Sylmord Trade Inc. v Inteco Beteiligungs Ag
EASTERN CARIBBEAN SUPREME COURT
IN THE COURT OF APPEAL
TERRITORY OF THE VIRGIN ISLANDS
SYLMORD TRADE INC.
INTECO BETEILIGUNGS AG
The Hon. Mde. Louise Esther Blenman Justice of Appeal
The Hon. Mr. Mario Michel Justice of Appeal
The Hon. Mr. Don Mitchell Justice of Appeal [Ag.]
Mr. Stephen Moverley-Smith, QC with him Mr. Andrew Willins for the Appellant
Ms. Barbara Dohmann, QC with her Mr. Brian Lacy for the Respondent
2013: September 19;
2014: March 24.
Civil appeal – Commercial law – Interlocutory appeal – Rule 13.3 of the Civil Procedure
Rules 2000 – Setting aside a default judgment
The respondent, in pursuance of a joint venture agreement between it and the appellant,
made seven loans to the appellant, which loans were to be repaid, with interest at the rate
of 7.7% per annum, between 17th April 2011 and 12th September 2012.
The appellant defaulted on the loan agreement. On 2nd November 2012, the respondent’s
lawyers wrote to the appellant demanding repayment of the loans and stating that, unless
the loans were repaid or the appellant agreed to go to arbitration by 16th November 2012,
proceedings would be issued against the appellant in the British Virgin Islands (hereafter
“the BVI”) where the appellant is registered. The appellant failed to respond to the letter.
Subsequently, on 20th November 2012, the respondent filed and served legal proceedings
against the appellant. The respondent later made a request for entry of default judgment
after the appellant failed to file an acknowledgement of service or a defence to the claim.
Judgment in default was entered for the respondent and was served on the appellant.
Thereafter, the appellant filed an application to set aside the default judgment. The
learned judge dismissed the application and entered judgment for the respondent.
The appellant appealed, alleging that the learned trial judge erred in (1) deciding that the
appellant had not advanced a good explanation for its failure to acknowledge service; (2)
holding that the appellant did not have real prospects of successfully defending the claim;
and (3) finding that a commencement of proceedings in breach of contract, and an express
provision which provided for arbitration, was not of itself a sufficient reason to set aside the
Held: dismissing the appeal and awarding costs to the respondent, that:
1. The appellant failed to provide a good explanation for the failure to file an
acknowledgement of service of the claim within the definition of CPR 13.3(1)(b).
The appellant’s apparent indifference to the legal proceedings instituted in the BVI
court connotes real or substantial fault on its part, therefore, the learned trial judge
was correct to hold that the appellant did not proffer a good explanation for the
Rule 13.3(1)(b) of the Civil Procedure Rules 2000 applied; The Attorney
General v Universal Projects Limited  UKPC 37 cited.
2. A court has to consider the context of the pleadings and such evidence as there is
before it and determine on this basis whether a defence has a real (as opposed to
a fanciful) prospect of success and if at the end of that exercise the court arrives at
the view that it would be difficult to see how the defendant could establish its case
then it is open to the court to enter judgment against the defendant. In the case at
bar, on an assessment of the appellant’s evidence and taking into account the
appellant’s defence, this Court must agree with the learned judge that the
appellant’s defence does not have a real prospect of success. Accordingly, CPR
13.3(1)(c) has not been satisfied.
Saint Lucia Motor & General Insurance Co. Ltd. v Peterson Modeste Saint
Lucia High Court Civil Appeal SLUHCVAP2009/0008 (delivered 11th January
2010, unreported) followed.
3. The filing of claims arising from contracts with compulsory arbitration clauses is far
from being an exceptional circumstance, within the meaning of CPR 13.3(2), for a
court to set aside a default judgment.
Vann et al v Awford et al (1986) 83 LSG 1725 applied.
 MICHEL JA: This is an interlocutory appeal, being an appeal from an
interlocutory judgment of Bannister J [Ag.] delivered in the Commercial Division of
the High Court in the British Virgin Islands on 9th May 2013.
 Although the legal issues involved in this case are quite simple, the facts
underpinning these legal issues are quite complex. I shall essay a summary of the
relevant facts containing only such detail as is necessary to make the judgment
 Two Russian entrepreneurs, Elena Nikolaevna Baturina and Alexander
Nikolaevich Chistyakov, made an agreement in February 2008 to embark on a
joint business enterprise which was intended to lead to the establishment of a joint
venture company to undertake a hotel development in Morocco. It was intended
that Ms. Baturina would contribute 65% of the cost of the joint business enterprise
and would become the owner of 65% of the shares in the joint venture company,
while Mr. Chistyakov would contribute 35% of the cost and would become the
owner of 35% of the shares.
 The proposed joint venture company, referred to in the court below as ‘Andros’,
was incorporated in Morocco, with the appellant being its sole shareholder.
 Pursuant to the joint venture agreement, a company affiliated with Ms. Baturina
advanced project finance of 71 million Euros by way of convertible loans to
Sylmord Trade Inc. as payment for her 65% shareholding in Andros. It was
agreed (as reflected in a supplementary agreement between Ms. Baturina and Mr.
Chistyakov dated 29th October 2010) that upon transfer to Ms. Baturina or her
nominee of the 65% shareholding in Andros, Sylmord Trade Inc. would cease to
be liable for repayment of the convertible loans. In effect, the loans – the
proceeds of which were used as project finance for the joint venture – would be
converted into shares in the joint venture company.
 Further to the supplementary agreement between Ms. Baturina and Mr.
Chistyakov, seven loans (amounting in aggregate to just over 3.7 million Euros)
were made by the respondent (a company beneficially owned by Ms. Baturina) to
the appellant (a company beneficially owned by Mr. Chistyakov) for the purpose of
project development. These loans were made between 24th February 2010 and
1st August 2011 and, in accordance with their terms, were to be repaid between
17th April 2011 and 12th September 2012, with interest at the rate of 7.7% per
 The loans not having been repaid by the appellant, on 2nd November 2012 the
respondent’s lawyers wrote to the appellant demanding repayment of the loans
and stating that, unless the loans were repaid or the appellant agreed to go to
arbitration by 16th November 2012, proceedings would be issued against the
appellant in the British Virgin Islands (hereafter “the BVI”) where the appellant is
 There being no response from the appellant by 16th November, proceedings were
issued by the respondent against the appellant on 20th November 2012 and
served on its registered office in the BVI on the same day.
 On 6th December 2012, no acknowledgement of service or defence having been
filed by the appellant, the respondent made a request for entry of judgment in
default. On 28th January 2013, default judgment in the sum of 4,449,054 Euros
(being the aggregate amount due on the seven loans, together with accrued
interest) and costs of US$5,100 was entered against the appellant. The judgment
was served on the appellant on 31st January 2013 and on 28th February 2013
application was made by the appellant to set aside the default judgment. The
application to set aside the judgment was amended on 23rd April 2013.
 In its amended application, the grounds on which the appellant (who was the
defendant in the court below) sought to set aside the judgment were as follows:
(1) The defendant has applied to the court as soon as was reasonably
practicable after finding out that judgment had been entered;
(2) The defendant has a good explanation for its failure to file an
acknowledgement of service;
(3) The defendant has a real prospect of successfully defending the claim,
which has been brought in breach of an arbitration agreement;
(4) Alternatively, exceptional circumstances exist within the meaning of
CPR 13.3(2) specifically the fact that the claimant has brought these
proceedings in breach of an arbitration agreement.
 The application was heard by Bannister J [Ag.] on 30th April 2013 and, in a
reasoned judgment delivered on 9th May 2013, he dismissed the appellant’s
application to set aside the default judgment.
 On 10th May 2013, leave was given to the appellant to appeal against the
judgment of Bannister J [Ag.] and a stay was granted of the judgment until 14 days
after the delivery of this judgment.
 On 4th June 2013, the appellant filed a notice of appeal with the following grounds
1. In deciding that [the appellant] had not advanced a good explanation for
its failure to acknowledge service, the judge erred, as a matter of fact
and/or law, in –
(a) Deciding that Ms. Babirenko’s knowledge and/or actions were not to
be imputed to [the appellant];
(b) Deciding that by the letter of 26th November 2012 [the appellant]
and/or Ms. Babirenko evinced an intention to wilfully disregard the
BVI proceedings, in circumstances where the letter suggested no
such thing; and
(c) Reaching that conclusion without inviting submissions on the point,
and in circumstances in which that was not argued.
2. In deciding that [the appellant] did not have real prospects of successfully
defending the claim, the judge erred, as a matter of fact and/or law, in:
(a) Deciding that it was the proposed event of novation of the loans from
Inteco-Sylmord, to Inteco-Andros that was agreed to release [the
appellant] from its liability to [the respondent] under the loans,
whereas on a true construction of the supplementary agreement it
was the transfer of 65% of the Andros shares from [the appellant] to
[the respondent] that was the trigger for [the appellant’s] release;
(b) Deciding that [the appellant] must “treat the novation… as having
already occurred” in order to rely upon the material terms of the
(c) Deciding that once [the appellant] had obtained an order compelling
Ms. Baturina to accept the Andros shares, [the appellant’s] release
from liability under the loans would further depend on Andros
“[accepting] the liability to [the respondent] in place of [the
(d) In any event, failing to consider and/or attach sufficient weight to the
fact that, following the transfer of the Andros shares, Ms. Baturina
(the beneficial owner of [the respondent]) would be able to procure
the novation of the liability from [the appellant] to Andros;
(e) Deciding that “the immediate commercial consequences” would be
the same whether or not [the appellant] was released from liability
under the loans;
(f) Alternatively, even if the above were correct, according any,
alternatively excess, weight to that fact, where the relevant criterion
is whether [the appellant] has a real prospect of successfully
defending the claim;
(g) Failing to consider the evidence adduced and submissions made by
[the appellant] in relation to the obligation to pay interest under the
(h) Alternatively, failing to give any or any sufficient weight to such
evidence and/or submissions;
(i) In any event, failing to give any or any proper reasons for dismissing
[the appellant’s] submissions in relation to interest and refusing to
vary the judgment so as to disallow interest when he was invited to
4. The learned judge erred in fact and/or in law and/or in the exercise of his
discretion in finding that a commencement of proceedings in breach of
contract, and an express provision which provided for arbitration, was not
of itself a sufficient reason to set aside the default judgment, whether
under rule 13.3(2) of the Civil Procedure Rules 2000 (“CPR”) or
5. There is otherwise a compelling reason why the appeal should be heard.
 Although filed outside of the time limited for filing notice of appeal, the appellant’s
notice of appeal was deemed by the Court to have been properly filed.
 The appellant’s application to set aside the default judgment was made pursuant
to CPR 13.3(1) and (2). CPR 13.3(1) provides that:
“… the court may set aside a [default] judgment… only if the defendant –
(a) applies to the court as soon as reasonably practicable after finding
out that judgment had been entered;
(b) gives a good explanation for the failure to file an acknowledgement
of service or a defence as the case may be; and
(c) has a real prospect of successfully defending the claim.”
CPR 13.3(2) provides that:
“(2) In any event the court may set aside a [default] judgment… if the
defendant satisfies the court that there are exceptional
 The evidence of the appellant in support of its application came in the form of a
witness statement made by Mr. Chistyakov’s in-house lawyer, Irina Victorovna
Babirenko, in which she avers that she is duly authorised to make the witness
statement on behalf of the appellant. She also avers that she first became aware
of the default judgment on 1st February 2013 (the day after it was served on the
appellant) and contacted Appleby (the appellant’s BVI lawyers) on the same day to
take legal advice as to the effect of the judgment and any steps that could be
taken in respect of it. She averred too that she was asked to sign an engagement
letter, which she did on 4th February 2013 and sent it to Appleby on 7th February.
She related the fact that there were several significant documents in the matter,
many of which were lengthy and technical and required to be translated from
Russian to English. She averred that the further loans were governed by Austrian
law and advice on their effect had to be sought and obtained from an Austrian
lawyer. In the circumstances, she averred that the appellant acted with all due
alacrity in preparing the application to set aside the judgment.
 As to the good explanation for the failure to file an acknowledgement of service,
Ms. Babirenko alleged that there were delays in the receipt of documentation in
Russia, that some of the court documents were not transmitted to her by the
appellant’s registered agent in the BVI and that she erroneously believed that the
procedural law in the BIV was similar to Russian law which would have required a
judicial act before a defendant becomes obliged to take any part in the
proceedings and notification to the defendant by the court of the steps it must take
to answer the claim. Ms. Babirenko also contended that the loan agreements
which are the subject of this case contained binding arbitration clauses conferring
exclusive jurisdiction on a sole arbitrator chosen by the parties, with the seat of the
arbitration being Vienna. Proceedings in this case therefore were instituted in
breach of the arbitration clauses and the court in the BVI had no jurisdiction to
determine this claim without it first being submitted to arbitration.
 On the issue of the appellant’s prospect of successfully defending the claim, Ms.
Babirenko contended that the grant of the loans was a mechanism agreed to by
the parties for the provision of ongoing financing of Baturina’s share of the running
cost of the joint venture and it was never intended by the parties, meaning the
appellant, the respondent and their beneficial owners, that the loans would be
repaid by the appellant to the respondent.
 Ms. Babirenko also contended that the loan agreements were to be construed
under Austrian law, in accordance with which the respondent, not having a
banking licence, would not be entitled to recover interest on any commercial loans
it might make.
 Finally on the issue of the appellant’s prospect of successfully defending the claim,
Ms. Babirenko contended that the respondent and its beneficial owner agreed to
release the appellant from its liability for the loans in exchange for a transfer of the
additional 35% holding in Andros and the appellant has always been ready and
able to effect the transfer but has been frustrated by Ms. Baturina’s refusal to
nominate a recipient. The respondent, she therefore contended, relied upon its
own breach of contract and that of its beneficial owner in bringing the claim against
 In his judgment, the learned trial judge concluded that he was quite unable to say
that the application to set aside the judgment was not made as soon as
reasonably practicable after the appellant learned that judgment had been entered
against it. He therefore ruled, in effect, that the first condition of rule 13.3(1) of the
CPR had been satisfied by the appellant. There was no appeal against this finding
by the trial judge and so this issue need not trouble us further.
 As to the second condition to be satisfied by a defendant seeking to set aside a
regularly-obtained judgment, that is, that the defendant gives a good explanation
for the failure to file an acknowledgement of service or a defence as the case may
be, there are no cases from our court, at least none that I have come across,
which define good explanation in the context of rule 13.3(1)(c) of the CPR.
 The Judicial Committee of the Privy Council addressed the issue of good
explanation in the context of an application under rule 26.7 of the Civil Procedure
Rules of Trinidad and Tobago (the equivalent of our rule 26.8) for relief from
sanctions in the case of The Attorney General v Universal Projects Limited.1
The Board did not, however, define the term “good explanation” but instead
referred to explanations which it would not consider to be good explanations. At
paragraph 23 of the judgment, Lord Dyson stated that “if the explanation for the
breach … connotes real or substantial fault on the part of the defendant, then it
does not have a good explanation for the breach.” Lord Dyson also stated in
paragraph 23 that it is difficult to see how inexcusable oversight or administrative
inefficiency can ever amount to a good explanation.
 In the present case, the learned trial judge defined “good explanation’ in the
context of rule 13.3(1) as follows:
“… an account of what has happened since the proceedings were served
which satisfies the Court that the reason for the failure to acknowledge
service or serve a defence is something other than mere indifference to
the question whether or not the claimant obtains judgment. The
explanation may be banal and yet be a good one for the purposes of CPR
13.3. Muddle, forgetfulness, an administrative mix up, are all capable of
being good explanations, because each is capable of explaining that the
failure to take the necessary steps was not the result of indifference to the
risk that judgment might be entered.”2
 The learned trial judge then determined that, in the present case, no good
explanation had been given by or on behalf of the appellant for its failure to file an
acknowledgement of service or to serve a defence. He arrived at this conclusion
by firstly doubting whether the opinions and reactions of Ms. Babirenko, as Mr.
Chistyakov’s in-house lawyer, should be taken account of by the court in
1  UKPC 37.
2 See para. 15 of the judgment.
determining whether there was a good explanation by the appellant for its failure to
file an acknowledgement of service within the stipulated time and then by
concluding that, even if it was legitimate to do so, he did not consider that Ms.
Babirenko’s belief that – based upon what she alleged were the procedures in the
Russian courts – it was unnecessary to respond to the respondent’s claim until the
court had made a determination that the claim should proceed, was a good
explanation for the failure of the appellant to file an acknowledgment of service.
He concluded that, if it is legitimate to attribute her thought process to the
appellant, Ms. Babirenko’s handling of the claim seemed to indicate a conscious
decision on her part to ignore the proceedings in the BVI and point in the direction
of indifference to, rather than forgetfulness about, the proceedings until she found
out about the judgment.
 None of the parties to this appeal took issue with the judge’s definition of “good
explanation” and so I will not attempt, for present purposes, to interfere with it.
 I agree with the submission of learned counsel for the appellant that it is difficult to
understand the learned trial judge’s doubts as to whether the opinions and
reactions of Ms. Babirenko were relevant to the determination by the court as to
whether there was a good explanation for the appellant’s delay in filing an
acknowledgement of service of the claim. The evidence before the court would
appear to indicate that Ms. Babirenko was, from the first receipt of the claim to the
application to set aside the judgment, the agent of the appellant in the BVI
proceedings. When the claim was issued and served on the appellant’s BVI
registered agent on 20th November 2012, the first response came in the form of an
email on 22nd November 2012 from Ms. Babirenko to the respondent’s lawyers
requesting copies of the agreements relating to the disputed loans; then on 23rd
November the respondent’s lawyers replied to Ms. Babrienko’s email and sent her
copies of the claim form and statement of claim; then there was a letter from the
appellant dated 26th November (which Ms. Babirenko apparently drafted)
addressed to the respondent’s English solicitors disputing the claim for repayment
of the loans; then on 29th November Ms. Babirenko emailed a copy of the 26th
November letter to the respondent’s lawyers; then on 1st February 2013 Ms.
Babrienko, having become aware of the default judgment entered against the
appellant the previous day, instructed BVI lawyers in relation to the process
leading to the application to set aside of the default judgment; and then on 28th
February she made the witness statement in support of the appellant’s application
to set aside the default judgment. The opinions and reactions of Ms. Babrienko
were therefore very relevant to the determination by the court as to whether there
was a good explanation for the failure by the appellant to file an acknowledgement
of service and had to be taken account of by the court in its determination of this
 Having differed with the learned trial judge on the legitimacy of Ms. Babrienko’s
opinions and reactions in the determination of the sufficiency of the appellant’s
explanation of its failure to file an acknowledgement of service, I do not however
differ with him on his conclusion that the handling of the claim by Ms. Babrienko on
behalf of the appellant seemed to indicate a conscious decision on her part to
ignore, or at least pay scant regard to, the proceedings in the BVI until she found
out that judgment was entered against the appellant in the BVI court. How else to
interpret the unverified determination by a Russian lawyer that the procedural law
of an English overseas territory in the distant Caribbean was the same as that of
Russia, but when it came to the commercial law of a kindred territory from the
same general area of Europe as Russia, namely Austria, she sought legal advice
from an Austrian lawyer as to what the law was in Austria. How else too to
construe the language of the letter of 26th November 2012 apparently drafted by
Ms. Babrienko after the institution of proceedings in the BVI by the respondent
against the appellant that – “In case you are still intended to refer this matter to a
competent court … we hereby ask you to save your own funds … and settle this
matter on an extrajudicial basis as soon as possible.”
 I categorically reject the submission by counsel for the appellant that this language
was entirely consistent with Ms. Babrienko’s mistaken belief that the court would
first need to decide whether to accept jurisdiction and that it was unlikely that it
would do so given the existence of a binding arbitration clause. This flies in the
face of the clear language of the court documents received by Ms. Babrienko that
unless acknowledgement of service of the claim form is filed within fourteen days
then judgment may be entered against the defendant. Further, even if Russian
court procedures were similar to those in the BVI, the court in the BVI would still
be competent to determine whether to accept jurisdiction in the case and
presumably to try the case if it decided to accept jurisdiction. It is to be noted too
that the letter mentioned referring the matter to “a competent court in violation of
all previous arrangements and existing agreement”, so the incompetency of the
court (as determined by Ms. Babrienko) did not arise by virtue of the proceedings
being instituted in breach of arbitration and other arrangements and agreements
between the parties, but rather by virtue of its location. There can be no other
justification for the use of the language of referring the case to a competent court,
after proceedings had already been instituted in the High Court in the BVI, other
than a prior determination of the incompetency of a court in the BVI to adjudicate
matters between the individuals and companies involved in the dispute. Such
indifference to the BVI court cannot be condoned by the setting aside by the same
court of a default judgment resulting from the very indifference. The learned trial
judge was therefore justified in reaching the conclusion that he did that there was
no good explanation for the appellant’s failure to file an acknowledgement of
service and to decline to set aside the default judgment.
 I do not consider that anything is added to the appellant’s case by the ground that
the trial judge did not invite submissions from counsel in the court below before
reaching a conclusion on his interpretation of the words used in the letter
apparently authored by Ms. Babrienko. It was part of the function of the trial judge
to construe the documents forming part of the evidence in the case and he carried
out this function when he correctly construed the letter sent to the respondent by
 Still on the question of whether there was a good explanation for the failure of the
appellant to file an acknowledgement of service, the learned trial judge concluded
that the existence of the arbitration clauses in the loan agreements did not assist
the appellant in this regard because, firstly, the appellant had been requested by
the respondent to agree to arbitration by a named date but failed to respond to the
request, secondly, in its letter of 26th November 2012 the appellant had denied
that the loan agreements containing the arbitration clauses amounted to
agreements at all and, thirdly, at no stage before the making of the application to
set aside the judgment did the appellant seek to invoke or even refer to the
 On the issue of delays in the receipt of documentation in Russia, the trial judge
merely observed that no explanation of any sort had been offered by the appellant
for the delays. He did not otherwise treat with this issue with any more importance
than was accorded to it by the parties themselves.
 In deciding that the appellant had not advanced a good explanation for its failure
to acknowledge service, the trial judge did not therefore err as a matter of fact
and/or law and the appellant’s first ground of appeal is accordingly dismissed.
 Having upheld the trial judge’s conclusion and ruling that the appellant did not give
a good explanation for the failure to file an acknowledgement of service, which is
one of the preconditions under rule 13.3(1) of the CPR to the setting aside of a
default judgment, there really is no need to address the issue of the prospects of
success by the appellant if the default judgment were to be set aside. If I had to
address it though, I would simply adopt the reasoning and conclusions of the trial
judge contained in paragraphs 22 to 29 of his judgment. The reasoning of the trial
judge, stripped to its barest essentials, is (in effect) that a defence does not have a
real prospect of success if it is based on the premise that an agreement does not
mean what it says and that the court should ignore the clear words of the
agreement and determine a claim founded on it on the basis that if a person who
is not a party to the agreement had taken an agreed course of action in another
agreement then the defendant in the claim before the court would not have been
bound to perform his obligations under the first-mentioned agreement.
 The approach taken by our court to the issue of “real prospect of successfully
defending the claim” in the case of Saint Lucia Motor & General Insurance Co.
Ltd. v Peterson Modeste,3 albeit in the context of summary judgment, would
appear to vindicate the conclusion reached by trial judge in the present case.
George-Creque JA, who delivered the judgment of the Court, opined that the court
had to consider the issue in the context of the pleadings and such evidence as
there is before it and determine on this basis whether the defence has a real (as
opposed to a fanciful) prospect of success and that if at the end of the exercise the
court arrives at the view that it would be difficult to see how the defendant could
establish its case then it is open to the court to enter summary judgment. In the
context of rule 13.3(1), it would be open to the court to refuse to set aside a default
 This was the approach taken by the trial judge in the present case and his
approach cannot be faulted. The appellant’s second ground of appeal is
 The appellant’s third ground of appeal was to the effect that the learned judge
erred in failing to find that the institution of proceedings by the respondent
notwithstanding an express provision in the loan agreements for arbitration of
disputes was a sufficient reason to set aside the default judgment. The appellant
had argued in the court below that, in accordance with rule 13.3(2) of the CPR, the
court may set aside a default judgment in any event if it is satisfied that there are
exceptional circumstances, and that the filing of the claim in this case in breach of
the arbitration clause is an exceptional circumstance justifying the setting aside of
the default judgment. The learned trial judge rightfully rejected this argument on
the basis that the filing of claims arising from contracts with compulsory arbitration
clauses, far from being an exceptional circumstance, is a usual occurrence which
is normally addressed by the aggrieved party seeking a stay of the proceedings
pending recourse to arbitration.
3 Saint Lucia High Court Civil Appeal SLUHCVAP2009/0008 (delivered 11th January 2010, unreported).
 The criticism of this finding in the written submission by counsel for the appellant is
interesting. Paragraph 37 of the written submission reads as follows:
“Whilst it might be the case that litigants do on occasion ignore their
contractual obligations in relation to arbitration, that does not mean that
the fact that proceedings have been begun in breach of contract does not
amount to an exceptional circumstance for the purpose of CPR 13.3(2) as
it goes to the propriety of the proceedings, which is an exceptional
circumstance that can properly be brought into account and is entirely in
keeping with the policy of the courts that parties should be held to their
It is interesting because it effectively says that a party acting in breach of contract
is an exceptional circumstance that justifies a court in setting aside a regularlyobtained
judgment, which is an extraordinary argument. It is interesting too
because it is made on behalf of a party whose case is founded on the court not
holding the parties to their contractual obligations, in particular, the obligation of
the appellant to repay the loans granted, at the times stated, with the interest
stipulated. So it is not the circumstance which is exceptional, but it is the
advancing of this argument by the appellant which, in the circumstances, is
 There is also case law directly on point, such as the case of Vann et al v Awford
et al,4 in which the English Court of Appeal rejected the submission that the
existence of an arbitration clause provided any arguable defence which could lead
to the setting aside of a default judgment. Of course, if the instituting of
proceedings notwithstanding the existence of a binding arbitration clause does not
constitute even an arguable defence to satisfy one of the requirements for setting
aside a default judgment, then it can hardly constitute an exceptional circumstance
to justify on its own the setting aside of the judgment.
 I can find no reason therefore to interfere with the judge’s conclusion and finding
on this issue and so the appellant’s third ground of appeal is dismissed.
4 (1986) 83 LSG 1725.
 Before addressing the appellant’s fourth ground of appeal, I should mention an
issue raised by the appellant on the interest component of the default judgment.
In its notice of appeal, the appellant put forth as part of its second ground of
appeal that the learned trial judge failed to consider the evidence adduced and
submissions made by the appellant in relation to the obligation to pay interest
under the loans or, alternatively, that he failed to give any or any sufficient weight
to such evidence and/or submissions. This contention appears to be based on
expert evidence filed by the appellant to the effect that if the respondent had
commercially extended loans to the appellant then it would require a banking
licence under Austrian law in order to be entitled to recover interest on the loans.
The expert further opined, according to the appellant, that what the respondent
had done could be considered as falling within that definition.
 The expert evidence filed by the respondent was, however, to the effect that the
respondent’s provision of the loans to the appellant does not qualify as banking
business within the meaning of the Austrian Banking Act. There was also a
document put in evidence by the respondent in which its director confirmed that it
is not and has never been in the business of granting loans. This evidence, the
respondent submitted, was uncontradicted.
 The learned trial judge concluded that – “it is plain on the uncontradicted evidence
that [the respondent] was not carrying on and has never carried on any business
of that sort”5, referring to “unlicensed banking business”. I can find no fault with
this conclusion and with the trial judge’s consequential determination that “[t]here
is nothing in the point”.
 The appellant’s fourth ground of appeal reflects either a “cutting and pasting” gone
wrong or a typographical/keyboarding error which resulted in the word “heard”
being keyed/typed instead of “upheld” or “allowed”. Either way, there is nothing to
it. The appeal has been heard and there is no compelling reason why it should be
upheld or allowed.
5 See para. 29 of the judgment.
 The appeal is dismissed with costs to the respondent to be agreed within 21 days
of the date of this judgment or otherwise assessed.
Justice of Appeal
Louise Esther Blenman
Justice of Appeal
Justice of Appeal [Ag.]