An Acid Test for Unreasonable Acts: Unreasonable Behaviour Costs on the Small Claims Track

When preparing a brief for a small claims trial it is not uncommon to read that “Counsel is instructed to seek unreasonable conduct costs”.   Quite what such unreasonable behaviour amounts to is not defined by the CPR and this has in turn led to spurious applications being made and uncertainty over what behaviour the court will sanction.  The Court of Appeal however has recently (12th April 2017) given clear judicial guidance on the issue, no doubt to the relief of County Court judges across the country who have hitherto had to rely largely on their own interpretation of the phrase.

In order to help cases progress efficiently through the system claims are allocated to one of three “tracks”: the small claims, fast and multi-track.  The small claims track is intended for the lowest value and least complex cases.  In an attempt to keep costs down, the successful party on the small claims track can recover only a very limited amount of fixed costs regardless of how much they have actually spent.  In fact it is not uncommon for a party’s actual costs to exceed the amount in damages recovered.

In certain circumstances however a party can request that a sum in excess of the usual fixed costs is awarded on the basis of the other side’s “unreasonable conduct”. CPR Part 27.14(g) states that:

“The Court may not order a party to pay a sum to another party [except]…such further costs as the court may…order to be paid by a party who has behaved unreasonably”

What amounts to such “unreasonable” behaviour is not specified anywhere in the CPR and due to the nature of the small claims track (unreported, low value claims heard in the County Court) there has been a dearth of case law on the subject. However the Court of Appeal’s judgment in Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269 provides welcome guidance for litigants, practitioners and judges alike.

Mr Dammermann brought a claim against Lanyon Bowdler, a firm of solicitors instructed by the receivers tasked with selling his property after he defaulted on his mortgage. There was no contractual relationship between the parties and his claim was dismissed at first instance by the Deputy District Judge.  He was given permission to appeal by a circuit judge but this appeal was them dismissed by the same judge.  In determining the costs of the appeal the appeal judge considered Mr Dammermann’s behaviour to have been unreasonable, both in pursuing the appeal and rejecting an offer to settle of £1,000.

On appeal to the Court of Appeal consideration was given to the question of what conduct will amount to “unreasonable behaviour” for the purposes of CPR 27.14(g).

The Court of Appeal determined that whilst the Claimant’s claim had been unlikely to succeed this did not make his behaviour in pursuing it unreasonable. The fact that permission to appeal the decision of the DDJ had been granted indicated that there had been some (if minor) merit in the case.  In addition, rejecting an offer to settle was not in itself unreasonable conduct.

The Court of Appeal noted that cost cases are “highly fact sensitive” and so it is hard to give general guidance.  It referred to the case of Ridehalgh v Horsefield [1994] Ch 205 which confirmed (on the issue of wasted costs) that conduct is not unreasonable simply because another lawyer would have advised their client to take a different route or because the conduct leads to an unsuccessful result.  The Court of Appeal in Mr Dammermann’s case considered that it would be wrong to use a different test when considering the conduct of parties on the small claims track.

Consequently, the Court of Appeal in Dammermann confirmed that the Ridehalgh test applies to CPR 27.14(g) and cited Sir Thomas Bingham MR’s comments that “The acid test is whether the conduct permits of a reasonable explanation…If so, the course adopted may be regarded as optimistic…but it is not unreasonable”.

The Court was at pains to emphasise that parties on the small claims track (many of whom act in person) should not be deterred from litigating due to a fear that simply by pursuing their case they will be penalised in costs. As the Court determined “Litigants in person should not be in a better position than legal representatives but neither should they be in any worse position…

It is to be hoped that the Court of Appeal’s decision in Dammermann will reduce the number of speculative (and often spurious) applications for costs under CPR 27.14(g) along with greater consistency amongst county court judges in its application.  However taken together with the intended increase in the small claims track limit (up to £5,000 for certain personal injury claims), the decision does limit still further the potential for litigants to recover the costs of arguing their case.