Unreasonable Behaviour – Costs on the Small Claims Track – Dammermann v Lanyon Bowdler LLP [2017] EWCA Civ 269

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By Jonathan Holsgrove

 

In 2002, Mr. Dammermann entered into a mortgage with a bank.  He defaulted on that mortgage and LPA receivers were appointed.  The receivers appointed Lanyon Bowdler to conduct the sale of the property.  On sale of the property Lanyon rendered a bill to the receivers that was paid and became part of the secured liability.  Mr. Dammermann issued proceedings contesting the legal fees charged.  The claim was allocated to the small claims track and was dismissed at trial.  Mr. Dammermann appealed but was unsuccessful.  Lanyon applied for a costs order against Mr. Dammermann for the costs of the appeal.  The Court held that as this had been a small claim their jurisdiction was limited under CPR27.  However, they held that Mr. Dammermann had behaved unreasonably under CPR 27.14(2)(g) and an order for costs was made.  Mr. Dammermann appealed the making of a costs order.

The appeal was based on three submissions:

  1. His behavior had to be viewed in the context that the judge hearing the appeal had granted permission to appeal.
  2. The point of law was unusual and required careful judicial determination.  It was not unreasonable to pursue the claim.
  3. The judge had been wrong to consider the offer to settle that Mr. Dammermann had declined but not the counter offer he had made.

The Court of Appeal (Longmore LJ and McFarlane LJ) held:

  1. The first two grounds had considerable force.  When assessing the costs application the judge should have considered that the point on which Mr Dammermann lost was a somewhat intricate point arising from a legal document which was “artificial or contrived” and “apt to give a false impression” and the fact that the judge had granted permission to appeal”.
  2. Even though the judge held on appeal that Mr. Dammermann had been ‘barking up the wrong tree’ this was only after careful legal analysis and after he had granted permission to appeal.
  3. The judge was perfectly entitled to consider the offer refused by Mr. Dammermann and was justified in doing so.  The fact that Mr. Dammermann was content to settle for a significantly figure was not relevant.
  4. On the basis that judge fell into error for failing to consider the intricate point of law and that he had given permission to appeal this appeal must succeed.  The refusal of the offer to settle was not sufficient on its own to warrant a costs order.  The application for costs would be dismissed.

The Court then went on to consider ‘unreasonable behaviour’ in Small Claims Track appeals.  Whislt referring to appeals some of the comments directly relate to Small Claims trials at first instance.  The Court stated:

  1. They were not prepared to give general guidance because each case will be different. However, they referred to Sir Thomas Bingham MR. in Ridehalgh v Horsefield (case concerning wasted costs applications):                                                         “… 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,” see Ridehalgh v Horsefield  [1994] Ch 205, 232F.
  2. That dictum in Ridehalgh should provide sufficient guidance to District Judges and Circuit Judges dealing with cases allocated to the Small Claims Track.  This meaning of ‘unreasonably’ must apply to litigants in person as it does to legal professionals.  One should not have an advantage over the other.
  3. The Small Claims Track provides a useful limited costs approach to resolving disputes.  Litigants should not be deterred from using it by the risk of being held to have behaved unreasonably.  Appeal courts should be wary of ordering costs on appeal if they were not ordered below unless circumstances are much different.

This case highlights how difficult it will be to obtain a costs order on the Small Claims Track.  Simply the loss of a case or rejection of an offer will not be enough if the pursuit of the claim is justified.

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