Under the Civil Procedure Rules 27.14 only limited costs are recoverable in claims allocated to the small claims track. This rule is intended to restrict the financial risk to the parties in small claims proceedings. As such, many potential claimants and defendants choose not to litigate in claims worth less than £5,000 because legal costs would be largely disproportionate to the value of the claim. The most notable exception when costs can be recovered is where a party has behaved unreasonably, but in practice this exception is not often applied.
The position may be slightly different now as a result of Robert Shaw v Nine Regions Limited (2009). In that case, the High Court was asked to consider an earlier County Court order that there should be no order as to costs in respect of a small claim.
The defendant submitted that it had a contractual right to its costs, set out in a loan agreement between the parties. The claimant disputed the application for costs on the basis that this was a small claim and the small claim rules should apply in any event. The claimant also contended that the contractual term was void and unenforceable under the Unfair Terms in Consumer Contracts Regulations 1999 (SI 1999/2083) ('the Regulations').
The court held that, although regulation 5 of the Regulations appeared to apply to the contractual term in question in that it was not individually negotiated, the term was entirely reasonable and it caused no significant imbalance in the parties' rights and obligations to the detriment of the consumer.
Further, it did not exclude or hinder the claimant's right to take legal action or exercise any other legal remedy. The judge, therefore, awarded the defendant its costs both in the High Court and in the County Court before it.
As stated above, it is unusual for such costs to be awarded in a small claims case. However, this decision helpfully clarifies that it may be possible to obtain costs in a small claims case where the parties make appropriate contractual provision to recover those costs. It is certainly worthwhile consumers checking any such contracts before deciding whether to embark on small claims litigation and for businesses to consider inserting such provisions in contracts in the future.