice reforms brought into effect in April 1999, unified civil procedure rules were introduced for the High Court and the county courts, including those covering default judgments. It might be helpful if I explain the default judgment procedure.

An admission, an acknowledgement of service or a defence must be filed by a defendant within 14 days of the service of the particulars of claim. Where an acknowledgement of service is filed, defendants have 28 days to file a defence. If a defendant fails to comply with those requirements, the claimant can, in the majority of cases, request or apply for a default judgment for a specific sum.

A default judgment is a devolved administrative act that requires no judicial input. It requires staff to check that there has been no reply as indicated in the claimant's request, and that the time for doing so, calculated from the date of service, has expired. Nor is there any issue about costs for judicial decision, as costs are fixed by rule according to the amount claimed. The claimant is required to tell the court of any payment that would reduce the amount claimed so that the defendant is not disadvantaged where a payment may cross in the post with the service of the claim form.

In cases where the claim is unspecified there is a clear need for judicial intervention, and the rules provide for that. That is the important distinction between claims for specified and unspecified amounts. On receipt of the request for application and providing the relevant conditions have been satisfied, judgment may be entered in default. A judgment may be for the full amount, for an amount to be decided by the court, for costs only or for specified amounts at specified periods. An interest claim from the date of the judgment may be included in certain circumstances.

Certain safeguards for defendants are built into the system. Defendants who feel they need more time to prepare their defence may be able to agree that with the claimant or may ask the court for an extension. Defendants who fail to acknowledge service or provide a defence will be aware of the implications. Notes for defendants that accompany the claim make it clear that failure to reply may result in a judgment being entered against the defendant.

If claimants subsequently become aware that a defendant had not received the particulars of claim when judgment was entered, they must ask the court to set aside the judgment or ask the court for directions. The claimant cannot seek to enforce a judgment until either the application to set aside or the application for directions has been disposed of.

That summarises the current law concerning default judgments. As I have said, I am not able to comment on the case referred to by my hon. Friend, but cases of this type can sometimes turn on the question whether an agent is sued rather than the real owner of goods—in law referred to as the principal. The law on agency in this context is not straightforward or always clear, but put broadly—I risk the danger of oversimplification; this may not be appropriate to the case of my hon. Friend's constituent—where a person has entered into a contract through an agent, whether he knew of the existence of the principal or otherwise, and where he obtains a judgment against that agent, he may not later sue the principal in relation to the same matter.

In addition, where a person elects to sue an agent and not a principal, although he knew at the time when the contract was made who the real principal was, or discovered it later, he again may not sue the principal in relation to the same matter. The question whether such an election has taken place is one of fact and depends on the circumstances of the particular case.

The fact that a judgment has been made against a company with no apparent assets does not mean that it is without effect. The company may well have assets in the form of claims against directors or other persons associated with it, or against linked companies if, for example, the directors have acted in breach of their fiduciary duty to the company at or about the time when assets are moved in relation to transactions involving the company or in any other related way. Therefore, a company that, on the face of it, has no assets, may none the less be a valuable entity that, through one mechanism or another, may provide a vehicle for enforcing a judgment, including any judgment for costs obtained in an action. That is obviously a matter on which my hon. Friend's constituent would have to seek advice, and I offer those remarks merely by way of guidance.

My hon. Friend referred to the conduct of solicitors. As she accepted, that is a matter for their professional body, the Law Society. Solicitors are members of an independent and self-regulating profession, and the Lord Chancellor, his Ministers and officials cannot intervene in specific cases or comment on complaints about members of the legal profession. The Law Society has the responsibility in the first instance to ensure that solicitors observe proper standards of behaviour when dealing with their clients, other solicitors and the courts.

The Office for the Supervision of Solicitors is a separate organisation set up by the Law Society to handle complaints against its members. The Law Society, through the office, investigates complaints of inadequate professional service and professional misconduct. Allegations of negligence will be reviewed by the office, which, as it cannot give legal advice, has set up a panel of independent solicitors to which such allegations may be referred. The panel solicitors will advise the complainant on whether a solicitor has been negligent and, if so, what action can be pursued. It is thereafter a decision for the complainant as to how to pursue the matter.

As my hon. Friend said, there are certain problems with the operation of the Office for the Supervision of Solicitors, but there is some indication of a commitment by the Law Society to solve them. I was heartened by the approach taken by the newly elected president of the Law Society, Mr. Michael Napier, immediately on his election. He stressed that sorting out the complaints system and improving the quality of client care are high priorities for his presidential year. I am sure that my hon. Friend will join me in welcoming that important statement. There must be a step change in the standard of client care by solicitors.

There is also a backlog and problems with quality at the Office for the Supervision of Solicitors. Both are being tackled, but, as I am afraid the report from the legal services ombudsman released earlier this week shows, there is still a very long way to go before we can be confident that the Law Society, through the office, has a properly functioning complaints procedure. However, in cases where it has established that a client has received inadequate professional service, the office can award compensation of up to £5,000. That issue was raised by my noble Friend the Lord Chancellor earlier this year.

I have considerable sympathy for Mr. Birch and his predicament, and appreciate that he will have to seek further legal advice if he wishes to pursue the matter. However, I can tell my hon. Friend only that, since May, all actions, with the exception of family cases, can be pursued by solicitors on a no win, no fee basis on what is called a conditional fee arrangement. If her constituent has a good case to pursue against the people who left him in this unfortunate situation, I am confident that he will be able to find a solicitor who will back his or her judgment, enter into a no win, no fee agreement and therefore perhaps provide him with an avenue for justice. However, he must pursue that matter and find his own lawyer, who will act wholly independently of the Government, as is right.

Default judgments are not the core of the problem that my hon. Friend has raised, though I hope that some of my observations may assist in describing one or two avenues that her constituent might wish to pursue.

Question put and agreed to.

Adjourned accordingly at four minutes past Three o'clock.