Craig Leigh successful in securing a Sanderson Order in relation to the payment of costs following success at trial in consumer credit claim.

The substantive claim

Craig Leigh was instructed to represent the claimant at trial concerning a claim brought against her mortgage lender (“D1”) arising as a result of the payment of commission by D1 to the broker that she had engaged to secure her the loan. The claimant alleged that the payment of commission was a secret, or alternatively, it procured a breach of fiduciary duty on the part of her broker. This, together with other matters complained of concerning: (1) the D1’s decision to lend and (2) charges for default added to the loan balance, were alleged to have rendered the relationship between the claimant and her mortgage lender unfair within the meaning of section 140A of the Consumer Credit Act 1974 (“the Act”).

An added layer of complexity arose as a result of D1 having sold her loan to another lender (“D2”) as part of the sale of a book of mortgage debt. Upon notifying D1 of the claim, D1 sought to re-direct the claim to D2 arguing that it was no longer the ‘creditor’ under the loan agreement following its sale to D2. As a result, the claimant brought proceedings against both D1 and D2 alleging that both fell within the definition of ‘creditor’ for the purposes of section 140C(2) of the Act and were therefore both liable for any unfairness arising in the relationship between them.

Both D1 and D2 raised substantive defences regarding the merits of the claimant’s claim, whilst also raising the defence of limitation relying on the Court of Appeal decision in Smith v The Royal Bank of Scotland Plc [2021] EWCA Civ 1832, and arguing that payment of the commission to the broker had taken place on completion of the loan agreement in 2008, more than 6 years prior to the issuing of proceedings.

Following a final hearing before a circuit judge and extensive written closing submissions, the court found that the claimant’s claim had been brought in time. Whilst the court found that the commission payment was not a secret, crucially it did conclude that it was ‘half-secret’ and its payment by D1 had procured a breach of fiduciary duty on the part of the claimant’s broker. The judge held that D1 alone was responsible for the unfairness arising as a result of the payment of the commission and so dismissed the claimant’s claim against D2. The judge also dismissed the other allegations made by the claimant in relation to unfairness. 

As a result, the court found that the relationship arising from the loan agreement was unfair to the claimant but declined to award rescission as a discretionary remedy, instead opting to award to the claimant a sum equivalent to the amount of the commission paid, together with compensatory interest at 4% p.a. This resulted in judgment for the claimant of £2,700.11, payable by D1.

Costs

Unfortunately, the parties were unable to agree each other’s respective liability for costs.

D1 argued that the claimant’s claim should be re-allocated to the small claims track pursuant to CPR 26.10 and that for the purposes of costs re-allocation should be backdated in accordance with CPR 46.13 (2). In the alternative, D1 argued that the claimant had been unsuccessful in bringing a number of aspects of her claim and so should only be awarded a proportion of her costs.

In addition, D1 argued that the claimant should be ordered to pay D2’s costs as she had been unsuccessful in bringing her claim against D2 and so the normal rule in relation to costs should apply.

On behalf of the claimant Craig argued that re-allocation to the small claims track was inappropriate for three reasons: (1) due to the complex nature of the issues dealt with, (2) due to the fact that the trial of the matter could not be completed within one day meaning detailed written closing submissions were required and (3) there was no good reason to do relying on the Court of Appeal decision in Conlon v Royal and Sun Alliance Plc [2010] EWCA Civ 92.

Dealing with the question of the claimant’s costs, Craig argued that the claimant was the successful party having sought, and obtained, a declaration that the relationship was unfair. Craig relied on the Court of Appeal decision in Fox v Foundation Piling Ltd [2010] EWCA Civ 790, in particular, the comments of Jackson LJ at [62], together with the more recent case of Deutsche Bank AG London v Comune Di Busto Arsizio [2022] EWHC 219 (Comm), where the court concluded that the claimant was the successful party and awarded 100% of its costs, despite it having lost on some issues at trial.

Finally, in dealing with the costs of D2, Craig sought a Sanderson order from the court requiring the costs of D2 to be paid by D1 directly, alternatively, a Bullock order providing the claimant with an indemnity in respect of D2’s costs. Craig submitted that whilst the decisions in Sanderson and Bullock both pre-dated the introduction of the Civil Procedure Rules, it was clear that the jurisdiction to make such an order had endured given the judgment of the Court of Appeal in Irvine v Commissioner of Police for the Metropolis [2005] EWCA Civ 129.

In a clean sweep for the claimant, the judge determined that it would not be appropriate for the claim to be re-allocated to the small claims track, for the reasons given by Craig and went on to award the claimant 100% of her costs payable by D1. In addition, the court made a Sanderson order requiring D1 to pay the costs of D2 direct.

Craig was instructed by Andrew Allan of Clear Law LLP.