Keeping costs down by transferring to the small claims court

We acted for a client defending a claim of alleged misselling of payment protection insurance (PPI), where the borrower had acquired a vehicle on hire purchase through a dealer. The misselling allegation remains outstanding but the interesting point for lenders here is that we successfully applied to have the matter allocated to the small claims track.

Only very limited fixed costs are recoverable in the small claims track unless there is some contractual entitlement to costs. The borrower's solicitors are instructed upon a conditional fee agreement (CFA). They were determined that the matter should not be heard in the small claims track because the matter was more complex than the small claims track could handle and because there would be at least four witnesses. They would also not get a costs order in their favour against which the CFA would then bite.

The court accepted our submissions that the claim was perfectly suited to the small claims track because:

  • The borrower's claim was purely monetary and limited to the amount of PPI that he had actually paid. That sum was less than £2,600, putting the claim firmly within the capabilities of the small claims track.
  • The matter was not complicated. It was a matter of whose evidence the court preferred. Further, the law in this area has been clarified by recent cases and the legal arguments have already been much rehearsed.
  • Similar types of cases have already been allocated to the small claims track where the value of the claim is less than £5,000.
  • There were no third parties for whom the outcome of this matter was relevant.
  • It would be disproportionate for this matter to be allocated to any other track.
  • It would otherwise defy the overriding objective and be a drain on the court's limited resources.

Things to consider

The small claims track allows for matters to be listed for up to one day. Where the legal arguments are quite clear and oral evidence is not substantial, this will often be sufficient time to have a matter dealt with.

The costs savings for a lender by having the matter dealt with in the small claims track could be substantial, especially where the borrower's solicitors are instructed on a CFA, as here, and the solicitor is likely to be seeking a 100% uplift on those fees by way of the success fee.

Negligent advice

In Capita Alternative Fund Services (Guernsey) Ltd and another v Drivers Jonas, the claimants brought a claim for professional negligence against the defendant in relation to the acquisition of a site for the development of a factory outlet shopping centre.

The property was within an enterprise zone which affected its value. The defendant provided positive advice about the site's commercial prospects and valued it at approximately £63 million with enterprise zone tax allowance and £48 million without it. The claimants claimed that the defendant had substantially overstated the commercial prospects and that the valuations were wrong. They claimed they had relied on the defendant's advice.

The court held that the defendant had been instructed to prepare valuations, give advice on the commercial viability of the development and negotiate the purchase price and terms of acquisition. It owed a duty of care to the claimants to exercise the reasonable standard of skill and care to be expected of competent valuers and commercial property investment advisers.

The defendant did not have the expertise needed to enable it to advise competently upon the development and had failed to do so in a number of important ways. They were therefore in breach of duty. The true capital value without the benefit of the enterprise zone allowances was between approximately £32 million and £37 million and with the allowance approximately £45 million.

The defendant's valuations were both negligent. The claimants would not have proceeded with the transaction if they had received correct advice and were entitled to recover the difference of approximately £18 million as damages.

Things to consider

Valuing real property is an art, not a science and the courts will permit a bracket of valuations providing for a permissible margin of error. If the valuation is outside that bracket, it will be prima facie negligent. Where there are a number of different aspects to the valuation, then generally, each of the aspects has to have its own bracket of valuation (not just those alleged to have been negligently assessed) and the overall bracket of valuation can then be determined.

No conflict of interest

There is no reason why liquidators of a company and the trustees in bankruptcy of a former director of the insolvent company cannot come from the same firm of solicitors. This was confirmed in Doffman and Isaacs v Wood & Ors in which the claimants applied to have their trustees in bankruptcy removed from office.

The claimants had been directors of four companies which became insolvent. They were subsequently disqualified from being directors for a number of years. The liquidators of the companies gave notice to the claimants that they may bring claims against them for misfeasance and other matters which had been raised in the disqualification proceedings. The claimants were then made bankrupt and the defendants appointed as their trustees in bankruptcy. They were solicitors from the same office as the liquidators of the insolvent companies.

The claimants alleged there was a serious conflict of interest as privileged documents which they had to produce to the trustee contained information obtained in the course of the disqualification proceedings. That information could find its way to the liquidators and be used against them. They also alleged that the trustees would prefer one particular creditor's interests.

The trustee contended that, as there were no assets in the bankrupts' estates, the claimants had no right to intervene against the interests of the creditors who were happy for the defendants to continue in office. They offered to deal with the issue of non-disclosure of privileged information by way of an undertaking.

The court agreed. The interests of the creditors were paramount. There was no suggestion that the trustees would prefer one creditor to another. The allegations of conflict of interest were not made out. An undertaking by the defendants not to deliver up any privileged documents arising from the disqualification proceedings or any advice given, without the claimants' agreement or a court order, should afford sufficient protection to the claimants. The trustees would not be removed.

Things to consider

The court considered that removing the solicitor trustees in bankruptcy due to the potential for privileged information to be disclosed within the solicitor's office would be equivalent to using a sledgehammer to crack a nut. A properly worded undertaking and some practical procedures set up in the solicitors' office would be sufficient to avoid inadvertent disclosure.

No piggy-backing onto pre-trial review

The court has issued a reminder in the case of Omni Laboratories Inc v Eden Energy Ltd that parties should not seek to add contested applications on to pre-trial reviews where the time period allowed for the pre-trial review is insufficient to do so.

In this case, the defendant sought to have an application for specific disclosure and to have certain parts of the claimant's witness statements struck out. It gave a time estimate for the applications as an hour and sought to have the applications listed at the same time as the pre-trial review which was listed for an hour.

The court said that it was wholly inappropriate to seek to use the pre-trial review to tack on important applications unless there was adequate time in which the applications could be dealt with. Unless there were exceptional grounds for doing otherwise, parties should take out specific applications with specific, realistic time estimates for their applications to be heard and not try to piggy-back them on to the pre-trial review.

Things to consider If on the receiving end of such applications, this case is good authority as to why the applications should not be allowed to go ahead. If the applicant insists and costs are wasted in preparing for what transpires to be a wasted application to the court, a suitable application for those costs can be made.