The Co-operative: Good…with Money

A bank has been held liable for costs after it discontinued possession proceedings in respect of a mortgagor’s properties. Costs were awarded on the standard basis in accordance with CPR 38.6 and CPR 44.9. The court rejected the mortgagor’s application for the costs to be paid on the indemnity basis on the grounds that the proceedings had been an abuse of process.

The bank’s security were second charges over two properties. There was evidence that there was negative equity, as the value of each property was exceeded by the sums secured by the prior charges. The court accepted that, in the circumstances, the bank’s purpose in bringing the proceedings had been to put pressure on the mortgagor for the purpose of obtaining repayment of the secured debts. However, this did not represent a collateral purpose and was not an abuse of process (applying Cukurova Finance International Ltd v Alfa Telecom Turkey Ltd [2009] UKPC 19).

The court held that the provisions of the charge did not enable the bank to recover its costs from the mortgagor. On its proper construction, the clause entitled the bank to recover costs which were reasonable in amount and reasonably incurred (following Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171). This criteria was not met as the proceedings had been a waste of time and expense from the bank’s point of view.

The decision suggests that the court is likely to regard putting pressure on a debtor to make a payment as a proper purpose for issuing possession proceedings. However, it provides a salutary reminder of the potential costs consequences of commencing proceedings where there is no prospect of a recovery.

Case: The Co-Operative Bank plc v Phillips [2014] EWHC 2862 (Ch) (21 August 2014) (Bailii).