Dammermann v Lanyon Bowdler LLP

For costs under the Small Claims Track, unreasonable behaviour requires conduct that permits no reasonable explanation. A party does not act unreasonably merely because the claim or appeal fails, or because a more cautious litigant might have acted differently.

A refusal of a settlement offer may be considered, but cannot of itself establish unreasonable behaviour. Litigants in person are neither advantaged nor disadvantaged by the test. Courts should also be slow to award appeal costs where no costs order was made below, unless the circumstances on appeal are truly different.

The claimant challenged fees charged by solicitors retained by receivers appointed under his mortgage. The original Small Claims Track claim was dismissed because the solicitors’ contract was with the receivers, not the claimant, and no costs order was made.

On the claimant’s first appeal, a County Court judge dismissed the appeal and ordered him to pay the solicitors’ costs. The judge found that he had acted unreasonably by pursuing an argument which the respondent’s skeleton argument showed to be wrong, while also taking account of his refusal of a £1,000 settlement offer.

The claimant brought a second appeal. The central issues were the meaning of unreasonable behaviour under Civil Procedure Rules 1998 Part 27.14(2)(g), and whether the costs order could stand.

1. Appeal allowed. The County Court judge erred in finding that the claimant had behaved unreasonably without taking account of two material matters: the legal point was intricate and arose from mortgage wording apt to give a false impression; and the same judge had granted permission to appeal on that point.

2. Under Civil Procedure Rules 1998 Part 27.14(2)(g), the relevant question is whether the conduct permits a reasonable explanation. The court adopted the guidance in Ridehalgh v Horsefield [1994] Ch 205: an unsuccessful result, or the availability of a more cautious course, does not by itself make conduct unreasonable. Although that guidance arose in the wasted-costs jurisdiction, the meaning of unreasonable conduct cannot differ between legal representatives and litigants in person in Small Claims Track cases.

3. The judge was entitled under Part 27.14(3) to take the rejected £1,000 settlement offer into account. He had not treated it as the sole basis for his decision. However, rejection of the offer alone could not satisfy the statutory test; the claimant’s counter-offer was irrelevant to that conclusion.

4. On re-determination, the claimant had a reasonable explanation for pursuing the appeal. There was therefore no basis for a costs order under the Small Claims Track regime. The County Court costs order was set aside and replaced by no order for costs. There was no order for the costs of the second appeal, save that the respondent was to pay the claimant’s transcript costs.

• Court of Appeal (Civil Division) Allowed the second appeal, set aside the County Court costs order, and substituted no order for costs.
• County Court at Telford (HHJ Main QC) Dismissed the claimant’s first appeal against dismissal of his claim and ordered him to pay the respondent’s costs on the ground of unreasonable behaviour.
• County Court at Telford (Deputy District Judge Holden) Dismissed the Small Claims Track claim for want of a contractual or agency relationship between the claimant and the solicitors; made no order for costs.