Charging Orders – Want More Than Fixed Costs?
The use of charging orders has always been, and remains, a popular method of enforcement for many.
A frustrating element of the standard procedure is that only fixed costs are recoverable under the Civil Procedure Rules. The rules state that the claimant is only able to recover a fixed fee of £110.00 towards it solicitor’s costs (CPR Part 45.6). It has long been argued that this sum is simply not sufficient to account for the work involved in making a charging order application, particularly bearing in mind the requirements of service on unsecured creditors, of which there can be many.
Is there a way that you can obtain more than fixed costs when making a charging order application? What if there is a contractual right to costs in your agreement with your debtor? In the face of increasing court costs generally and in light of the modest amount awarded by way of fixed costs, Greenhalgh Kerr set about establishing a successful argument in opposition to the fixed cost regime.
The points for determination are: on the making of a final charging order is the claimant to be restricted to “fixed costs” pursuant to Part 45 of the CPR or, in the alternative, is the claimant to recover assessed costs on a “time expended” basis pursuant to contract, and if so, should those be summarily assessed at the final charging order hearing.
Under the Charging Orders Act 1979, a judgment may be enforced by a creditor by obtaining a charging order over the debtor’s interest in property. When an application is made the matter is addressed by the Court under CPR Part 73 and if an application is successful, and the charge is made final then the fixed costs regime applies, see CPR Part 45.1(2)(g), “unless the Court orders otherwise”.
The question has to be then, under what circumstances ought the Court properly to exercise its discretion to “order otherwise” and order other than fixed costs? CPR Part 48.3(1) deals with costs which are payable pursuant to a contract. There is a presumption that the costs have been reasonably incurred and are reasonable in amount, however that presumption will be rebutted if the terms of the contract are manifestly unreasonable. In such a case the court may reduce or disallow some or all of the costs recovered. In Gomba Holdings (UK) Limited v Minories Finance Limited (No.2)  3 WLR 723, Scott L.J. at page 739 B-G and page 742 B said:
“an order for the payment of costs of proceedings by one party to another party is always a discretionary order: section 51 of the Act of 1981 (Supreme Court Act 1981) and where there is a contractual right to the costs, the discretion should ordinarily be exercised as to reflect that contractual right…”
Whilst this case law pre-dates the CPR, it remains good law in circumstances where parties have a contractual arrangement as to the incidence of costs (Vedalease Limited v Cascabel Investments Limited (2009)). The court must ensure that parties are dealt with on an equal footing and apply the law justly (CPR 1.1) and when exercising discretion one must not leave out of account relevant matters (Adamson v Halifax PLC (2002)). Applying this case law to our argument, if a contractual term exists and costs remain shackled by CPR Part 45, then the parties have not been treated justly as the contractual obligation between the parties must have been left wholly out of account.
A further limb to the argument centres around the multiplicity of litigation. If at the final charging order hearing the judge refuses to assess the creditor’s costs and only fixed costs are given, then the claimants’ contractual right would not preclude him from pursuing the debtor for any shortfall. The result of which is entirely contrary to the overriding objective and may lead to a greater costs burden being imposed on the debtor and a greater allotment of the courts time.
Many of our commercial clients now benefit from this argument. Our clients are no longer content to simply accept fixed costs and instead rely on a contractual term in their finance agreements which entitles them to all of their costs.