Costs In Small Claims Courts

The Civil Procedure Rules which govern how litigation is conducted in England and Wales, defines a ‘small claim’ as a claim which is less than £10,000 in its value.
The costs on such a claim are not fully recoverable, other than what are deemed to be fixed costs and the disbursements incurred in pursuing such a claim.
Even where such a claim is defended successfully, the Court will only award the fixed costs set out within the Civil Procedure Rules. Such an assessment is also subject to claim value.
This, on the face of it, would appear unfair to a litigant and often clients take the view that settling such claims is far more cost effective than litigating such claims and incurring legal costs which are effectively irrecoverable.
However, one feature of the small claims procedure that is often overlooked by parties is the power the Court has to penalise parties for any unreasonable behaviour during such proceedings. 
The punitive measure afforded to the Court by the Civil Procedure Rules is to make an award against the party who has acted unreasonably in such proceedings. With this mind, the recent court decision in the case of Dammermann v Lanyon Bowdler has given parties a far clearer guidance on what a Court will perceive as being ‘unreasonable conduct’ in the context of small claims. 
This was a claim that involved an appellant who appealed against a costs order made against him on the basis that his behaviour in pursuing an appeal in a small claim track matter was deemed to be unreasonable. 
The Court held that the conduct did not amount to unreasonable conduct, as he had been given permission by the Court to appeal the decision on a point of law that was not clear or obvious as well as making a counter offer to settle the matter, something which had been refused. 
This, the appellant submitted, was hardly conduct of an unreasonable party to the litigation, an argument which the court agreed with. 
In its judgment, the Court gave guidance that: • Unreasonable conduct cannot be described as being unreasonable simply because the final decision leads to an unsuccessful outcome for the relevant party. • Conduct is not unreasonable just because more cautious legal representatives would have acted differently; and • The test is whether the conduct alleged to have been unreasonable has a reasonable explanation or not. 
If so, the course adopted in the proceedings may be regarded as being optimistic but which falls short of being unreasonable. In this matter, it was irrelevant whether the appellant’s appeal was unsuccessful. 
The case of Bellamy and Parmenter v A C Electrical Limited has again highlighted the limited costs that can be claimed in the Small Claims Court and the discretion of the Court in respect of the recovery of costs.

In Bellamy the Judge highlighted that there is no mandatory “no costs” rule in the Small Claims Court under the Rules of the High Court of Justice 2009 (the Rules), but that Rule 11.21 does contain certain restrictions. In this regard, Rule 11.21 states that the Court in a small claims case may not make a costs order to pay the other part’s costs, save for the following:

  1. The court costs for issuing the claim; 
  2. In regards to an injunction or specific performance claim, the costs associated with legal advice and assistance;
  3. In personal injury cases, costs associated with legal advice;
  4. Court fees;
  5. Reasonably incurred travel expenses of any of the parties or any witness;
  6. A maximum of £50 per day for loss of earnings in attending the hearing;
  7. Fees for an expert; and/or
  8. Where a party has behaved unreasonably, the Court may award such further costs as it deems appropriate.

In Bellamy both sides were seeking reimbursement of legal costs due to allegations that the other party had acted “unreasonably”. The Judge highlighted that unreasonable behaviour is not defined within the Rules, but that the previous case of RPS Consultants Ltd v Hexagon Enterprises Ltd set out a non-exhaustive list with what may constitute “unreasonable behaviour” including:

  1. Speculative and an unsupportable case;
  2. An untruthful defence;
  3. Rejection of a settlement offer which is manifestly to the advantage of the offeree; and/or
  4. Failing to submit an appropriate defence.

Having carefully considered matters the Judge held that whilst there was some substance to criticisms raised by the parties these were insufficient for either party to prove that the other had acted unreasonably. 

This decision is helpful in illustrating the limited costs which are recoverable in the Small Claims Court and the relatively high barrier which must be met in trying to obtain a costs order by alleging unreasonable costs by the other party. 

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