Finance companies often find themselves litigating in
the small claims track. The downside is that, where the value of
the claim is less than £5,000, generally only limited costs are
recoverable, often making it commercially unviable to litigate for
small sums such as shortfalls.
In Shaw vs Nine Regions Ltd, Shaw issued
proceedings in the small claims court seeking a declaration under
section 140A of the Consumer Credit Act 1974 (the Act) that the
relationship between him and Nine Regions arising out of a loan
agreement was unfair.
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The allegations of unfairness included an
extortionate rate of interest (341.9% APR) and the way in which
charges were applied on default. Nine Regions counterclaimed the
sum due under the agreement.
The recorder hearing the claim found that there was
an unfair relationship and reduced the amount Shaw had to pay under
the agreement.
Although there was a judgment in favour of Nine
Regions, the Recorder refused to allow Nine Regions its legal
costs. This was despite there being a contractual provision in the
loan agreement entitling Nine Regions to claim. The right to
contractual interest had been pleaded in the defence. Nine Regions
appealed.
Shaw argued the small claims rule should apply
which provides for recovery of only very limited costs.
Alternatively, he argued that the contractual term as to costs was
void and unenforceable under the Unfair Terms in Consumer Contract
Regulations 1999 (the Regulations).
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By GlobalDataRegulation 5 in particular provides that a
contractual term which has not been individually negotiated shall
be regarded as unfair if, contrary to the requirement of good
faith, it causes significant imbalance in the parties’ rights and
obligations arising under the contract to the detriment of the
consumer.
The judge held that although Regulation 5 applied
to the term in question, as it was not individually negotiated, the
term was entirely reasonable and caused no significant imbalance in
the parties’ rights and obligations to the detriment of the
consumer.
Such a clause may be unfair under the regulations
if it excludes or hinders the consumer’s right to take legal action
or exercise any other legal remedy by requiring the consumer to
take disputes exclusively to arbitration not covered by legal
provisions, unduly restricts the evidence available to him/her or
imposes upon him/her a burden of proof which, according to the
applicable law, should lie with another party to the contract.
The clause here did not exclude or hinder Shaw’s
right to take legal action or exercise any other legal remedy. Nine
Regions was therefore entitled to its costs of both the small
claims hearing and the appeal.
In all cases where a finance company finds
itself litigating in the small claims track, it should be relying
on this case and asking for its costs. Although only a county court
decision, it should be a useful weapon in the finance company’s
armoury.
The author is a partner at Wragge & Co
LLP
