Trainee Solicitor, Emily Davison, comments on her recent successful contractual dispute involving a client who acted as broker to a multi-party finance agreement.

In 2019, GK’s client acted as a broker in relation to an asset finance purchase. As part of the arrangement, GK’s client agreed to indemnify the financier for any losses arising from the purchase. The customer subsequently took issue with the quality of the asset and exercised a right to rejection. GK’s client was therefore obliged to indemnify the financier.

Collateral Agreement

The client sought to recover its losses from the supplier. GK argued that a collateral agreement had existed between the client (in its role as broker) and the supplier which could be enforced separately to the contract of sale between the supplier and the financier. Moreover, such collateral agreement incorporated the client’s standard terms of business which had been made available to the supplier at the relevant time (these, amongst other things, requiring the supplier to indemnify the client for its losses, to pay interests and legal costs).

The supplier maintained that no such collateral agreement existed and so pre-action attempts to resolve the matter were unsuccessful, therefore necessitating a court action.

Strike-out Attempt

In the first instance, the supplier applied to strike out the client’s claim, arguing that no collateral agreement existed, only that between the supplier and the financier (who having been indemnified by the client, could no longer be said to have suffered a loss) with the client taking an agency role.

GK’s in-house barrister, Alex Worthington, attended the hearing of the application and successfully obtained its dismissal (the Court agreeing that the claim did indeed disclose reasonable grounds) together with an award of costs in favour of the client.

The claim was subsequently allocated to the small claims track. The claim was met with substantial delay with the first four hearings being adjourned for COVID-19 associated reasons.

Fifth time lucky, the hearing proceeded.

Result

Having heard submissions, the Court agreed with GK’s position and entered judgment in favour of the client, having found that:

1. There was a collateral agreement which incorporated the client’s terms and conditions. 
2. The asset had not been of satisfactory quality and so the customer had been entitled to reject.
3. The financier had been required to refund the customer.
4. In turn, the client’s arrangement with the financier required the client to indemnify the financier.
5. The collateral agreement required the supplier to indemnify the client, and to pay interest.
6. The client’s costs were recoverable, despite this being a small claims.

Costs

On the point of costs, claims allocated to the small claims track are governed by a fixed costs regime (which is nominal in comparison to the actual costs of the litigation). However, the Court has a discretion to depart from this regime and caselaw supports a decision to do so when a contractual costs clause exists (as was the case here) (Chaplair Limited v Kumari [2015] EWCA Civ 798).

Notwithstanding, the Court is often reluctant to depart from the fixed costs regime. Happily for the client, submissions made at the hearing persuaded the Court to observe the contractual arrangement between the parties (the Court having already found that such an agreement existed) and award the client its costs of the action.

A decision well worth the wait and a happy client to boot!

Emily Davison