Park v CNH – Oh, what a tangled web we weave

Frances Coulson

Partner, Head Of Insolvency & Restructuring, Wedlake Bell

“Oh, what a tangled web we weave…when first we practice to deceive.” The truth of Walter Scott’s well known quotation (from his poem “Marmion”) is amply illustrated by the decision of the Court of Appeal in Park v CNH Industrial Capital Europe Ltd (t/a CNH Capital) [2021] EWCA Civ 1766, a case all about deception: deception on the part of a company against a customer compounded by deception of the court.

The claimant, Mr Park, a farmer, and the defendant, CNH Capital, a finance company, had entered into unregulated hire-purchase agreements for farm equipment.  Mr Park had also guaranteed the liabilities of a limited company, but an error had been made in that reference in the documentation was to a limited company that did not exist.  CNH later procured Mr Park’s signature to a deed of rectification which had the effect of making him personally liable.

CNH brought proceedings based on the deed, pleading that it had always been the intention of the parties that Mr Park should be personally liable. Mr Park defended but failed to comply with time limits for serving his witness statement and filing a pre-trial check list, then compounded those defaults by failing to comply with an unless order, as a result of which his defence was automatically struck out. He applied for relief from sanction and reinstatement of his defence on the basis that the unless order had been received late, but both applications were refused, enabling CNH to enter judgment in default.

Mr Park’s response to all this was to issue a second set of proceedings to set aside the default judgment on the basis that CNH had obtained it dishonestly, as it had never been the intention of the parties that he should be liable as hirer of the equipment; the intention had always been that a limited company would be, with Mr Park acting as guarantor.

The district judge refused an application by CNH to strike out Mr Park’s action as an abuse of process, but CNH mounted a successful appeal to the circuit judge. Mr Park appealed to the Court of Appeal.

Giving judgment, Andrew’s LJ set out the applicable principles:

“A party who seeks to set aside a judgment for fraud must establish that both he and the court were deceived by the party in whose favour judgment was entered. The principles which govern such applications were summarised by Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners llp…and approved by Lord Kerr JSC in the leading case of Takhar v Gracefield Developments Ltd… Applying them to the present claim, Mr Park needs to establish conscious and deliberate dishonesty by CNH in relation to a statement made, evidence given or action taken which was relevant to the judgment it procured, and that the dishonest conduct was an operative cause of the court’s decision to enter judgment in those terms.”

Andrews LJ found that none of the indemnity provisions in the guarantee had the effect of making Mr Park personally liable for any sums due to CNH under or in connection with the hire-purchase agreements in circumstances in which the named hirer was a non-existent company. CNH could not enforce the hire-purchase agreements against the non-existent company, nor could they enforce the guarantee against Mr Park unless the agreements (including the guarantee) were rectified to correct the mistake. The guarantee had never been rectified, so, she found, the court had been deceived, and the deception was an operative cause of the judgment in default being entered. The entire action rested on the effectiveness of the deed, in the absence of which CNH had no basis for a claim against Mr Park, as it was an essential element of its claim that the deed had given effect to the common intention, present from the outset, that Mr Park should assume personal liability under the hire-purchase agreements (which Mr Park denied).

It is interesting to note how the court dealt with that in the context of a default judgment (an administrative act) as opposed to a trial:

“In any civil proceedings the claimant must prove his claim on the balance of probabilities. Even if no defence is offered, the court must be satisfied that there is at least a viable cause of action and a case for the defendant to answer on the facts alleged in the claimant’s statement of case. That is so irrespective of whether the case goes to trial.

The rules of civil procedure permit a party to enter a judgment in default of defence in certain circumstances. As this is effected administratively in response to an application made by the claimant, the process necessarily involves the court trusting in the truth of representations made in his Particulars of Claim which are material to his cause(s) of action, which will not have been examined by a judge and tested at trial. Those representations are fortified by the statement of truth indorsed on the Particulars of Claim.

As is pleaded in paragraph 17(c)(ii) of Mr Park’s Particulars of Claim in the fraud action, the clear and unequivocal representation was made by CNH in the Particulars of Claim in the original action that it was always the intention of both CNH and Mr Park that Mr Park should be personally liable as hirer under the hire-purchase agreements, and that this was the ‘mistake’ which was corrected by the Deed of Rectification annexed to the Particulars of Claim (and as reflected in its terms). For the reasons already stated, that representation was untrue. It must have been known to CNH that it was untrue when they gave instructions to their solicitor to sign the statement of truth on the Particulars of Claim. It remained untrue, to CNH’s knowledge, at the time when they sought the default judgment.

It is regrettable that, in the teeth of compelling evidence to the contrary, including from its own key witness, CNH has persisted in maintaining the lie all the way to the Court of Appeal. […]”

The Court of Appeal concluded that Mr Park’s second claim was not an abuse of process and should not have been struck out. The appeal was allowed and the directions given by the district judge were restored. Andrews LJ ended with a warning shot across CHN’s bows: “CNH will now have to decide whether to continue to defend the claim, bearing in mind the false statements in its Particulars of Claim, repeated in its Defence to the fraud action, and the difficulties it may face in establishing that Mr Park is bound by the Deed of Rectification in any event.”