The High Court has recently considered the circumstances in which possession proceedings brought by a lender will be considered collateral to its powers and the costs consequences which shall result should such proceedings be subsequently abandoned.

The Facts

By a loan agreement dated 19 April 2007, Co-Operative Bank plc (the “Claimant”) agreed to lend a sum in excess of £2.1 million to County Capital plc (“County Capital”), a company of which Mr Phillips (the “Defendant”) was then a director. A term of this loan agreement was that the Defendant would grant the Claimant second legal charges over two residential properties owned by the Defendant known as Vole Farm and Chestnut Farm. These charges were to rank behind earlier charges granted by the Defendant in favour of Barclays Bank plc. It was a further condition of the loan agreement that the Defendant would provide a capital guarantee and interest shortfall guarantee in respect of the monies the Claimant was to advance to County Capital (the “Guarantees”).

On 3 May 2007, the Claimant entered into a further loan agreement with the Defendant under which the Claimant was to lend the Defendant a maximum of £1,790,000. Repayment of this loan was, however, secured on two properties other than Vole Farm or Chestnut Farm.

On 22 June 2007, the Defendant granted the second legal charges over Vole Farm and Chestnut Farm to secure the repayment of all monies due from County Capital to the Claimant. These monies were deemed due on demand.

The Claimant demanded re-payment from County Capital of a sum in excess of £2.2 million but County Capital did not pay the sums demanded. The Claimant further demanded payment of £840,000 from the Defendant in accordance with the terms of the Guarantees, which the Defendant also failed to pay.

The Proceedings

On 19 April 2013, the Claimant commenced possession proceedings against the Defendant in respect of Vole Farm and Chestnut Farm over which it had been granted second legal charges. During the proceedings, the Defendant issued an application notice seeking an order that the claims for possession be struck out or dismissed as an abuse of process and further sought disclosure from the Claimant of a number of documents identified by the Defendant as relevant to the Claimant’s decision to bring the proceedings for possession.

Though the claims were not struck out by Deputy District Judge Roach, the Defendant was granted permission to serve an amended Defence which the Defendant proceeded to do on 4 December 2013.

In the amended Defence, the Defendant pleaded that the Claimant would “obtain no legitimate commercial advantage from enforcing the second legal charges and, in consequence, the proceedings were an abuse of process”. The Defendant further pleaded that the claims for possession were for a collateral purpose to pressurise the Defendant and his family in order to gain an unfair advantage in a wider dispute between the Defendant and Claimant and that this purpose was “foreign to the permissible purposes of possession proceedings”.

On 29 April 2014, His Honour Judge Cotter QC allowed an appeal from the Deputy District Judge’s earlier order and ordered the Claimant to pay the costs of the appeal. The Claimant was also ordered to give disclosure, by 9 June 2014, of the documents previously sought by the Defendant.

The Claimant did not comply with the order for disclosure by 9 June 2014 or at all and decided to abandon the proceedings. On 18 June 2014, the Claimant served notice of discontinuance of both its claims.

The Costs Consequences of Discontinuance

On the facts, the Court found the possession proceedings brought by the Claimant to have been “a waste of time and expense” and noted that “the Bank itself appears to have recognised that by discontinuing the proceedings”. The Claimant’s costs were therefore not recoverable in accordance with the terms of its charges over Vole Farm and Chestnut Farm.

The Claimant accepted that it was liable to pay the Defendant’s costs of the proceedings in accordance with Civil Procedure Rule 38.6(1) and sought to have those costs assessed on the standard basis, as deemed by Civil Procedure Rule 44.9(1).

The Defendant submitted, however, that it was appropriate in all the circumstances for the Court to order that he should recover his costs on the indemnity basis on grounds that the Claimant had sought possession for a collateral purpose beyond the Claimant’s powers as chargee of Vole Farm and Chestnut Farm and, secondly, that the claims for possession were an abuse of the process of the Court.

The Decision

Mr Justice Morgan concluded that even if the Claimant’s purpose in bringing the possession proceedings against the Defendant was to put the Defendant and his family “at a disadvantage with a view to receiving an offer of payment of the sum secured”, such an approach was “within the equitable constraints on the exercise of its powers” and “not an abuse of the process of the court”. Accordingly, the Defendant was awarded his costs on the standard basis in accordance with Civil Procedure Rules 38.6(1) and 44.9(1).


The decision of the High Court confirms that a mortgagee will be acting within its powers should it decide to pursue a possession claim against a borrower for the purpose of exerting pressure on that borrower to pay sums due and outstanding. Such an approach will not be construed as an abuse of the Court process, notwithstanding the lack of equity in the property in question. Though this aspect of the High Court’s decision will be welcomed by lenders, it serves as an important reminder of the costs consequences which shall likely ensue should possession proceedings be brought without reasonable prospects of success and subsequently abandoned.

For further information, please contact Georgina Squire or the Partner with whom you usually deal.