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Recovering legal fees in a small claims matter

May 3rd, 2017

I acted for a company that was being sued; it was a property developer and the Claimant was an individual.

The Defendant was selling a building plot and planning permission had been obtained by it for the building of a dwelling. The Claimant sought to purchase the plot and persuaded the Defendant’s director to allow him to make amendments to the planning. An offer was made and accepted.

The parties entered into a “lock-out agreement”, this essentially being an agreement with exclusivity, and in this instance 4 weeks, whereby the buyer could not be gazumped. The Claimant paid £5,000 for the exclusivity period, which was agreed to be non-refundable apart from if the searches were “different and inadequate” to the plot sold. The £5,000 deposit was paid and the parties commenced the conveyancing process through their respective solicitors.

Throughout the entire 4 week exclusivity period, the Claimant sought to negotiate a restrictive covenant on the plot with the Defendant. He did not undertake any searches during this period, and when it expired, he did not seek an extension.

Another purchaser soon came on the scene and was interested in the plot; an offer was made and accepted. The Claimant, still interested in the plot, increased his offer (which was also accepted) and a contract race commenced (whoever gets to exchange first). He did undertake searches this time round.

Unfortunately, the Claimant was not successful in the race and therefore sought the £5,000 back. The Defendant refused thus resulting in litigation.

The Claimant argued that this was a debt claim and the £5,000 was due back to him. He stated that the deposit was refundable because the Defendant was seeking to impose a restrictive covenant and that there were some issues with the searches. The Defendant was able to answer and resolve the issues with the searches, but nonetheless, that would not have hindered the sale of the plot.

The litigation proceeded, and we advised the Defendant to make an offer three months before trial for £1,900. This proposal was refused by the Claimant and he made a counter offer of £4,000 which was also refused. These discussions were without prejudice.

The case went to trial and before we were about to enter the court room, I advised the Defendant to increase on the offer and we went back with £2,000. The Claimant refused again and decreased his last offer to £3,950. This was also refused.

We were called before the judge and the trial took place. I submitted to the court that there was a valid contract between the parties and that the only condition when the refund would be non-refundable was if the searches were “inadequate or different” to the plot. The judge accepted my arguments and the Claimant was unsuccessful. In light of this, I asked the court for costs and I was successful in obtaining an order that all of my client’s costs be paid.

Ordinarily in a small claims matter, costs are not recoverable, and any recovery is limited to fixed costs, usually to court fees.

However, what makes this case so different was that we had made offers to settle, not only before the trial but also some time well before. The judge therefore accepted that the Claimant’s conduct in this instance permitted for costs to be awarded against him. Had offers not been made, we would not have recovered our legal fees.

The lesson learnt here by the Claimant was to take a step back and consider the commerciality of the case; he could have walked away with £2,000 in his pocket, and a lot of time saved not having to go to court. Instead, he was ordered to pay nearly £2000 in costs to my client.

The rules on costs recovery are complex and different types of cases attract certain types of costs.  It is important to consider carefully before commencing legal proceedings whether this is the right route because the parties are at risk once a claim starts. Unfortunately, for the Claimant in this matter, it did not work in his favour.

Katarina is a solicitor in the Dispute Resolution department at Lennons. She undertakes all areas of dispute resolution and has a specialism in commercial disputes and negligence claims. She advises and acts for individuals and body corporates on an array of litigation matters including breach of contract, debt and insolvency, professional and clinical negligence, personal injury and property.

For assistance on litigation and dispute resolution issues, please contact our Dispute Resolution department on 01494 773377 or email us at hello@lennonssolicitors.co.uk.

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