When a claim has a value of less than £10,000, it is dealt with in the small claims track. Unlike the fast track and the multi-track, costs in small claims are fixed. This means that there is a limit on what legal costs can be recovered by parties involved in litigation in this court and this ends up with the claimant and defendant paying most of their own legal costs.
The intention of the courts here was to try and enable individuals to litigate in person and dissuade parties from racking up disproportionate legal fees when the value of the claim is low. Whilst this is a worthwhile motivation, it can cause difficulties. For example, what happens in debt collection claims when there is an agreement between the parties that the service provider can recover legal fees incurred in connection with an overdue account?
A contractual right to costs does not take the issue of costs outside the court’s discretion but the court will usually exercise that discretion in line with the contractual right, unless there is a reason not to. This approach is set out in the Civil Procedure Rules (CPR), in particular in CPR 44.5(1). This provision states that, where costs are payable under a contract, those costs will be presumed to have been reasonably incurred and reasonable in amount, unless the contract provides otherwise. The key point here is therefore that the costs must be reasonable.
The case of Robert Shaw v Nine Regions Limited  EWHC 3553 (QB) is useful here as it was held that the defendant should be awarded their costs despite the claimant’s argument that the small claims rules – that only limited costs should be recoverable – should apply.
To summarise, although a contractual provision does not bind the court, it will usually try to give effect to it using its discretion under the CPR. Any contractual claim for costs must be pleaded in the particulars of claim and the relevant contract must be attached.
If you would like to discuss a potential debt collection claim, or any other points raised in this article, please contact Kezia Brown by email or at 01494 893504.