For most parties that enter into litigation (save for those on CFAs and some who are legally aided) a win isn’t really a win unless the other side is also ordered to pay your costs. I say most, because certain litigants enter into litigation knowing that come what May their costs will be paid on the indemnity basis. They have the foresight (or more accurately the power) to draft contracts which provide that, in the event of litigation, the other side (often a borrower or a long leaseholder) will indemnify them for all their legal costs irrespective of whether they win or lose.

While the court retains jurisdiction to intervene, ordinarily it will not do so unless the costs have been unreasonably incurred or are an unreasonable amount:Gomba Holdings Ltd v Minories Finance [1993] Ch 171 . There is a presumption (reflected in CPR 44.5), however, that costs under a contract are reasonably incurred and so it falls on the other party to prove to the contrary. In practice, certainly in respect of mortgagees, it is rare for the court to find that the presumption has been rebutted.

In The Co-Operative Bank Plc v Philips [2014] EWHC 2862 (Ch), Mr Philips was the owner of two residential premises both of which were the subject of mortgages in favour of Barclays Bank. He subsequently granted a further two second charges in favour of the Co-Operative Bank (“the Bank”) after it lent a company, of which Mr Philips was a director, a large sum of money. It was a term of the loan and the second charges that the amounts were due on demand. It was also a further term of the charge that “all costs charges and expenses incurred by the Bank and all other monies paid by the Bank in connection with the charge or the charged property were recoverable from Mr Phillips and/or the company as a debt and were to be charged on the charged property.”

The Co-Operative Bank subsequently called in its loan but the company did not pay the sum due. Unfortunately, for the Bank, nor was there sufficient equity in either property to discharge the full amount of the loan once Barclays’ charges were paid. The Bank, however, undeterred, and in full knowledge of this fact, brought a claim for possession against Mr Philips anyway. The Bank, however, subsequently discontinued its claim for possession.

The Bank conceded that it was liable to pay Mr Philips’ costs of defending the claim, but contended that it could recover those costs, as well as its own, from him under clause 9 of the charge and add them to the outstanding balance. Mr Philips disagreed and also contended that his costs should be assessed on the indemnity basis because the Bank’s claim for possession had been ab abuse of process.

Morgan J first held that the claim for possession had not been an abuse of process. The evidence, although incomplete, showed that the Bank had brought the claim in an attempt to pressurise Mr Philips and / or the company to pay the sum due. This did not amount to an abuse of process; the Bank was merely trying to enforce the debt it was owed. The Bank was not, however, entitled to recover either its own or Mr Philips’ costs under clause 9 of the charge. The Bank had, to use the words of Morgan J, “got absolutely nothing out of these proceedings, which have been a waste of time and expense from its point of view. The Bank itself appears to have recognised that by discontinuing the proceedings.”

Things might had been different if the Bank had supplied evidence explaining why it had chosen to discontinue the claim. The Bank’s counsel valiantly tried to persuade the court that it should infer from the evidence that the Bank had discontinued because Mr Philips had entered into an IVA. Had that been evidenced by the Bank it might have made a difference. But it wasn’t (in breach of earlier directions) and so it was found that the Bank’s costs had been unreasonably incurred. The position was even clearer in respect of Mr Philips’ own costs. Those costs had been necessitated by the Bank bringing a claim which it had discontinued and accordingly the costs were not reasonably incurred.

This is a useful case for borrowers. While it will not be that common for a lender to lose a claim for possession, it is arguably authority for the proposition that where a lender has made an application within the proceedings and lost, so that it has gained nothing from the application, such costs will have been unreasonably incurred.