CPR 27.14(2)(g) in Small Claims: Costs Neutrality, Narrow “Unreasonable Behaviour”, and No Denton-Style Gloss

1. Introduction

Orton v Barclays Bank UK Plc [2026] EWCA Civ 1025 is a Court of Appeal decision on the proper approach to CPR 27.14(2)(g)—the principal gateway for awarding costs on the small claims track where a party has “behaved unreasonably”. The case arose after the claimant brought a low-value “unfair relationship” claim under ss 140A–140B Consumer Credit Act 1974 relating to PPI commission, then discontinued shortly before trial.

The key controversy was not whether discontinuance is “unreasonable” in itself (it is not), but whether discontinuing late—after the bank’s correspondence set deadlines for “drop hands” discontinuance and threatened a CPR 27.14(2)(g) application—could properly justify a costs order. The District Judge ordered the claimant to pay the bank’s costs incurred after a correspondence deadline; the Circuit Judge upheld that decision and offered a “four-stage” framework for CPR 27.14(2)(g). The Court of Appeal (Bean LJ, Andrews LJ, Cockerill LJ) allowed the appeal and set aside the costs order.

2. Summary of the Judgment

  • Ground 1 allowed: The courts below erred in their approach to CPR 27.14(2)(g). Properly analysed in the context of the small claims track’s default costs neutrality, the claimant’s late commercial decision to discontinue an arguable claim did not amount to “unreasonable behaviour”.
  • Ground 2 allowed: The Circuit Judge’s obiter “four-stage” guidance (borrowing from the relief-from-sanctions mindset associated with CPR 3.9) was legally erroneous and unhelpful; no such gloss should be added to CPR 27.14(2)(g).
  • Outcome: The District Judge’s costs order was set aside; by agreement, there was no order as to costs of the appeal (CPR 27.14(2)).

3. Analysis

3.1 The legal setting: small claims is a “package” of costs neutrality

The judgment insists that CPR 27.14(2)(g) must be read against the “special procedure” of Part 27. The small claims track is not merely a forum where judges are “less ready” to award costs; it is a regime where costs are, by default, not recoverable save for defined exceptions.

Two disapplications mattered particularly:

  • Part 36 is disapplied on the small claims track (CPR 27.2), so the system does not import Part 36’s structured incentives, reflection periods, and costs consequences.
  • CPR 38.6(1) is disapplied in small claims (CPR 38.6(3)), so discontinuance does not carry the general presumption that the discontinuing claimant pays the defendant’s costs.

The Court of Appeal treated these as reinforcing the same point: the small claims track is designed so that parties are not driven (or intimidated) by the prospect of adverse costs, and CPR 27.14(2)(g) is an exception that must not be allowed to swallow the rule.

3.2 Precedents cited and their role

(a) Dammermann v Lanyon Bowder LLP

Dammermann v Lanyon Bowder LLP [2017] EWCA Civ 269 is the core Court of Appeal authority on CPR 27.14(2)(g). It endorsed Sir Thomas Bingham MR’s “acid test” from Ridehalgh v Horsefield—whether the conduct “permits of a reasonable explanation”—and emphasised the policy concern that parties should not be deterred from the small claims track by an over-ready finding of unreasonableness.

In Orton, the Court reaffirmed Dammermann but warned against treating “reasonable explanation” as a free-standing inquiry divorced from the small-claims context. The test must remain anchored in costs neutrality: the question is not whether the party litigated “optimally”, but whether the conduct was unambiguously unreasonable such that it justifies departing from the default.

(b) Ridehalgh v Horsefield

Ridehalgh v Horsefield [1994] Ch 205 is a wasted costs case (Senior Courts Act 1981, s.51(1)), not a small claims costs case. The “acid test” language is widely quoted, but Orton highlights an important caution: in wasted costs, “unreasonable” sits alongside “improper” and “negligent” and is historically entangled with notions of impropriety/vexatiousness. That contextual overlap is not automatically transferable to the small claims exception where “unreasonable behaviour” is the principal gateway to costs.

(c) Willow Court Management Co (1985) v Alexander

Willow Court Management Co (1985) v Alexander [2016] UKUT 290 (LC) concerned rule 13(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013, but provided structured observations relevant by analogy: costs-limiting regimes require a restrained approach; the jurisdiction is “for the clearest cases” and the burden lies on the party seeking costs. It also rejected “stigmatising” withdrawal: parties should not be deterred from sensible concessions by a fear that discontinuance will itself trigger costs.

Orton embraced the Willow Court policy instinct—encourage sensible concessions—while also warning that analogies between regimes can mislead if they obscure the small claims track’s particularly strong commitment to default costs neutrality.

(d) Lea v GP Ilfracombe Management Co Ltd

Lea v GP Ilfracombe Management Co Ltd [2024] EWCA Civ 1241 reiterated that “unreasonable” does not require harassment or vexation, but also cautioned appellate courts to give latitude to evaluative judgments (with reference to Volpi v Volpi [2022] 4 WLR 48).

In Orton, the Court accepted the general “latitude” principle but held that this case was not merely an evaluative disagreement on facts. The lower courts’ approach involved legal error: it failed to give operative weight to costs neutrality and was distorted by treating “invitations to discontinue” as if they were settlement “offers” with costs consequences.

(e) Cancino v Secretary of State for the Home Department and McPherson v BNP Paribas

Cancino v Secretary of State for the Home Department [2015] UKFTT 59 (IAC) was cited within Willow Court for the “clearest cases” approach and the burden on the applicant. McPherson v BNP Paribas [2004] EWCA Civ 569 (also discussed in Willow Court) supplied an important policy warning: it would be unfortunate if parties were deterred from dropping claims by the fear of a costs order on withdrawal when they might have fought on and lost without such an order.

That warning strongly resonated in Orton, where the Court found that the lower courts’ approach would create precisely that perverse incentive.

(f) Lastminute.com v. Moskalevitch

Lastminute.com v. Moskalevitch [2019] EWHC 1091 (QB) was used to rebut the notion that a claimant acts unreasonably merely by continuing after a robust defence. The case illustrates why “unreasonableness” cannot mean “persisting in a defended claim”: if it did, small-claims costs neutrality would be undermined in most defended cases. In Orton, this reinforced the Court’s insistence that CPR 27.14(2)(g) must remain exceptional.

3.3 Legal reasoning: what the Court said the correct approach is

(a) Start with costs neutrality—and keep starting with it

The Court’s central move was methodological: costs neutrality is not a preliminary recital; it is the lens through which the “unreasonableness” inquiry must be conducted. Because the small claims track disapplies Part 36 and the normal discontinuance costs rule, CPR 27.14(2)(g) must be interpreted and applied narrowly.

(b) Avoid cross-regime drift and “Denton” thinking

The Court identified a practical risk: the “reasonable explanation” formulation from Ridehalgh can invite a CPR 3.9-style interrogation of explanation, seriousness, and significance, shifting attention from the applicant’s burden to justify a departure from costs neutrality to the respondent’s burden to justify their conduct. That drift was expressly rejected as erroneous in this context.

(c) Do not treat “invitations to discontinue” as settlement offers with quasi-Part 36 consequences

A decisive factual and analytical correction was the Court’s characterisation of the bank’s correspondence. The bank had made no concessionary settlement proposal; it repeatedly demanded “drop hands” discontinuance, coupled with deadlines and threatened costs applications. The Court held that describing these as “offers” was wrong, and that this mischaracterisation infected the lower courts’ reasoning—effectively allowing a party, by correspondence, to manufacture something akin to Part 36 dynamics in a regime where Part 36 is expressly disapplied.

(d) Late discontinuance for commercial reasons is not, without more, “unreasonable”

The claimant discontinued shortly before trial after concluding that the marginal value of the claim would be swallowed by irrecoverable representation costs. The lower courts treated that as illogical because the “commercial” factors existed throughout. The Court of Appeal rejected that analysis as both factually assumptive (e.g., whether counsel would be needed and at what cost may not be known early) and legally dangerous: if discontinuance to save cost triggers a costs penalty, parties are incentivised to press on to trial to preserve the default no-costs position.

(e) The Court’s “safe guidance” (without adding a new multi-stage test)

While discouraging elaborate glosses, the Court distilled limited guidance:

  • Assess all the facts, including the small claims context and breadth of costs neutrality.
  • The burden is on the party alleging unreasonableness.
  • The jurisdiction is for conduct that does not permit a reasonable explanation (properly understood in context).
  • Vexatious conduct (e.g., bringing hopeless proceedings) will usually be unreasonable.
  • Withdrawal or unsuccessful pursuit of a claim is not, by itself, unreasonable.
  • Judges should avoid deterring parties from using small claims.

3.4 Why the lower courts’ approach failed

The Court identified compounding errors:

  • Context not operationalised: although the District Judge acknowledged costs neutrality, it was not used as the controlling premise when deciding whether the exception applied.
  • Burden drift: the reasoning slid toward requiring the claimant to “disprove” unreasonableness by supplying an adequate explanation (a relief-from-sanctions style approach), rather than requiring the bank to demonstrate a clear departure from acceptable conduct in small claims.
  • Offer misconstruction: treating “drop hands” ultimatums as if they were genuine settlement offers wrongly elevated non-acceptance/non-engagement into a costs-risk event.
  • Perverse systemic consequences: the result would allow well-resourced parties to “correspond” their way out of costs neutrality by setting short deadlines and then alleging unreasonableness.

3.5 Impact

(a) Practical consequences for small claims litigation strategy

  • Correspondence deadlines will not readily found CPR 27.14(2)(g) costs: parties cannot simulate Part 36 pressure by issuing “invitations to discontinue” with short deadlines and later characterising delay as “unreasonable”.
  • Discontinuance remains encouraged, not penalised: litigants should not face a worse costs position by discontinuing than by pressing to trial in an arguable defended claim.
  • Cost-benefit decision-making close to trial is legitimate: especially where irrecoverable costs (e.g., counsel’s fees) make further pursuit uneconomic.

(b) Doctrinal consequences for CPR 27.14(2)(g)

  • Narrow construction reaffirmed: “unreasonable behaviour” is exceptional in a strongly costs-neutral regime.
  • Anti-gloss stance strengthened: lower courts should resist creating structured tests (especially those resembling CPR 3.9/relief from sanctions).
  • Limits on cross-context analogies: Ridehalgh and tribunal authorities can inform, but cannot displace the unique architecture of Part 27.

4. Complex Concepts Simplified

  • Small claims “costs neutrality”: unlike most civil litigation, the default is that each side bears its own legal costs, regardless of who “wins”, subject to narrow exceptions.
  • CPR 27.14(2)(g): an exception allowing the court to order additional costs where a party has “behaved unreasonably”. It is not a general “winner gets costs” rule.
  • Discontinuance: a claimant’s formal step to stop the claim. Outside small claims, discontinuance usually triggers liability for the defendant’s costs (CPR 38.6(1)), but that rule is disapplied in small claims (CPR 38.6(3)).
  • Part 36: a settlement-offer code with defined costs consequences and minimum acceptance periods. Part 36 is disapplied on the small claims track, so similar consequences should not be recreated indirectly.
  • “Drop hands”: settlement on the basis each side walks away bearing its own costs; it is not, without more, a concession on the merits or a payment to settle.
  • “Denton approach” (relief from sanctions mindset): a structured inquiry used when a party has breached rules/orders and seeks relief; the Court held it is the wrong conceptual framework for CPR 27.14(2)(g).

5. Conclusion

Orton v Barclays Bank UK Plc [2026] EWCA Civ 1025 recalibrates CPR 27.14(2)(g) firmly back to first principles. The small claims track is intentionally costs-neutral; therefore, “unreasonable behaviour” must be construed and applied narrowly, with the burden on the applicant and with close attention to the risk of deterring sensible discontinuance or settlement.

The Court of Appeal rejected attempts to (i) treat “invitations to discontinue” as if they were settlement offers carrying Part 36-like consequences, and (ii) import a relief-from-sanctions style framework into the CPR 27.14(2)(g) analysis. The result strengthens procedural fairness and predictability in small claims, particularly where one side is well-resourced and seeks to convert aggressive correspondence and short deadlines into a costs lever.