Costs

Costs

This part looks at a number of issues involving legal costs
incurred in mortgage proceedings
Information Sheet

What are the issues?

The issue of costs in the context of mortgages has given rise to a number of substantive and procedural issues, the most common being:

(1) the basis of a mortgagee’s entitlement to charge costs,

(2) the jurisdiction of the court to make orders as to costs including an account or assessment, and

(3) consequential issues about the court’s jurisdiction to manage a mortgagee’s costs.



The basis of entitlement

In practice, a mortgagee will usually rely upon a contractual entitlement to charge particular costs in the contract of mortgage. This may typically deal with:


(1) The type of costs, charges and expenses that may be charged, including the costs, charges and expenses incurred in connection with such things as (a) administering the mortgage; (b) perfecting, preserving, protecting or enforcing the mortgage; (c) enforcing any other rights and obligations; and (d) taking or defending proceedings involving third parties.


(2) The basis on which the costs, charges and expenses may be charged – usually on a full indemnity basis.


(3) The entitlement to recover the costs, charges and expenses – usually (a) by a covenant for repayment on demand, and/or (b) for the costs, charges and expenses to form part of the secured liabilities which are secured on the mortgaged property.


However, quite apart from any contractual entitlement to costs, a mortgagee is entitled to reimburse himself out of the mortgaged property (in other words to add the costs to the mortgage debt, but not to sue for payment) for all costs, charges and expenses reasonably and properly incurred in enforcing or preserving his security (Parker-Tweedale v Dunbar Bank Plc (No. 2) [1991] Ch 26 per Nourse LJ at 33B. This was regarded as an implied term of the contract of mortgage in Gomba Holdings Ltd v Minories Finance Ltd [1993] Ch 171 per Scott LJ at 184F, although it is frequently referred to as an equitable right).  

 

This includes (as the general rule) (a) the mortgagee’s costs, reasonably and properly incurred, of proceedings between himself and the mortgagor or his surety, and will include enforcement proceedings, and (b) the mortgagee’s costs, reasonably and properly incurred, of proceedings between himself and a third party where the title to the estate is impugned (in such a case the mortgagee acts for the benefit of the equity of redemption), but will not include (as an exception to the general rule) (c) the mortgagee’s costs where a third party impugns the title to the security, or the enforcement of some right or power of the mortgagee (for the extent to which a mortgagee is entitled to the costs of taking or defending proceedings for ‘enforcing’ or ‘preserving’ his security, see Parker-Tweedale v Dunbar Bank Plc (No. 2) [1991] Ch 26 per Nourse LJ at 33B etc. For particular issues involving third party proceedings, see for e.g. Wishart v Credit & Mercantile Plc [2015] EWCA Civ 655 and AIB Group (UK) Plc v Turner [2016] EWHC 219 (Ch).


The jurisdiction of the court

It follows that where a mortgagee is confident that he is entitled to add particular costs to the mortgage, whether in accordance with an express contractual term, or an implied term, and whether involving litigation costs or otherwise, he will usually simply do so (so that in respect of litigation costs, the order will remain silent). 

The mortgagor’s right to challenge the costs (including if the mortgagee requires the mortgagor to pay those costs), is by making an application for the court to direct that an account of the mortgagee’s costs be taken (CPR PD 44, para 7.3(1)). If so, the mortgagor may then dispute an amount in the mortgagor’s account on the basis that it has been unreasonably incurred or is unreasonable in amount (CPR PD 44, para 7.3(2)), and where the mortgagor disputes an amount, the court may make an order that the disputed costs are assessed under CPR 44.5 (CPR PD 44, para 7.3(3)).

In some cases, involving court proceedings, even where the mortgagee does not seek an order for costs, the court may itself make an order to disallow or prevent the mortgagee from adding particular costs to the mortgage. This is part of the court’s equitable jurisdiction to fix the terms on which redemption is allowed (Gomba Holdings Ltd v Minories Finance Ltd [1993] Ch 171 per Scott LJ at 194B; CPR PD 44, para 7.2(4)).

Where the mortgagee is involved in litigation and is less confident about his entitlement to add the costs to the mortgage or wishes to have the comfort of an order for costs, he may seek an order for costs in the normal way. An order for the payment of costs of proceedings by one party to another is discretionary (Senior Courts Act 1981, s 51 (which extends to the county court); CPR PD 44, para 7.2(2)). The court’s discretion is exercised in accordance with CPR 44.2.

Where there is a contractual right to the costs, the discretion should ordinarily be exercised so as to reflect that contractual right (Gomba Holdings Ltd v Minories Finance Ltd [1993] Ch 171 per Scott LJ at 194B; CPR PD 44, para 7.2(3)). 

A decision by the court to refuse costs, in whole or in part, to a mortgage litigant may be a decision in the exercise of the s 51 discretion; a decision in the exercise of the power to fix the terms on which redemption will be allowed; a decision as to the extent of the mortgagee’s contractual right to add the mortgagee’s costs to the security; or a combination of two or more of these things (Gomba Holdings Ltd v Minories Finance Ltd [1993] Ch 171 per Scott LJ at 194C; CPR PD 44, para 7.2(5)).

Where the court makes an order for costs, it may either make a summary assessment of the costs or order a detailed assessment of the costs by a costs officer (CPR 44.6(1)).

The general rule as to when the court should make a summary assessment of costs does not apply to a mortgagee’s costs incurred in mortgage possession proceedings or other proceedings relating to a mortgage unless the mortgagee asks the court to make an order for the mortgagee’s costs to be paid by another party (CPR PD 44, para 9.3).

If the court makes an order for the payment of costs without reference to the mortgagee’s contractual or implied (equitable) rights and without any adjudication as to whether or not the mortgagee should be deprived of those costs, the order will not prevent the mortgagee from adding the costs to the security (Gomba Holdings Ltd v Minories Finance Ltd [1993] Ch 171 per Scott LJ at 194D; CPR PD 44, para 7.2(6)).

Costs management

Strictly, there is nothing to prevent the court in an appropriate case from cost managing cases involving a mortgagee which have been allocated to the multi-track (in accordance with the costs management rules in CPR 3.12 etc and CPR PD 3E) notwithstanding that the mortgagee may be entitled to a contractual or implied (equitable) right to an indemnity in respect of his costs, since this reflects the court’s duty to case manage proportionately (Costs & Funding following the Civil Justice Reforms: Questions and Answers, 6th Edition, Chapter 4, question 12), unless the court is satisfied that the litigation can be conducted justly and at proportionate cost in accordance with the overriding objective without such an order being made (CPR 3.15(2)). However, the court will need to ensure that if it makes a costs management order, it reflects the right of the mortgagee (where applicable) to add his costs to the security on an indemnity basis. In practice there may be little merit in incurring the time and expense of a limited budgeting exercise and budgeting may be dispensed with (particularly if the other party is a litigant in person - litigants in person are not required to file and exchange budgets or budget discussion reports: CPR 3.13).


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