Mortgage – Security – Legal costs – Compromise of legal proceedings by appellant mortgagor against respondent mortgagee – Order that respondent entitled to add legal costs to security as costs reasonably and properly incurred in obtaining redemption of charge – Extent of costs recoverable under order – Appeal dismissed
The appellant company purchased a freehold property with the help of a £600,000 loan from the respondent, secured by a charge over the property. It was also induced to sign a deed of trust that granted a 25% share in the property to A Ltd, the company that had introduced it to the respondent. The appellant subsequently disputed the validity of the deed of trust. When it sought to redeem the loan, the respondent and A Ltd refused to co-operate unless the appellant accepted A Ltd’s rights under the deed. The claimant then ceased to pay the interest due under the mortgage. The respondent instructed a new solicitor to pursue the matter and appointed receivers in respect of the property under the Law of Property Act 1925.
The appellant obtained a declaration that the deed of trust was void as a clog on the equity of redemption. Its claim against the respondent in the same proceedings, alleging improper conduct by the respondent and conspiracy between it and A Ltd, was compromised. However, a counter-claim by the respondent was subsequently revived when the claimant failed to comply with the terms of a consent order; by that counter-claim, the respondent sought to add to its security, inter alia, its costs of instructing the new solicitor, as being reasonable costs incurred in obtaining repayment of the loan and redemption of the charge. The appellant was ordered to pay two-thirds of the respondent’s costs arising from a determination of preliminary issues on the counter-claim. Meanwhile, the property was sold, the charge redeemed and the remaining moneys paid into court pending the resolution of the dispute.
On a trial of the counter-claim, the judge made an order that the solicitor’s costs had not been, in principle, unreasonably and improperly incurred and could, subject to a detailed assessment, be paid out to the respondent from the moneys in court: see Vedalease Ltd v Averti Developments Ltd [2007] 2 EGLR 125. In a subsequent costs decision, a master held that that order entitled the respondent to recover all the fees and disbursements charged by the new solicitor in respect of the action.
The appellant appealed. It contended that: (i) the order did not entitle the respondent to recover its costs incurred on the appellant’s claim in the action, but only those of the counter-claim; and (ii) the respondent should recover only two-thirds of its costs of the trial of the preliminary issues, so as not to subvert the earlier costs order.
Held: The appeal was dismissed.
(1) The master had not misconstrued the judge’s order when giving his costs decision. References in the order to the costs incurred by the respondent’s solicitor referred to all the solicitor’s charges to the respondent following its instruction, without qualification. Moreover, that was the correct interpretation on the merits. A mortgagee was entitled to add to the secured debt its costs, charges and expenses properly incurred in enforcing and preserving its security: Gomba Holdings (UK) Ltd v Minories Finance (No 2) [1993] Ch 171 applied. The fact that the appellant’s claim was for damages for conspiracy did not mean that the respondent was not preserving or enforcing its security by defending that claim. That claim sought to reduce the sums that the respondent could retain out of the proceeds of the property by way of security and, by defending the claim, the respondent sought to preserve the value of that security. A finding that the respondent had been guilty of a conspiracy did not make its costs unreasonable where the appellant had not pursued its claim but had compromised it.
(2) In making a costs award in respect of the trial of the preliminary issues, the judge had not purported to determine the extent of the mortgagee’s right to add particular costs to the security. The mere making of a costs order by a court was insufficient to displace or limit the mortgagee’s equitable right to add its costs to the security. Clear further evidence would be required of an intention by the court deliberately to limit the equitable or contractual right. Moreover, the court would have to properly consider and adjudicate upon the question of whether the facts justified the imposition of any such limitation: Gomba applied. In the instant case, the costs decision on the preliminary issues reflected the judge’s assessment of the balance of success between the parties. On its face, it had been made on the principles that applied to the court’s discretion to make a costs award and not those applicable to a mortgagee’s equitable right to add its costs to the security. Had the order been intended to limit that right, the judge would have so indicated in terms.
David Mayall (instructed by Merryman White & Co) appeared for the appellant; Guy Fetherstonhaugh QC (instructed by Anthony Gold Solicitors) appeared for the respondent.
Sally Dobson, barrister