A claim which is less than £10,000 is classified as a “small claim”. Even where defended successfully only nominal fixed costs are recoverable.

Small claims can be a nuisance. It is usually more commercially sensible to settle the claim than incur legal costs to defend it, because the costs incurred are almost always more than the value of the claim and effectively irrecoverable. Small claims can waste management time and resource too.

The Court has always had the power to penalise a party to such a claim for unreasonable behaviour in proceedings by awarding costs against that party and a recent case, Dammermann v Lanyon Bowdler, has provided useful guidance as to what conduct the Courts will consider to be unreasonable.

  • Unreasonable conduct cannot be described as unreasonable simply because it leads to an unsuccessful outcome for the relevant party.
  • Conduct is also not unreasonable just because more cautious legal representatives would have acted differently.
  • The test is whether the conduct has a reasonable explanation. If so, the course adopted may be regarded as optimistic but will not be unreasonable.

In that particular case, the Appellant appealed against a costs order made against him, on the basis that he had behaved unreasonably in pursuing an appeal in a small claims track. The Court found that the conduct of the Appellant was not unreasonable because the Appellant had been given permission to appeal on a point of law that was not clear or obvious and had made a counter offer to settle the matter, which had been refused. It was irrelevant that his appeal with unsuccessful.

So, could this decision mean a reduction in the number of small claims brought? In my opinion, no it will not. Most such claims are brought by litigants in person who will not be aware of this case or the risk of an adverse costs order. However, this decision is a useful tool to be used by the defendant in conducting settlement negotiations and/or the discontinuance of the claim itself.