In a decision handed down last week, the Court of Appeal has ruled that the ‘unreasonable conduct’ test for ordering costs in the small claims court is similar to that for wasted costs.[i]
The costs regime applicable to cases under the Small Claims Track is set out in CPR, Part 27.14. In particular, by Part 27.14(2) which states:
‘the court may not order a party to pay a sum to another party in respect of that other party's costs, fees and expenses, including those relating to an appeal, except: …’ (emphasis added).
There then follows a list of exceptions, the only one applicable to this case is (g):
‘Such further costs as the court may assess by the summary procedure and ordered to be paid by a party who has behaved unreasonably’ (emphasis added).
The claimant, at first instance, sought to challenge the level of fees incurred when his house was sold as a result of his defaulting on his mortgage. Deputy District Judge Holden, sitting in Telford County Court, held that the claimant had no standing to make the claim and as such dismissed the claim.
The claimant obtained permission to appeal but the appeal was dismissed by HHJ Main QC who ruled that under CPR 27.14(2)(g), the claimant had acted unreasonably both by refusing an offer of £1,000 and by getting the law ‘obviously’ wrong, resulting in the finding that he had no standing. As such, the claimant was ordered to pay the defendant’s costs.
The claimant sought to overturn the costs order made against him and appealed to the Court of Appeal. The appeal was allowed in part and only in relation to the question of what constituted ‘unreasonable behaviour’ under r. 27.14(2) (g).
The claimant submitted that:
- The unreasonableness of his behaviour must be seen in the light of the fact that the very same judge who came to this conclusion had granted him permission to appeal.
- In judging his unreasonableness, the obscurity of the point of law must be taken into account.
- The judge was wrong to take his rejection of the £1,000 offer into account, as he had made a counter-offer to settle at a higher figure, which the defendant refused.
The defendant submitted that the claimant should have known, on receipt of its skeleton argument, that he had no prospect of succeeding and so he had unreasonably pursued a losing case. Further, the defendant claimed this conclusion is supported by the fact that HHJ Main QC had found that the claimant’s appeal was without merit. Finally, it was argued that as the judge found that the offer of £1000 was ‘a very generous offer that should have been accepted’ its rejection should therefore be taken into account when considering the reasonableness of the claimant’s behaviour.
Considering these arguments, the Court of Appeal agreed with the claimant’s first two submissions and found that the claimant had not been unreasonable in pursuing the legal issue as the point on which the claim was pursued was ‘somewhat intricate’. Additionally, HHJ Main QC should have taken into account the fact that he had granted permission to appeal when assessing the reasonableness of the claimant’s behaviour. However, he was entitled to take into consideration the rejection of the £1,000 offer.
Whilst the Court was hesitant to provide blanket guidance on what constitutes ‘unreasonable behaviour’ they did refer to the comments of Sir Thomas Bingham in the case of Ridehalgh v Horsefield  Ch 205, in which he stated in relation to wasted costs:
‘Conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so the course adopted may be regarded as optimistic and as reflecting in a practitioner’s judgment, but it is not unreasonable’.
Longmore and McFarlane LJJ went on to say at para 31:
‘While we would not wish to incorporate all the learning about wasted costs orders into decisions under CPR part 27.14 (2)(g), we think that the above dictum should give sufficient guidance on the word ‘unreasonably’ to district judges and circuit judges dealing with cases allocated to the small claims track… The only other thing we can usefully add is that it would be unfortunate if litigants were too easily deterred from using the small claims track by the risk of being held to have behaved unreasonably and thus rendering themselves liable for costs. The rules could have provided that on appeal the normal rules as to costs should prevail, but part 27.14(2) applies in terms to costs relating to an appeal; an appellate court should therefore be wary of ordering costs on appeal to be paid if they were not ordered below, unless circumstances on appeal are truly different.’
So whilst, the issue of whether costs will be ordered in the Small Claims Track remains very fact specific, there is some useful guidance which can be taken from the case of Dammermann.
The full judgment can be accessed here.
[i] Neil Rose, ‘CA Offers Pointers On When Costs Should Be Awarded In Small Claims Court’ (Litigation Futures 18 April 2017)< http://www.litigationfutures.com/news/ca-offers-pointers-costs-awarded-small-claims-court> accessed 27 April 2017.