The courts: small claims inquiry

1.  Introduction and key issues

1.1.  Citizens Advice welcomes the opportunity to provide evidence to the DCA Committee Select Committee on how well the small claims procedure, as established by the Woolf Reforms of the Civil Justice system, is working.[1]

1.2.  The CAB service is the largest network of independent advice centres in Europe, delivering high quality advice from over 3,200 locations throughout England, Wales and Northern Ireland.  In 2004/05 the CAB service dealt with nearly 5.2 million enquiries that included nearly 400,000 enquiries about legal issues.

1.3. Key issues for the Committee to consider, include:

• cost recovery
• complexity (and cost) of allocation procedure
• for claimants, whether the small claims process should be lawyer-free, legally aided or better supported by advice sector;
• financial thresholds (whether they should they be raised as proposed by Better Regulation Task Force)
• expert evidence
• alternative remedies for consumers - ADR schemes etc
• ESCP – EU Directive on small claims

1.4.  The small claims track was intended to provide a service in which cases would be dealt with expeditiously, with processes proportionate to the issues involved and the financial value of the case (principally though an informal hearing with a judge taking evidence from written submissions).  The most common types of claim in the small claims track are:

• compensation for personal injury, where another party is at fault
• compensation for faulty services provided, for example, by builders, dry cleaners, garages and so on
• compensation for faulty goods, for example, televisions or washing machines which go wrong
• disputes between landlords and tenants, for example, rent arrears or compensation for not doing repairs
• wages owed or money in lieu of notice.

1.5.  Citizens Advice supports the principles behind a wide small claims jurisdiction – a system that is consumer friendly and does not require expensive legal professionals to service.  Indeed we agree with the Better Regulation Taskforce that there is a strong argument that more cases could be dealt with through this process, possibly by raising the £2,000 threshold for personal injury cases to £5,000.[2]  However, in practice, it is important to recognise that the system has changed since it was first created.  The monetary thresholds have risen steadily through the years and it deals with an increasing proportion of legal claims.  In this submission we present evidence from CABx evidence in respect of whether the small claims process – as currently operated - is accessible and appropriate for dealing with low value consumer, housing and personal injury cases, and providing appropriate remedies and solutions.

2.  Access to justice

2.1.  Even in a small claims system it is often unrealistic to expect potential claimants to know how they should go about establishing the legal basis of their case effectively at a court hearing unless they are given some preliminary advice about how they should do so.  Access to appropriate advice and representation for small claims cases is often hard to obtain for the following reasons:

• Changes to legal aid eligibility have taken away any public funding for some categories of small claims such as personal injury compensation.
• There have been significant abuses in the market for claims processing services (known as claims management companies).[3]
• Moreover, the principle market mechanism for funding cases -- Conditional Fee Agreements (or CFAs for short) - are inappropriate for small claims due to the rules over the irrecoverability of costs in small claims cases.  Small claims are inherently unattractive for private sector lawyers.
• Even though costs in the small claims track may be fixed, lawyers’ fees for assisting in these cases are not fixed or regulated appropriately and can be a significant deterrent to the average consumer seeking redress.
• In cases where legal aid could be available, claimants may still have difficulty in finding an appropriate lawyer.  There is a dearth of publicly funded advice and representation in the field of consumer law, and in other areas of discrimination or social welfare law which involve small claims.  In addition, there is a general problem about access to publicly subsidised lawyers due to the shrinking solicitor supplier base in the legal aid system.[4]
• Free advice agencies that may be able to help with small claims are often overstretched in terms of capacity.  Occasionally they can be constrained in what they can do by rules of legal privilege.

2.2.  CABx often find themselves advising clients who start out as litigants in person, and bureaux advisers have reported the following comments:

Client received allocation questionnaire.  Does not understand one of the questions.

Client unable to complete form without help.

Small Claims forms are too complicated for ordinary individual with no legal knowledge

Court Staff unwilling to answer questions about their process

Court leaflets were very difficult to understand

2.3.  In many cases it appears that the willingness of court staff to help claimants with procedures such as the allocation questionnaire is an important factor in processing cases.  Even in the small claims jurisdiction, claimants can be left in serious financial difficulty if they do not get appropriate help and advice in preparing their case.  For example

A Midlands CAB reported a case which their client fell outside the scope of legal aid, could not afford legal advice and instead became a litigant in person whilst the other side had legal representation.  The client’s lack of understanding of the law and process led to a judgment in default being entered against him, which made him liable for a debt of £3,000.

3.  Small claims – a draft EU Directive

3.1.  Pressure for reform of the way that the small claims process works, is also coming from the EU’s proposals for a harmonised procedure across the EU (ESCP).[5]  An ESCP would not necessarily remedy existing access problems, but could potentially offer a more simple written procedure.  In addition to the procedural simplifications that the ESCP might bring, it has a clear benefit in that it allows for cost recovery upon a small claim being won, with any legal advice or representational costs being reimbursed in the majority of cases.  Too many citizens in the UK become legally disenfranchised due to the irrecoverability of legal costs within the current system.  For example, only 31 per cent of accident victims actually claim compensation using legal processes.[6]

3.2.  For this reason, we consider that ESCP should not be limited to cross border cases.  It would manifestly unjust, for example, that under the options supported by the Government, a UK citizen who is injured in France will be able to pursue a claim via the ESCP with the unsuccessful party bearing the costs - which may include the fees of a legal representative - while a UK citizen who is injured by another UK citizen will have to bring the claim in the current UK small claims court where they will retrieve no costs, win or lose.  In essence this means that under the ESCP it is possible for a claimant to be reimbursed for legal advice, while under the current UK system there is no costs recovery.  By replacing the current small claims procedure with the ESCP, there will be a single uniform procedure open to UK claimants who have been negligently injured, regardless of where the injury was sustained.

3.3.  However, ESCP would mean that injured claimants who pursue a small claim with the help of a legal representative will be liable for costs if they lose their case.  This cost penalty may act as a disincentive for many people from pursuing a genuine and justified claim; such as cases were the issues of legal causation and liability are borderline.  Claimants may take out legal insurance, but this system is by no means full-proof.[7]  ESCP should have a provision that would enable judges to order a disregard of costs.

4.  Alternatives

4.1.  Quite apart from the ‘Equality of arms’ issues in court proceedings, we would argue that the remedies provided in contract law under the small claims procedure, are often inappropriate to the needs of ordinary consumers.  There is a need to be better options for resolving consumer disputes before they get to court.

4.2. In our discussions with DTI over their consumer strategy, we suggested that they reconsider their view on having a general ombudsman service for consumer disputes – this could support codes of practice approved by OFT.  The challenge is how government can practically introduce ADR that is consistent, good quality, well publicized and available over a host of different markets and sub-markets for consumer goods and services where the biggest problems are often caused by small traders.  Common consumer problems include:

• Home-working – whilst this is mentioned in the Enterprise Act there is still no ban on upfront fees.
• Call centres – we see problems with call centres in a variety of settings.  They can prove expensive (due to time getting a response and rates charged) and difficult to use, especially when there is no alternative. 
• Cooling off rights – the range of the time periods causes confusion.
• After sales service – we see a wide range of problems where businesses follow policies rather than legislation.
• Cash back schemes – we see a variety of these from furniture to extended warranties where claims are made and nothing received.  Often the company which promised to provide the cash back is no longer trading.
• Liquidations/companies ceasing to trade – consumers have no protection and nobody to claim from.
• Unsolicited gifts and prizes mail – vulnerable clients are losing money following bogus claims of prizes won where money must be sent to make the claim to businesses outside the UK that consumers cannot trace.

4.3. Some traders avoid their responsibilities.  For example

A South East CAB reported that a major high street retailer refused to repair a recurring fault with their client’s TV unless the client paid.  The bureau was only able to resolve the matter through the manufacturer.

A Midlands CAB report two stores in the same chain gave their client different information when she complained about the faulty trainers she had bought.  One offered an exchange or a refund, adding that the customer is always right, whilst the other insisted the trainers would have to be sent away to head office for a decision about any recompense.

A North West CAB’s client sought advice when he was told that a major high street retailer’s policy was only to refund within 28 days of the purchase.  The £1999 TV was under five weeks old when it became faulty, but it had been bought a month prior to delivery.  The engineer had insisted on taking it for repair and had not returned it some six weeks later.

4.4.  What these cases illustrate is that potentially justiciable cases in the consumer field are extremely diverse.  Bureaux often report clients’ difficulties in taking up their rights.

A South East CAB reported their client had decided it was too expensive to pursue her claim for a refund when, despite several promises, she failed to receive goods costing £20.

A South West CAB’s disabled client is disputing a bill for over £137 when an engineer had spent two hours examining her stair lift.  He wanted to take it to their workshop for repair but her son pointed out it was only a broken pin and repaired it himself.  She will write to the company but says it will be too stressful to go to court.

A CAB in Derbyshire reported their client cannot pursue his claim for the return of a caravan holiday deposit the owner is withholding, because he bought on the Internet and has no geographical address. 

A Midlands CAB’s 70 year old client cannot find out who she needs to pursue for damage to a newly refurbished headstone on her parents’ grave.  The local authority employed the contractor who damaged it but will not take responsibility and the client cannot afford to take the case further.

A North Region CAB reported client has made numerous calls to a major double glazing company in an effort to take up a claim under a ten-year warranty on her windows.  Their engineer said it would be resolve in five or six weeks but three months later the client is still usable to find someone at their call centre who can make a decision about the case.

An East Region CAB’s 72-year-old client cancelled her order for a medical bed, purchased after a five hour visit from a salesman.  The cancellation rights were on the agreement but they still tried to deliver the bed and have failed to keep their promise to refund the £100 deposit paid to the salesman.

4.5.  Bureaux also report discrimination, which may be justiciable under DDA or other discrimination legislation.  Some companies are asking for additional money from vulnerable clients after the contract has been agreed.  

A Merseyside CAB reported their client’s request for the details to contact the manager when she was refused a refund by a local clothes shop was met with personal insults.  The shop referred to her as a ‘Paki’.

A South West CAB reported their client, a 64 year old man, had been refused a concessionary season ticket to a football club which was available for women over 60.

A London CAB’s client sought advice when she received a letter from a company saying she must pay £6,092 for a mobility scooter when the price she had agreed with the salesman was £3,500.

4.6.  Other businesses are more actively misleading in their approach, and indeed may raise potential issues of misrepresentation.

A North East CAB reported their client had accepted an offer of free home security from a doorstep salesman who had assured her there was nothing more to pay.  Later she was asked to sign for monthly payments of £25 for the monitoring service required to use the system.

A Northern Ireland CAB reported a variation on unsolicited goods.  Their client was contacted at work and asked to nominate a school to receive books.  They named a local school and then received a letter asking for £146.10 for books provided.

A South East CAB reported their client was offered a free week-end holiday when she bought a juicer by phone for £100.  She later found that she had been enrolled in a holiday club who were using the information she had given to buy the juicer to debit £100 from her account as a joining fee.

4.7.  Bureaux have reported a steady stream of cases where clients have been told they must register for under data protection legislation for fees well above the charge made by the Information Commissioner’s Office.  The OFT have used misleading advertising legislation to take a series of cases.

An East Region CAB reported a variation on this theme when their client wanted to stop nuisance phone calls and contacted what they thought was the telephone preference service.  They found later that a company was charging for this and debiting their bank account.

4.8. Bureaux regularly report problems with fitness club membership, where clients are misled about the cost and duration of the contract and, in some cases, about the suitability of facilities:

A South East CAB reported their client found that £88 was being deducted monthly from his bank account as part of what turned out to be a one year contract for himself and a friend.  They had been persuaded to join for one month only and paid £148, having been assured that the bank details they were asked for were just for the club records.

A client from a CAB in Bedfordshire was assured that monthly payments for membership would be £25 but found that £42 a month was being deducted from his bank account.  When he returned to see the person who sold the agreement she refused to speak with him.  His cancellation of the payments was met with a letter from debt collectors.

A pensioner client is seeking a refund.  The health club he had joined reneged on their initial agreement that he could use facilities such as the swimming poor and sauna.  He had joined for a year, during a free initial visit, following their advice that his health would benefit from using the gym.

A client was told the fitness club contract could not be cancelled when she became ill.  Despite letters from her doctor, confirming she should not use the gym equipment, she was pursued by debt collectors. 

Four bureaux reported their clients were being misled into buying World Service Authority Passports.  The contact point in a web site and clients have reported payments from £100 to £1,000.  These clients were asylum seekers with limited English.  They thought they were buying a valid passport that would allow them to regain entry to the UK if they travelled abroad.  What they have received is document resembling a passport that explains their human rights.  One bureau reported their client paid £330 and knew others who had done the same.

4.9.  Our evidence would suggest that there is a spectrum of consumer disputes which are not touched by the small claims process and contract law remedies, due to issues of proportionality, cost and appropriateness.  Although it is incumbent on claimants to try and settle a claim before taking court action, there are insufficient robust ADR mechanisms to do this.  Models from other jurisdictions need to be looked at.  In Sweden there is a local consumer adviser for each district, working for the central Swedish consumer agency, Konsument Europa.  The alternative dispute system for consumer problems means that consumers can file a form explaining their complaint with the Swedish consumer agency, the National Board for Consumer Complaints, as an alternative to taking a case to court.  A panel with expertise in that product and in the law then looks at the problem and decides the case.  This is free for consumers and although the decision is not binding on the trader the results are published annually in a contra indications list in their consumer magazine.

5.  Enforcement

5.1.  The issue of poor enforcement is pertinent to traditional consumer legislation (e.g. poor enforcement of existing legislation to tackle unfair terms/doorstep selling/credit legislation) but also to areas such as housing where there is an imbalance between the parties (e.g. tenants cannot enforce rights against landlords without risking eviction). 

5.2.  The problem is that enforcement is under resourced and this will be more of an issue as more consumer reliance is placed on it.  For example, Law Commission Bill proposals include rights to written agreements and core terms but it is unclear who will police these rights.  The new proposed Directive on Unfair Commercial Practices will fill gaps in legislation but will require enforcement.

5.3.  We support properly resourced enforcement and would like consumers to be encouraged to inform the process.  The comparative research by DTI/Treasury/OFT discusses the value of ’tough’ enforcement, which encourages consumers to complain succeeding through high initial investment followed by reasonable costs once it is clear that action will be taken.  The research also says it is unusual for public enforcement to be delegated to lots of often small local authorities.  We may be asked for a view on whether enforcement should be centrally controlled.  This has attractions for providing equal service. In utilities, we see a need for the regulator to use a wider scope of enforcement powers where the market is not working. 

5.4.  Too often with small claims the claimant will have to go back to the same court to apply for an order to get any money awarded.  Equally, this is also a problem for tribunal awards.[8] Now that the Government is considering establishing a National Enforcement Service, the issue of whether or not all civil judgments should have enforcement orders attached, or alternatively whether the revenue could be used to recover civil debts without further judicial process, could be looked at again.  The more important priority is what the enforcement branch of the Court Service could do to bring parties together, so that enforcement can be discharged without hostility or hardship

6.  Costs to consumers

6.1.  Consumers face costs over a variety of issues that could broadly be described as access to justice.  Legal protection and the costs of access across consumer, utilities, health, housing, employment and education all rely on the ability of consumers to use rights in a setting that is manageable, accessible and not costly.

6.2.  We have said that Enforcement Orders used in the enforcement of goods and services legislation (including the new Unfair Commercial Practices Directive) need a link to consumer redress so that the general practice is stopped and consumers are compensated for any loss suffered.

6.3.  Across personal injury, disability benefits and employment there is a market for intermediaries who offer help to access compensation, benefits or tribunal representation but swallow the money consumers would gain from the process in fees.  Free face-to-face advice is acknowledged in the DTI research as an issue for vulnerable consumers.  It is under resourced (as illustrated by CAB problems with legal services partnerships) and its provision should be in the strategy, in addition to Consumers Direct.

6.4.  There is a need both for better-resourced free advice and for a comprehensive strategy to support ADR, including tribunal representation and small claims courts.  We therefore support the provision of ADR in the goods and services field but not to the exclusion of access to court and small claims procedures.

7. Full cost recovery by the courts

7.1.  Finally, one further deterrent in pursuing small claims is the policy of full cost recovery.  In 2000, Citizens Advice successfully campaigned for the abolition of the £80 allocation fee for defended civil actions in cases worth £1,000 or less.  The CAB Service has long been opposed to the extra-parliamentary policy of ‘full cost recovery’ on which the civil court fee system is based.  Implicit within the civil justice reforms of 1999 was an aim to reduce the number of cases reaching the courts.  If the principle of full cost recovery is retained, then it is inevitable that as the numbers of cases drop, fees will rise.  We do not believe that the public interest role of the court system is being served by a funding strategy, which will place greater and greater barriers in the way of access to justice for those on low and moderate incomes.  The policy of recovering almost the full cost of running the civil justice system from litigants fails to recognise the collective benefit in the administration of civil justice.

7.2.  CAB evidence suggests that there are many people with income only a little above the support level, who find court fees are a real deterrent, and receive no assistance with costs.

A CAB in East Yorkshire reported that a client, an unmarried father with no parental responsibility, could not afford the then £90 fee for a relevant order.  To obtain parental responsibility he had to sign a Parental Responsibility Agreement, which requires the mother’s agreement, or apply for a parental responsibility order, which requires a £90 court fee. 

8.  Personal Injury Cases

8.1.  Particular policy issues arise with respect of intermediaries in personal injury compensation claims, though similar issues can arise in disability benefit claims and employment tribunal market.  CABx report cases where all the money consumers might gain is swallowed up by the intermediaries.[9] Around 2.5 million people in the UK sustain accidental injuries every year.  As a result they may lose income or independence, and face lifestyle changes.  Fault may rest with the driver of another car, a public authority such as a local authority or hospital, an employer or another individual whose action or inaction was the cause of the accident and the injury sustained.  Under UK law the liable party must compensate the injured person for any loss (i.e. the polluter pays), so rather than a statutory (e.g. New Zealand) scheme, accident victims rely on the civil justice system for financial recompense.

8.2.  Far from there having been a recent (‘compensation culture’) boom in consumers claiming compensation for injuries, only 31 per cent of accident victims actually claim compensation using legal processes.  Indeed the actual number of claims for injuries following accidents has reduced since the Woolf reforms were introduced and new methods of funding legal actions in personal injury cases, (conditional fee agreements), were rolled out as a way of replacing legal aid funding.  CAB evidence would suggest that for many thousands of people who have experienced accident or injuries through no fault of their own, often suffering disabling effects, the system is failing.  It is extremely complex for an unrepresented individual to pursue a claim for compensation.  They will need legal advice on their likely prospects of success and help collecting their evidence and putting their case, which may need to go to court.  So pursuing a claim efficiently and effectively is likely to involve using legal services and incurring court costs at some stage.

8.3.  Funding personal injury cases through conditional fee agreements has introduced greater complexity for consumers.  The complex financial and legal processes involved are often misunderstood by consumers, and consumers’ needs can be misunderstood by the service providers.  There is widespread mis-selling of legal and insurance products, and consumers are often induced into signing conditional fee agreements (CFAs) inappropriately.  Consumers are misled into thinking the system will be genuinely ‘no win no fee’ but can often find that costs are hidden and unpredictable, such as disbursement, loans and interest for after the event insurance policies, lawyers ‘success fees’, and any commissions extrapolated by claims and insurance intermediaries.  Many of these costs are incurred before ever getting to court, and too often settlements obtained by insurers are not inclusive of costs.

8.4.  We have suggested that the DCA working with the civil justice system should review the legal costs system for personal injury in civil courts to examine whether there are any alternatives to frontloading most of the costs.

8.5.  Part of the public misperception about the so-called ‘compensation culture’ is that it is sometimes assumed that accident victims are entitled to significant damages arising out of common but irksome physical injuries such as fractured joints, whiplash, back strains, sprains, prolapses, and soft tissue damage.  However this is rarely ever the case.  The Judicial Studies Board ‘tariff’ guidelines on the level (quantum) of compensation, which can be recovered for pain and suffering, states that the maximum amount of damages in such cases should be about £4,000.  In 2002, 55 per cent of awards issued by county courts were under £3,000.

8.6.  CAB evidence would appear to confirm that under our ‘tariff’ system of compensation, financial awards by way of damages and settlements are not only low value but often do not meet the criteria for fair and appropriate compensation or restitution.  The following table of a illustrative sample of cases seen by CABx since 2001 shows, the use of conditional fee agreements to pursue low value personal injury claims can all too easily result in a ‘zero sum gain’.

8.7.  Compensation gained for fifteen CAB clients

8.8.  What our evidence suggests is that despite the Access to Justice Act Regulations, it is not always clear whether the costs to cover loan agreements taken out to fund after-the-event insurance premiums can be recovered from the other side, especially where cases are settled.  This lack of clarity has led to problems for CAB clients where their cases are settled by the insurers rather than by court proceedings.  Some have ended up repaying such loans which they had to take out to fund their insurance policy from their compensation awards, in some cases leaving little or no compensation.

9.  Conclusion

9.1.  There is a need to evaluate the Woolf Reforms from the standpoint of whether they have increased access to justice.  The policy intention has always been that the small claims court is a court of law, but not designed for lawyers, rather a "do-it-yourself" kind of court, where ordinary citizens can handle their own cases, whichever side they're on.  Evidence would suggest that there are areas of policy and practice that need to be tackled in order to achieve this.

Social Policy contact: James Sandbach James.sandbach@citizensadvice.org.uk

[1] Access to Justice Final Report to the Lord Chancellor on the civil justice system in England and Wales Lord Woolf (1996)

[2] Better Routes to Redress BRTF 2004

[3] These issues are set out in more detail in our report No Win, No Fee No Chance (Dec 2004)

[4] These problems are spelt out in our report Geography of Advice. An Overview of the challenges facing the Community Legal Service. Dec 2003,   

[5] http://www.dca.gov.uk/consult/smallclaims/pdf/procedure.pdf

[6] Figures from Royal Society for the Prevention of Accidents

[7] No win No Fee No Chance – CAB evidence on the challenges facing personal injury compensation, December 2004

[8]Hollow Victories

[9] For more on this see our report No Win No Fee No Chance