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CPR rule 27.14 deals with the recovery of costs on the small claims track. The starting point is that the court may not make an order for costs, except for fixed costs and court fees, unless the opposing party has behaved unreasonably.
The question of what constitutes unreasonableness, therefore, arises fairly often in small claims cases. Aggrieved parties, having won their case, feel that their costs should be paid.
As the majority of small claims cases are heard by district judges and are unreported, reported decisions on unreasonableness are few and far between. Examples include:
However, the decision by the Court of Appeal in Dammermann v Lanyon Bowdler LLP  EWCA Civ 269 provides some useful guidance on unreasonableness.
The facts are fairly simple. The claimant, Mr Dammerman, defaulted on his mortgage and the lender appointed a receiver, who in turn appointed the defendant, Lanyon Bowdler, to conduct the sale. The property was sold and the defendant raised its bill, which was subsequently paid and added to the mortgage debt.
The claimant issued proceedings in the County Court to challenge the level of fees but the deputy district judge held that there was no contractual relationship between the claimant and defendant. The claim was dismissed with no order as to costs.
The claimant sought to appeal and was granted permission by a circuit judge. The defendant filed a skeleton argument setting out a clear legal argument demonstrating that there was no basis for the claimant to succeed. Despite this, the claimant persevered and his appeal was heard by the same circuit judge who had previously granted permission to appeal.
At the appeal hearing, the appeal was dismissed and the defendant applied for costs. The circuit judge was reminded by the claimant that the claim was on the small claims track and that costs could only be awarded if the claimant had behaved unreasonably. After submissions were made, the circuit judge found that the claimant had behave unreasonably, particularly as he had been made an offer to settle of £1,000 which he had not accepted.
Permission to appeal was granted, partly on the basis that there was a need to establish what constituted unreasonable behaviour in small claims cases.
The Court of Appeal found that the point of law had not been a simple one, and the appeal had not been totally without merit. As to the rejection of the offer to settle, the circuit judge had clearly taken this into account and was not wrong in doing so. Nonetheless, the appeal succeeded and the Court of Appeal then turned to re-determining the question of costs.
By way of guidance, the Court of Appeal noted that the question of unreasonableness must be “highly fact-sensitive”. The dictum of Sir Thomas Bingham MR in Ridehalgh v Horsefield , speaking on unreasonableness in wasted costs applications, set out below, was cited with approval:
“conduct cannot be described as being 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.”
The question of the defendant’s costs was then considered in light of this guidance and the application for costs was dismissed as the claimant could not be said to have behaved unreasonably in pursuing his appeal.
It is interesting to note that a similar decision was made recently by the Upper Tribunal (Property Chamber) in Willow Court Management Company (1985) Limited v Alexander. Rule 13 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 states that “the Tribunal may make an order in respect of costs only … if a person has acted unreasonably in bringing, defending or conducting proceedings”. In making its decision, and setting the three-stage test to be followed by the First-tier Tribunal, the Upper Tribunal found that there was no reason to depart from the guidance on the meaning of unreasonable in the Ridehalgh decision.
This article is for information purposes only and is not legal advice. It should not be acted or relied upon and legal advice should be sought before applying any of the information in this article to any facts or circumstances.