This report has provided a useful and insightful analysis into the small claims system in this country. I welcome the overall findings of the report and congratulate the Constitutional Affairs Committee on their work.
The small claims system is a low cost, speedy and informal way of allowing litigants to bring claims for small monetary amounts. The system provides greater access to justice as people are encouraged to bring their claims by the speed and informality of the small claims track. Many claims have therefore been successfully pursued, where without the small claims system, claimants may not have deemed worthwhile resorting to legal action for such a minor amount of money.
The report does however highlight certain problems with the small claims system which require rectification.
Small-Claims Limit for Personal Injury & Housing Disrepair Cases
Firstly, the report raises the issue of the current claim limits for personal injury cases and housing cases involving a landlord's failure to repair the property.
There are clear justifications for increasing the maximum amount such claims may be brought for in the small claims system.
The current figure of £1,000 was introduced in 1991, and after a fifteen year period is outdated. As a consequence of inflation, very few personal injury claims can now be brought in the small claims system. As the report states, there are only five types of injury within the Judicial Studies Board tariff guidance where damages start at under £1,000. Claims for several minor injuries, which by right should be brought in the small claims track, are now being brought in alternative tracks. This situation has the consequence that the small claims system is not being used frequently enough for personal injury cases. Not only has this resulted in the court's fast-track system being needlessly clogged up, but the expense of bringing a claim is now disproportionate to the amount of the claim. [As figures provided to the committee by Norwich Union, the UK's largest insurer, highlighted, in 'personal injury cases where damages are over £1,000, costs represent 65% of the damages paid...or 40% of the total sum (damages and costs) paid.']
This situation needs to be addressed, and therefore the Conservative Party supports the committee's proposal to raise the small claims limit. We also recognise that there is a growing problem of compensation culture in this country and that it is not the role of the state to fuel this culture through subsidising litigation. However, we do recognise that the extent of this increase is a subject for valid debate.
Raising the limit too greatly could have certain detrimental effects.
One significant problem could be that claimants may not be legally represented. The small claims system actively discourages parties to be legally represented where they should be. There are good reasons for this policy. By having litigants representing themselves, the costs of cases are reduced.
The discouragement to parties of being legally represented is seen by the fact that the winning party in a small claims case is unlikely to be able to recover the costs they have incurred for their legal representation. [The 'no win, no fee' offers which are so well-marketed by personal injury lawyers are rarely an option for claimants in small claims cases. Solicitors will rarely agree to enter into conditional fee arrangements with their clients if they will be unable to recover their legal costs from the other side.] These provisions have resulted in a situation where most litigants in small claims cases are legally unrepresented.
The consequences of an increase in the small claims limit for litigants in relation to their legal representation are clear. Claimants in personal injury cases may find themselves in a position where obtaining legal representation is not a viable option. An increase of the limit to £5,000, as recommended by the Better Regulation Task Force, a Cabinet Office-sponsored organisation, will result in most personal injury cases being allocated to the small claims track. The Law Society gave written evidence to the committee that "most personal injury cases are for less than £5,000." I would also like to take this opportunity to thank the Law Society for the evidence it gave to the committee, and for the briefing notes it has published since on this issue.
Even an increase of the limit to £2,500, as the committee's report recommends, would, according to figures published by the TUC, result in 30-50% of personal injury cases being brought under the small claims system.
Will the discouragement to potential litigants to employ legal representatives result in them being denied access to justice? In some cases there is the potential that this will.
As already said, if a potential claimant is unable to enter into a 'no win, no fee' arrangement with a solicitor, nor recover their legal costs if their claim is successful, they are clearly more than likely not to instruct a solicitor.
Can the Claimant not just bring the claim as a litigant-in-person? In many cases, this will not be feasible. The complex nature of many personal injury cases means that it is often inappropriate to expect litigants-in-person to deal with such cases. Tasks such as acquiring and understanding the content of medical reports, assessing the actual value of the claim, determining liability and preparing an accurate claim can make cases extremely difficult for litigants-in-person.
[A MORI omnibus poll on behalf of the Association of Personal Injury Lawyers indicates that 64% of people who suffer an injury through someone else's negligence would not pursue a claim through the small claims without legal assistance from a legal representative.
As many personal injury cases involve employees suing their employer for a workplace injury or disease, claimants without legal representation will be left vulnerable to pressure and will need external support. The TUC has pointed out that a reduction in the number of cases brought against negligent employers 'would reduce the pressure on employers and insurers to improve workplace safety conditions.']
When one considers that defendants in personal injury cases are often insurers, who will almost certainly be legally represented, the disadvantages to litigants-in-person will be even greater. John Wells, president of the Institute of Legal Executives, sums up this problem, "[litigants-in-person] are unlikely to know whether a settlement offer is a reasonable one and may feel obliged to accept an offer which is considerably lower than the value of their claim. This difficulty will be enhanced particularly in complex cases. There will be no equality of resources between the parties. Insurers would basically have carte blanche to settle claims for as little as they could possibly get away with."
The problems claimants will face if having to bring the claim without legal representation would therefore discourage many from pursuing their claim. Thus, they could be denied access to justice, directly contradicting the Government's stated aim of guaranteeing continued fair and equal access to justice for all litigants.
I believe this problem was the cause for the Government's relatively short response to the committee's report on this issue. It is interesting to note that the Government does not appear to be jumping for joy at the committee's suggestion to increase the limit to £2,500, and merely quietly refers to the problem of the 'potential lack of legal advice for claimants...if the small claims limit for personal injury is raised.'
Considering the strong arguments both for and against raising the small claims limit for personal injury and housing disrepair cases, a compromise solution needs to be found.
It is clear that an increase of the £1,000 limit is necessary, as this figure is clearly outdated resulting in disproportional expenses incurred in claims for a relatively minor amount.
But how can this increase be achieved without resulting in certain people being denied access to justice?
Providing adequate and satisfactory court advice could be decisive in achieving this. As the evidence to the committee provided by both the Law Society and Citizens Advice noted, the crucial factor in supporting parties to an action is not so much providing them with legal representation, but with adequate information and advice before they come to court. I would like to add to that – and whilst they are in court.
There is evidence which indicates that the advice currently available to litigants-in-person is inadequate. Citizens Advice, which often advises litigants-in-person, has noted that situations where clients are unable to fill in small claim forms and allocation questionnaires are frequent. Furthermore, court leaflets are often deemed difficult to understand. As the evidence given by Citizens Advice to the committee noted, even in small claims cases 'claimants can be left in serious financial difficulty if they do not get appropriate help and advice in preparing their case'.
Clearly, if the claims limit is to be raised, and more claimants are to find themselves without legal representation, then these problems must be remedied.
[I note with interest the progress being made by the pilot small claims scheme at Reading County Court. This scheme, designed to assist parties without legal representation, provides for a dedicated support officer to supply in-depth advice to both claimants and defendants. ]
The burden will fall on the courts to be more pro-active in ensuring that potential claimants have all the information, and can understand that information, which is required to bring a claim. And likewise, unrepresented defendants must be suitably informed to enable them to defend the claim against them. Appropriate advice must be supplied on matters such as filling out forms, gathering together medical reports, interpreting those medical reports and determining the liability and quantum of their claim.
If quality and easy-to-understand advice can be provided, and district judges can continue their existing constructive interventionist approach to small claims cases, then this will hopefully negate much of the harm caused to parties who would otherwise be forced by an increase in the small claims limit to represent themselves, whereas under the present limit they would instruct a legal representative.
Despite a sharp increase in the quantity and quality of advice provided to litigants-in-person, they will often be in a weaker position without legal representation. For this reason, recommendations from some quarters to raise the limit to £5,000 may be inappropriate.
The Conservative Party supports a doubling of the limit from £1,000 to £2,000, which takes into account the rising levels of personal injuries damages inflation. This figure, which is the same as that recommended by Citizens Advice, should not result in denying people access to justice. We would remain open to hear the debate as between a £2,000 or £2,500 limit – but do not feel that a higher limit is appropriate at the current time. Most complex personal injury cases, where a claimant would struggle to bring a claim without legal representation, are for more than £2,000, and therefore will still be allocated to the fast-track system.
European Small Claims Procedure
A second issue raised by the report is that of the possible introduction of a European Small Claims Procedure. A proposed EC Regulation will introduce the Procedure, which will intend to simplify, speed up and reduce the costs of litigation of small claims across the EU.
The committee's report broadly welcomed the implementation of such a Procedure, noting the benefits that will be provided to parties involved in cross-border cases. There were however, two significant reservations to this welcome. Firstly, that a successful party will be able to claim their legal costs from the losing party, which, as I have just discussed, is the exact opposite of the situation in the small claims system in England and Wales. This could have the effect that disproportionate costs will be incurred in order to claim a relatively small amount of money. A second problem that was noted by the committee is that this Procedure will only be available to claimants whose claims are for less than €2,000, which in comparison to the levels currently in use in England and Wales, is a low amount.
The benefits of introducing a European Small Claims Procedure for cross-border cases are very much the same as the benefits for domestic cases.
The ESCP will be particularly beneficial when considering the growing number of consumers who are choosing to shop abroad and the increase of travel within member states. This may provide benefits in terms of more choice and lower prices, yet can also lead to a cross-border dispute. The quantity of such disputes is escalating rapidly. If consumers are to have the confidence to shop abroad, they need the assurance that if something is to go wrong, there is a viable means of redress.
There are obvious problems with pursuing a claim in a foreign country. Language difficulties, geographical distances, instructing two sets of lawyers, additional travel and communication costs and a lack of information regarding local consumer rights and applicable laws all make it a difficult process to pursue. Potential claimants to actions for small amounts may think they are better off just cutting their losses and forgetting about pursuing legal action. Evidence provided by the Commission indicates that this is largely the case at the moment.
To solve these problems, the introduction of a simplified and speedier system for contested small value claims is to be welcomed.
However, the ESCP, as the report noted, has some problems in its present form.
If the Procedure is to have a limit of €2,000, which I believe is the equivalent of roughly £1,400, then many cases, which could appropriately be dealt with under this system, would be excluded. The figure which is set must be large enough to be able to attract a sufficient amount of cases.
As ACCA (Association of Chartered Certified Accountants) have pointed out, few small or medium sized UK-based enterprises will benefit from the Procedure. This is due to the majority not being involved in cross-border trade, and of those who do, a third trade principally outside of the EU. The Procedure appears therefore to be a mechanism for the benefit of individuals. When individuals are constrained in their ability to bring an action so that its value is below a €2,000 threshold, the number of cases expected to be brought under the Procedure will be relatively few.
[A point I believe should be made is that though this level is clearly too low, there is also a danger of setting the level too high. This could have the effect that cases which are complex enough to warrant a full discussion or trial in a court of law, will not do so as they will be capable of being brought under the accelerated Small Claims Procedure.
This problem is in need of further development I believe. A potential problem I have spotted with the proposed Regulation is that the €2,000 limit only applies to the value of the original claim when the procedure is commenced, and not the value of the final judgment awarded. The Regulation is silent in the event that the claim later turns out to be for a much higher amount, for example, if the damage incurred by the claimant later turns out to be greater than originally believed. The lack of an automatic power granted to the national court to transfer such a case from the Procedure to the national court system could lead to an injustice being committed against either party, or both.]
In conclusion of this particular issue, the best course I believe the Government should follow is to demand that the €2,000 limit be raised. I appreciate that the Procedure must take into account the varying small claims limits and living standards in all the Member States. To take account of these differences, an alternative solution to this problem may be to permit Member States to set their own limits. This would allow the courts in England and Wales to set the limit at €7,000, equivalent to the £5,000 limit currently employed in our small claims system.
Now to the second problem I referred to, that of the losing party having to pay the winning party's costs. This right will not apply to a loser who is unrepresented having to pay the other side's legal fees.
The exact wording used in the proposed Regulation is that a 'natural person' who is not legally represented will not be obliged to reimburse the legal fees of the other party.
This will create an atmosphere of injustice as parties will often not be on a level playing field. Furthermore, this discriminates against companies bringing claims, as they cannot come within the definition of a 'natural person', and also against those individuals, for example minors or the mentally impaired, who would find it difficult, even impossible, to bring a claim without being legally represented. If the Procedure is to have this costs rule, then special provision must be made for these types of situation.
But many cases will involve both parties being legally represented, therefore the general rule employed in the court system of England and Wales, that the loser pays the winner's costs, will apply. This provision will cause one of the very problems which I have discussed already as to why the limit for personal injury and housing repair cases in England and Wales' small claims system should be raised, that of disproportionate costs incurred to claim back a small monetary amount.
If a claimant brings a claim for around €1,000, the legal costs for such a cross-border action, which would generally be higher than for a purely domestic case due to its international nature, could run into several thousands of euros. To be able to claim this amount back, which far exceeds the amount of the original claim, would be highly disproportionate, and unfair to the other party. This would defeat the entire object of having a small claims procedure: to provide a simplified and accelerated cross-border procedure, with lower costs.
Potential claimants will know that they run the risk of having to pay the other party's costs in the event that they lose their case. This will discourage individuals from bringing a claim under the Procedure, unless they are provided with a certainty as to the maximum amount they may have to pay. Several reports, included those conducted by the EU, have noted that cost is the main reason why individuals choose not to pursue legal claims.
I believe that the Government, during the UK presidency of the European Council, sought to rectify this problem by proposing that the European Small Claims Procedure allow for the recovery of costs, including legal costs, even where the unsuccessful party is not legally represented. The benefit is apparently to be that costs would only be able to be claimed if they are proportionate to the claim.
Whilst I welcome a proposition that costs should be proportionate, I believe that the Government's proposal could potentially do more harm than good. Many potential claimants who may have contemplated bringing a small claim in another Member State, and may have been willing, for the sake of saving costs, to represent themselves, will be reluctant to bring a claim if there is the potential for them having to pay any costs at all, even a "proportionate" amount. A second problem with this proposal is that it could be unfair if an unsuccessful litigant-in-person would be just as liable for the legal costs of the other party as an unsuccessful party who had legal representation.
In conclusion, one of the best features of our domestic small claims system is its rules on costs. It is the cornerstone of a simplified and speedy process. Whilst a person bringing a small claim knows they may not get all their costs back, they also know that if unsuccessful, they will not be burdened with a large costs bill. Having to pay costs will act as a deterrent to people bringing small claims, so a costs rule that only entitles a winning party to claim back a fixed amount of costs may be beneficial. And this fixed amount should only include the costs for court fees and loss of earnings to the party and witnesses. These are the exact costs which can be claimed back in the small claims system in England and Wales, regarded according to the Government's response as a 'leader in the field of small claims litigation'.
The introduction of a Procedure which contains the two problems I have been speaking of will not in itself be detrimental to the British people. However, it will be a missed opportunity to introduce a respected and useful cross-border small claims system. Too few people will seek to utilise the Procedure due to these problems, so that its potential benefits will be severely constrained.
[Having reviewed the proposed regulation, I believe that there are a couple of points which I believe have been overlooked by the committee.
Firstly, I note that the system is to be based on written procedure, which in the context of saving time and money, is to be commended. However, no account is made for those with low literacy skills. Though the Regulation allows for an alternative procedure at the court's discretion, it may be preferable to allow parties to automatically request an alternative procedure, with a presumption that the request is to be accepted unless the court has good reason to refuse.
There must however be some mechanism so that a party cannot for tactical reasons demand that an oral hearing take place, thereby potentially placing the other party at a financial disadvantage.
The Regulation also states some of the alternative methods of taking evidence, which obviously have to take into account the greater distances cross-border cases will entail of parties and witnesses when compared to national cases. Methods stated include telephone and e-mail conferences; such methods raise serious security concerns for obvious reasons. How are these security concerns to be addressed?]
Listing Procedures
I was disappointed to see the Government's lackluster response to the committee's comments in relation to the listing procedures.
The fact that many litigants arrive in court to find that they may have to wait hours before their case is heard seems unfair. The committee noted this problem, and though accepting practical difficulties in listing cases to the convenience of both the judiciary and parties, recommended that the interests of parties should not be overlooked. The Government's response explicitly ignored this recommendation, stating that as the current system is supported by the Association of District Judges, it should remain in place.
Whilst I accept that the court's time should not be wasted, I believe that a more constructive compromise could be found. A system could be adopted which provides for shorter time slots, with maybe two or three per day, in which parties would appear. This would hopefully mean that parties would not have to wait for too long. On the other hand, the amount of judges' time which is wasted should be kept to a minimal. If litigants, or their witnesses, do not show up or their case is settled, then there will still be other cases to fill up the court's time within the relevant slot.
Enforcement of Judgments
The fact that up to a third of successful claimants in small-claims cases never see a penny of the amount they have been awarded is shocking. It completely undermines the entire small claims system.
I welcome the Government's good intentions with its proposed legislation to solve this problem. Such measures as Data Disclosure Orders and an Attachment of Earnings Information Gateway seem in principle to be good ideas to enforce judgments. It is a shame however that it has taken such a long time for measures to be proposed, yet I am aware that no action has been taken to enact any of these proposals. The Government's response fails to set out even a rough timetable or estimate for the proposed legislation.
I have noted that since the Government's response was published the Secretary of State for Constitutional Affairs has announced the Government's intention to create a National Enforcement Service.
But from the research I have conducted, it appears that this Service will be working primarily to enforce criminal judgments.
It is unclear whether this Service will be for the benefit of parties wishing to enforce a civil claim. It barely gets a mention in the DCA press release, whilst the Courts Service website makes one reference, that the Service will amalgamate civil and criminal enforcement activity, yet 'the feasibility of this needs further testing'.
It would seem to be a good idea for the National Enforcement Service to assist successful claimants to enforce judgments against defendants who are refusing to pay. From my knowledge of this Service, this does not appear to be its priority, or even on its list of aims? If this is the case, it would be a missed opportunity to rectify a serious problem in our small claims system.
Small Claims are a valid, worthy and well-established part of our court system. But I fail to see the evidence that the Government is giving this vital service the attention it deserves – which is a shame as well as a missed opportunity to extend access to justice.