RECOVERING COSTS IN THE SMALL CLAIMS TRACK – CONSIDERING “UNREASONABLE BEHAVIOUR”
In a recent case, the Court of Appeal has considered when it might be appropriate to make an award of costs (over and above fixed costs) in Small Claims Track cases on the basis of unreasonable behaviour. Whilst declining to provide details of the circumstances which might give rise to such an award, the Court suggested that a similar approach to that adopted in wasted costs applications would be appropriate.
The case was Dammerman v Lanyon Bowdler LLP  EWCA Civ 269, which had begun life as a claim by a mortgagor complaining at the extent of the costs claimed by solicitors appointed on behalf of the mortgagee in effecting a sale of the Claimant’s property following his default on mortgage payments.
At first instance, the Deputy District Judge found that the Claimant had no locus standi for his complaint on the basis that there was no contractual relationship between the Claimant and the Solicitors nor was there an agency relationship. The Claimant was given permission to appeal and the appeal hearing was before the same Judge who granted that permission. However, the Judge was entirely in agreement with a detailed skeleton argument from the Defendant which established that the Deputy District Judge had come to the right conclusion, albeit perhaps not necessarily based upon the correct grounds. The appeal was therefore dismissed and the Judge awarded costs to the Defendant on the basis that the Claimant had behaved unreasonably.
In finding that the Claimant had behaved unreasonably, the Judge took account of the rejection by the Claimant of £1000 offer to settle (which the Judge considered was a generous offer) but even leaving that to one side, found that on the basis of the skeleton argument from the Defendant, served 6 or 7 weeks before the hearing, it should have been apparent to the Claimant that he was “barking up the wrong tree” in his arguments and that he was doomed to failure.
On appeal to the Court of Appeal, this was overturned.
The Claimant argued that in circumstances where the same Judge who had heard the appeal had given permission for the appeal, it could not be said that it was unreasonable for him to have pursued it. He also argued that the point of law was obscure particularly because the mortgage deed itself indicated that there was an agency relationship. He also felt that it was wrong for the Judge to have taken account of the rejection of the offer in circumstances where he had made a counter proposal.
The Court considered the wording of the relevant provisions. By CPR 27.14(2):
“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: …”
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.”
And CPR 27.14(3):
“A party’s rejection of an offer in settlement will not of itself constitute unreasonable behaviour under paragraph 2(g) but the court may take it into consideration when it is applying the unreasonableness test.”
The Court found that in the circumstances the first two arguments from the Claimant had “considerable force” and that they led to the conclusion that the appeal must succeed. The Court found that the approach of the Judge in relation to the offer was appropriate because he had clearly simply taken it into account and not based his hold decision solely on that aspect.
In terms of the more general approach, as we have indicated, the Court did not feel it appropriate to specify particular circumstances in which a party might be found to have behaved unreasonably because such cases would be fact sensitive. However, drawing a comparison with the wasted costs provisions the Court quoted Sir Thomas Bingham MR:
“… 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,” Ridehalgh v Horsefield  Ch 205, 232F.
And went on to say that this should give sufficient guidance forward Judges dealing with cases allocated to the Small Claims Track. The Court felt that the meaning of “unreasonably” would not be different when applied to litigants in person in such cases. The Judgment concludes with the comment that it would be unfortunate if people were deterred from using the Small Claims Track by being found to have behaved unreasonably and therefore potentially becoming liable for costs.
Therefore, whilst very close consideration would have to be applied to the particular facts of any case in question, this does give a very good “steer” as to the appropriate consideration to be undertaken when faced with such a situation.