Settlement Sum Not Determinative Of Track Allocation Under CPR 46.13

The Senior Courts Costs Office’s decision in Smith v Wigan Borough Council [2026] EWHC 660 (SCCO) concerned whether a claimant’s recoverable costs should be restricted to Small Claims Track levels following settlement of a housing disrepair claim for £1,000 plus repairs.

Background

The Claimant, Gillian Smith, an elderly and vulnerable tenant, brought a claim against her landlord, Wigan Borough Council, for disrepair of her residential premises and associated damages. The parties reached settlement during pre-action correspondence in accordance with the Pre-Action Protocol for Housing Disrepair Cases. The Defendant’s final Part 36 offer (dated 30 January 2025) provided for specified repairs to be completed within 56 days and payment of £1,000 in damages, plus the Claimant’s reasonable legal costs to be assessed if not agreed. Following a clarifying phone call on 4 February 2025 confirming the costs term was “on a standard basis”, the Claimant accepted the offer. The Claimant subsequently commenced detailed assessment proceedings via a Part 8 costs-only claim, resulting in an order for costs to be assessed on the standard basis. Following provisional assessment by a costs officer, who rejected the Defendant’s argument that costs should be restricted to Small Claims Track levels, the Defendant requested an oral review. That review was ultimately confined to a single issue: whether CPR 46.13 required restriction of costs to those allowable on the Small Claims Track.

Costs Issues Before the Court

The sole issue was whether, pursuant to CPR 46.13, the court should restrict the Claimant’s recoverable costs to those allowable on the Small Claims Track. This required a hypothetical retrospective analysis of whether the underlying disrepair claim would have been allocated to the Small Claims Track had proceedings been issued rather than settled pre-action. The determination turned on the application of CPR 26.9(1)(b), which provides that the Small Claims Track is the normal track for tenant disrepair claims where “the cost of the repairs or other work to the premises is estimated to be not more than £1,000” and “the value of any other claim for damages is not more than £1,000”. The Defendant contended the £1,000 settlement sum was highly persuasive, if not definitive. The Claimant argued the true value of the damages claim exceeded £1,000 and that the Defendant’s conduct in making Part 36 offers demonstrated acceptance that the claim would not be allocated to the Small Claims Track.

The Parties’ Positions

The Defendant’s Position: Mr Munro submitted that CPR 46.13 entitled the Defendant to argue for Small Claims Track costs notwithstanding the earlier costs order on the standard basis. He contended the court must conduct the CPR 46.13 exercise by examining the evidence, with the agreed settlement sum of £1,000 being a highly persuasive factor. He argued that as the Claimant had provided no evidence to support a pleaded value exceeding £1,000, the court should find the claim would have been allocated to the Small Claims Track. He distinguished Birmingham City Council v Lee [2008] EWCA Civ 891 on the basis it did not address the specific retrospective analysis required by CPR 46.13.

The Claimant’s Position: Mr Poole accepted the settlement sum had some relevance but argued it could not be the sole consideration. He placed significant weight on the Defendant’s conduct during settlement negotiations, specifically its use of three formal Part 36 offers, each referring to costs “to be assessed if not agreed”. As Part 36 does not apply to small claims under CPR 27.2(1)(g), he submitted this demonstrated the Defendant’s implicit acceptance that the claim would not be allocated to the Small Claims Track. He further argued that, based on the duration of disrepair (from December 2023), the Claimant’s vulnerability, and applicable rent diminution principles, the true value of the damages claim would have been pleaded at over £1,000. He relied on the Claimant’s detailed contemporaneous calculation of £1,304.96 to support this valuation.

The Court’s Decision

Costs Judge Nagalingam upheld the costs officer’s decision and rejected the Defendant’s CPR 46.13 argument. The court’s reasoning was multi-faceted.

First, the judge noted that CPR 46.13 is discretionary (“it may restrict”) and requires a holistic, hypothetical assessment using the language of “would have” and “if”, not a mechanistic application of the settlement figure. Significantly, the judge observed at paragraph 80 that “There is no reference to the settlement sum within the rule, and one observes that such a provision would likely have been included by the legislature were the settlement sum intended to be a definitive measure of retrospective allocation.” The judge found that “where parties agree a financial dispute by way of compromise, the settlement sum may be one measure of value but it is not definitive”.

Second, the court conducted a detailed analysis of the pre-action correspondence and the circumstances of the claim. The Claimant was an elderly, vulnerable tenant with multiple health issues, acknowledged as such by the Defendant. The disrepair persisted for over a year, during which the Claimant paid full rent. The judge calculated that the £1,000 settlement, when spread over the 69-week period of disrepair, represented compensation of £14.49 per week from the £80 weekly rent—a diminution of around 18%. At paragraph 79, the judge noted the Defendant had provided no “cogent explanation” as to why the court should accept the claim would have been allocated to the Small Claims Track, save for the settlement sum agreed. Crucially, the judge found at paragraph 91 that the Claimant’s contemporaneous damages calculation of £1,304.96, based on rent diminution principles and the Claimant’s circumstances, was “compelling contemporaneous evidence” that was “uncontradicted by any valuation evidence from the Defendant”.

Third, the court attached importance to the Defendant’s conduct. The making of three Part 36 offers, each stating costs would be “to be assessed if not agreed”, was incompatible with Small Claims Track procedure and, as the judge found at paragraph 56, “might reasonably lead one to conclude that the Defendant acknowledged the likelihood of this case being allocated to the Fast Track had it been issued”. The judge found at paragraph 54 that the Defendant’s wording “likely led to the Claimant assuming that no form of fixed costs argument would be advanced”, and at paragraph 88 that the final offer’s terms “strongly inferred no intention to argue costs on the basis of allocation to the Small Claims Track”. Allowing the Defendant to resile from this position would, the judge stated at paragraph 89, “imperil future settlements” and encourage the “undesirable practice” of parties trading offers which “either by pennies or a few pounds exceed the threshold to escape ‘would-be’ allocation to the Small Claims Track”. The judge linked this directly to the overriding objective, observing at paragraph 90 that it “is not best served by an approach to litigation which, in effect, requires Claimants to issue proceedings in order to achieve certainty as to costs recovery”.

Applying CPR 26.9(1)(b), the judge was satisfied that, based on the evidence of the claim’s circumstances and value at the time, it would not have been allocated to the Small Claims Track. At paragraph 87, the judge concluded: “I am in no doubt that the facts and circumstances as at the date of acceptance were such that had proceedings instead been commenced, this claim would not have been allocated to the Small Claims Track on the basis that pursuant to CPR 26.9(1)(b)(iii) the Small Claims Track would not have been the normal track for a ‘claim which includes a claim by a tenant of residential premises against a landlord’ where the value of the claim for damages would have reasonably been pleaded at more than £1,000 based on the circumstances presented at the time.” The provisional assessment was therefore finalised, with the Defendant ordered to pay the Claimant’s costs of the assessment and the oral review.

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