Dammermann v Lanyon Bowdler LLP

Factual and Procedural Background

The Plaintiff entered into a legal mortgage with Company A in February 2002. After defaulting on mortgage payments, Company A appointed receivers to sell the charged property under the mortgage terms and the Law of Property Act 1925. The receivers retained a local firm of solicitors, Company B, to conduct the sale. After the property was sold, Company B issued a bill to the receivers, which was paid and incorporated into the Plaintiff’s overall mortgage liability.

The Plaintiff brought a claim in the County Court against Company B challenging the fees charged, effectively seeking a refund of part of the overall charge already paid by the receivers. The Deputy District Judge held there was no agency or contractual relationship between the Plaintiff and Company B; the contract was between the receivers and Company B. Consequently, the claim was dismissed with no order as to costs.

The Plaintiff sought and was granted permission to appeal. At the appeal hearing before a Circuit Judge, the judge upheld the dismissal, concluding the contract was not a common law agency contract and the Plaintiff’s primary case was incorrect. The appeal was dismissed, and Company B applied for costs.

Because the case was allocated to the Small Claims Track, the judge considered the costs application under CPR Part 27.14(2)(g), which permits costs only if a party has behaved unreasonably. The judge found the Plaintiff had acted unreasonably by persisting with the appeal despite a clear legal argument against his case and the rejection of a settlement offer. The judge awarded costs to Company B, with a slight reduction for potential overcharging.

The Plaintiff was granted permission for a second appeal on the basis that the judge may have erred in considering the rejected settlement offer and in the broader application of the test for unreasonable behaviour under CPR Part 27.14(2)(g).

Legal Issues Presented

1. Whether the Plaintiff behaved unreasonably in pursuing the appeal such that costs should be awarded under CPR Part 27.14(2)(g) in a Small Claims Track case.
2. Whether the judge erred in taking into account the Plaintiff’s rejection of a settlement offer when assessing unreasonable behaviour for costs purposes.
3. The proper interpretation and application of "unreasonable behaviour" under CPR Part 27.14(2)(g) in the context of Small Claims Track appeals.

Arguments of the Parties

Appellant's Arguments

• The Plaintiff argued that the judge should have considered that permission to appeal had been granted on the very issue he pursued, indicating the point of law was not straightforward.
• The Plaintiff submitted that the legal point was obscure because the mortgage deed described the receivers as his agents, though the judge found the solicitors were not his agents.
• The Plaintiff contended the judge was wrong to consider his rejection of the £1,000 settlement offer, asserting he had a higher counter-offer which was refused by Company B.

Respondent's Arguments

• Company B argued that the Plaintiff received a clear and well-supported skeleton argument six to seven weeks before the appeal hearing, demonstrating no prospect of success, thus the appeal was unreasonably pursued.
• While rejection of a settlement offer alone cannot establish unreasonable behaviour, the court may consider it; here, the offer was generous and should have been accepted.
• Company B submitted that the judge effectively treated the appeal as "totally without merit," as indicated by the judge’s language describing the Plaintiff’s case as "simply not right" and "barking up the wrong tree."

Table of Precedents Cited

Court's Reasoning and Analysis

The court acknowledged that the legal point on which the Plaintiff lost was intricate and somewhat artificial, as the mortgage deed’s description of receivers as agents was a device insulating the mortgagee from liability rather than creating an agency relationship with the solicitors. The judge’s grant of permission to appeal demonstrated recognition of the point’s obscurity.

Accordingly, the court found that the lower judge erred in holding the Plaintiff’s conduct unreasonable without adequately considering the complexity of the legal issue and the fact that permission to appeal had been granted on that basis.

While the judge was entitled to consider the rejected settlement offer under CPR Part 27.14(3), this alone could not justify a finding of unreasonable behaviour. The Plaintiff’s rejection of the offer, without other unreasonable conduct, was insufficient to support a costs award.

The court emphasized that "unreasonable behaviour" requires more than an unsuccessful case or a different legal view; it must lack a reasonable explanation. The court noted the importance of not deterring litigants in person from using the Small Claims Track by applying the unreasonable behaviour test cautiously.

On this basis, the court concluded that the Plaintiff did not behave unreasonably in pursuing the appeal and therefore costs should not have been awarded against him.

Holding and Implications

The court ALLOWED the appeal and set aside the order requiring the Plaintiff to pay costs to Company B. The order was replaced with "no order for costs" both for the appeal and the underlying appeal hearing. Additionally, the court ordered that Company B pay the costs incurred by the Plaintiff in obtaining a transcript of the earlier judgment.

The direct effect is that the Plaintiff is not liable for costs despite losing the appeal on the substantive issue. No new legal precedent was established; rather, the court clarified the application of the unreasonable behaviour test under CPR Part 27.14(2)(g) in Small Claims Track appeals, emphasizing the need to consider the complexity of legal issues and the grant of permission to appeal when assessing reasonableness.