What should Dispute Resolution lawyers take note of?
Advocates have often found that District Judges’ interpretation of unreasonableness, in this context, has varied with the length of the proverbial judge’s foot—from 'mildly unwise, with the benefit of hindsight' at one extreme, to 'utterly scandalous' at the other.
This case provides authority for the proposition that the Court of Appeal guidance on the availability of wasted costs orders is also appropriate as guidance on the availability of 'unreasonable behaviour costs'. Pursuing a case to an unsuccessful result, through optimism or even on grounds reflecting on a litigant’s judgment, cannot of itself be said to be unreasonable; the acid test is whether the conduct permits of a reasonable explanation.
The Court also emphasised that while litigants-in-person should not be in a better position than legal representatives in relation to their liability for costs, neither should they be in any worse position. As a matter of policy, it would be unfortunate if litigants were too easily deterred from using the Small Claims Track by the risk of being held to have acted unreasonably.
Remember that although rejecting an offer of settlement will not of itself constitute 'unreasonable behaviour', the court may take it into consideration when applying the unreasonableness test.
What was this case about?
C defaulted on his mortgage payments. The receivers appointed to sell the mortgaged property retained D, local solicitors, to conduct the sale. The receivers paid D’s bill, which thus became part of C’s liability under the mortgage.
In this claim, C (acting in person) challenged the fees charged by D. At first instance, the court held that there was no agency or contractual agreement between C and D, and therefore he had no standing to bring the claim. The claim was dismissed, with no order as to costs.
C was granted leave to appeal by the Circuit Judge on the papers. Some weeks before the hearing of the appeal, D’s counsel served on C a skeleton argument demonstrating that the appeal was bound to fail as a matter of law, in that the principles of the ordinary law of agency do not apply to the particular agency relationship between receiver and mortgagor.
The appeal was dismissed at a hearing (before the same Circuit Judge who had given leave). On costs, the judge was satisfied that CPR 27.14(2)(g) was engaged, C having behaved unreasonably in (a) failing to accept a 'very generous offer' from D, and (b) persisting in an appeal based on an argument which, in the light of the skeleton argument, he should have known was bound to fail.
C appealed against the costs order, on the grounds that:
• the reasonableness or otherwise of his behaviour must be seen in the context of having been given leave to appeal by the same Circuit Judge;
• the point of law on which he lost was obscure; and
• the Circuit Judge was wrong to take into account his rejection of D’s offer
What did the court decide?
Had C’s appeal been on the third ground alone, it would have failed, in the light of CPR 27.14(3).
On the first ground, the fact that the Circuit Judge had himself given C permission to argue the point must be relevant to the reasonableness of his doing so. On the second ground, the relevant point of law was described by the Court of Appeal variously as 'not entirely straightforward'; 'curious'; and 'somewhat intricate … arising from a legal document which was ‘artificial or contrived' and ‘apt to give a false impression’; and the Circuit Judge had himself taken 12 paragraphs of his judgment to set out the legal position.
The first and second grounds were, therefore, ones that the Circuit Judge should have taken into account in assessing the reasonableness of C’s behaviour; and his failure to do so meant that the appeal had to succeed.
As for general guidance as to what is or is not reasonable for the purposes of CPR 27.14(2)(g), the Court of Appeal drew on the law relating to wasted costs (defined as costs incurred 'as a result of any improper, unreasonable or negligent act or omission'). While not seeking to import all the learning about wasted costs orders into decisions under CPR 27.14(2)(g), the court gratefully adopted the following dictum from Ridehalgh v Horsefield:
'…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.'
This should act as a useful prompt for advocates and litigants, both those who are minded to apply for an order under CPR 27.14(2)(g) and those faced with one; and also for hard-pressed judges who are too often asked to measure the reasonableness of a litigant’s conduct against the length of their foot.