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Spiller, Peter --- "Guidelines for Small Claims Courts hearing individual consumer disputes" [2002] NZYbkNZJur 5; (2002-2003) 6 Yearbook of New Zealand Jurisprudence 75

Last Updated: 12 April 2015

Guidelines for Small Claims Courts Hearing
Individual Consumer Disputes

PETER SPILLER*

INTRODUCTION

The hearing of individual consumer disputes was a primary reason for the establishment of small claims institutions both in New Zealand and overseas.' In this paper I shall examine the principles that should guide the management of these disputes by small claims courts or tribunals.

In presenting these guiding principles, I shall refer to two typical consumer disputes, so as to ground the principles in reality. The first dispute concerns a lounge suite that was ordered in the fabric of the customer's choice. The customer paid a deposit and the storekeeper gave an approximate delivery date. The obtaining of the fabric took much longer than expected to arrive from overseas and the store did not keep the customer informed of the delays. In frustration the customer eventually told the store that she was cancelling the contract and she went ahead and bought another suite of inferior quality. Shortly thereafter the fabric arrived and the store was in a position to complete the covering of the suite. The customer demanded the return of the deposit, but the storekeeper insisted that the contract go ahead and the customer take delivery and pay the balance.

The other dispute concerns the reconditioning of a motor engine. Shortly after the reconditioning was completed, the engine developed problems. An independent mechanic was called in to investigate and he found severe engine failure, but no evidence of faulty workmanship and no real explanation of the breakdown. The customer demanded a refund, but the mechanic said that he had not been at fault.

Professor of Law, University of Waikato.

E Clark, "Small claims courts and tribunals in Australia: Development and emerging issues" [1991] UTasLawRw 7; (1991) 10 University of Tasmania Law Review 201, 220; and NZI Insurance NZ Ltd v Auckland District Court [1993] NZHC 1800; [1993] 3 NZLR 453. 463.
Against the backdrop of these two disputes, I shall now present four guiding principles for the management of individual consumer disputes. In relation to each principle I shall present the current operation of courts and tribunals, in New Zealand and overseas, and make suggestions as to how these institutions should ideally operate.

GUIDING PRINCIPLES

Adequate access to justice

An essential criterion of the effective managing of consumer disputes by small claims courts is that they need to be accessible to a broad cross-section of the community. This is because the central feature of consumer disputes is that they potentially involve all of humanity. To the above two examples may be added many others affecting people in their commercial interactions with others. Yet, there is disquieting evidence, in jurisdictions such as Canada and New Zealand, that a large proportion of consumer disputes are initiated by traders rather than consumers. In addition, the applicants tend to be disproportionately professionals or otherwise employed, better educated and European'

One aspect of accessibility is cost. Cost is determined partly by the level of fees required to lodge claims in the small claims forum. France has the admirable principle that the legal system is a free service provided by the state (although since 1991 a tax has been imposed on legal acts) .³ In Australia, most jurisdictions have court fees considerably below the cost of the small claims process.' New Zealand for many years operated on the basis of low filing fees, and since 2001 has operated a sliding scale of fees from $30 to $100, dependent on the amount of the claim.' The scale of cost is also determined by the involvement allowed for lawyers. In jurisdictions such as Quebec and New Zealand, lawyers are excluded from representing clients on either side, and in recognition of this there is limited scope in New Zealand for the award of costs in relation to the Tribunal proceedings 6

2 G Howells and R James, Litigation in the Consumer Interest (1998) 26; P Spiller, The Disputes Tribunals of New Zealand (2 ed, 2003) 42-43.

3 Howells and James, ibid, 7.

4 Ibid, 46.

5 Disputes Tribunals Rules 1989, Rule 5(1).

6 Disputes Tribunals Act 1988, ss 38(7) and 43.
A second feature of accessibility is the jurisdiction of the forum to hear a sufficiently wide range of matters. Small claims forums impose an upper financial limit: in New Zealand, this is $7500 and up to $12000 where the consent of both parties is obtained.' There are also limitations in terms of cause of action: almost invariably small claims forums are limited to civil actions, and in New Zealand there are selected areas of legal complexity excluded.' A useful feature of the New Zealand jurisdiction is that claims can be brought in contract and quasi-contract to enforce a contractual obligation or for a declaration that the applicant is not subject to an obligation.' Whereas claims for enforcement of consumer contracts are commonly brought by traders looking for payment, consumers find the declaration of non-liability a useful remedy.

A third aspect of accessibility is the nature of the forum for the hearing of consumer disputes. A number of jurisdictions simply provide modified procedures for small claims within the court system. In the United Kingdom, the county court has adopted an arbitration procedure for small claims.' Research there indicates that consumers are not best served by institutions that retain many of the characteristics of traditional courts. In France, where consumer disputes are heard in the court system, albeit with simplified procedures, research indicates that these courts are not particularly friendly to individual consumers with small claims." Other jurisdictions provide for small claims courts as distinct parts of the court system. In Quebec, small claims court judges are regular, full-time judges of the Civil Division of the Court who hear cases in the small claims court one day every other week:' In New Zealand, the Disputes Tribunals function as a division of the District Court and claims are heard on court premises." Yet other jurisdictions, such as New South Wales, have adopted specialist consumer claims tribunals.14

A fourth feature of accessibility is the degree of informality in the procedures adopted. A recurrent feature of forums designed for small claims is that there is a large measure of flexibility in the procedures

7 Disputes Tribunals Act 1988, ss 10(3) and 13(2).

8 Disputes Tribunals Act 1988, ss 10-11.

9 Disputes Tribunals Act 1988, s 10(1)(b).

10 Howells and James, op cit, 4.

11 Ibid, 8.

12 Ibid, 27.

13 Disputes Tribunals Act 1988, s 4(3). See also Spiller, op cit, 10.

14 Howells and James, op cit, 44.
used, to respond to the needs of the parties and their situation. In Quebec, small claims judges are authorised to use the procedure that seems most appropriate.15 In New Zealand, referees who preside in the Disputes Tribunals may adopt such procedure as is best suited to the ends of justice and may receive any relevant evidence even if not legally admissible in a court of law.'

It is suggested that access to small claims forums is a high priority in any effective system for managing consumer disputes. The state needs to recognise and maintain a commitment to keeping fees as low as possible so as to facilitate the pursuance of consumer claims in small claims courts, rather than by resort to more expensive court forums or to out of court and anti-social measures. The involvement of lawyers as representatives should as far as possible be excluded. The small claims court needs to have a jurisdiction which is sufficiently extensive so as not to allow too wide a gap between the outer limit of the small claims court and the level at which it is cost effective to pursue remedies in the traditional court system. The small claims court needs to be afforded a distinct status within the court system, so as to retain the benefit of state sanction and legitimacy without submerging the small claims court's identity in the traditional court system. The small claims court needs to have processes that are sufficiently flexible, meaningful and informal for lay people to make effective use of the system. All of these matters need to be addressed so as to avoid the real consequence that the small claims court, in situations like the lounge suite purchase or the mechanical services, is ineffective or is rendered ineffective or an instrument for unfairness.

Procedural and substantive justice

It is of central importance that procedures and decisions governing small consumer claims be as closely aligned as possible to fairness and justice. Indeed, in that the weight of the state is thrown behind the outcome of the small claims process, an unjust small claims process is worse than having no process at all. Justice requires a balancing out of interests of both consumer and trader: there cannot be said to be a just process or outcome that is biased or distorted in favour of one

15 Ibid, 227.

16 Disputes Tribunals Act 1988, ss 40(4) and 44.
side or another. A system that is, for example, loaded in favour of either the purchaser of a lounge suite or the storekeeper, is neither defensible nor likely to survive.

In New Zealand, there is an important emphasis on the procedures of natural justice in that there are grounds for appeal where proceedings have been conducted unfairly and this unfairness has prejudicially affected the outcome.17 Furthermore, there is review to the High Court on the basis of breach of natural justice.' While the number of appeals is low and the number of successful appeals lower still, and judicial review is rare, the presence of these safeguards acts as an important incentive to referees to pursue fair procedures.'

In terms of decision-making, in Queensland and New South Wales, there is provision that the final order must be "fair and equitable", thus giving the judge leeway to deviate from the strict letter of the law 2⁰ In New Zealand referees are directed to decide in terms of the substantial merits and justice of each claim, are not bound by strict legal technicalities and forms, and may disregard contractual terms which appear harsh or unconscionable.' Thus, there is a strong emphasis on common-sense justice rather than legalistic outcomes. However, referees are required to have regard to the law, and it is a ground of appeal that a referee did not have regard to the provision of an enactment brought to the attention of the referee at the hearing.22

It is submitted that, while there should be flexibility in process and the avoidance of legalism in decisions, it is essential that there be safeguards for procedural fairness and adequate regard to the law. Furthermore, it needs to be recognised that, in the context of flexible procedures and common-sense decision-making, much rests with the discretion of the presiding officer. In the examples above, there may be dangers of bias in favour of either the "victimised" consumer or the "exploited" trader. There may also be a danger of bias in terms of gender, background and professional orientation of the presiding officer. Finally, there may be dangers of power imbalance between first-time inarticulate users of the system and those who are adroit and adept multi-users. All of this raises, even more crucially than

17 Disputes Tribunals Act 1988, s 50(1).

18 Spiller, op cit, 137.

19 Ibid. 136-137.

20 Howells and James, op cit, 46.

21 Disputes Tribunals Act 1988, ss 18(6) and 19(1)(e).

22 Disputes Tribunals Act 1988, ss 18(6) and 50(2).
with judicial officers in the traditional court system, the need for appropriate appointment, monitoring and training systems for those who preside in the small claims forums.

Constructive outcomes

It is a justifiable hope that the small claims processes that manage consumer disputes produce outcomes that are not only procedurally and substantively just, but are also of maximum benefit to the parties. The matters at hand in consumer disputes have real and ongoing significance to the parties. The purchaser of a lounge suite has the need for the suite and the owner of a car has the need for a workable machine, while the store owner and the mechanic need to preserve a good business reputation and have the satisfaction of providing worthwhile products.

Thus, small claims systems commonly provide for a variety of outcomes, including both agreed settlements and decisions. In France, pre-trial conciliation allows one party to bring the other before the court for an attempt at conciliation where a settlement is believed to be possible." In British Columbia, the small claims court programme of 1991 introduced mandatory settlement conferences for disputed claims." In New Zealand, referees are required to assess whether the matter is appropriate for a settlement and, if so, to facilitate that process, but failing that give a decision in the same forum 2⁵

It is recognised that most parties who attend a small claims process expect and prefer the decision-maker simply to hand down a decision, and that this reality needs to be respected by the presiding officer." It is also recognised that there are practical constraints on the extent to which there can be true mediation in the small claims forum, bearing in mind time constraints, the fact that the respondent/defendant attends involuntarily, and the role of the presiding officer as an authority figure." Nevertheless, it is suggested that it is important for small claims process to allow the flexibility to allow disputes to be

23 Howells and James, op cit, 8.

24 Ibid, 28.

25 Disputes Tribunals Act 1988, s 18(1)-(4).

26 E Clark, "The Tasmanian Small Claims Court: An Empirical Study", PhD, University of Tasmania, 1992, and Spiller, op cit, 98.

27 Spiller, ibid, 90-91.

settled where this is appropriate. The parties' underlying needs may best be met through settlements, which they have fashioned and are committed to implementing. In the example of the lounge suite, a decision to award the consumer a refund could be adverse to the interests of both consumer and trader. The consumer would then be left with the inferior suite that she does not really want. The trader would be left with less money and with the suite that the consumer really wants and is tailored to her wishes. However, a settlement in terms of which the consumer receives the suite that she ordered, at a lesser price, and with the inferior suite sold by the trader, could meet both parties' needs much more effectively. There is also the hope that the experience of the consumer and the trader in resolving their dispute will have a remedial and educative effect, not least in heightening the sensitivity of the trader to the consumer's needs.

Binding and effective remedies

It is essential that the outcome of the small claims process be binding and effective. There is little point in either consumer or trader initiating and pursuing a process which has inevitable financial and emotional cost and which ends with an outcome that makes no difference in reality. Thus, the purchaser of a lounge suite and the owner of a defective car require usable articles and not simply a court order on paper. However, the reality is that many judgment debtors do not voluntarily comply with court orders, and that law enforcement officers are unable to exact fulfilment of orders (because of parties' lack of means, disappearance or bankruptcy). The experience of many litigants in obtaining remedies which are not complied with, and which sometimes can never be enforced, has caused some observers to question the value of the small claims system ."

Small claims systems commonly provide for enforcement of outcomes of the process, either because the small claims system is part of the court process or because there is provision for registration of the outcome for purposes of enforcement. In New Zealand, orders for the payment of money or the delivery of property automatically become orders of the District Court and are enforceable through the court process." In Victoria, there is a "funds in trust" model, whereby

28 Howells and James, op cit, 47 and 56.
29 Disputes Tribunals Act 1988, s 45(1).
if a consumer disputes payment of an account the money must be paid by the consumer into a trust account until the order is decided.'"

It is recognised that the enforceability of court orders is an issue not only for the small claims process: throughout the court process, there is the experience of successful litigants being unable to translate their orders into tangible benefit. Nevertheless, it is submitted that it is essential that the orders of small claims forums be given the maximum support possible by the state. It is also submitted that the difficulty of enforcement of orders underlines the need for accessible, just and flexible small claims processes. The purchaser of a lounge suite, the storekeeper, the owner of a defective car who has paid for mechanical services and the mechanic himself are less likely to require enforcement proceedings where they have engaged in a meaningful, fair process, particularly one which has culminated in an agreed settlement geared to their needs.

CONCLUSION

The managing of individual consumer disputes by small claims tribunals requires that key criteria be met. These are that the community has adequate access to this form of justice, that there are safeguards for procedural and substantive justice, that provision is made for a variety of constructive outcomes, and that these outcomes be backed by binding and effective remedies. The extent to which small claims institutions satisfy these criteria will determine the extent to which the high consumer expectations of these institutions will be met.

30 Howells and James, 47.

R2 Yearbook of New Zealand Jurisprudence Volume 6 Issue 1 2002-2003