In Orton v Barclays Bank UK Plc [2026] EWCA Civ 1025, the Court of Appeal provided important guidance on the proper approach to costs on the small claims track (SCT). In particular, the circumstances in which conduct in SCT cases may justify an order for costs on the basis of unreasonable litigation behaviour (CPR 27.14(2)(g)).
Rules and background
CPR 27.14 establishes the general costs position on the SCT. It provides that the court may not order one party to pay another party’s costs, except in the limited circumstances identified in the rule. One such circumstance is CPR 27.14(2)(g), which permits the court to order ‘such further costs as the court may assess by the summary procedure and order to be paid by a party who has behaved unreasonably’. That provision represents an exception to the ordinary costs-neutral position. The other features of Part 27 reinforce the importance of that starting point – for example, Part 36 does not apply to the SCT, nor does the ordinary rule concern the costs consequences of discontinuance under CPR 38.6 by virtue of CPR 38.6(3).
Brief facts and lower court’s decisions
The claimant’s claim of approximately £2,750 plus interest was allocated to the SCT but was discontinued shortly before trial. The defendant had repeatedly invited the claimant to discontinue, including by correspondence that wrongly ignored the fact that the case had already been allocated to the SCT and asserting a costs regime which did not apply. The claimant ultimately discontinued 12 days before the trial and explained to the defendant that it was no longer commercially worthwhile proceeding with the claim.
The district judge found that the claimant had behaved unreasonably and awarded the defendant £2,132.88 in costs. The circuit judge dismissed the claimant’s appeal and, additionally, formulated a four-stage framework for determining unreasonable behaviour under CPR 27.14(2)(g) by asking the following questions: (i) whether the conduct was proved; (ii) whether it was sufficiently serious or significant; (iii) whether there was a good reason explaining it; and (iv) whether any other reasonable explanation emerged from the circumstances.
The claimant appealed on the following two grounds: (i) the circuit judge was wrong to uphold the decision of the district judge that the claimant had behaved unreasonably for the purpose of CPR 27.14(2)(g); and (ii) in any event, the circuit judge erred in law in setting out, and then applying, his guidance (derived from the approach to relief from sanctions under CPR 3.9) to the question of whether a party has behaved unreasonably for the purpose of CPR 27.14(2)(g). The Court of Appeal allowed the claimant’s appeal.
Court of Appeal decision
(i) Unreasonable behaviour
Cockerill LJ, giving the leading judgment of the Court of Appeal, explained that the analysis under CPR 27.14(2)(g) must begin with the fact that the SCT is costs neutral and that this starting point had to be given ‘real weight’. That was important because the effect of a costs order under CPR 27.14(2)(g) is not merely to apply a general concept of unreasonableness; rather, it is to displace a carefully constructed procedural regime under which a successful party would ordinarily have no entitlement to recover its costs.
Cockerill LJ rejected an approach under which the question becomes whether a claimant has failed to act in the most sensible, efficient or commercially optimal manner. The conduct must be sufficiently unreasonable to justify moving away from the statutory and procedural starting point of costs neutrality. In doing so, Cockerill LJ explained that the assessment must be informed by all the facts, including the SCT context and the breadth of its costs-neutral regime. More significantly, the judge noted that the withdrawal of a claim or unsuccessful pursuit of a claim should not itself be regarded as unreasonable and stressed the undesirability of deterring parties from using the SCT.
Cockerill LJ also rejected any attempt to import the Denton framework into CPR 27.14(2)(g) and observed that the starting points of the two jurisdictions are fundamentally different. Denton is concerned with a failure to comply with a rule, practice direction or court order. There is therefore an established default against which the explanation and consequences of the breach are assessed. CPR 27.14(2)(g), by contrast, operates within a regime in which the party is ordinarily entitled not to pay the other side’s costs. Cockerill LJ considered that this distinction was critical. It could not, therefore, be appropriate to subject a litigant to the kind of detailed, evidence-based interrogation of the explanation which may be justified in the Denton context, nor was there any need to introduce concepts such as ‘seriousness’ or ‘significance’ into the rule.
(ii) Offers to settle
The district judge had characterised the various correspondence between the parties as competing offers. Cockerill LJ considered that characterisation to be incorrect because an offer to settle involves a party indicating a willingness to accept less than it might obtain at trial. Although the claimant had made genuine settlement offers, the defendant had not offered to pay anything. Therefore, the correspondence was better described as invitations to discontinue, rather than offers to settle. That distinction mattered because CPR 27.14(3) expressly provides that rejection of an offer in settlement does not itself constitute unreasonable behaviour. Cockerill LJ also noted that the correspondence had effectively created an artificial framework in which the claimant’s failure to comply with the defendant’s deadlines became the principal basis for the alleged unreasonable conduct.
(iii) Commercial decision to discontinue
Cockerill LJ also explained that the fact that the claim had been commenced earlier did not mean that the claimant necessarily knew from the outset precisely what the cost of taking the claim to trial would be. The need for counsel only became apparent after the defendant’s evidence had been served, and the issues in the case had also changed during the litigation. It was, therefore, not irrational for a claimant to undertake a fresh cost-benefit assessment at a later stage. Cockerill LJ noted that a claimant should not be placed in a worse position merely because he makes the sensible decision to discontinue rather than incur further time and expense pursuing a relatively low-value claim.
(iv) Consequences of a contrary approach
Cockerill LJ set out the likely consequences if the Court of Appeal decided to agree with the lower court’s decisions. First, a party in a costs-neutral regime could become financially worse off by settling or discontinuing for commercial reasons than by fighting the case to trial. Second, a claimant could be exposed to a costs penalty for failing to accept a defendant’s proposal within a very short period, notwithstanding that Part 36, and its structured costs consequences, does not apply to the SCT. Third, litigants could effectively become subject to a requirement to assess their cases and respond to correspondence with a degree of procedural efficiency which is not imposed by the SCT rules. Finally, a well-resourced party could attempt to correspond its way out of the costs-neutral regime. Cockerill LJ considered that such an outcome would ‘blow the scheme of the small claims track to bits’.
The decision in Orton reaffirms that the SCT is, at its core, a costs-neutral regime, and that CPR 27.14(2)(g) operates only as a tightly confined exception to that principle; ‘unreasonable behaviour’ must be assessed within that context. Furthermore, it is not enough that a party acted imprudently, failed to engage with settlement correspondence, or made a late commercial decision to discontinue: the conduct must be sufficiently unreasonable to justify moving away from the statutory and procedural starting point of costs neutrality. Ultimately, the decision serves as a reminder that the SCT is designed to encourage access to justice without the shadow of adverse costs. As Cockerill LJ made clear, SCT litigation ‘is not “Rolls Building” litigation. The small claims track is designed for litigants in person as well as those with representation’.
Masood Ahmed is associate professor of law at the University of Leicester. Dr Lal Akhter is a fellow of the Chartered Institute of Arbitrators, a lawyer, independent arbitrator and a mediator associated with Docket Live (Leicester) and Wiseman Solicitors (Bolton)
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