In Erica Brookes v HSBC and Gerard Jemitus v Bank of Scotland(1) the Court of Appeal has re-emphasised the usual presumption regarding the costs of discontinuing proceedings. In the absence of a good reason to the contrary, the party that withdraws its claim must pay the other party's costs. The judgment reaffirmed the guidance of the lower court on what might constitute a good reason.
The claimants, Ms Brookes and Mr Jemitus, were two of a number of credit card holders who had sought to challenge the validity of credit agreements into which they had entered with various credit card issuers. These agreements were 'regulated agreements for running-account credit' under Section 78 of the Consumer Credit Act 1974; as such, each debtor was entitled to a copy of his or her executed credit agreement on written request. The significance of the cases was that the credit card holders sought to argue that if the creditor could not locate and provide the original signed agreement, but merely provided a pro forma agreement on the same terms as the agreement that the holder had signed, the debt was unenforceable. The claimants sought various remedies, including:
- a declaration to that effect;
- a reduction of their debit balance to zero; and
- an order that any negative information sent to credit reference agencies be withdrawn.
In December 2009 Judge Waksman held in Carey v HSBC Bank plc(2) that the creditor bank could provide the information necessary for compliance with Section 78 from sources other than the original signed credit agreement. This largely resolved the various proceedings in the creditors' favour and in many cases the proceedings were discontinued.
In March 2010 seven cases returned to court on applications by the claimants that the defendants should bear some or all of their own costs, notwithstanding the discontinuance by the claimants.(3) The judge disagreed and in May 2011 the Court of Appeal disallowed the appeals by Brookes and Jemitus.
The starting point is Part 38.6(1) of the Civil Procedure Rules (CPR), which states that:
"[u]nless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant."
The first instance judge had set out six further guiding principles regarding the costs of discontinuance:
- On discontinuance, there is a presumption that the defendant should recover its costs; the burden is on the claimant to show a good reason to the contrary.
- The issue of whether the claimant would or might have been successful at trial is not a sufficiently good reason - it is not the court's role to attempt to decide whether a claim would have succeeded had it been pursued.
- However, if it is clear that a claim would have failed at trial, this would lend extra weight to the presumption in the defendant's favour - it had merely hastened the claimant's defeat.
- If the decision to discontinue is motivated by "practical, pragmatic or financial reasons", rather than a consideration of the merits of the case, this is not a good reason to displace the presumption.
- Usually, in order to displace the presumption, a claimant will need to show a "change of circumstances" which was not of its own making, rather than a re-evaluation of the claim based on other factors (eg, lack of funds) or on information which came out in the normal course of proceedings.
- However, such a change of circumstances will probably be insufficient unless it was caused by the defendant's unreasonable conduct, where this constitutes a good reason to depart from the normal presumption.
These principles were summarised and confirmed by the Court of Appeal, but another case had been decided in the interim. In Messih v MacMillan Williams(4) a claimant had pursued two separate firms of solicitors for failing to give him proper advice and had settled the action against one of them for almost all of his claim. He sought to argue that having achieved all that he could reasonably hope for in the proceedings, he should not be liable for the second defendant's costs. Both the first instance court and the Court of Appeal disagreed.
In Messih Lord Justice Patten stated that avoiding unnecessary disputes and their associated costs is a "major theme" of the CPR. However, this alone could not justify a departure from the usual presumption; rather, something more was needed.
Counsel for Brookes and Jemitus tried to distinguish their cases from prior authority, arguing unsuccessfully that they had a legitimate interest in bringing the proceedings that would justify a departure from the usual rule. This argument was based on comments made in Carey that a debtor has a legitimate interest in seeing the agreement that he or she signed and may have a legitimate interest in obtaining a decision on the meaning of compliance within Section 74. The Court of Appeal disagreed:
"It does not follow that the debtor has a right to bring proceedings at the creditor's expense in order to obtain relief which goes beyond what he is entitled to obtain under the statute or relief by way of a declaration which has no practical utility...whether a party originally had a legitimate interest... counts for little, if anything, if he subsequently discontinues them rather than pursuing them to a conclusion."
The judge had correctly analysed the substance of the dispute between the parties and had found that no sufficiently good reason had been shown to depart from the usual presumption.
For further information on this topic please contact Abigail Silver at Reynolds Porter Chamberlain LLP by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
Endnotes
(1) [2011] EWCA Civ 354; 2011 WL 1060100 before Lord Justice Ward, Lady Justice Arden and Lord Justice Moore-Bick.
(2) [2009] EWHC 3417 (QB); [2009] CTLC 103.
(3) Teasdale v HSBC Bank Plc [2010] EWHC 612 (QB); [1010] 4 All E.R. 630; [2010] 4 Costs LR 543.