Many people seem to have the view that if their claim is allocated to the Small Claims Track (SCT) that they will be safe from costs being ordered against them if they lose. Im sorry to say that this couldn’t be further from the truth. I’ve heard clients say “its ok its a SCT case so i don’t need a lawyer as im not at risk of costs, am i?” the answer they get often surprises them!!.
Firstly, while the CPR part 27 does limit the costs that a Court can order, CPR rule 27.14(2)(g) allows the Court to make an order as to costs for circumstances where a party is deemed to have been unreasonable in their conduct. So if the Court finds against you and finds you have acted unreasonably, then the Court can aware costs of the litigation too.
Secondly, a case which is often forgotten is Shaw v Nine Regions which was a High Court Ruling which set down that if the contract contains a clause which entitles the Claimant to their costs incurred in recovering the debt, then that clause is in effect an indemnity costs term which ousts the SCT protection.
Many creditor have clauses which set out that they can recover their costs incurred in recovery of the debt including costs of litigation, creditors such as MBNA have these clauses in their contracts. If the contract has such a clause, then you could find yourself on a tilted playing field with the SCT.
I’ve seen cases where the debt of £3,000 has been followed by costs of over £20,000 in the SCT due to terms such as the ones referred to above. These cases were litigant in person cases, but none the less the cost orders were real, the consequences were real. If the opponent has a solicitor instructed, and has a clause in the contract which allows for costs, then for every hour that they are tied up dealing with your arguments about why this credit agreement is an application, or because you say that the creditor has to produce the original credit agreement to comply with s78(1) Consumer Credit Act 1974, just think they may be charging your case at rates up to £160 per hour plus VAT which you may end up being ordered to pay if you lose.
So before you think you’re safe in the SCT take a long look at the contract and make sure there’s no indemnity clauses, they are easily overlooked but can come back to haunt you.