What is “unreasonable behaviour” for the purposes of Small Claims Track Costs?

If the most recently mooted Government reforms as to the financial limit of the Small Claims Track of the County Court go through, litigants will increasingly find themselves litigating within a regime with extremely tight strictures as to the recoverability of litigation costs. As all with experience of such cases will know, there is an exception per CPR 27.14(2)(g) to the effect that further costs may be assessed summarily in cases where one or other party has behaved “unreasonably”… whatever that means?

The Court of Appeal (Longmore and McFarlane LJJ) have provided some clarity to this oft cited but perhaps rarely met test in a joint ruling in the case of Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269, where they refer back to the test for wasted costs in the well-known and now somewhat historic case of Ridehalgh v Horsefield. They urged caution however, reminding the County Court benches that floodgates should not be seen to have opened and that litigants should not be easily deterred from using the Small Claims Track due to the spectre of such findings.

Their Lordships put it best:

“(2) ‘Unreasonable behaviour’ in relation to costs in Small Claims Track appeals

30. Before doing so it is necessary to refer to the invitation made by Vos LJ, when granting permission to appeal, to consider the proper meaning of CPR Part 27.14 (2)(g). We doubt if we can usefully give general guidance in relation to the circumstances in which it will be appropriate for a court to decide whether a party “has behaved unreasonably” since all such cases must be highly fact-sensitive. In the somewhat different context of the jurisdiction to order a party’s legal (or other) representative to meet what are called “wasted costs” …defined as costs incurred “as a result of any improper, unreasonable or negligent act or omission” of such representative), the court speaking through Sir Thomas Bingham MR said:-

“… 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,” see Ridehalgh v Horsefield [1994] Ch 205, 232F.

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. Ridehalgh was, of course, dealing with acts or omissions of legal representatives but the meaning of “unreasonably” cannot be different when applied to litigants in person in Small Claims cases. Litigants in person should not be in a better position than legal representatives but neither should they be in any worse position than such representatives.

32. 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.”