The ‘unreasonable conduct’ test for ordering costs in the small claims court is similar to that for wasted costs, the Court of Appeal has ruled, but said it would not want litigants to be “too easily deterred” by the risk of an adverse costs award.
Lord Justice Longmore and Lord Justice McFarlane gave a joint ruling in Dammermann v Lanyon Bowdler LLP  EWCA Civ 269 , in which the claimant sought to overturn a costs order made against him at the conclusion of a first appeal in a case which had been allocated to the small claims track.
Peter Dammermann defaulted on his mortgage and the receivers appointed by the bank retained Shropshire law firm Lanyon Bowdler to sell the property. Its bill became part of Mr Dammermann’s overall liability under the terms of the mortgage.
He sought to challenge the level of fees. Deputy District Judge Holden at Telford County Court held there was neither an agency nor any contractual relationship between Mr Dammermann and the firm and that, consequently, he had no standing to make the claim. He dismissed the claim but made no order as to costs.
His Honour Judge Main QC gave permission for but then dismissed an appeal. On costs, he ruled that under CPR 27.14(2)(g), the claimant had acted unreasonably, both by refusing an offer of £1,000 and by getting the law “obviously” wrong.
The second appeal to the Court of Appeal was allowed in part to provide guidance on what amounts to behaving unreasonably for the purposes of rule 27.14(2)(g).
Overturning the circuit judge’s ruling, the Court of Appeal said the claimant had not been unreasonable in pursuing the legal issue. The point on which he lost his claim was actually “somewhat intricate” and, when assessing whether he had behaved unreasonably, Judge Main should also have taken into account the fact that he had granted permission to appeal.
“We are, however, not persuaded that the judge was in error in the manner in which he approached Mr Dammermann’s rejection of the settlement offer of £1,000. The judge did not base his decision on unreasonable behaviour on this point…
“He was entitled by part 27.14(3) to take it into account and, in our view, he was justified in doing so. The fact that Mr Dammermann was prepared to settle for a substantially higher figure is, obviously, irrelevant to this consideration. If the appeal had turned on this point alone, it would not have succeeded.”
On what amounted to unreasonable behaviour, the appeal judges said they could not give “general guidance” because all cases “must be highly fact-sensitive”.
But they quoted Sir Thomas Bingham MR in Ridehalgh v Horsefield  Ch 205, 232F in the context of wasted costs.
In that case, he 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.”
Longmore and McFarlane LJJ said: “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…
“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.”