Small Claims Litigation and Unreasonable Conduct

Quite often I am asked what constitutes a ‘Small Claim’ and what is the difference between a small claim and any other claim. Here I seek to dispel a few issues and queries on what is referred to as a small claim by the judiciary.

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, when quite often, claims can be issued at the higher end of the threshold set by the Court. As a solicitor, there is no less work involved in a small claim than is involved with a fast track claim or one which is valued between £10,000 – £25,000, yet on the fast track, reasonable costs can be recovered, subject to the Court’s assessment of the costs incurred. The Courts often despise solicitors dealing with small claim litigation matters on the grounds that costs are incurred which are not recoverable. The judiciary would further add that such claims could be dealt with by litigants in person without having to instruct a solicitor.

In short, a small claims track claim can often be perceived as a ‘nuisance’ claim. Commercial clients often take the view that settling such claims is far more cost effective than litigating such claims and incurring legal costs which are effectively irrecoverable. The costs of pursuing or indeed defending such actions quite often exceed the amounts in dispute – hardly the best use of resources is the common view in such circumstances. Furthermore, the use of resources, time management, and involvement of staff in such claims is also an additional burden and cost that is often overlooked by parties to such claims.

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 litigation.

Background

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.

So where does this decision leave litigants facing small claims court action? Will this decision limit the number of small claims track claims?

The very nature of the small claims track is to simplify the whole litigation procedure for litigants in person who often do not have the specialist technical knowledge or indeed the expert knowledge a solicitor possesses on the Civil Procedure Rules, case law or an understanding of the decisions such as Dammermann v Lanyon Bowdler. As such, the decision appears unlikely to limit or curtail the number of such claims in future. What the decision does is provide defendants in such claims with an extra argument to potentially use against a claimant when conducting settlement discussions, small claims mediation and/or the discontinuance of the claim in its entirety.

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