Elizabeth Stevens on The Recovery of Costs in the Small Claims Track

As personal injury practitioners will be only too aware, the recovery of costs in the Small Claims Track is extremely limited. The only way that a party can hope to recover more than the minimal sums prescribed in CPR r.27.14 is to demonstrate that the other side has “behaved unreasonably” (CPR r.27.14(2)(g)). Until recently, the meaning of unreasonable behaviour in this context had been unclear.

The Court of Appeal has now provided some much needed guidance in the case of Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269. While stressing that it will always be a highly fact-sensitive determination, Longmore and McFarlane LJJ considered that the test for wasted costs, as expressed by Bingham MR in Ridehalgh v Horsefield, provides sufficient guidance as to the meaning of the word “unreasonably”. Although the decision in this case, relates to small claims track appeal, the clarification provided will apply generally to CPR r.27.14(2)(g). Their Lordships said as follows:

“(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 of 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.”

This is especially timely guidance. Despite the Government’s recent announcement that they will be scrapping the Prison and Courts Bill, which was due to increase the small claims limit for RTA-related personal injury claims to £5,000 and for other personal injury claims to £2,000, it seems likely that this reprieve for claimant practitioners will be short-lived. Unlike some of the other proposed reforms, the changes to the small claims limit would only require secondary legislation and were seemingly included within the Bill as a matter of convenience. The spectre of small claims reform will continue to loom large and further clarity as to the costs position on this track is therefore particularly welcome.