How to Challenge a Default Judgment in Business Court

In commercial disputes in England and Wales, a default judgment can be entered against a defendant who fails to respond to a claim within the required time limits. This can have significant consequences, including liability for the full amount claimed, enforcement action such as garnishee orders or charging orders, and damage to business credit ratings. Fortunately, the Civil Procedure Rules provide mechanisms to challenge (set aside or vary) default judgments if certain conditions are met. This guide explains what a default judgment is, the legal grounds for challenging one, the steps involved, and practical considerations for businesses seeking to overturn such a judgment.

What Is a Default Judgment?

A default judgment is a court order entered in favour of a claimant when the defendant does not file an acknowledgement of service or a defence within the deadlines set out in the Civil Procedure Rules (CPR). This is most common in money claims where a defendant has failed to respond in time. Default judgments are generally entered administratively and do not involve consideration of the merits of the case.

Legal Framework: CPR Part 12 and Part 13

The procedure for entering default judgments is set out in CPR Part 12, while CPR Part 13 governs how such judgments can be challenged. Under CPR 13, a default judgment can be set aside (cancelled) or varied (modified), either as of right or at the court's discretion, depending on the circumstances.

Mandatory Setting Aside (Rule 13.2)

The court must set aside a default judgment if it was wrongly entered - for example:

• The defendant filed an acknowledgement of service or defence within the time limits but judgment was nevertheless entered.
• The claimant applied for default judgment before the deadline for response had expired.
• The claimant failed to comply with the procedural requirements for default judgment.
• The entire claim was paid or satisfied before judgment was entered.

In these situations, the court has no discretion and must vacate the default judgment once proper evidence is supplied.

Discretionary Setting Aside (Rule 13.3)

If the default judgment was regularly entered, meaning all procedural requirements were met, the court may set it aside or vary it if:

• The defendant has a real prospect of successfully defending the claim at trial; or
• There is some other good reason why judgment should be set aside or the defendant should be allowed to defend.

In exercising its discretion, the court will consider whether the application is made promptly after the defendant becomes aware of the default judgment. Delay without satisfactory explanation can weigh against the applicant.

Grounds for Challenging a Default Judgment

There are two broad categories of grounds a business might rely on when applying to challenge a default judgment:

1. Irregular or Wrongly Entered Judgment

A default judgment is irregular where the conditions in CPR Part 12 were not properly met. For example:

• A defence or acknowledgement of service was filed in time but not properly recorded by the court.
• The claimant applied for judgment too early.
• The claimant included remedies not permissible in default judgment procedures.

If any of these apply, the court must set aside the judgment, even if the defendant has no arguable defence on the merits.

2. Real Prospect of Defence or Other Good Reason

Where the default judgment was correctly entered, challenge success depends on persuading the court of:

• A real prospect of successfully defending the claim if the case was heard on its merits. This normally requires filing a draft defence or summary of the proposed defence with the application.
• A good reason for not responding in time, such as procedural confusion, incorrect service, illness or exceptional circumstances.
• Any additional factors that justify allowing the defendant to have its day in court.

Step‑by‑Step: How to Apply to Set Aside a Default Judgment

Step 1: Act Promptly

As soon as you become aware of a default judgment, you should act without delay. The courts expect applications to be made promptly, and long delays can reduce the chances of success where the court has discretion to set aside.

Step 2: Complete the Application Form (Form N244)

Use Form N244 (Application Notice) to apply to the court that issued the judgment. Your application should:

• Specify the rules you are relying on (CPR Part 13).
• Explain the factual and legal basis for setting aside the judgment.
• Attach supporting evidence, including witness statements and documentary evidence such as proof of service, correspondence, or a draft defence.
• Provide a draft defence or outline of the proposed defence where appropriate.

A court fee is usually payable, though it may be reduced if both parties agree before the application is made.

Step 3: Serve the Application on the Claimant

Once filed, you must serve the application and supporting evidence on the claimant or their legal representatives so they can respond at the hearing.

Step 4: Attend the Court Hearing

The court will list a hearing, and both sides may present arguments. At the hearing, be prepared to explain:

• Why you did not respond in time to the claim.
• Why the default judgment should be set aside.
• The strength of any defence you intend to raise.

The judge will decide whether to set aside, vary, or refuse the application based on the evidence and applicable CPR provisions.

What Happens If the Application Is Successful?

If the court sets aside the default judgment:

• The judgment is treated as if it never existed.
• The underlying claim is restored to the ordinary track of litigation.
• You will normally be given a new time limit to file and serve a defence.
• The claimant may still pursue the claim, and the case then proceeds as though the default judgment had not been entered.

In some cases, the court may vary the judgment instead of setting it aside, such as by imposing a payment instalment regime rather than cancelling the judgment entirely.

Common Practical Questions

Can I Pay the Judgment and Still Challenge It?

Yes. Paying the judgment debt does not automatically preclude an application to set aside, but the court will consider whether payment affects matters such as promptness and prejudice to the claimant. Prompt action remains essential.

Are There Time Limits?

There is no fixed statutory time limit for applications, but promptness is a key factor. Delays measured in months without good reason can significantly reduce the likelihood of success on discretionary grounds.

What Is “Relief from Sanctions”?

When the application is discretionary, courts sometimes require the applicant to show that setting aside the judgment is justified in the broader context of civil procedure rules on relief from sanctions. While not a standalone test for default judgment challenges, considerations such as reasons for non‑compliance with procedural rules may arise.

Key Takeaways

Challenging a default judgment in business court involves applying under CPR Part 13 to have the judgment set aside or varied. The court must set aside a “wrongly entered” judgment and may do so at its discretion if the defendant has a real prospect of defence or there is another good reason to allow a defence. Acting promptly, completing the correct court forms, providing a well‑supported explanation and, where appropriate, including a draft defence, are crucial to success. If successful, the default judgment is set aside and the dispute proceeds to normal litigation stages, giving the defendant a chance to contest the original claim.