COST BITES 60: THE COURT WOULD NOT RETROSPECTIVELY REALLOCATE A CASE TO THE SMALL CLAIMS TRACK:

March 7, 2023 · by · in Case Management, Costs

I am grateful to Craig Leigh for sending me copies of two judgments of Recorder David Allen K.C. in the case of Johnson -v- GE Money Secured Loans Ltd.  The second judgment in relation to costs contains a decision on an argument that the case should be retrospectively allocated to the small claims track.

 

“The court does have power under CPR 46.13 to backdate an order reallocating a case for costs purposes.  However, given that the parties have conducted  the litigation on the understanding that the fast track costs regime is applicable, then there will need to be some very good reason to make a backdated reallocation. No such reason exists in the present case and  I therefore decline to reallocate the case to the small claims track.”

THE CASE

The claimant brought an action against two defendants in relation to a loan agreement taken out in 2008.   The loan had been sold by the first defendant to the second defendant.   The matter had been allocated to the Fast Track. At trial the claimant succeeded in obtaining an order against the first defendant for £1,700 plus  interest at 4%.  The main judgment is available here. Johnson – Finalised Order and Judgment

 

 

THE JUDGMENT ON COSTS

There is a second judgment on costs.  One aspect of the first defendant’s argument was that the court should, retrospectively, reallocate the case to the small claims track so that the costs liability would be limited.  This was not accepted by the court.  The second judgment is available here.   JOHNSON-JUDGMENT COSTS (2)

            1. In this action the Claimant obtained judgment against the First Defendant in the sum of £2,700.11.  The claim against the Second Defendant was dismissed.  A dispute has arisen as to the appropriate order for costs.
  1. The court has a wide discretion as to the order it makes as to costs (CPR 44.2(1)). The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party but the court may make a different order (CPR 44.2(2)).  In deciding what order to make about costs the court must have regard to all the circumstances, including the conduct of the parties (CPR 44.2(4)).
  1. The Claimant seeks an order that the Defendant should pay the Claimant’s costs of suing the First Defendant. The Claimant further seeks an order that the First Defendant should pay the costs of the action against the Second Defendant, which is commonly referred to as a Sanderson order. The First Defendant seeks an order that the Claimant should only recover a proportion of her costs of suing the First Defendant and that the Claimant should be ordered to pay the Second Defendant’s costs of the claim.  Further, the First Defendant submits that the court should reallocate the claim to the Small Claims track and backdate the reallocation for costs purposes.  The Second Defendant, as a successful party, seeks its costs and is neutral as to whether its costs should be borne by the Claimant or the First Defendant.

THE FIRST DEFENDANT’S CONTENTION THAT THE CLAIMANT’S COSTS SHOULD BE LIMITED

The judge rejected the first defendant’s arguments that the claimant’s costs should be reduced because she had not succeeded on every issue.

  1. In contending that the Claimant should only recover a proportion of her costs, the First Defendant argues that the Claimant was only successful to a limited extent. It is correct that the Claimant was not successful on some issues, in particular on the claim for rescission.  However, the fact remains that the Claimant was successful in recovering damages from the First Defendant. It was open to the First Defendant to have made an offer pursuant to Part 36 in order to obtain costs protection, but the First Defendant did not do so.  The fact that the Claimant was unsuccessful on some issues is not a reason, on the facts of the present case, to deprive her of the usual order for costs.

THE FIRST DEFENDANT’S CONTENTION THAT THE MATTER SHOULD RETROSPECTIVELY ALLOCATED TO THE SMALL CLAIMS TRACK

Having lost at trial the defendant argued that the matter now be reallocated to the small claims track.  Again this was not an argument that the judge accepted.

  1. The next matter is the First Defendant’s contention that the claim should be reallocated to the Small Claims track with retrospective effect. My understanding is that the order which allocated the case to the fast track was made after argument as to the appropriate track.  The subsequent trial of the action could not be completed in a day.  A number of quite difficult issues were raised, which indicates that it was not appropriate for the case to be in the small claims track.  The court does have power under CPR 46.13 to backdate an order reallocating a case for costs purposes.  However, given that the parties have conducted  the litigation on the understanding that the fast track costs regime is applicable, then there will need to be some very good reason to make a backdated reallocation. No such reason exists in the present case and  I therefore decline to reallocate the case to the small claims track.
THE FIRST DEFENDANT SHOULD PAY THE SECOND DEFENDANT’S COSTS
  1. The final issue concerns the costs of the Second Defendant. The Claimant seeks a Sanderson order whereby the First Defendant would be ordered to pay the costs of the Second Defendant (SANDERSON v. BLYTH THEATRE CO. 1903 2 KB 53) In the alternative the Claimant seeks a BULLOCK order whereby the Claimant is ordered to pay the Second Defendant’s costs, but is indemnified in respect of those costs by the First Defendant.  There is no doubt that the power to make SANDERSON and BULLOCK orders has survived the introduction of the CPR.  In MOON v. GARRETT 2006 EWCA Civ. 1121 Waller L.J. stated:
“38.      It seems to me that the above citation demonstrates that there are no hard and fast rules as to when it is appropriate to make a Bullock or Sanderson order.  The court takes into account the fact that, if a claimant has behaved reasonably in suing two defendants, it will be harsh if he ends up paying the costs of the defendant against whom he has not succeeded.  Equally, if it was not reasonable to join one of the defendants because the cause of action was practically unsustainable, it would be unjust to make a co-defendant pay those defendant’s costs.  Those costs should be paid by the claimant.  It will always be a factor whether one defendant has sought to blame another.”
  1. The fact that cases are in the alternative so far as they are made against two defendants will be material, but the fact that claims are not truly alternative does not mean that the court does not have power to order one defendant pay the costs of another. The question of who should pay whose costs is peculiarly one for the discretion of the trial judge.”
  1. The crucial question is whether it was reasonable for the Claimant to have brought the proceedings against the Second Defendant as well as the First Defendant. The Claimant sent a detailed letter of claim to the First Defendant dated 29th January 2020.  Such a letter was not initially sent to the Second Defendant.  Solicitors acting on behalf of the First Defendant sent a detailed reply to that claim dated 25th March 2020.  In that letter it stated the following:
            “GE Money is no longer the creditor under the Loan Agreement as a consequence of the sale and purchase agreement between GE Money and Elderbridge Limited.  Any complaints about the loan agreement should be addressed to Elderbridge Limited as it is now the creditor.  Without prejudice to the foregoing, we respond further to your letter below.”
            The stance adopted by the solicitors for the First Defendant was that any liability to the debtor would rest with the Second Defendant.  It is difficult to see how the letter of the 25th March 2020 can be interpreted otherwise.  As far as I am aware that assertion by the First Defendant was never withdrawn.  It is correct that in the Amended Defence of the First Defendant it does not blame the Second Defendant.  However, I conclude that in the light of the stance taken by the First Defendant in response to a detailed letter of claim, it was reasonable for the Claimant to join the Second Defendant to the proceedings and continue that claim to trial.
  1. I accept that a claimant, before joining a party as a defendant, has to consider whether there is a viable claim against that party. In the present case the Second Defendant was a creditor within the meaning of Section 140C(2) of the 1974 Act.  I held  in my earlier judgment that on the basis on which liability arose by reason of the breach of fiduciary duty that liability only attached to the First Defendant.  However, this does not mean it was unreasonable to join the Second Defendant.  I will therefore make a Sanderson order that the First Defendant should pay the costs of the action against the Second Defendant.
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