3PLR – AFZAL AND OTHERS V. FORD MOTOR CO LTD
POLICY, PRACTICE AND PUBLISHING, LAW REPORTS 3PLR
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AFZAL AND OTHERS
V.
FORD MOTOR CO LTD
[1994] 4 ALL E.R. 702
AND OTHER APPEALS
12, 13, 14, 18 APRIL, 18, 27 MAY 1994
3PLR/1994/11 (CA-E)
BEFORE THEIR LORDSHIPS
NEILL,
BELDAM AND
STEYN LJJ
REPRESENTATION
John Slater QC and William Vandyck (instructed by A E Wyeth AND Co, Dartford) – for Ford Motor Co and Ideal Standard
Jeffrey Burke QC and Robert Sherman (instructed by Robin Thompson AND Partners, Ilford) – for the plaintiff employees
Christopher Purchas QC and Simon Brown (instructed by Kennedys, Brentwood) – for Kimberley Clark and Wiggins Teape
Simon Jackson (instructed by Alan Jackson, Leeds) – for British Gas
Cur adv vult
MAIN ISSUES
ADMINISTRATION OF JUSTICE; Courts, Arbitration
COURT OF APPEAL, CIVIL DIVISION
County court – Arbitration – Reference of proceedings to arbitration – Automatic reference – Suitability of claims for arbitration – Claims against employers seeking damages for minor injuries sustained in workplace – Number of employees intentionally overstating amount of claim to avoid automatic reference to arbitration – Grounds on which reference might be rescinded – Whether intentional overstatement of claim a misuse of process – Factors to be considered – CCR Ord 19, rr 3, 4.
In 22 actions the plaintiff employees brought claims against their various employers seeking damages in respect of minor personal injuries sustained in the workplace. In most cases the claims did not exceed £1,000 and under CCR Ord 19, r 3a any proceedings in which the sum claimed or amount involved did not exceed that sum would be automatically referred for arbitration by the district judge, unless he was satisfied that he should order trial in court on the grounds, inter alia, that a difficult question of law or a question of fact of 720 exceptional complexity was involved (r 3(2)(a)), or that it would be unreasonable for the claim to proceed to arbitration having regard to its subject matter, the size of any counterclaim, the circumstances of the parties or the interests of any other person likely to be affected by the award (r 3(2)(d)). In 16 of the claims, which were all brought against the same motor company, the employees applied for the reference to arbitration to be rescinded and the cases tried in court, contending that compulsory arbitration was unsuitable for personal injury claims, particularly in cases involving employers’ liability, since the issues of liability involved were too complex for summary resolution and, since Ord 19, r 4b strictly limited the costs recoverable in arbitrated claims, trade unions would be deterred from assisting claimants, who would then be at a serious disadvantage in negotiating compensation settlements out of court. The judge granted the employees’ applications on the basis of Ord 19, r 3(2)(d) and ordered that all the claims should be tried in court in view of the subject matter and the circumstances of the parties and, in particular, the fact that the employees, as line workers, could not be expected to frame their own claims in industrial accident cases (where breaches of statutory duty, medical evidence and discovery might play a large part) without legal representation. The motor company appealed, contending that the judge had applied the wrong test because he had not shown, pursuant to r 3(2)(d), that it was unreasonable for the claims, as a class of case involving employers’ liability, to be referred to arbitration and that, while a reference to arbitration could be rescinded under r 3(2)(a) if the case raised difficult questions of law or involved exceptionally complicated facts, no such considerations arose in the cases under review.
a Rule 3 is set out at p 729 f to p 730 b, post
b Rule 4, so far as material, provides:‘…(2) No costs [including solicitors’ charges] shall be allowed as between party and party in respect of any proceedings referred to arbitration under rule 3, except—(a) the costs which were stated on the summons … the costs of enforcing the award, and (c) such further costs as the district judge may direct where there has been unreasonable conduct on the part of the opposite party in relation to the proceedings or the claim therein …’
The remaining claims were all heard in court. In three of the cases, the plaintiff employees sought to pre-empt the automatic reference to arbitration by claiming damages limited to £3,000, even though there was no reasonable prospect of recovering more than a few hundred pounds and, in each case, the trial judge held that the claim should have been dealt with by arbitration and awarded only those costs appropriate to an automatic reference to arbitration. The appellants in all six cases appealed either against the court’s reference of the claim to arbitration, its refusal to refer the claim to arbitration, or its award of costs.
MAIN JUDGEMENT
Held –
(1) The small claims arbitration procedure was intended to improve access to justice and, accordingly, the court should not rescind an automatic reference to arbitration under CCR Ord 19, r 3(1) merely because a question of law was involved or the facts were complex, since r 3(2)(a) made it clear that a question of law had to be difficult and a question of fact exceptionally complex for a claim to be tried in court. Moreover, it was not a proper interpretation of the rules to reintroduce those matters under r 3(2)(d) as subject matter that made it unreasonable for the claim to proceed to arbitration, since the reference to ‘subject matter’ in r 3(2)(d) meant something of sufficient importance to one or more of the parties to justify trial in court, such as, for example, a claim for damages for trespass which might have far-reaching consequences for the rights of the parties, a claim involving ownership of a family heirloom, or test cases in which the rights of others were likely to be affected by the award. The law applicable in employers’ liability claims was often straightforward and although the facts could be complex, in most instances the question was whether the employer had taken reasonable care or exposed the employee to an unnecessary risk of injury and the medical issues were unlikely to be complex where the sum claimed or the amount involved was less than £1,000. Furthermore, the hardship of an employee representing himself against his legally represented employer was one faced in all cases where the financial resources of the parties were unequal and was a matter for the arbitrator to take into account in the procedure to be adopted for arbitration, rather than being a decisive factor against proceeding to arbitration in the first place. It followed that it was wrong to approach employers’ liability claims involving amounts of below £1,000 as a class of case which was, in general, unsuited to arbitration and that therefore the judge’s rescission of the reference to arbitration in the 16 claims against the motor company could not be supported. The motor company’s appeals would accordingly be allowed and the cases would be remitted for individual consideration by the district judge (see p 733 j to p 734 g, p 735 c d and p 747 g h, post).
(2) The intentional overstatement of the amount involved in a claim to avoid a procedure which had been laid down by Parliament and incorporated in rules of the court was a clear misuse of process. The test for determining whether a claim had been unjustifiably inflated to avoid automatic reference to arbitration was whether the plaintiff could reasonably expect to be awarded more than £1,000 and, if not, it would be an abuse of the process of the court to claim damages limited to £3,000. Moreover, since the rules relating to payment into court did not apply where the amount involved was under £1,000, there was no reason why a defendant faced with an inflated claim should not state in his defence that the claim could not reasonably exceed £1,000 and should be automatically referred to arbitration and, in cases where liability was admitted, the injuries were simple and the medical report agreed, there was no reason why the defendant should not state his estimate of the amount involved. The parties should also bear in mind that the overstatement of the amount of damages claimed or the raising of a speculative and unsupportable defence might be regarded as unreasonable conduct under CCR Ord 19, r 4(2)(c). Applying those guiding principles, the court made similar rulings in the related appeals to those made in the 16 motor company appeals (see p 735 g, p 736 j to p 737 a j to p 738 a, p 740 c, p 741 a, p 742 d, p 743 g, p 744 b, p 745 g and p 747 c to g, post); Hobbs v Marlowe [1977] 2 All ER 241 considered.
Notes
For automatic reference of small claims to arbitration, see 10 Halsbury’s Laws (4th edn) para 273A.
Cases referred to in judgment
Cunningham v BL Components Ltd [1986] CA Transcript 391.
Hobbs v Marlowe [1977] 2 All ER 241,[1978] AC 16,[1977] 2 WLR 777, CA and HL.
Hopkins v Rees AND Kirby Ltd [1959] 2 All ER 352,[1959] 1 WLR 740.
MacShannon v Rockware Glass Ltd [1978] 1 All ER 625,[1978] AC 795,[1978] 2 WLR 362, HL; rvsg [1977] 2 All ER 449,[1977] 1 WLR 376, CA.
Motley v Courtaulds plc [1990] CA Transcript 77.
Semtex Ltd v Gladstone [1954] 2 All ER 206,[1954] 1 WLR 945.
Appeals
Sokhal v Ford Motor Co Ltd and other appeals
The defendant employer, Ford Motor Co Ltd, appealed from the decision of Judge Paynter Reece made in the Romford County Court on 28 September 1993 granting the applications of 16 plaintiff employees, Rajiv Kumar Sokhal, John Baxter, Mark David Robinson, Antonio Luongo, Narottamal Shah, Anthony Prince, Naresh Kumar, Charles Elliott Browne, Michael John Humphries, Moses Clint Friday, Keith Russell Pratt, Stephen John Ahern, William Palmer, Diane Jean Bowen, Alfred Thompson and Qaiser Mahmood, that the automatic reference to arbitration pursuant to CCR Ord 19 of their claims for damages for personal injuries sustained in the workplace be rescinded. The facts are set out in the judgment of the court.
Willingham v Kimberley Clark Ltd
The defendant employer, Kimberley Clark Ltd, appealed from the order of Judge Paynter Reece made in the Romford County Court on 24 February 1993 dismissing their application that the claim brought by the plaintiff employee, James Robert Willingham, for damages for personal injury sustained in the workplace and limited to £3,000 be struck out as a misuse of the process of the court or alternatively that the proceedings be referred to arbitration pursuant to CCR Ord 19. The facts are set out in the judgment of the court.
Caldwell v Wiggins Teape Fine Papers Ltd
The defendant employer, Wiggins Teape Fine Papers Ltd, appealed from the order of Judge Paynter Reece made in the Romford County Court on 30 June 1992 allowing the appeal of the plaintiff employee, Roy Caldwell, from the order of District Judge Hales that no costs should be awarded to the plaintiff in his claim for damages for personal injury sustained in the workplace limited to £3,000 except those allowable on an automatic reference to arbitration pursuant to CCR Ord 19. The facts are set out in the judgment of the court.
Green v British Gas plc
The plaintiff employee, George Christopher Green, appealed from the order of Judge Mettyear made in the Kingston upon Hull County Court on 5 July 1993 awarding him in his claim against the defendant employer, British Gas plc, for damages for personal injury sustained in the workplace limited to £3,000, only those costs which would have been recoverable on an automatic reference to arbitration pursuant to CCR Ord 19. The facts are set out in the judgment of the court.
Featherstone v Ideal Standard Ltd
The plaintiff employee, Geoffrey Arthur Featherstone, appealed from the decision of Judge Cracknell made in the Kingston upon Hull County Court on 5 May 1993 awarding him in his claim against the defendant employer, Ideal Standard Ltd, for damages for personal injury sustained in the workplace, only the costs appropriate to an automatic reference to arbitration pursuant to CCR Ord 19. The facts are set out in the judgment of the court.
Afzal v Ford Motor Co Ltd
Joyce v Ford Motor Co Ltd
The defendant employer, Ford Motor Co Ltd, appealed from the decision of Judge Paynter Reece made in the Romford County Court on 20 October 1992 dismissing their appeal from the decision of District Judge Finn on 30 March 1992 rescinding the automatic reference to arbitration pursuant to CCR Ord 19 of the claims of the plaintiff employees, Mohammed Afzal and Leonard John Joyce, for damages for personal injury sustained in the workplace. The facts are set out in the judgment of the court.
27 May 1994. The following judgment of the court was delivered.
BELDAM LJ. Before the court are 22 appeals which raise questions of procedure under the provisions for the automatic reference to arbitration of small claims in the county court. Each of the claims is by a plaintiff employee supported by his trade union, and is made against his employer whose interests are handled by its employer’s liability insurers. It is contended by the defendant employers that the claims brought against them do not involve more than £1,000 because there is no reasonable prospect of the plaintiff receiving a larger sum in damages. In many cases it is said that the injuries are slight, involve few, if any, continuing symptoms, the claims do not depend on complex questions of law or fact and ought therefore to be dealt with under the regime for automatic arbitration laid down by CCR Ord 19.
Such arbitration is strongly resisted by solicitors instructed at the request of the trade unions to act on the employees’ behalf. They boldly assert that there is hardly any claim for damages for personal injuries which is suitable to be dealt with by way of compulsory arbitration, still less any employers’ liability claim. The subject matter is too important to the individual plaintiff. In most, if not all, cases of accidents at work, the issues of liability involved are too complex for summary resolution. Many may raise issues of expert medical opinion. The procedure for such arbitration with limited discovery from the defendant would be unfair. The denial of a right to recover the cost of legal advice and representation from the defendant will deter trade unions from supporting their members in such claims, whereas insurers will inevitably continue to bear the cost of such representation. Without legal advice, the employee acting as his own lawyer will be at a grave disadvantage, will be unable adequately to present his claim, will not know whether an offer of compensation is reasonable and some may be forced to abandon a justifiable claim by an unscrupulous insurer raising an untenable defence. At present a very high proportion of such claims (97%) are compromised without recourse to the court. This high settlement ratio reflects the value of the legal assistance provided to employees by the trade unions. It helps to remove cases from the court’s workload but, if on settlement the employers’ insurers insist that no costs are recoverable because the claim was one which unless compromised would have been subject to automatic arbitration, the trade unions will be forced to withdraw the support they have traditionally given to their members and many claims which might have been compromised will have to be arbitrated.
Where by negotiation it has proved impossible to reach agreement with the employer’s insurers, solicitors for the employee have sought to pre-empt automatic reference to arbitration under the rules by placing a value on the damages claimed substantially in excess of £1,000 even though there may be no reasonable prospect of the plaintiff recovering more than a few hundred pounds. This tactic has, insurers’ solicitors argue, placed them in a dilemma. If they do not serve a defence, the plaintiff, after the appropriate time has elapsed, is entitled to sign judgment for damages to be assessed. Under the rules the claim is not in that case automatically referred to arbitration and the plaintiff’s advisers are entitled to lodge a bill of costs for taxation. These costs can include the ordinary allowable costs of a represented party, including advice and preparation and may do so subject to discretionary powers on taxation even though the amount of the plaintiff’s claim is substantially less than £1,000. In some instances the amount of the costs claimed has been very much greater than the damages recovered.
Employers’ solicitors regard such costs as unjustifiable and have sought by several means to avoid having to pay them. The first step has been to serve a defence, whether or not there is any prospect of its success. Next, they have applied to the court for an order that the claim is one automatically referred to arbitration notwithstanding the amount claimed. Their right to take this course or to seek such an order is disputed by the employees’ solicitors. Another counter adopted by employers’ solicitors has been to make a payment into court of their estimate of the value of the claim, applying at the same time for the claim to be treated as automatically referred to arbitration.
If the employer’s application is successful, the employee’s solicitors will be unable to recover their costs. So they, in turn, have applied to the court to rescind automatic arbitration if it is applicable. But even if such an application is successful, under the rules, legal costs incurred in such a case before an order is made for trial in court are irrecoverable.
It is against that background that in 16 of the cases now before the court claims were made by employees of Ford Motor Co Ltd at Dagenham in the Romford County Court for damages for personal injury suffered at work. On a provisional assessment they appear to be properly described as small claims within the £1,000 limit. In all the cases a defence had been filed. Solicitors, Messrs Robin Thompson AND Partners, acting for the plaintiffs on the instruction of the trade union, applied to the district judge for an order that the cases be tried in court. The applications were referred by the district judge to Judge Paynter Reece. In the judgment it is said that the district judge referred the applications exercising powers under CCR Ord 50, r 3. As the claims had been referred automatically for arbitration by the district judge, the applications would appear to have been made under Ord 13 and the power of the district judge under Ord 13, r 7 to refer the matter to the judge would seem to have been more appropriate. On Tuesday, 28 September 1993 Judge Paynter Reece gave judgment. He granted the employees’ applications and ordered that all the claims should be tried in court—
‘on the basis that it is unreasonable for the claim to proceed to arbitration having regard to the subject matter and the circumstances of the parties in particular as I have endeavoured to outline them.’
Later it will be necessary to examine his reasons more closely.
In two of the other appeals he reached a similar conclusion. In Caldwell v Wiggins Teape Fine Papers Ltd on 30 June 1992 in Romford County Court Judge Paynter Reece set aside an order of the deputy district judge allowing the plaintiff, who had accepted a payment into court of £410, only the costs recoverable on an automatic arbitration and awarded the plaintiff his costs on scale 1.
In Willingham v Kimberley Clark Ltd, at the same court on 24 February 1993, he dismissed an application by the defendant that the plaintiff’s action, in which he claimed damages limited to £3,000, should be struck out or stayed as a misuse of the process of the court, the defendant contending that there was no reasonable likelihood of the plaintiff recovering more than £1,000.
In others of the appeals before the court, judges faced with similar questions have arrived at different conclusions. In Featherstone v Ideal Standard Ltd Judge Cracknell in the Kingston upon Hull County Court, after awarding the plaintiff £800 damages, limited the costs to those recoverable on an automatic reference to arbitration. In Kavanagh v Ideal Standard Ltd Mr Recorder Dobkin in the same court on 13 October 1993 allowed an appeal by the defendant from the order of District Judge Hill rescinding a reference to arbitration and ordered that the case proceed by way of arbitration. It is unnecessary for the court to consider this case further, for the parties to the appeal have agreed to terms on which the appeal should be withdrawn.
In Green v British Gas plc Judge M K Mettyear on 5 July 1993 allowed an appeal from Deputy District Judge Brown who had awarded the plaintiff costs on scale 1 after he had accepted a sum of £875 paid into court by the defendants.
The appeals thus require the court to consider whether under the County Court Rules 1981 it would be unreasonable to allow claims for damages for less than £1,000 to proceed to automatic arbitration when such claims are made by an employee against his employer.
Questions raised in argument also require us to consider the procedure to be adopted where the plaintiff’s claim, though not limited to £1,000 by him, appears to the defendant or to the court to involve a sum which does not exceed £1,000.
As early as 1952 in Philadelphia, court-annexed arbitration was proposed as an alternative to court trial as a way of resolving modest legal disputes. In the 1960s and 1970s many states in the United States of America began to introduce similar procedures. The main reasons for seeking a less complex system of resolving claims were the long delays due to congestion of court lists and burgeoning legal costs out of proportion to the sums involved. Evidence accrued that access to justice was being deterred and it was considered that a simpler if less perfect system of justice ought to be available for such cases.
In England and Wales similar pressure led Parliament in 1973 in s 7 of the Administration of Justice Act 1973 to extend the powers of county courts to refer matters to arbitration. Section 7(1)(a) amended s 92 of the County Courts Act 1959 by substituting sub-s (1):
‘A county court may, in such cases as may be prescribed, order any proceedings to be referred to arbitration (whether with or without other matters within the jurisdiction of the court in dispute between the parties) to such person or persons (including the judge or registrar) and in such manner and on such terms as the court thinks just and reasonable.’
The first rules made in September 1973 enabled a party to apply for an order referring the proceedings to arbitration. The registrar had power to deal with the application without hearing any party to the proceedings if the sum claimed or amount involved did not exceed £100. However, at any time before the application was heard a party could apply in writing to the registrar to refer the application to the judge. In cases where a party was charged with fraud, the order was not to be made without his consent. A practice direction under Ord 48, r 1, issued by Lord Hailsham LC to secure uniformity, suggested a list of terms on which a reference to arbitration should be made, though the list was not intended to be exhaustive (see [1973] 3 All ER 448,[1973] 1 WLR 1178). Among the terms were:
‘(1) The strict rules of evidence shall not apply in relation to the arbitration.
(2) With the consent of the parties the arbitrator may decide the case on the basis of the statements and documents submitted by the parties. Otherwise he should fix a date for the hearing.
(3) Any hearing shall be informal and may be held in private.
(4) At the hearing the arbitrator may adopt any method of procedure which he may consider to be convenient and to afford a fair and equal opportunity to each party to present his case …
(6) With the consent of the parties and at any time before giving his decision and either before or after the hearing, the arbitrator may consult any expert or call for an expert report on any matter in dispute or invite an expert to attend the hearing as assessor.
(7) The costs of the action … shall be in the discretion of the arbitrator …’
The rules already contained provisions restricting the amount of the costs which the court could order the unsuccessful party to pay. The costs were assessed in accordance with scales depending on the amount claimed or recovered. Under Ord 47, r 5(4), where the sum of money did not exceed £100, no solicitors’ charges were to be allowed as between party and party unless (a) the judge granted a certificate under Ord 47, r 13 that a difficult question of law or a question of fact of exceptional complexity was involved,(b) the sum exceeded £5, in which case the court allowed the charges of the plaintiff’s solicitor’s costs as stated on the summons, the cost of enforcing any judgment or order and any costs which were certified by the court to have been incurred through the unreasonable conduct of the opposite party, and (c) the claim made in the proceedings was for damages for personal injuries exceeding £5.
This was the framework provided by the County Court Rules for arbitration and costs when it was first introduced. The registrar in addition had power to carry out an inspection, to enforce the attendance of witnesses, to conduct the inquiry in the same manner as nearly as the circumstances permitted as if it were the hearing of an action and could exercise the same powers as a judge to order discovery and production of documents and to control the conduct of the inquiry.
It is also relevant to note that Ord 20, r 1 provided:
‘Any party to an action or matter may give notice to any other party that he admits the truth of the whole or any part of the case of the other party, and no costs incurred after the receipt of the notice in respect of the proof of any matters admitted therein shall be allowed.’
Over the years a number of changes have been introduced into the procedure but essentially small claims arbitration has remained within the framework originally laid down.
By 1978 the rules provided that a reference should only be made on the application of a party to the proceedings. Such an application could be made by the plaintiff in his particulars of claim or by the defendant in his defence and in any proceedings in which the sum claimed or the amount involved did not exceed £100 and an application for a reference was made by the parties in that manner the proceedings were to be referred for arbitration by the registrar. But by Ord 19, r 1(5), on such an application being made, the other party could within 14 days apply to the registrar to rescind the reference and it was then provided that—
‘the registrar shall, if he is satisfied that a charge of fraud against a party is in issue in the proceedings or that for any other reason the proceedings are unsuitable to be referred to arbitration, rescind the reference accordingly.’
Provisions were made for the procedure to be followed after such rescission.
In 1981 the County Court Rules were redrafted. The new rules included significant changes to Ord 19. In addition to the rule that reference should only be made to arbitration on the application of a party to the proceedings, Ord 19, r 2(3) and (4) provided:
‘(3) Any proceedings in which the sum claimed or amount involved does not exceed £500 shall stand referred for arbitration by the registrar upon the receipt by the court of a defence to the claim, but the registrar may, on the application of any party, refer the proceedings for arbitration by the judge or by an outside arbitrator.
(4) Where any proceedings are referred for arbitration by the registrar under paragraph (3), he may, on the application of any party, rescind the reference if he is satisfied—(a) that a difficult question of law or a question of fact of exceptional complexity is involved; or (b) that a charge of fraud is in issue; or (c) that the parties are agreed that the dispute should be tried in court; or (d) that it would be unreasonable for the claim to proceed to arbitration having regard to its subject matter, the circumstances of the parties or the interests of any other person likely to be affected by the award.’
Order 19, r 5 contained provisions for the conduct of the reference and incorporated, subject to any directions of the court, the provisions of r 9(a) to (e). The terms of reference were those already noticed, including the fact that the hearing should be informal and the strict rules of evidence should not apply. The arbitrator could adopt any method of procedure which—
‘he may consider to be convenient and to afford a fair and equal opportunity to each party to present his case.’ (See Ord 19, r 5(2)(4).)
However, the discretion of the arbitrator to award costs was removed in claims involving £500 or less. In such cases Ord 19, r 6 provided:
‘No solicitors’ charges shall be allowed as between party and party in respect of any proceedings referred to arbitration under rule 2(3), except—(a) the costs which were stated on the summons or which would have been stated on the summons if the claim had been for a liquidated sum;(b) the costs of enforcing the award, and (c) such costs as are certified by the arbitrator to have been incurred through the unreasonable conduct of the opposite party in relation to the proceedings or the claim therein.’
By the end of 1991 Ord 19, r 2(4) had been amended to include a power of the district judge to rescind a reference to arbitration of his own motion. If he was minded to do so, however, notice had to be given to the parties of the ground on which he proposed to rescind the arbitration so that they could make representations. If a notice of objection was given by either party, a day was fixed for a hearing of the objections. Only if no notice was given could he rescind of his own motion.
Further, on 1 July 1991 the sum of £1,000 was substituted for £500 for claims automatically referred to arbitration. These changes in the County Court Rules show how the rules of procedure developed an automatic reference to arbitration for small claims. By the County Court (Amendment No 2) Rules 1992, SI 1992/1965, the rules relating to such arbitrations were completely recast. Provision was made for lay representation and automatic reference of small claims was dealt with in Ord 19, r 3:
‘(1) Any proceedings in which the sum claimed or amount involved does not exceed £1000 (leaving out of account the sum claimed or amount involved in any counterclaim) shall stand referred for arbitration by the district judge upon the receipt by the court of a defence to the claim.
(2) Where any proceedings are referred for arbitration by the district judge under paragraph (1), he may, after considering the defence and whether on the application of any party or of his own motion, order trial in court if he is satisfied—(a) that a difficult question of law or a question of fact of exceptional complexity is involved; or (b) that fraud is alleged against a party; or (c) that the parties are agreed that the dispute should be tried in court; or (d) that it would be unreasonable for the claim to proceed to arbitration having regard to its subject matter, the size of any counterclaim, the circumstances of the parties or the interests of any other person likely to be affected by the award.
(3) Where the district judge is minded to order trial in court of his own motion—(a) the proper officer shall notify the parties in writing specifying on which of the grounds mentioned in paragraph (2) the district judge is minded to order trial in court;(b) within 14 days after service of the proper officer’s notice on him, a party may give written notice stating his reasons for objecting to the making of the order;(c) if in any notice under sub-paragraph (b) a party so requests, the proper officer shall fix a day for a hearing at which the district judge—(i) shall decide whether to order trial in court, and (ii) may give directions regarding the steps to be taken before or at any subsequent hearing as if he were conducting a preliminary appointment or, as the case may be, a pre-trial review; and, in the absence of any request under sub-paragraph (c), the district judge may in the absence of the parties order trial in court.
(4) For the purposes of paragraph (1),”a defence to the claim” includes a document admitting liability for the claim but disputing or not admitting the amount claimed.’
Order 19, r 4 strictly limits the costs recoverable in small claims. No solicitors’ charges, sums allowed to a litigant in person or fee or reward charged by a lay representative are recoverable in small claims automatically referred to arbitration but, in addition to the three heads of costs formerly allowed, expenses incurred by a party or witness travelling to or from the hearing are recoverable, a sum not exceeding £29 in respect of a party or witness’s loss of earnings when attending a hearing and a sum not exceeding £112·50 in respect of the fees of an expert. But if a trial in court is ordered, legal costs incurred after the order may be recovered.
By Ord 19, r 5 the district judge is to be the arbitrator unless the court orders otherwise. Rule 6 provides for preparation for the hearing. In particular, r 6(3) provides:
‘Where proceedings stand referred to arbitration, the following directions shall take effect—(a) each party shall not less than 14 days before the date fixed for the hearing send to every other party copies of all documents which are in his possession and on which that party intends to rely at the hearing;(b) each party shall not less than 7 days before the date fixed for the hearing send to the court and to every other party a copy of any expert report on which that party intends to rely at the hearing and a list of the witnesses whom he intends to call at the hearing.’
The circumstances in which a preliminary appointment may be held are limited, but the district judge has a discretion from time to time to amend or add to any directions which he has already given. Further, since 26 October 1992, the provisions of Ord 11 relating to payment into court do not apply to proceedings which stand referred to arbitration under Ord 19, r 3.
Order 19, r 7 contains rules for the conduct of the hearing of an arbitration:
‘(1) Any proceedings referred to arbitration shall be dealt with in accordance with the following paragraphs of this rule unless the arbitrator otherwise orders.
(2) The hearing may be held at the court house, at the court office or at any other place convenient to the parties.
(3) The hearing shall be informal and the strict rules of evidence shall not apply; unless the arbitrator orders otherwise, the hearing shall be held in private and evidence shall not be taken on oath.
(4) At the hearing the arbitrator may adopt any method of procedure which he may consider to be fair and which gives to each party an equal opportunity to have his case presented; having considered the circumstances of the parties and whether (or to what extent) they are represented, the arbitrator—(a) may assist a party by putting questions to the witnesses and the other party; and (b) should explain any legal terms or expressions which are used.
(5) If any party does not appear at the arbitration, the arbitrator may, after taking into account any pleadings or other documents filed, make an award on hearing any other party to the proceedings who may be present.
(6) With the consent of the parties, and at any time before giving his decision, the district judge may consult any expert or call for an expert report on any matter in dispute or invite an expert to attend the hearing as assessor.
(7) The arbitrator may require the production of any document or thing and may inspect any property or thing concerning which any question may arise.
(8) The arbitrator shall inform the parties of his award and give his reasons for it to any party who may be present at the hearing.’
Rule 8 declares the award of an arbitrator to be final subject to misconduct of the arbitrator or error of law and cases in which the award has been made in the absence of a party.
Over a period of 20 years, therefore, Parliament has provided and the County Court Rules Committee, in the light of experience, has developed a scheme for court-based automatic arbitration for claims in which the amount involved does not exceed £1,000. The present rules contain a code of practice and procedure applicable to such claims. Parliament’s object was described by Lord Diplock in Hobbs v Marlowe [1977] 2 All ER 241 at 256,[1978] AC 16 at 40–41. He said:
‘Parliament and the rule committee in introducing the small claims scheme and amending the rules as to costs recoverable from the other party, gave effect to a public policy that as a general rule a person seeking to enforce a claim for less than £100 should act as his own lawyer with such assistance as is available to him at the office of the county court, the local citizens’ advice bureau or consumer advice centre or, if he chooses to instruct a lawyer, should do so at his own expense and not at the expense of the person against whom the claim is made. I say as a general rule, because under CCR Ord 47, r 13, the county court judge retains a discretion to award costs on such scale as he thinks fit if he certifies that a difficult question of law or a question of fact of exceptional complexity is involved.’
We now return to the judgment of Judge Paynter Reece in the 16 cases brought by employees of the Ford Motor Co in the Romford County Court. The claims did not exceed £1,000. Notice in the prescribed form N18A had been sent to the parties stating that the cases were to be dealt with by arbitration but the plaintiffs’ solicitors applied to the district judge to rescind the reference. As stated, the district judge had referred the application to Judge Paynter Reece. The judge regretted that the district judge had not come to his own conclusion, but he said:
‘I know from previous cases and from speaking to him what the district judge’s general views are: that, generally speaking, these industrial accident cases are not best dealt with by arbitration. They are not suitable for a plaintiff to deal with in person. Apart from the inequality of an individual plaintiff against Ford and its insurers as a defendant (always likely to be represented by a high-ranking employee or solicitors), it is absurd to say that plaintiffs can be expected properly to frame their own claims in industrial accident cases where breaches of statutory duty, medical evidence and discovery may all play a large part. To expect a line worker to do that without a solicitor is absurd. I am firmly of the view that these sorts of claims, generally speaking, are not the sort of claims that Ord 19 is designed for.’
Although the judge acknowledged that there was nothing in the rules to this effect, he said:
‘Generally in Ford’s cases it is unreasonable for the cases to proceed to arbitration or even to have started out as arbitration.’
After repeating that there might be occasional cases which were suitable, he said that, generally speaking, they were not proper matters to be dealt with by arbitration. He considered the submissions of the parties, and said:
‘There is a great deal of law involved in and about what goes on in the workplace. There is a great deal of expertise and procedure involved in personal injury accident litigation. Thankfully, experienced solicitors and counsel tend to deal with them, on the whole, on both sides and they make them simple.’
The judge thought they were the sort of cases better dealt with by trial and presented by counsel or solicitors. That was his view after looking at the individual cases.
In none of the cases were the facts so simple or straightforward that they should be dealt with by way of arbitration. Even a case in which there was an admission of liability and agreed medical evidence with only the question of quantum to be decided was not a suitable case. The court could be very much assisted by having counsel there to put comparable cases for quantum. Even though small amounts of damages were claimed and the cases were comparatively simple, it was still going to be necessary to have discovery or experts to give evidence and it was not sensible to consider that a line man could prepare his case as well as doing his job at the same time.
Earlier in his judgment the judge had recorded that in their submissions the plaintiffs relied on Ord 19, r 3(2)(d), arguing that it would be—
‘unreasonable for the claim to proceed to arbitration having regard to its subject matter and … the circumstances of the parties.’
After announcing his decision to order that all the cases be tried in court, the judge was asked by counsel to clarify the basis of his decision and he said:
‘No, it is Ord 19, r 3(2)(d) I am basing myself on. The subject matter includes questions of law and questions of fact. I am not so sure that I would say that they were exceptional questions. It is all part of r 3(2)(d) in my opinion and there is no question of fraud or anything like that and the parties are not agreed.’
Counsel for the appellants submitted that the judge erred in deciding the cases on that basis. There are no good reasons to suppose that it would be unreasonable for cases of employers’ liability as a class to be referred to arbitration. Indeed, most cases, particularly where the sums involved were small, were entirely suitable for arbitration. It was wrong to say that difficult questions of law or complicated facts were concerned. If difficult questions of law or exceptionally complicated facts were concerned in a particular case, the case could in any event be referred under r 3(2)(a). The judge had to be satisfied that it was unreasonable for the claim to proceed for arbitration. He had applied the wrong test. Moreover, in so far as he relied on inequality of representation, the inequality would be no greater than in any case in which one party chose to be represented at his own expense and the other party did not. The rules did not prevent parties from being represented at their own expense.
Further, counsel pointed to the change in the rules relating to costs in personal injury actions. After 1981 such actions were placed on the same footing as regards costs as other actions and no solicitors’ charges were recoverable if the sum claimed or the amount involved was less than £500.
In short, counsel submitted that there was no justification for the judge’s approach that all, or virtually all, actions for personal injury against Ford or any other employer were too complicated for arbitration. The judge ought to have exercised his discretion in each case and this he had failed to do. Further, in so far as he did exercise a discretion, he had taken into account matters which were irrelevant to its exercise.
Counsel for the plaintiffs sought to uphold the judge’s exercise of his discretion. His first submission was that, if no costs were to be recoverable for advice and initiation of proceedings, trade unions would no longer be able to support their members. Many injured plaintiffs would thereby be denied access to justice. Even if employees did bring their own claims, they would be hopelessly outgunned by the lawyers acting for insurers. Employees would have no advice whether to accept an offer of compensation made and no means of knowing whether it was reasonable or not. Full discovery was unobtainable in small claims and was often a vital factor in securing justice for the injured employee. Employees would not know how to obtain a medical or an expert’s report and would have no funds with which to do so. The present tactics adopted by insurers’ legal representatives, for example by filing a defence denying liability where in truth none was available, would be likely to cause the unadvised employee either to abandon his claim or accept an inadequate compromise. Such tactics caused employees’ legal representatives to claim a sum exceeding the limit to avoid the consequences of automatic arbitration. In short, the judge was right to hold that, save in the most exceptionally simple cases, claims by employees, and indeed all claims for personal injury, were unsuitable for arbitration.
We have no doubt that the judge was wrong to approach small employers’ liability claims as a class of case which it was unreasonable to allow to proceed to arbitration. When he said that he did not think that in any of the cases ‘the facts are now so simple or straightforward that they should be dealt with by way of arbitration’, he may have been misled by the elaboration introduced by the traditional pleadings which had been filed on both sides. If he had concentrated on an underlying assertion to be found in virtually every case that the employer had exposed the employee to a risk of injury of which he knew or ought to have known, the cases might well have appeared less complex.
Court-based small claims arbitration is intended to be a greatly simplified procedure for determining claims. The district judge remains an adjudicator and the process adversarial but, as the code makes clear, the aim of the procedure is to get away from the rigid rituals which characterise ordinary litigation and which have dictated the arguments of the parties in the appeals. The following points seem to us significant in interpreting the rules.
(1) The district judge cannot rescind an automatic reference to arbitration under Ord 19, r 3(1) merely because a question of law is involved or the facts are complex. Rule 3(2)(a) makes it clear that the question of law has to be one of difficulty and a question of fact one of exceptional complexity if the claim is to be regarded as one which should be tried in court. It is not a proper interpretation of the rules to reintroduce these matters by themselves under r 3(2)(d) under the guise of subject matter which makes it unreasonable for the claim to proceed to arbitration. ‘Subject matter’ refers to the nature of a claim generally but in the context of the other provisions of r 3(2) we take it to refer to some quality of the subject matter of the claim of sufficient importance to the parties or to one of them to justify trial in court; for example, a claim for damages for trespass which could have far-reaching consequences for the rights of the parties or a claim involving ownership of a family heirloom. Cases which may be regarded as ‘test’ cases could be catered for under r 3(2)(d) as cases in which the interests of other persons are likely to be affected by the award.
(2) The law applicable in employers’ liability claims is often straightforward. In most instances the question for decision is whether the employer has taken reasonable care or has exposed the employee to an unnecessary risk of injury. The issues can, of course, be complicated if the fault alleged is breach of statutory duty but often liability on the part of the employer is more easily established by such breach. Equally, the facts of such cases may be complex, but they are not in the majority of cases. Nor are the medical issues involved likely to be complex where the amount involved is less than £1,000.
(3) The hardship of an employee representing himself against his legally represented employer is a hardship likely to be faced in all cases where the means of the parties are unequal. Whether the threat to withdraw support from union members would in fact be carried out is, we think, questionable bearing in mind the well-deserved reputation of trade unions for the splendid work they have done for their members in this sphere in the past. We feel sure that on reflection many trade unions will explore the possibility of a simpler process of helping members in putting forward small claims than by the granting of full legal representation in all cases. On the other side, it seems equally questionable whether employers’ liability insurers will regard it as commercially justifiable to incur the considerable expense of legal representation at the hearing of such claims which will be irrecoverable.
It is difficult to see how inequality of representation is a proper factor to be taken into account as one of the circumstances of the parties under r 3(2)(d). The rule for the conduct of the hearing, r 7(4), provides:
‘At the hearing the arbitrator may adopt any method of procedure which he may consider to be fair and which gives to each party an equal opportunity to have his case presented; having considered the circumstances of the parties and whether (or to what extent) they are represented, the arbitrator—(a) may assist a party by putting questions to the witnesses and the other party; and (b) should explain any legal terms or expressions which are used.’
The rule suggests that the circumstances of the parties and whether they are represented are separate considerations for the arbitrator. The circumstances of the parties may, for example, include physical disability, poor sight, pronounced stammer or inability to read. Since the question whether a party is or is not represented is a matter for the arbitrator to take into account in the procedure he adopts for the arbitration, it cannot be a decisive factor against arbitration.
(4) The code also contemplates that cases which need a degree of expert understanding will be subject to compulsory arbitration. For example, Ord 19, r 7(6) permits an arbitrator with the consent of the parties to consult an expert or call for an expert’s report and under Ord 19, r 4(3)(c) the fee of an expert may be awarded as costs.
For these reasons, we consider the judgment of Judge Paynter Reece rescinding arbitration in the 16 cases cannot be supported. It was suggested that the court ought in the circumstances to exercise its own discretion in the individual cases and for this purpose the appellants divided them into two groups: those in which liability was admitted, medical evidence was agreed and the injuries were slight and those in which liability was not admitted but the medical evidence was agreed and there was no question of expert inspection nor any issue relating to special damage. We do not consider that this would be a satisfactory way of dealing with the 16 cases. In our judgment they should be remitted for individual consideration by the district judge.
Before passing to the questions raised in the remaining appeals, it is convenient to consider the other general questions raised in the course of argument.
Mr Burke QC for the employees stoutly resisted the suggestion that it was a misuse of the procedure in the County Court Rules to place a value, for example £3,000, on the sum claimed as damages to avoid the consequence of automatic reference to arbitration. He submitted that in so doing a plaintiff’s advisers were seeking to obtain no more than a legitimate juridical advantage. He likened it to forum shopping for the purpose of obtaining a higher award of damages as, for example, was done in MacShannon v Rockware Glass Ltd [1978] 1 All ER 625,[1978] AC 795. We would reject such an analogy. The intentional overstatement of the amount involved in a claim to avoid a procedure which has been laid down by Parliament and incorporated in rules of the court is in our judgment a clear misuse of process. In Hobbs v Marlowe [1977] 2 All ER 241,[1978] AC 16 to recover costs and solicitors’ charges which would have been irrecoverable if the claim had been limited to the amount which the plaintiff actually had at stake, solicitors instructed on behalf of the plaintiff claimed the cost of repairs to his motor car already paid under a knock for knock agreement by the plaintiff’s own insurers. The county court judge having found that the claim was raised solely for the purpose of increasing the claim for costs without any financial or other benefit to the plaintiff, deprived the plaintiff of the costs, describing the conduct as an abuse of the process of the court. Lord Diplock said ([1977] 2 All ER 241 at 255–256,[1978] AC 16 at 40):
‘My Lords, the expressions “abuse of the process of the court” “misconduct” are terms of art when used in connection with the way in which litigation is carried on by the parties. In upholding the judge’s reasons for depriving the plaintiff of his costs the Court of Appeal was at pains to emphasise that in bringing this action to find out whether, if put to the test of litigation, the tactics that had been adopted on behalf of the AA to get the insurers of the other party to pay the charges of the AA solicitors in connection with an uninsured small claim of an AA member, would prove successful, Amery-Parkes AND Co were not guilty of any impropriety. For my part I would endorse that too, and would describe the increase of the claim from £73·53 to £301·12 by the less emotive term “a misuse” of the process of the court but one which fully justified the county court judge depriving the plaintiff of his costs other than those which would had been recoverable had the claim been restricted to the amount which was actually at stake, viz £73·53.’
Further, in Motley v Courtaulds plc [1990] CA Transcript 77 the question arose for decision in this court. The plaintiff had succeeded in a claim for damages against her employers for a cut little finger sustained when the finger accidentally came against a sharp protruding screw on a sewing machine. She was treated in the works’ sick berth with sterile adhesive strips and a tetanus booster injection. She did not have to go to hospital and had no time off work. She recovered £250. Her particulars of claim had stated that the damages were limited to £3,000. It was, said Ralph Gibson LJ, a claim for a typical small personal injury in a factory. The judge awarded the plaintiff costs on the scale appropriate to the sum recovered (scale 1). The defendants submitted that the judge was wrong to award such costs because of the provisions of Ord 19, rr 2(3) and 6.
The defendant had made an application to the deputy registrar before the hearing for the plaintiff’s claim to be limited to £500. The application was made to forestall a suggestion that the defendants had consented to trial. On appeal the defendants contended that there had been deliberate inflation of the amount claimed for the purpose of securing an award of costs.
Counsel for the plaintiff submitted that there had been no inflation so as to constitute misuse of process. Basing himself on the passage from the speech of Lord Diplock in Hobbs v Marlowe [1977] 2 All ER 241 at 255–256,[1978] AC 16 at 40, Ralph Gibson LJ (with whom Dillon LJ agreed) held that it was a misuse of the process of the court to inflate a claim for the purpose of avoiding the effect of Ord 19, r 6.
Some time was taken in the hearing of these appeals in discussion of the appropriate test to determine when there had been unjustifiable inflation of the claim to avoid arbitration. Ralph Gibson LJ had referred to the plaintiff claiming a sum ‘greater than could be expected to be awarded by the court’.
An alternative formulation in Cunningham v BL Components Ltd [1986] CA Transcript 391 was that the claim was unjustifiably inflated if the plaintiff could not reasonably have expected to recover more than the amount stated in the rule (£500). Mr Burke suggested that the proper test to be adopted was whether it was clear to the plaintiff’s advisers that no judge would award more than that amount. He referred to Hopkins v Rees AND Kirby Ltd [1959] 2 All ER 352,[1959] 1 WLR 740.
We do not consider that there is any significant difference in these alternative criteria. But nevertheless we would adopt the following as the most satisfactory formula:‘Could the plaintiff reasonably expect to be awarded 736 more than £1,000?’ If the plaintiff could not reasonably expect to be awarded more than £1,000, it is a misuse of process to claim damages limited to £3,000.
In the course of the appeal the appellants canvassed the courses open to a defendant faced with a small claim in which the damages claimed were inflated to avoid the no-costs rule. Should a defendant follow the course taken by the defendant in Hobbs v Marlowe? If so, could he ask the court to strike out the claim for misuse of process? Could he seek to stay the action? Or could he seek an order from the district judge limiting the amount of the plaintiff’s claim? If he were to indorse the overstatement of the amount involved by treating the claim at its face value and make a payment into court, the plaintiff, it was argued, could accept the money and lodge a bill of costs for taxation up to the time of receiving the payment and thus secure the advantage of costs to which he ought not to be entitled. Whether the plaintiff could successfully adopt this course, we consider later in the judgment.
None of the suggested courses provide a satisfactory solution and some of them have been authoritatively said to be inappropriate. Much of the discussion was conditioned by the conventional approach to actions tried in court. The code contained in the rules to Ord 19 is intended to provide a different framework which, if adopted and applied by the parties with common sense, should be adequate to overcome any of these difficulties. The automatic reference of small claims takes place when the ‘amount involved’ does not exceed £1,000. As Mr Burke pointed out, there is no provision in the rules requiring the plaintiff to limit his claim to £1,000. No doubt the Rules Committee thought that those with small claims would try to comply with, rather than circumvent, the rules and would benefit from the simplified procedure and the saving of costs.
In cases in which the court receives a defence, it is implicit in r 3(1) that the amount ‘involved’ in an unliquidated claim must depend upon an assessment of the amount by the court. With his particulars of claim, the plaintiff is required by Ord 6, r 5 to file a medical report and a statement of the special damages claimed.
By r 3(4), for the purpose of para 1, a defence to the claim includes a document admitting liability for the claim but disputing or not admitting the amount claimed. It is implicit in Ord 19, r 3(3) that if the district judge is to consider whether to rescind the claim referred to arbitration under r 1 without referring to the parties, he should decide whether the claim involves more than £1,000. If the defence states that it does not, the district judge, according to his view of the case, will either send notice to the parties in prescribed form N18A, or N19, stating that the matter is referred to arbitration, or refer the matter for trial with the appropriate notice under Ord 19, r 3(3)(a). If either party contests his decision, he may apply to the district judge under rr 3(2) or 3(3)(b) respectively.
As the rules relating to payment into court do not apply where the amount involved is under £1,000, we see no reason why a defendant faced with an inflated claim should not state in his defence that the claim cannot reasonably exceed £1,000 and should be automatically referred to arbitration. Further, where liability is admitted, the injuries are simple and the medical report is agreed, there is no reason why the defendant should not state his estimate of the amount involved. In small claims arbitration the parties are expected to state their cases informally. One way or another we think that parties seeking to take advantage of the benefits of small claims arbitration could easily overcome the difficulties which appeared of such concern in argument. The question for the district judge would be no more difficult than those he would have to consider if of his own motion or on the application of a party he had to consider whether to order trial in court. An interpretation of the rules cannot be justified which would require every case to proceed to trial and to the award of the judge to decide whether there had been a misuse of the process of the court.
In Motley v Courtaulds plc [1990] CA Transcript 77 Dillon LJ in the course of his judgment said:
‘The appeal before us is part of a continuing war over the costs of small claims between the employer’s insurance company and the trade union. The appeal before the other division of this court is part of a continuing war, which has already involved all too many appeals to this court, between motor accident insurers and legal expenses insurers. In each case the nominal parties to the appeals have little, if any, direct interest in the outcome. In all cases of this type there is a good deal of manoeuvring between the parties: many technical points are taken and many technical applications are made, such as the application to the deputy registrar by the defendants in this case, seeking to obtain an order limiting the amount of the plaintiff’s claim so that it would stand automatically referred for arbitration pursuant to Ord 19, rr 2, 3 and 6. That was a claim which the registrar plainly had no jurisdiction to entertain. All this tends to promote delay and increase costs.’
Ralph Gibson LJ also remarked that the registrar had no jurisdiction in 1990 to limit the plaintiff’s claim. But the district judge does have power to tell the parties when the claim is automatically referred to arbitration, and uses the prescribed forms to do so. In a case where there is misuse of process the court must be able to ensure that cases which should be automatically referred to arbitration do not go to trial. It seems to us that it is contrary to the intent and purpose of Ord 19 that the district judge should be powerless to prevent a misuse of process.
It was suggested that it would be helpful to the legal advisers of trade unions and insurers if the court were to lay down guidelines for the kind of cases in which it could be said that ‘it would be unreasonable for the claim to proceed to arbitration’.
In our judgment the rules already contain the appropriate criteria to guide the judgment of those who Finnemore J once described as ‘seasoned warriors’(see Semtex Ltd v Gladstone [1954] 2 All ER 206 at 209,[1954] 1 WLR 945 at 950).
To attempt to lay down within the criteria stated in the rules categories of case which should be tried in court would be to usurp the function expressly given by Parliament to the Rules Committee under s 75 of the County Courts Act 1984.
In five of the six additional cases, the defendants sought to use the procedure for payment into court. For a defendant the object of a payment into court is to protect himself from the costs of proceedings by placing the plaintiff at risk of having to pay the defendant’s costs if he does not accept the money paid into court in satisfaction of his claim. When after 1981 the discretion of the arbitrator to award costs was removed and Ord 19, r 6 provided that no solicitors’ charges should be allowed as between party and party unless the registrar certified that there had been unreasonable conduct, the rules for payment in, in a case in which the sum paid in was within the amount at which a claim would be automatically referred to arbitration, could serve little purpose. Order 11, r 3(7) made it clear that the provisions of that order did not affect the restriction on the allowance of costs under Ord 19, r 6, now r 4. If the plaintiff recovered more than the amount automatically referred, a payment into court was of no effect. If he did not, he could not in any event recover more than the costs permitted under Ord 19. The court had no power to award any greater costs. Nor could the plaintiff be ordered to pay the defendant’s costs after the date of acceptance of the payment in unless the district judge certified that there had been unreasonable conduct on his part in relation to the proceedings. Unless the district judge was satisfied that the plaintiff had no reasonable prospect of being awarded a sum in excess of the limit for automatic arbitration, he would have no grounds for certifying that the plaintiff had been guilty of unreasonable conduct merely by failing to accept the offer. Thus from a defendant’s point of view a payment into court was simply a formal offer to compromise the claim at the figure stated. Mr Burke argued that the provisions of Ord 11 applied where notice of acceptance was given within the 21 days allowed to enable the plaintiff under Ord 11, r 3(5)(a) to lodge for taxation a bill of costs incurred by him up to the time of giving notice of acceptance. This, argued Mr Burke, enabled the plaintiff to recover solicitors’ and other legal charges incurred up to the time of acceptance.
In our view this provision of Ord 11 cannot invest the court with a power to award costs where it has none. The words of Ord 19, r 4(2) are mandatory. The mere fact that the plaintiff may lodge a bill of costs and seek to argue that they should be recoverable under one or other of the heads allowed under Ord 19 does not in our view enable the court to award costs other than those permitted by Ord 19, r 4. Nor can we see that any different considerations arise where the plaintiff fails to give notice within the 21 days limited for acceptance.
No doubt these reasons led the Rules Committee in 1992 to disapply the provisions of Ord 11 to claims automatically referred to arbitration altogether.
Featherstone v Ideal Standard Ltd
On 29 August 1991 whilst the plaintiff was packing a bath in a cardboard carton, a fellow employee, not paying attention to what he was doing, spilt some hot glue onto the plaintiff’s left hand. The plaintiff, a 33-year-old packer, suffered excruciating pain for a while. The top layer of skin was removed, the burn was dressed and bandaged by a first-aider. He continued to have dressings for ten days and after about two weeks the wound had healed. He was put on light work for 48 hours and suffered no loss of earnings. He was left with a reddened scar at the base of the thumb which, two months after the accident, was progressively fading. Apart from this he had no symptoms.
He claimed damages by summons on 2 January 1992. By 28 April 1992 the defendants had paid £600 into court. On 6 July 1992 they admitted liability but disputed damages. The medical report was already agreed. In November 1992 the defendant’s solicitors suggested that the claim was one to be dealt with by small claims arbitration. The plaintiff’s solicitors disagreed and the trial of the issue of damages was held before Judge Cracknell on 5 May 1993. He awarded £800 damages. The payment into court was therefore inadequate and irrelevant to the judge’s decision on costs. In exercising his discretion on costs he considered that the plaintiff had no reasonable expectation of recovering more than £1,000 and that the claim ought to have been dealt with by small claims arbitration. Accordingly he only awarded the plaintiff costs appropriate to an automatic reference under Ord 19, r 4. The plaintiff appeals against Judge Cracknell’s order.
We can see no error in the judge’s approach to the question of costs which would entitle this court to interfere with the award and would dismiss the appeal.
Willingham v Kimberley Clark Ltd
The plaintiff, a 50-year-old machine operator, was replacing the lid of a glue tank on 12 August 1991 at the defendant’s factory at Aylesford in Kent when the underside of his right forearm came into contact with hot glue and he sustained a burn. He claimed it was the employer’s fault because the lid of the glue tank was defective. He went to the works’ surgery where the nurse dressed the burn. He returned to work. The burn needed dressing for about two weeks and was sufficiently painful for the plaintiff to have to take painkillers for ten days. He did not consult his doctor. His hobbies were interfered with for about four weeks. There were no permanent or residual symptoms or disabilities when the burn had healed.
On 20 November 1992 solicitors instructed on the plaintiff’s behalf issued a county court summons in the Romford County Court. They claimed damages limited to £3,000 and asked in the summons that the case be decided by trial. There were no special damages claimed. On 2 December the defendant’s solicitors applied for the action to be struck out as a misuse of the process of the court or in the alternative that the proceedings be referred to arbitration and transferred to the Maidstone County Court in whose jurisdiction the cause of action arose.
The defendant’s application was referred by the district judge to Judge Paynter Reece. On 24 February 1993 Judge Paynter Reece dismissed the defendant’s application and ordered that the defendant pay the costs of the application.
The judge gave no formal judgment but the reasons for his decision appear clearly from affidavits put before the court on the appeal. Firstly, he said that the Romford County Court was not in the habit of referring personal injury cases to arbitration. Secondly, although cases such as the one before him could be suitable for arbitration, if they were referred the defendant could deprive the plaintiff of his pre-reference costs at a stroke. Thirdly, he said that the particular claim was unsuitable for arbitration, adding,‘How can a line worker draft particulars of claim and understand breaches of statutory duty?’
There was a possibility that the plaintiff’s claim might turn out to be worth more than £1,000 and there was no requirement for the plaintiff to limit his claim to £1,000. If he had to do so, the plaintiff’s solicitor would ‘kiss goodbye to all the costs the plaintiff had incurred’.
Accordingly he declined either to strike out the claim, order its amendment or declare that it was automatically referred for arbitration and made no order on the defendant’s request that the case be transferred to Maidstone County Court.
For reasons already given, we consider the judge exercised his discretion on wrong principles and that the appeal should be allowed. We do not consider that there was any reasonable prospect of the damages exceeding £1,000 and the matter accordingly should be automatically referred to arbitration. However, should the case proceed, the district judge will have to determine whether the arbitration should be at Romford or at Maidstone County Court.
Afzal v Ford Motor Co Ltd
Mohammed Afzal was a fitter employed at Ford Motor Co’s engine plant at Dagenham to carry out tests on engines in the hot testing plant. On 23 October 1990 in the course of his work he disconnected a fuel injector pipe and, as he did so, fuel under pressure shot up into his face and splashed his eye.
It was an unpleasant experience for him but he sustained no special damage. His eye was intermittently painful for four weeks. In March 1991 solicitors instructed on his behalf wrote claiming from the defendants. Negotiations ensued. On 24 July the plaintiff’s solicitors sent a medical report and indicated that, unless an acceptable offer was received, they would institute proceedings within 14 days. The defendant’s insurers responded with an offer of £450 but stated that they would make no payment for costs. In November particulars of claim were delivered limiting the damages claimed to £3,000. The claim alleged negligence and breach of statutory duty. On 11 December the defendants served a defence denying liability and putting damages in issue and gave notice of payment into court of the sum of £450. In January 1992 the plaintiff’s solicitors, with the consent of the defendants, amended their particulars of claim to limit the claim to £1,000. The claim therefore was clearly within Ord 19, r 3(1) and was automatically referred to arbitration but notwithstanding this the parties embarked on extensive discovery and on 6 March 1992 the plaintiff applied to the court to rescind the automatic arbitration. On 27 March the defendants abandoned their defence on liability. On 30 March District Judge Finn made an order rescinding the arbitration on the ground that it would be unreasonable for it to proceed to arbitration. He commented that personal injury actions were not suitable for arbitration. The defendants appealed the district judge’s decision to Judge Paynter Reece who heard argument on 22 May 1992. He reserved his decision and gave judgment together with his judgment in Joyce v Ford Motor Co Ltd on 22 October 1992.
Whilst the judge considered that the district judge’s comment that personal injury actions were not suitable for arbitration was too wide, he thought that in the context the district judge was clearly speaking of industrial injury cases of which Afzal’s was typical. He added:
‘While each case turns on its own facts, that does not mean one cannot form a general view as to what is appropriate in the category of case in which this particular one falls.’
He added to the district judge’s reason the fact that:
‘Awards made by this court in these actions frequently provide guidance to others in the plaintiff’s union, as well as to the defendants and their insurers as to the level of awards that can reasonably be expected and even though not reported can be a useful guidance to both parties in settling similar claims … as thankfully the vast majority are. It is therefore all the more important that both parties should be able to be legally represented to put their best arguments forward … a consideration which is an amalgam of the majority of the matters referred to in Ord 19, r 2(4)(d).’
On the grounds stated earlier in this judgment, the judge was in our opinion wrong to uphold rescission of the automatic arbitration in this case. At the time when the order for rescission was made by the district judge, the only issue for decision was the amount of the damages. The district judge could not be satisfied that any of the reasons under r 3(2) justified an order for trial rather than arbitration. In the kind of small claim made by an employee against his employer, of which Afzal’s case is a paradigm example, a district judge ought to be able to assess the amount of an award. Of course, so long as it is the policy of a particular court to require such cases to be assessed by the judge, the district judge’s experience will be limited but no doubt it will not be long before the district judge accustomed to arbitrate in such cases will become equally experienced. His award will provide equally good guidance to employees and to employers and to those to whom they choose to turn for advice. The amount involved in this case did not exceed £1,000 and accordingly the provision for automatic reference to arbitration applied. We would accordingly allow the appeal.
Green v British Gas plc
In this case the plaintiff appeals against an order for costs made by Judge Mettyear on 5 July 1993. In an accident at work on 4 April 1990 the plaintiff, a 45-year-old fitter employed by the defendant, sustained a strain of the muscles of his lower abdomen when lifting a pipe with others in the course of his work. He was absent from work for a period of three to four weeks. His special damage amounted to £97·91. In a medical report 18 months later, Mr Korab-Karpinski expressed the opinion that the muscular strain had improved considerably whilst he was off work, that he still experienced minor twinges of discomfort during his work but that the injury was unlikely to give rise to any long-term consequences. On examination he had been unable to detect any abnormalities. Solicitors instructed for the plaintiff issued a summons on 13 March 1992. The medical report was served with the summons. Damages were claimed ‘limited to £3,000’. Payments into court were made which by 1 April 1993 totalled £875. By that date the provisions of Ord 11 no longer applied to claims automatically referred to arbitration under Ord 19, r 3. The plaintiff indicated that he wished to accept the sum and on 20 May 1993, as if the provisions of Ord 11 applied, he gave notice of his intention to accept the sum offered and on 2 June applied for an order for payment to him of £875 paid into court and that the defendant should pay his costs of the action up to the time of his giving notice of acceptance, which his solicitors indicated amounted to no less than £2,044·92. The defendant resisted the application for costs. The matter came before the district judge on 21 June 1993. He awarded the plaintiff costs on scale 1. The defendant appealed to the judge. Judge Mettyear allowed the appeal and awarded the plaintiff only those costs which would have been recoverable under Ord 19, r 4(2) on an automatic reference to arbitration under r 3. He did so on the basis that the claim to damages limited to £3,000 was a misuse of process; he held that there was no reasonable expectation that general damages would be more than £750, he took into account that wide variations may occur in cases at the lower end of the scale of damages for personal injuries but nevertheless stated:
‘I am firmly of the view, as I expressed already, that there was no reasonable expectation that a sum of more than £1,000 would be recovered.’
He could see no evidence that the plaintiff’s advisers ever thought that more than £1,000 would be awarded. He inferred that the plaintiff’s advisers, who had failed to put forward any figure in the course of correspondence, had simply failed to turn their mind to the question of amount. Had they done so, they would have concluded that there was no realistic prospect of obtaining more than £1,000. Based on a note of a decision of the district judge, he found that the district judge had misdirected himself by failing to apply the correct test of reasonable expectation of an award in excess of £1,000.
Before this court the plaintiff argued that the figure of £875 he had accepted was so close to the £1,000 limit that it was not open to the judge to say that there was no reasonable expectation of an award in excess of £1,000. The judge applied the wrong test and should have asked himself, as suggested by Glyn-Jones J in Hopkins v Rees AND Kirby Ltd [1959] 2 All ER 352,[1959] 1 WLR 740, whether it would have been clear to the plaintiff and his advisers that no judge would award damages of more than £1,000.
As earlier stated, we see no significant difference in the suggested tests and reject this criticism of the judge’s decision. The mere fact that the sum finally accepted came within a measurable distance of the £1,000 is not in itself a reason to hold that the plaintiff’s advisers could reasonably have expected to recover more than £1,000. The judge was entitled to decide that on the basis of the medical reports before him, there was no such reasonable expectation. He was justified in holding that the statement claiming damages limited to £3,000 was a misuse of process. On the basis of the judge’s finding, the claim did not involve more than £1,000 and it was accordingly automatically referred to arbitration under Ord 19, r 3.
The provisions of Ord 19, r 4(2) are clear that the court had no power to allow costs other than those provided for in the rule. Neither the district judge nor the judge could make an order for payment of costs by one party to the other except to the extent contained in r 4(2) and (3). We would uphold the order of Judge Mettyear allowing the defendant’s appeal and ordering the defendant to pay the plaintiff’s costs of £155.
A question was raised in argument whether an appeal could be brought against the exercise of the discretion of the district judge in awarding costs in a claim referred to arbitration and whether the judge on appeal from the district judge’s order had power to award the defendants their costs on scale 1. As the district judge had no power to award any costs other than those allowed by Ord 19, r 4, he made an error of law and his award could be set aside under Ord 19, r 8. Ord 19, r 8(3) sets out the procedure to be adopted. Once the award is entered as a judgment of the court and the application to set it aside has been made, the powers of the judge are those contained in Ord 37, r 6(1):
‘Any party affected by a judgment or final order of the district judge may, except where he has consented to the terms thereof, appeal from the judgment or order to the judge, who may, upon such terms as he thinks fit,—(a) set aside or vary the judgment or order or any part thereof, or (b) give any other judgment or make any other order in substitution for the judgment or order appealed from, or (c) remit the action or matter or any question therein to the district judge for rehearing or further consideration, or (d) order a new trial to take place before himself or another judge of the court on a day to be fixed.’
In our view the judge had power to make provision for the costs of the appeal and we can see no ground to disturb his order that the plaintiff should pay the defendants their costs of the appeal.
Caldwell v Wiggins Teape Fine Papers Ltd
On 6 November 1990 while the plaintiff, a machine operator employed by the defendant, was adjusting the locking nuts on part of the machine, another operator caused a knife on the machine to descend, trapping the plaintiff’s right thumb. The pulp of the thumb was crushed and the wound bled profusely. It was very painful and he was off work for eight days. The wound was cleaned and dressed at hospital. He suffered a superficial skin loss over the pulp of the right thumb about 7 mm by 3 mm. It took two weeks to heal and when healed the plaintiff was free of pain. There was no visible scar but there was a slight dulling of sensation in the centre of the pulp of the thumb which had improved by August 1991 and was expected to resolve completely. The accident happened at the defendant’s factory at Dover. The plaintiff issued a county court summons in the Romford County Court on 26 November 1991. He claimed damages limited to £3,000. On 18 December 1991 the defendant paid £410 into court before defence and on 6 January 1992, after the time for acceptance had expired, it served a defence alleging contributory negligence. On 9 January 1992 the plaintiff gave notice of acceptance of the sum in court and on 31 January the defendant applied to the court for an order that no costs should be awarded except those allowable on an automatic reference. District Judge Hales accepted the defendant’s contentions, sensibly refusing to be beguiled by citation of numerous decisions which, it was claimed, required him to apply different tests whether the claim should have been the subject of automatic arbitration. He said:
‘I have come to the view that whichever of the tests I have mentioned, or suggested, is applicable, the maximum value of this claim—that is, if the plaintiff had succeeded on all issues—could not have been more than £750. The plaintiff accepted the payment into court with alacrity as soon as his solicitors received the defence … I have no doubt … that the full value of this case, taking all relevant matters into account, is not only well within the arbitration limit—in my judgment no more than £750—but also that the plaintiff’s advisers were fully alive to this, not only before the defence but at the time of the issue of the summons.’
Accordingly he held that there was a misuse of the process of the court by inflating the claim, which was clearly within the arbitration limit, in an attempt to avoid the arbitration costs rules. So he awarded the plaintiff only the costs which would have been recoverable on such an arbitration. The plaintiff appealed to Judge Paynter Reece, who said:
‘I have come to the conclusion that, having seen the medical evidence in this case, although it might be unlikely, and although I am not saying that, in this court in front of me, this plaintiff would have recovered more than £1,000 or indeed as much as £750, it is impossible to say that he could not have on a reasonable assessment of the case received more than £1,000.’
He concluded:
‘I have come to the conclusion that the district judge was wrong in his assessment of the possible damages. It is not plain to me what test he was applying. He refers to a number of different tests to which he had made reference and refers to his own test which I have read out. I think he should have applied the test which I have referred to, that is, looked at by a reasonable solicitor, could the plaintiff possibly have recovered at trial more than £1,000? If he had, he would have come to the conclusion:”It may be unlikely but it is certainly possible.”’
In our judgment, the test applied by the district judge was one of common sense which he was entitled to apply. The kind of excessive refinements adverted to by the judge should have no place in the district judge’s decision whether in all the circumstances the claim was one which, but for misuse of process, would have been automatically referred to small claims arbitration. We have no doubt that the costs involved in arguing the fine distinctions referred to by the judge would greatly exceed the amount at stake and no sensible person would incur them.
As the provisions of Ord 11 for payment into court had not then been disapplied to a claim automatically referred to arbitration under Ord 19, r 3, the plaintiff argued that on giving notice of acceptance he was entitled under Ord 11, r 3(5)(a) to lodge for taxation a bill of the costs incurred by him up to the time of his giving notice of acceptance. He argued that it is implicit in those circumstances that he is entitled to be paid taxed costs, to include legal advice in the preparation of his claim and the settling of the summons and particulars. Aside from the reasons we have already stated for rejecting this argument, one obvious purpose of specifying in the rules the allowances which may be awarded and the amounts which may be claimed for costs is to obviate the expense of taxation. In our judgment, the court has no power to award costs other than those referred to in the rules and we would allow the appeal and restore the order of the district judge. The defendant is entitled to his costs of the appeal to Judge Paynter Reece on scale 1.
Joyce v Ford Motor Co Ltd
The amount involved in this claim was £650, but it was said that the issues were complicated by the fact that the plaintiff incurred legal costs when the limit for claims automatically referred to arbitration was £500.
The plaintiff was employed at the defendant’s factory at Dagenham. Whilst showing a new recruit around the premises on 8 June 1990, he tripped over a flat bed trailer, injuring his left shin and bruising and grazing his right leg. His wound was cleaned and dressed in the medical department. He limped for about a fortnight and had some disturbance of sleep for approximately a week. Apart from some slight itching of the scar in warm weather, he had no discomfort or other symptoms as a result of his injury. Solicitors instructed for him by his trade union wrote to the employer claiming damages on 4 September 1990. At the request of the defendant’s insurers the plaintiff’s solicitors obtained and sent a medical report and gave details of the nature of the claim. On 1 July 1991 the limit for claims to be automatically referred to arbitration was increased from £500 to £1,000. The plaintiff’s summons was issued on 25 November 1991 and it included particulars of claim limiting the damages to £3,000. The special damages claimed were only £30·55. On 23 December 1991 the defendant admitted liability to pay damages for the injury and loss proved by the plaintiff and paid £650 into court. The plaintiff did not give notice of acceptance within the 21 days limited by Ord 11, r 3(2) and accordingly, after the parties had failed to agree upon terms on which the plaintiff should be at liberty to accept the £650 paid into court, on 18 February 1992 the plaintiff applied to the court for an order that he be allowed to accept the sum and that it should be paid out to him, and for an order that the defendant pay his costs on scale 1 up to the date when he accepted the money paid into court.
The application was heard on 30 March 1992 by District Judge Finn, who held that the amount involved in the claim did not exceed the £1,000 limit and that had the claim been properly limited it would automatically have been referred to arbitration with a consequent limitation on recovery of costs. Of his own motion he said that he would rescind the automatic reference to arbitration and he ordered that the plaintiff be at liberty to accept the sum in court, that the defendant pay his costs on scale 1 up to the date of acceptance and that thereafter the plaintiff should pay the defendant’s costs.
In the light of his finding that had the claim been properly limited it would automatically have been referred to arbitration and of the fact that no issue save that of costs remained for the decision of the arbitrator since the plaintiff had agreed to accept the £650 offered, we cannot see what justification he could have had for ordering trial and rescinding the reference. As we have held, he had no power to award costs except those provided for by Ord 19, r 4.
The defendant appealed to Judge Paynter Reece who heard the appeal with the appeal in Afzal’s case and on 22 October dismissed the appeal. For the reasons already stated in this judgment, we would allow the appeal from the order of Judge Paynter Reece and would quash the order for costs made by the district judge. We would substitute for the order of the district judge an order that the defendant pay to the plaintiff the costs recoverable under Ord 19, r 4(2). Finally, we must consider the order made by the district judge that after the date of notice of acceptance of the sum offered, the plaintiff should pay the defendant’s costs. The district judge, having rescinded the automatic arbitration, was treating the claim as if the provisions of Ord 11 applied. It was argued by the defendant that it was entitled to its costs of the application before the district registrar because he had held there had been a misuse of the process of the court. Accordingly he ought to have held that under Ord 19, r 4(2)(c) there had been unreasonable conduct on the part of the plaintiff in relation to the proceedings or the claim. When the application was made to the district judge the plaintiff was no longer contending that the amount involved exceeded £1,000. As the district judge did not consider whether the plaintiff had been guilty of unreasonable conduct in connection with the proceedings, this court has to decide whether in all the circumstances the plaintiff should be required to pay the defendant’s costs before the district judge. For the plaintiff it was said that when he initially made his claim, the amount involved (£650) exceeded the amount (£500) which would result in automatic reference to arbitration. However, by the time proceedings were commenced the amount involved was below the limit (£1,000). He had already incurred legal costs, the costs of obtaining a medical report and of stating the nature of his claim at the request of the defendant. Whilst it is true that until he accepted the £650 the plaintiff had been guilty of misuse of process, the defendant, after the plaintiff had accepted the sum offered, chose to be represented at the hearing before the district judge to argue the question of costs when there was no power to order the plaintiff to pay the defendant’s costs after acceptance of the money paid in. The question is whether, in the exceptional circumstances of the plaintiff accepting a sum which exceeded the limit for arbitration when the claim was originally notified to the defendant, his application to the district judge amounted to unreasonable conduct. In all the circumstances we do not think that the plaintiff should be ordered to pay the defendant’s costs of that hearing.
Although this disposes of the appeals before the court, we feel a short summary of the aspects of procedure discussed in this judgment may help the parties to small claims to take advantage of automatic arbitration in the county court.
(a) Where a plaintiff cannot reasonably expect to receive more than £1,000, there is no reason why he should not state in the summons (Form N2) that his claim does not exceed £1,000. If, for any of the reasons stated in the rules the plaintiff considers the case should not proceed to arbitration, he can indicate his objection in the Form N2.
(b) If the damages claimed in a summons are not so limited or are stated to be limited to a figure exceeding £1,000 and the defendant considers that the amount involved does not exceed £1,000, he should include a statement to that effect in his defence and ask for the claim to be automatically referred to arbitration.
(c) There is no reason why the defendant should not state in his defence the amount he considers to be involved.
(d) The district judge will then form his own opinion of the amount involved and inform the parties of his decision by sending the appropriate form; alternatively he may regard the case as one in which an application for trial has been made and decide to hear the parties.
(e) The parties should bear in mind that the overstatement of the amount of damages claimed or the raising of a speculative and unsupportable defence may be regarded as unreasonable conduct under Ord 19, r 4(2)(c).
Finally, we desire to emphasise that the small claims arbitration procedure is intended to improve access to justice. For many people a small claim for damages for an injury sustained at work will be their only experience of the working of the system of justice. If those who advise employees and employers in such claims disregard the objects of the small claims arbitration procedure, the law as a whole is likely to be brought into disrepute. If it is seen that in a significant class of claims procedural battledore and shuttlecock is costing far more than the amount of the damages recovered, the reputation of justice must suffer. In the handling of small claims it is just as much a misuse of the process of the court for a defendant to file a defence denying liability when he knows there is none as it is for a plaintiff to overstate the amount involved in the claim for the purpose of avoiding arbitration. Each tactic disguises the real questions at issue for an improper reason. The discretion given to the district judge under r 4 (2)(c) to allow costs where there has been unreasonable behaviour by either party is intended to reinforce the need for restraint. The problems perceived by the parties and exhaustively discussed in these appeals could, we feel, be easily overcome by a spirit of co-operation to make the small claims arbitration work fairly and effectively.
Appeals allowed in the 16 Ford cases. Appeals dismissed in Green v British Gas and Featherstone v Ideal Standard. Appeals allowed in Willingham v Kimberley Clark, Caldwell v Wiggins Teape and Joyce v Ford Motor Co.
