Contractual right to costs in the small claims track
31.05.10
This article was written by Greg Standing, partner in Wragge & Co LLP's finance, insolvency, recoveries and sales team and published in the May issue of Motor Finance.
Finance companies often find themselves litigating in the small claims track. The downside is that, where the value of the claim is less than £5,000, generally only limited costs are recoverable, often making it commercial unviable to litigate for small sums such as shortfalls.
In Shaw v Nine Regions Ltd, Shaw issued proceedings in the small claims court seeking a declaration under s 140A of the Consumer Credit Act 1974 (the Act) that the relationship between him and Nine Regions arising out of a loan agreement was unfair.
The allegations of unfairness included an extortionate rate of interest (341.9 percent APR) and the way in which charges were applied on default. Nine Regions counterclaimed the sum due under the agreement.
The Recorder hearing the claim found that there was an unfair relationship and reduced the amount Shaw had to pay under the agreement.
Although there was a judgment in favour of Nine Regions, the Recorder refused to allow Nine Regions its legal costs. This was despite there being a contractual provision in the loan agreement entitling Nine Regions to claim its legal costs. The right to contractual interest had been pleaded in the defence. Nine Regions appealed.
Shaw argued the small claims rule should apply which provides for recovery of only very limited costs. Alternatively, he argued that the contractual term as to costs was void and unenforceable under the Unfair Terms in Consumer Contract Regulations 1999 (the Regulations).
Regulation 5 in particular provides that a contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.
The judge held that although Regulation 5 applied to the term in question, as it was not individually negotiated, the term was entirely reasonable and caused no significant imbalance in the parties' rights and obligations to the detriment of the consumer.
Such a clause may be unfair under the Regulations if it excludes or hinders the consumer's right to take legal action or exercise any other legal remedy by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricts the evidence available to him/her or imposes upon him/her a burden of proof which, according to the applicable law, should lie with another party to the contract.
The clause here did not exclude or hinder Shaw's right to take legal action or exercise any other legal remedy. Nine Regions was therefore entitled to its costs of both the small claims hearing and the appeal.
Comments
In all cases where a finance company finds itself litigating in the small claims track, it should be relying on this case and asking for its costs. Although only a county court decision, it should be a useful weapon in the finance company's armoury.
For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397 or Rebecca Davies on +44 (0)121 213 2396
This published article may contain information of general interest about current legal issues, but does not give legal advice.
