The dodgy builder who does a bad job. The company who will not settle an invoice or who has not supplied the right goods. The holiday that turned into a disaster. Sometimes, only Court action will get the job done and the result you want. However, if the value of the dispute is under £5,000 then it will generally fall within the jurisdiction of the Small Claims Court.

The small claims procedure was originally intended to provide a quick and cheap way of resolving low value claims. Parties were discouraged from instructing lawyers because of the difficulty of recovering legal costs at the conclusion of the case. However, many people would argue that a claim of £5,000 is not all that small and also, a claim can be procedurally and legally complicated even though there may not be much money involved.

In 2004, just over 70% of all claims issued in the County Court were for £5,000 or under. The majority of these cases were for debts although some were for personal injury and negligence. These cases, therefore, take up a significant amount of Court time. Published guidance to the Small Claims Court states that people should be able to use the Small Claims procedure without a solicitor. However, research carried out by the Law Society showed that litigants in person often find the procedures hard to negotiate and complicated, yet they are penalised for instructing lawyers to help them. If parties do instruct lawyers, to contest small claims, there is the possibility that they will be successful in the claim but that the amount they have recovered is outweighed by legal costs.

In general, the only costs that can be recovered in the Small Claims Court are Court fees and various small levels of fixed costs. However, there are mechanisms in place that do allow parties to recover costs and ultimately, parties should not necessarily be discouraged from instructing lawyers in small claims.

Many people, when running small claims, overlook the fact that limited loss of earnings, for a party and any witnesses (currently £50 per day), can be recovered from the losing party. Furthermore, the fees of a permitted expert (limited to £200) can also be recovered.
The Court is also able to order the losing party to pay all or part of the expenses which a party or witness has reasonably incurred in travelling to and from a hearing or staying away from home for the purpose of attending the hearing. There is no upper limit on what the Court may award. Substantial awards may be made if a party has to travel a long way to attend the defendant’s home Court, where a case is usually tried. Travelling costs may add a significant sum to a claim of otherwise limited financial value.

Consideration should also be given to whether a party has behaved unreasonably. The perceived lack of costs penalties encourages parties to try their luck and issue a claim as they feel they will not be penalised if they lose. Parties may also be forced to settle cases they otherwise might have won because the costs of fighting would be too great. If a party behaves unreasonably, however, the Court may use a ‘big stick’ when it comes to costs, to punish that party.

Whilst there is no specific definition of “unreasonable conduct”, the range of conduct that has been found to be unreasonable is very wide. Perhaps, therefore, the circumstances in which legal costs can be recovered in the Small Claims Court are not as limited as would first appear.

The following, although not an exhaustive list, gives some idea of the circumstances in which the Courts will order the losing party to pay most or all of the legal costs incurred by the other party:

(i) Where it was unreasonable to pursue a case which was speculative and unsupportable (Afzal v Ford Motor Company). The Courts have gone a bit further now and stated that if a Claimant pursues a case which he must have known had little prospects of success then this could amount to unreasonable conduct (Spearing v Jackson). In that case,Jackson invited Spearing to withdraw his claim on the basis that police evidence revealed how Spearing had admitted to police that he had been at fault. Spearing did not attend trial and his claim was dismissed. Jackson sought his costs of the wasted hearing. The costs awarded were those of the hearing, including counsel's brief fee and an amount summarily assessed for work undertaken by the defendant’s solicitors.

(ii) Where there has been fabrication of an untruthful defence (Martin v Sherwood) and where a claim has been brought dishonestly (Bashir v Hanson). It is suggested that in dishonest claims a costs order will reflect the bulk, if not all, of the innocent party’s costs.

(iii) Unreasonably contesting liability until a very late stage. A Court may penalise a party who drags out litigation to a late stage before conceding liability (Mahmood v Watson). Similarly, in the case of Pilcher v Bates the Court found that the defendant had never actually intended to go to Court and it was unreasonable for her to file a defence. A costs order was made against her.

(iv) Making late or inadequate offers to settle. There have been cases where successive offers have been drip fed by the defendant before it agreed to pay the whole claim. This has been deemed unreasonable conduct (Woodgate v Stafantos). Furthermore, the situation where a defendant has dragged out a claim and denied liability with no basis for doing so, until the day before trial so as to deprive the claimant of his money for a substantial period, has been held to be unreasonable and conduct worthy of an adverse costs order (Whybrow v Kentish Bus Company).

(v) Giving evidence at trial which fundamentally differs from a pleaded case or that as set out in any witness statements (Owen v Burnham).

The small claims procedure provides an important route for consumers, businesses and other litigants to pursue claims of limited monetary value in an informal environment, at low cost and at reasonable speed, without incurring disproportionate legal fees. However, many people are put off bringing claims or taking legal advice for fear that they will have to spend more on lawyers than on the claim. The starting point has to be that care is needed over costs in the Small Claims Court but the reported decisions would seem to suggest that there are many cases in which substantial costs awards will be made, thereby taking the potential sting out of the tail.