Compromised small claim leaves defender facing expenses

Once a hearing on evidence is appointed in a small claim, a defender has to proceed with their defence or risk being found liable in expenses, a decision published today has ruled.

Sheriff Principal Mhairi Stephen QC at Edinburgh made the ruling on the basis of the terms of s 36B(3)(a)(ii) of the Sheriff Courts (Scotland) Act 1971, which provides that no award of expenses shall be made in a small claim, subject to exceptions incuding where a defender "having stated a defence, has not proceeded with it".

The action, by Anne Tallo against David Clark, sought payment of £863.90 as a consequence of damage to the pursuer's car in a road accident. The case was defended and a hearing took place at which a hearing on evidence was fixed. Before that date the case settled extrajudicially at 50% of the agreed damages. There was no agreement on expenses, which the sheriff awarded to the pursuer on the basis that while equitable reasons favoured the defender, he was bound by Sheriff Principal Nicholson's decision in Fenton v Uniroyal Englebert Tyres Ltd in 1995.

On appeal the defender argued that he should be held to have proceeded successfully with his defence as the claim had been compromised in light of the defences; that it would be unfair to him to ignore this; and that settlement should be encouraged and the court should interpret the section in a way that would encourage early settlement. 

Sheriff Principal Stephen said the point was an important one, and Fenton and similar cases could produce a harsh outcome on occasion. However in a procedure designed to be used by party litigants, predictability and certainty as to expenses was important. The procedure was focused on resolving the dispute at an early stage. Only if settlement could not be reached at the first hearing, could the sheriff fix a hearing on evidence. As a matter of statutory interpretation, the reference to not proceeding with a defence meant "not proceeding with the hearing on evidence and obtaining a decision or judgment of the court".

She continued: "It was argued before me that a strict interpretation of the provision is the enemy of settlement. Of course, compromise is a worthwhile and valuable objective in litigation. The appellant's argument however misunderstands small claims procedure. If small claims procedure is understood properly, parties must pin their colours to the mast by the date of the first hearing. A defender cannot rely firstly, on a hearing on evidence and secondly, on negotiation following a defence being stated. Once the defence is stated and the sheriff appoints a hearing on evidence, a defender will only be protected on expenses if he proceeds with his defence at the hearing of evidence in good faith unless, of course, the claim and the consequential expenses are settled extrajudicially."

The sheriff principal added that the correct approach to Fenton was to treat it not as binding but as highly persuasive.

Click here to view the judgment.