Part 27 of the CPR and its Practice Direction apply to claims allocated to the small claims track. As regards costs in small claims, these are limited by virtue of CPR 27.1(1)(b). The governing provision is CPR 27.14, which sets out certain restrictions on costs which the court may order in cases allocated to the Small Claims Track (including those related to an appeal).
CPR 27.14(2)(g) opens up the court’s discretion to summarily assess such further costs, and order the same to be ‘paid by a party who has behaved unreasonably’ (emphasis added).
What constitutes unreasonable behaviour and when is the test satisfied so as to engage this discretion?
Recent case law, most pertinently Dammermann v Lanyon Bowdler LLP  EWCA Civ 269 has cited with approval the Court of Appeal’s consideration of the term, ‘unreasonable’ in the wasted costs context, from Ridehalgh v Horsefield and Another & Ors  3 W.L.R. 462 at p232, per Sir Thomas Bingham MR (as he then was):
"Unreasonable" also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable. (emphasis added)
In Dammermann, the Court of Appeal endorsed this dictum as sufficient guidance for judges deciding costs in small claims. The test is therefore whether the conduct ‘permits of a reasonable explanation’. If so, then no finding of unreasonable conduct is to be made.
The Court declined to elaborate much further, other than to say that litigants in person should be in neither a better nor a worse position than legal representatives when determining whether they have behaved ‘unreasonably’, and that it would be unfortunate if the risk of exposure to adverse costs deterred litigants from making use of the Small Claims Track. This implies that the bar for a finding of unreasonable behaviour is a relatively high one. On the facts of Dammermann, the Court held on appeal that because the point of law on which the appeal turned was ‘somewhat intricate’, the appellant had not behaved unreasonably so as to engage the discretion as to further costs.
However, this is not the end of the matter.
This is because where a contractual relationship exists between the parties, there is Court of Appeal authority, binding upon the County Court, which sets out that the CPR 27.14 regime does not prevent the recovery of costs pursuant to a contractual term.
CPR 27.2(1) contains an explicit list of Parts of the CPR which do not apply to small claims. Further, CPR 27.2(1) provides that the other Parts of the CPR apply to small claims ‘except to the extent that a rule limits such application’.
It therefore follows that CPR 44.5 does indeed apply to small claims, because its application is not proscribed by CPR 27.2(1) or by any other rule.
This is the very reasoning expounded by Patten LJ in the case of Chaplair Ltd v Kumari  EWCA Civ 798 at paragraphs  and .
The commentary within the White Book at paragraph 27.14.8 makes reference to this exact point as well.
Chaplair is therefore good authority that where there is a contractual clause between the parties which provides for costs to be recovered, the case being on the Small Claims Track does not preclude recovery of costs pursuant to that contract. The only fetter on their being recovered is the court’s general discretion under CPR 44.2, however, this itself is already subject to the rebuttable presumption from CPR 44.5.
Perhaps the two most common types of cases founded on contractual relationships which LPC advocates are instructed to attend, are based on mortgage contracts and tenancy agreements.
There is well-established case law in these two specific areas, both of which pre-date Chaplair, and the Civil Procedure Rules themselves. In the mortgage context, the well-known authority of Gomba Holdings (UK) Ltd v Minories Finance Ltd (No.2)  Ch 171 remains good law. The principles were then held to apply to the landlord-tenant context in the Court of Appeal case of Church Commissioners for England v Ibrahim  2 WLKUK 175
In sum, the court should not refuse to order costs in a small claim where there is a contractual clause permitting their recovery, even in the absence of unreasonable behaviour by the unsuccessful party.