Chaplair Limited v Kumari [2015] EWCA Civ 798

When a lease has a costs recovery clause, the court can and should permit recovery of costs in a small claim, including those incurred in tribunal proceedings, notwithstanding the small claim costs rules.

There are a number of cases that junior property practitioners quickly become familiar with. One such is Church Commissioners v Ibrahim [1997] EGLR 13, which is a case to be tucked into the back ofn ones file for any first hearing of a possession claim. It is to be relied on, on behalf of the landlord, if the lease has a costs recovery clause because it says that the court can and should award costs in line with the recovery clause notwithstanding the fixed costs regime for possession claims under Part 45.

Chaplair Limited v Kumari [2015] EWCA Civ 798 is the new Ibrahim, but for small claims. Many landlords issue money claims for service charges arrears once those arrears are in the order of £3,000, so as to have a determination as a precursor for forfeiture, for the purposes of s81 of the Housing Act 1996. In those claims landlords often claim costs under a covenant in the lease. However, since a £3,000 claim is likely to be allocated to the small claims, costs recovery is often prevented by District Judges applying the small claims rules under CPR 27.14. The costs recoverable on a small claim are very low, and the District Judge has no express discretion in Part 27 to disapply the rules, unlike with Part 45. There has thus been a longstanding issue as to whether a costs recovery clause can survive Part 27.

The answer is yes; it is an answer, says Arden LJ in Chaplair, that follows simply from Ibrahim and Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, the mortgage case on which Ibrahim is based. The reason Part 27 does not prevent costs recovery is that the costs the landlord seeks are contractual costs under the lease. The court retains a discretion as to whether to award contractual costs, but the contractual right to costs is highly relevant to the exercise. CPR 27.14 which limits small claims costs must be read subject to CPR 44.5 (which deals with contractual costs) which gives statutory effect to Gomba Holdings, and is not excluded by CPR 27.2 (Patten LJ at para 44). The contractual costs are recoverable subject to the court’s equitable power to disallow unreasonable expenses (para 45).

This is clearly a useful case for landlord’s representatives. Arden LJ at para 41 suggests that the decision on the effect of the small claims regime on contractual costs is well-established. It is correct that Gomba Holdings and Ibrahim, are decisions of long standing, but their effect in the small claims track has been much less clear, hence no doubt the varying decisions below in this case. The precise reasoning for the disapplication of the small claims costs rules has also been unclear; CPR 27 works differently from fixed costs in possession claims under Part 45, where the court retains an express discretion not to follow the fixed costs rules. In Part 27, there is no such discretion, unless there has been unreasonable conduct. Patten LJ’s explanation is the clearest I have seen. Where costs are payable under the contract, not as part of the courts general costs jurisdiction, Part 27 does not exclude the contractual entitlement.