A recent decision made by His Honour Judge Maloney QC in the case of Graham v Sand Martin Heights Residents Company Limited has caused confusion over whether parties can claim contractual costs in respect of claims allocated to the small claims track.
The normal rule is that only limited costs are recoverable on the small claims track and the amount depends on the stage reached in the court process. Contractual costs, put simply, are legal costs which are payable pursuant to a clause in a contract irrespective of any court rules.
The leading authority on contractual costs generally is Church Commissioners v Ibrahim where the court commented that a successful litigant should not be deprived of his contractual rights to costs unless there is a good reason to do so.
Furthermore, in the case of Shaw v Nine Regions, the High Court decided that a defendant could recover contractual costs on the small claims track. In that case, the High Court awarded the defendant the costs he incurred in both the High Court and in the County Court.
However, in the case of Graham v Sand Martin Heights Residents Company Limited, H.H.J Maloney QC held that in the absence of unreasonable behaviour, contractual costs are not recoverable on the small claims track due to the very clear wording of rule 27.14 of the Civil Procedure Rules (CPR). The specific wording of CPR 27.14 states that the court may not order a party to pay a sum to another party except those limited fixed costs which are payable under CPR 45. To date, this decision has not been appealed.
So where does this leave us? The advice would be that in order to increase your chances of successfully recovering costs, leases and contracts should be drafted to allow claims to be allocated to a track (e.g. the fast track) where costs are recoverable. This would therefore provide a claimant with ammunition later down the line when arguing for the claim to be allocated to the fast track. However, the decision of the court as to which track to allocate a case to remains discretionary and it remains to be seen whether judges will allow such clauses to remove the costs protection usually afforded to defendants in low-value claims.
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