Dammermann v Lanyon Bowdler Solicitors  EWCA Civ 269
A case which clarifies the circumstance required to establish that a party has acted unreasonably on the Small Claims Track, thereby incurring a costs liability
Subject to certain exceptions, the standard position when a claim is allocated to the small claims track is that ‘the court may not order a party to pay a sum to another party in respect of that other party’s costs, fees and expenses, including those relating to an appeal’ CPR 27.14(2).
One such exception is found at CPR 27.14(2)(g), where the Court may order:
‘such further costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably’
Dammermann v Lanyon Bowdler Solicitors addresses what a party must do in order to be determined to have acted unreasonably, thereby exposing themselves to a liability for the other side’s costs. It is an important question which will have considerable impact on practitioners once the Small Claims limit increases.
The circumstance of the claim itself have little importance for our purpose. In brief, the Claimant defaulted on mortgage payments and as a result the Claimant’s bank appointed receivers to sell the property under the terms of the mortgage. The receivers retained solicitors (the Defendant) to undertake the sale of the property, the solicitors charges became part of the Claimant’s liability under the terms of the mortgage.
The Claimant sought to challenge the solicitor’s fees, however it was found in first instance that with no agency or contractual agreement between the Claimant and the solicitor firm, the Claimant had no standing to make a claim. On first appeal, the decision was upheld, furthermore the Defendant were awarded their costs of the appeal on the basis that the Claimant had behaved unreasonably in accordance with CPR 27.14(2)(g).
The Claimant was granted permission for a second appeal and the matter was heard before LJ Longmore and LJ McFarlane. The Claimant put forward the following grounds of appeal:
- The same judge who granted the Claimant permission to appeal heard the first appeal. If the Claimant was acting unreasonably, permission should not have been granted.
- The point of law in question, i.e. whether there was agency or a contractual agreement between the parties was obscure. This complexity should be taken into account when considering the reasonableness of the Claimant’s bringing the claim/appeal.
- The Judge was wrong to take the Claimant’s rejection of a £1,000.00 offer into account when determining reasonableness for purposes of CPR 27.14(2)(g).
The Court of Appeal held that the Claimant’s first two points had considerable force. It serves little purpose to paraphrase the judgment, the following is taken from paragraph 26 of the same:
‘It seems to us that the fact 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 were matters which the judge should have taken into account in assessing whether Mr Dammermann had behaved unreasonably for purposes of CPR 27.14(2)(g).”
With the Claimant successful on the first two grounds of his appeal, the third point is of the most interest. Whether the rejection of an offer is to be taken into account in considering the unreasonableness of a party is addressed in CPR 27.14(3):
“A party’s rejection of an offer in settlement will not of itself constitute unreasonable behavior under paragraph 2(g) but the court may take it into consideration when it is applying the unreasonableness test”
The Court of Appeal held that the Judge was entitled to take into account the Claimant’s rejection of the £1,000.00 offer in accordance with the rule above and that the judge made no error in doing so. However the Court of Appeal highlighted that the judge did not base his decision regarding the Claimant’s unreasonable behavior on this point.
With the earlier judgment (that the Claimant had acted unreasonably) having failed to take into account either (1) the intricacy/complexity of the particular point of law or (2) that the judge himself had given the Claimant permission to appeal, and with the earlier finding of unreasonableness not based on the Claimant’s rejection of the otherwise reasonable £1,000.00 offer, the Court of Appeal allowed the appeal, with no order for costs.
The Court of Appeal stresses on numerous occasions in their judgment that decisions on unreasonableness for purposes of CPR 27.14(2)(g) turn on the facts of each individual case. On this occasion the rejection of an otherwise ‘reasonable’ offer was not taken as evidence of unreasonable conduct, this may have been primarily because it was not part of the justification given for the finding of unreasonableness at the earlier instance. On our reading that is not to say the rejection of a reasonable offer in other circumstance could not justify a finding of unreasonableness. In this respect the Court of Appeal says:
“If the appeal had turned on this point alone, it would not have succeeded”
In other words, as above, a finding of unreasonableness will turn on the facts of the case.
An interesting and slightly different interpretation of the judgement presented by other commentators, is that the case sets a precedent that rejection of a reasonable offer on its own will never justify a finding of unreasonableness. Further clarification in this respect will no doubt appear as more claims fall under the scope of the small claims track, and firms have a greater interest in being able to recover their costs in such cases.
One thing is certain, the Court of Appeal intend the bar for a finding of unreasonableness under CPR 27.14(2)(g) to be high, so as not to put off litigants from using the small claims track for fear of adverse costs. Furthermore, the Court of Appeal makes it clear that optimistic action should not be confused with unreasonable action and following Ridehalgh v Horsefield  CH 205 232F, ‘the acid test is whether the conduct permits of a reasonable explanation’.