The Court of Appeal has provided important guidance on the threshold for unreasonable behaviour under CPR 27.14(2)(g), reinforcing the costs-neutral nature of the Small Claims Track and rejecting an approach which could allow parties to create costs exposure through correspondence.
In Orton v Barclays Bank UK Plc [2026] EWCA Civ 1025, handed down on 31 July 2026, the Court of Appeal allowed an appeal against an order requiring a claimant to pay costs after discontinuing an arguable PPI unfair relationship claim shortly before trial.
The judgment provides useful clarification for practitioners dealing with small claims, particularly where one party seeks to rely upon invitations to discontinue, settlement correspondence or the timing of discontinuance as evidence of unreasonable behaviour.
Background
Steven Orton brought a claim against Barclays arising from PPI attached to a credit agreement. The claim, worth approximately £2,750 plus interest, was allocated to the Small Claims Track.
During the proceedings, Barclays repeatedly invited Mr Orton to discontinue his claim and imposed deadlines for doing so, warning that costs would otherwise be sought.
Twelve days before trial, Mr Orton discontinued. His solicitor explained that this was a commercial decision: having reviewed the evidence, Mr Orton considered that instructing counsel would effectively absorb the value of any recovery.
Barclays subsequently sought costs under CPR 27.14(2)(g), arguing that Mr Orton had behaved unreasonably.
The District Judge agreed and awarded Barclays £2,132.88 in costs. That decision was upheld on the first appeal to the Circuit Judge.
The Court of Appeal decision
The Court of Appeal unanimously allowed Mr Orton’s appeal.
Lady Justice Cockerill emphasised that any consideration of CPR 27.14(2)(g) must begin with the costs-neutral regime of the Small Claims Track.
That matters because the Small Claims Track deliberately departs from the usual costs rules. Part 36 does not apply and the ordinary rule under CPR 38.6, whereby a discontinuing claimant is generally liable for the defendant’s costs, is also expressly disapplied.
Against that background, the Court held that the unreasonable behaviour exception should not be construed widely.
The Court distilled the approach to CPR 27.14(2)(g) into several key principles:
- all the facts must be considered against the background of costs neutrality;
- the burden of establishing unreasonable behaviour rests with the party alleging it;
- the relevant conduct must not permit of a reasonable explanation;
- vexatious behaviour may qualify, but withdrawal or unsuccessful pursuit of a claim is not itself unreasonable; and
- courts should avoid an approach which could deter parties from using the Small Claims Track.
An invitation to discontinue is not necessarily an offer
An important feature of the judgment concerns Barclays’ correspondence.
The Court of Appeal rejected the characterisation of its letters as settlement offers. While Mr Orton had made offers to accept less than the amount claimed, Barclays had offered no substantive concession.
Its letters were instead described as “invitations to discontinue” – effectively demands backed by deadlines and warnings about costs.
That distinction mattered. The Court found that the District Judge had proceeded on the erroneous basis that both parties had made settlement offers and that the claimant had failed to accept Barclays’ final “drop hands offer”.
Commercial discontinuance was not unreasonable
The Court also rejected the suggestion that Mr Orton’s decision to discontinue shortly before trial was inherently unreasonable.
His claim was accepted to be arguable. Once it became apparent that representation at trial would be required, the economics of pursuing a relatively modest claim changed.
The Court observed that a party operating within a costs-neutral regime should not be left worse off for sensibly discontinuing an arguable claim than they would have been had they proceeded to trial and lost.
No Denton-style test
The Court also rejected the four-stage framework formulated by the Circuit Judge for determining unreasonable behaviour.
That approach risked importing concepts associated with relief from sanctions under Denton into a fundamentally different jurisdiction.
The Small Claims Track starts from an entitlement not to pay the opposing party’s costs. The Court therefore considered that detailed interrogation of a party’s explanation, or additional concepts such as “seriousness” and “significance”, were inappropriate.
The existing rule and limited appellate guidance are sufficient.
Why Orton matters
The wider significance of the judgment lies in the Court’s concern about parties attempting to use correspondence to circumvent the Small Claims Track costs regime.
The Court warned that, had the decisions below been upheld, well-resourced parties could potentially use repeated demands, deadlines and threats of costs to make otherwise arguable low-value claims commercially unviable.
The same principle applies in either direction: claimants cannot manufacture costs exposure for defendants through repeated settlement demands either.
For practitioners, Orton provides welcome clarity that CPR 27.14(2)(g) remains an exception to a deliberately costs-neutral regime – not a mechanism for recreating the ordinary costs rules by another route.
Craig Leigh, Barrister and Managing Director of 8PP, comments:
“This is a very useful judgment for practitioners dealing with small claims. The Court of Appeal has made clear that costs neutrality is not simply background to CPR 27.14 – it is the starting point.
“Perhaps most importantly, parties should not be able to manufacture costs exposure by imposing their own deadlines for discontinuance and then characterising a failure to comply as unreasonable behaviour. Orton provides welcome clarity on where that line should be drawn.”
8PP thanks Consumer Rights Solicitors, who acted for the appellant, for bringing the judgment to our attention.
8PP Barristers & Associates regularly advises and represents law firms in costs and civil litigation funding matters. Please contact us via our Clerking team clerks@8pp.co.uk or 0151 245 9292.
