Small Claims Costs After Orton v Barclays Bank

One of the main attractions of the small claims track is that it is generally a low-cost way of resolving disputes. Whether you are an individual, a business or a solicitor advising a client, understanding the rules surrounding small claims costs is essential before starting or defending proceedings.

Many people assume that the successful party will recover all of their legal costs, as is often the case in larger civil claims. However, the position is very different once a case has been allocated to the small claims track.

A recent Court of Appeal decision in Orton v Barclays Bank has reinforced just how important those rules are, confirming that the costs-neutral nature of the small claims process should not be undermined by aggressive litigation tactics.

The general rule on small claims costs

The general rule is that each party pays their own legal costs in small claims proceedings, regardless of who wins.

This approach is designed to encourage access to justice by ensuring that individuals can pursue lower-value claims without the fear of facing a substantial costs bill if they are unsuccessful.

Whilst parties will usually remain responsible for their own solicitor’s fees, the court may still order the unsuccessful party to pay certain limited costs, including:

• Court fees
• Limited witness expenses
• Certain expert fees where permission has been granted
• Fixed amounts for specific applications

However, unlike Fast Track or Multi-Track litigation, the successful party will not normally recover the full cost of legal representation.

Why are small claims different?

The small claims process is intended to provide a proportionate and accessible method of resolving lower-value disputes. Many litigants appear without legal representation and the court adopts a less formal approach than in larger civil claims.

The rules are therefore deliberately designed to keep costs proportionate to the value of the dispute.

If parties routinely recovered substantial legal costs, many people would simply be unwilling to bring or defend legitimate claims.

What happened in Orton v Barclays Bank?

The Court of Appeal considered these principles in Orton v Barclays Bank, a case involving a consumer claim that had been allocated to the small claims track.

During the litigation, the defendant’s solicitors repeatedly demanded that the claimant discontinue the proceedings and suggested that costs consequences could follow if he failed to do so. The claimant made several offers to settle, reducing the amount claimed on more than one occasion.

Those offers were rejected. Shortly before trial, the claimant discontinued the proceedings after concluding that the cost of instructing counsel meant continuing with the litigation was no longer commercially sensible.

Barclays subsequently sought a costs order, arguing that the claimant had behaved unreasonably by continuing the claim for as long as he had. The Court of Appeal disagreed.

The Court of Appeal’s decision

Lady Justice Cockerill held that the earlier decisions had placed too much emphasis on the claimant’s decision to discontinue shortly before trial. Importantly, she rejected the suggestion that strongly worded correspondence demanding discontinuance should be treated as genuine settlement offers.

The Court also warned against any approach that would allow well-funded parties to pressure opponents into abandoning claims simply by threatening costs applications. Doing so, the Court said, would undermine the very purpose of the small claims track.

The judgment confirms that the exception allowing costs to be awarded for unreasonable conduct must continue to be interpreted narrowly.

When can the court award legal costs?

Although the small claims track is generally costs-neutral, there are still situations where a court may award costs. One of the most important exceptions arises where a party has behaved unreasonably during the proceedings.

Examples might include:

• Ignoring court orders.
• Failing to attend hearings without good reason.
• Pursuing hopeless claims.
• Deliberately increasing the costs of the litigation.
• Acting abusively towards the other party.

However, the Court of Appeal has made clear that the threshold remains high.

Simply refusing to discontinue proceedings or pursuing an arguable claim that ultimately fails will not usually justify a costs order.

What about fixed costs?

It is important not to confuse fixed costs with the small claims costs regime. Fixed costs apply to many Fast Track cases, particularly following the expansion of Fixed Recoverable Costs, where recoverable legal costs are prescribed by the Civil Procedure Rules.

Small claims operate under a different regime altogether.

Instead of fixed recoverable legal costs, parties generally bear their own legal expenses, subject only to the limited exceptions provided within the rules.

Do these rules apply to personal injury claims?

They can. Many lower-value personal injury claims and personal injuries cases now proceed under different procedural rules because of the Fixed Recoverable Costs regime or the Official Injury Claim process.

However, where a claim is genuinely allocated to the small claims track, the same general principles regarding costs will normally apply.

Understanding which costs regime governs a claim is therefore essential when assessing litigation risk.

Should parties still try dispute resolution?

Absolutely. The fact that legal costs are generally not recoverable does not mean parties should ignore opportunities for dispute resolution.

Courts continue to encourage parties to negotiate wherever possible. Making sensible offers to settle, engaging constructively with correspondence and considering alternative methods of resolving disputes can often avoid unnecessary hearings altogether.

Whilst settlement discussions will not automatically affect small claims costs, they can still influence the court’s view of a party’s overall conduct.

The Court of Appeal’s decision reinforces the purpose of the small claims track. It exists to allow parties to resolve modest disputes without the fear of substantial adverse legal costs. The exception for unreasonable conduct remains exactly that, an exception.

This judgment provides useful clarification for both solicitors and litigants. Strongly worded correspondence or commercial decisions to discontinue proceedings should not automatically result in a costs order. The court will continue to focus on genuinely unreasonable conduct rather than ordinary litigation decisions.

How ARC Costs can help

Although small claims costs operate differently from larger civil litigation, costs issues can still arise where parties seek recovery under the limited exceptions available.

At ARC Costs, we advise solicitors, businesses and insurers on legal costs across every level of civil litigation. Whether dealing with costs recovery, Bills of Costs, detailed assessment proceedings or strategic costs advice, our experienced team helps clients understand both their potential recovery and their exposure to adverse costs.

The decision in Orton v Barclays Bank is an important reminder that the small claims track remains fundamentally costs-neutral. Whilst the court retains the power to award costs where a party has genuinely behaved unreasonably, those powers should be exercised sparingly so that the purpose of the small claims system is preserved.

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