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IN THE SUPREME COURT OF JUDICATURE CCRT1 97/0675/G

(DEPUTY CIRCUIT JUDGE HAMMERTON )

Royal Courts of Justice

Strand

London WC2

Friday 14 November 1997

B e f o r e:

LORD JUSTICE EVANS

MR JUSTICE WILSON

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JOHN AIREY

Plaintiff/Appellant

- v -

COMPUTER SERVICES

Defendant/Respondent

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(Computer Aided Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

- - - - - -

The parties appeared in person.

- - - - - -

J U D G M E N T

(As approved by the Court)

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©Crown Copyright

JUDGMENT

LORD JUSTICE EVANS: This is an appeal by leave of the court against a judgment given by His Honour Judge Hammerton on 8 March 1996. The judge's order reads:

"IT IS ORDERED THAT Mr Aireys application to set aside the award be and is hereby dismissed."

The award was made by the District Judge on 12 January 1996 after a dispute had been heard under the small claims procedure in the County Court. The application for leave to appeal was granted by the Court on 18 April 1997, when Waite LJ, who presided, took the unusual course of giving a full statement of the court's reasons on that occasion so that it would assist the Lords Justices who eventually dealt with the appeal. We therefore have had the advantage of that judgment and we are grateful for it.

Waite LJ set out the facts in some detail and it is unnecessary for me to repeat them at any length. It is on any view the most regrettable story. The appellant, Mr Airey, is the owner of a Toshiba 1200 XE laptop computer. On 20 February 1995 he took it to the shop where the defendant, Computer Services, had their business. For present purposes that is the trade name of Mr Kianzad. The computer at that time had a hard disk with a 40 megabyte memory capacity. Mr Airey says that he wanted to increase the capacity. As a result Mr Kianzad fitted the computer with a 130 megabyte disk drive at a cost of £230. There is evidence showing that two cheques totalling just under £80 were returned unpaid by Mr Airey's bank, but there is also evidence that the bank should not have done that as there were sufficient funds to meet those cheques when they were received. It seems that Mr Airey was not pleased with the computer fitted with the new disk drive because he found that only part of the capacity was usable. On 20 March he went back to Mr Kianzad and this time another agreement was reached that another hard disk with a yet higher capacity of 170 megabytes would be fitted. The extra cost would be £25 pounds plus VAT, making a total of £29.37.

Unfortunately, for whatever reason, the whole of that capacity could not be used. According to Mr Airey, the resulting performance of the machine would have been even less than it was when he paid his first visit. There was some discussion about obtaining special software so the capacity could be enlarged. He agreed to pay the £29.37. He offered to pay it by cheque or by switch card, but in view of the previous experience Mr Kianzad wanted cash. Mr Airey went to collect the cash, but by the time he came back he had had second thoughts. He said that he wanted to pay nothing further, in fact what he wanted most of all was to take away the computer without any disk and to have a refund of the £230 which he had already paid.

Since then both sides have dug their heels in and what started as a dispute about £29.37, coupled, as Mr Airey would say, with a dispute as to whether the machine had been properly repaired or fitted out or not, has escalated into the present deplorable situation. The computer is still with Mr Kianzad. No money has changed hands, although Mr Airey says that, on 8 March 1986 after the hearing before the judge, he went round to Mr Kianzad's shop with a police officer and offered to pay £29.37 to be told by Mr Kianzad that he was not willing to part with the computer, even on those terms.

I emphasise that that is no more than an outline of the dispute. All I need add is that the defendant's side of the story was set out in a note, which Mr Kianzad said was prepared by his engineer, explaining that the computer in effect was defective and needed either repairs or special equipment which was difficult to obtain. Mr Kianzad says that they did their best and when they demonstrated it to Mr Airey he was, or appeared to be, satisfied with what they had done.

Both parties, although they have represented themselves throughout, have incurred substantial costs, quite apart from inconvenience. That must be a matter for them. From what we have heard from them today - and we have made an effort to try to resolve the dispute on the basis that Mr Kianzad would give up the computer in return for the payment of £29.37 which is where the trouble began - however, it has become clear to us that unfortunately we cannot persuade them to adopt what would seem to us to be an entirely sensible course. If the parties are unwilling to reach an agreement, there is nothing that this court can do but to apply the law as we understand it to be, and to give directions accordingly.

The legal position is that Mr Airey issued proceedings in the County Court on 31 May 1995. In the space on the form which is headed "What the claim is for" he wrote:

"Failure to provide goods as requested and agreed. I want my money returned and my computer returned also."

His claim was for £230 plus the court fee. He attached to it his own statement of what he said had happened, in which he said:

"Under the sale of goods act he has failed to keep his side of an agreement to supply goods of merchantable quality."

Mr Kianzad's Defence denied liability. The form asks:

"What are your reasons for disputing the claim?"

and he wrote:

"Enclosed are copies of previous correspondence."

Attached to it were various documents, including the technician's note to which I have already referred.

Since the claim was below the statutory figure, it was referred to statutory arbitration under the small claims procedure. District Judge Jackson heard the matter on 12 January 1996. His order was:

"IT IS ORDERED THAT the Plaintiff's claim be dismissed."

Apart from that, there is no written record of what transpired before him or of what decision he announced. When Mr Airey appealed and the matter came before the judge, the judge began by saying:

" I am not quite certain about what happened before the learned District Judge."

He then asked the two parties what had happened on that occasion. Having heard their different accounts, and it is quite clear from the transcript which we have that they were at much at odds as they ever have been, he gave a judgment dismissing the application to set aside the award. He said in the course of his judgment:

"It is a simple issue of fact which was a matter to be determined by way of arbitration before [the District Judge]. He found in favour of the defendants."

He continued:

"There is no note before me of what was actually said by Judge Jackson but Mr Kianzad and Mr Airey both agree that both had their chance of saying what was the nature of the dispute, and the documents which set out the situation before me were before [the District Judge]. In those circumstances it seems to me a simple case of ascertaining what the facts were which was essentially a matter for the arbitrator."

He clearly preferred Mr Kianzad's account and rejected the explanation given by Mr Airey. He continued:

"There is, as I see it, no matter of law involved if the facts are as Mr Kianzad asserts them. That appears to be the view taken by [the District Judge]. I can find nothing in the papers before me to indicate that [the District Judge] in any way misconducted himself in the conduct of the arbitration or that he was wrong in law."

When the court gave leave to appeal and Waite LJ explained the reasons, he said that there were two considerations which had influenced him. Potter LJ agreed with his judgment. Waite LJ said:

"The first is the fact that it seems doubtful whether the circuit judge was right to regard this case as involving a pure issue of fact. Issues of law may surely arise as to whether Mr Airey is entitled in the circumstances to repudiate the agreement altogether and demand his computer back without any hard disk and with a refund of the moneys he had paid; or as to whether he is entitled to the lesser remedy of a return of his computer on payment of £25 plus VAT; or whether, in either event, Mr Kianzad is entitled to impose storage charges."

The second consideration was a wider one. Waite LJ indicated that this case might provide a suitable opportunity for giving guidance to District Judges:

"....as to the extent to which it would be desirable when dealing with awards in small claims cases to make appropriate statements as to the evidence they have heard and the reasons that have influenced their conclusions."

The small claims arbitration procedure is governed exclusively by the County Court Rules Order 19 rule 1 and following. The scheme is statutory rather than consensual. One result is that, for example, the provisions of the Arbitration Act 1986 do not apply.

A full history of the procedure which has developed over the years was set out in the judgment of Beldam LJ in the case of Afzal v Ford Motor Company [1994] 4 All ER 720. The question in that case was what kinds of cases should be referred to the small claims procedure and what kinds should be heard in court. Therefore it was not the same issue as arises today. Beldam LJ's history of the procedure was set out at pages 726 and following. He said at page 731D:

"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 [l978] AC 16 at page 40."

There was then a quotation from that speech by Lord Diplock. At page 733J Beldam LJ said:

"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."

There is an earlier judgment of Sir John Donaldson, then Master of the Rolls, in Chilton v Saga Holidays plc [1986] 1 All ER 841, where he said:

"....both courts and arbitrators in this country operate on an adversarial system of achieving justice. It is a system which can be modified by rules of court; it is a system which can be modified by contract between the parties; but in the absence of one or the other, it is basically an adversarial system, and it is fundamental to that that each party shall be in entitled to tender their own evidence."

There is an unreported judgment of this court in Starmer v Bradbury on 16 March 1994. The leading judgment was given again by Beldam LJ. The court held that there was no misconduct in that case although the applicant felt very strongly that he had not had a fair hearing. What makes the judgment relevant for present purposes is that Beldam LJ said that there were before the Court of Appeal notes taken by the Deputy Judge giving an account of the evidence he had heard. The note included some record of the examination and cross-examination of the witnesses. The Deputy Judge's note concluded simply "Dismissed application". The Court of Appeal was told however that the Deputy Judge did give an explanation and reasons for that decision.

The provisions of the rules with which we are directly concerned are found in Order 19 rule 7, "Conduct of hearing", and rule 8 which is headed "Setting awards aside". Rule 7(8) reads:

"The arbitrator shall inform the parties of his award and give reasons for it to any party who may be present at the hearing."

Rule 8(1) reads:

"Where proceedings are referred to arbitration, the award of the arbitrator shall be final and may only be set aside pursuant to paragraph (2) or on the ground that there has been misconduct by the arbitrator or that the arbitrator made an error of law."

Paragraph (2) deals with awards made in the absence of a party which does not apply here.

It is clear therefore that there is no right of appeal against an award made by the judge or deputy judge sitting as an arbitrator. There is however the statutory right to apply to have the award set aside if there has been either misconduct by the arbitrator or if the arbitrator made an error of law.

The allegation made by Mr Airey in the present case, which was considered by the judge, was that there had been misconduct in failing to hear both parties. Mr Airey said that the District Judge had not given him a fair chance to state his case. That was the matter which the learned judge ruled upon and he held that there was no basis for finding that there had been misconduct of that sort.

It seems to me that there is a further aspect of the arbitrator's duty, which is also relevant in the present case. On general principles, the District Judge, when sitting as an arbitrator, was bound, first, to explain his decision to the parties and possibly also to give reasons for it. I put the matter in that way as a matter of general principle by reference in particular to Mustill and Boyd on Commercial Arbitration, 2nd Ed, page 373, note 8, which concludes:

"Even in the simplest type of arbitration each party, and particularly the losing party, is entitled to a rational explanation for the decision."

That general principle is reinforced in relation to small claims arbitration by the express reference which I have already read from rule 7(8) which envisages that reasons will be given at the hearing.

The question which then arises is as to the scope of the duty in an arbitration of this sort. Clearly it would be burdensome and oppressive to expect the District Judge to keep a detailed note of all the evidence that was given to him, and to expect him to write out his decision in full.

It seems to me that there are two basic principles which are established by the authorities to which I have referred. The first is that the proceedings may be described as "relatively informal" by comparison with rigid court procedures (established by the judgment of Beldam LJ); and secondly, the proceedings are nevertheless basically adversarial (the judgment of Sir John Donaldson).

I would hold that whether sitting as a judge or as an arbitrator the District Judge has the responsibility of allowing both parties to present their evidence, he must listen and pay attention to their arguments, and he must give his decision in terms which are appropriate in the circumstances of the case and consistent with the relatively informal nature of the hearing.

The specific question is whether he should keep a written note of the evidence and of the reasons for his decision. So far as recording the evidence is concerned, I would hold that, as a general rule, the District Judge should keep some record but clearly not a full transcript. It will be sufficient for him to record the general nature of the evidence given, perhaps occasionally the exact words if the exact words are relevant to the issue in the particular case.

As regards his decision, clearly the District Judge cannot make or announce a proper decision without first deciding and saying what the issues are. It seems to me that, on any view of the matter, the District Judge should record his decision by reference to the issues which he has identified and which he has then proceeded to decide. A particular aspect of this requirement is that he should identify any issues which are issues of law because there is the separate right of statutory appeal if he has made any error of law.

It seems to me that the District Judge in the present case was guilty of misconduct because he failed to keep any note at all and he gave no reasons at all for his judgment. At the hearing before Waite LJ, Mr Airey told the court that the District Judge had simply said:

"Claim dismissed, the defendant has done all he could."

As the judge in the present case himself observed, it is wholly unclear in the absence of any record what findings of fact the District Judge may have made and whether or not they may have raised any issues of law. It seems to me inevitable that the claim as put forward did raise issues of law. The first claim was a claim for a refund, that is to go back to the beginning and to rescind the original agreement for the sale or the provision of a hard disk for the price of £230. There was another aspect in relation to what is known in law as "the repairer's lien". One question which may arise is whether Mr Kianzad was a repairer, which his evidence rather suggests, or whether he was a supplier and seller of goods, which is how Mr Airey looks at the matter. As a repairer, and perhaps also as an unpaid seller, he may have a right of lien. That may extend to storage charges, but that again would be a matter of law. In view of some things we have been told, I would emphasise that, for my part, I would regard it as extremely doubtful whether a lien was being exercised when the goods were being retained, not as security for money that was due but in order to establish the defendant's ability, as he put it, to teach the plaintiff a lesson, or for other such reasons. So there is a question as to whether, even if a right of lien existed, it was exercised in the present case for legally permissible reasons. The learned judge did not address the question whether misconduct in the present case in the sense I have indicated had occurred. It is quite understandable that he attempted to do justice between the parties by hearing from them what their dispute was and then by pronouncing, so far as he could, on the merits. I would hold that he should have found that there was misconduct for the reasons I have given, and that also he was not entitled to hold that there was no question of law. How could he exclude, I would ask, the questions to which I have referred?

I should emphasise that not every breach of the District Judge's duty to record the evidence and to give an explanation of, or reasons for, his decision will necessarily equal misconduct for the purposes of the County Court Rules. It must be a serious breach which affects the fairness of the proceedings. Here, where there was no note of the evidence, no indication as to the issues which were decided, and no indication whether those were issues of fact or of law, it seems to me that the breach of duty is equivalent to misconduct for the purposes of the present application.

I would add that in the present case the District Judge might at least have said:

1. That the plaintiff was not entitled to recover his £230. I would accept that by dismissing the claim the District Judge may in effect have said that.

2. He might have said in terms that plaintiff was not entitled to delivery up of the computer in the circumstances as they were. Again, I would accept that by dismissing the claim the District Judge may effectively have said that also. But what he did not say is how much was due to the defendant which was payable before delivery of the computer could be demanded from the defendant; conversely, for how much the defendant was entitled to exercise a lien. It is the failure to make any finding of that sort which means that the District Judge cannot be said to have made clear what his decision was on that particular issue.

3. Arising out of that, the District Judge might have said how much, if anything, was due to the defendant in respect of storage charges if any storage charges are entitled to be claimed. As regards those matters, the court is simply at sea. In these circumstances, there has been, in my judgment, misconduct of the technical kind referred to within rule 8(1).

I would therefore hold that the judge was wrong to dismiss the application to set aside the award, and that the present appeal should succeed. The consequence has to be that the matter will then be referred to the District Judge for a further hearing of the plaintiff's original claim.

I cannot end this judgment without expressing my view as to how utterly deplorable it is that, even at this late stage, the parties for their different reasons apparently are not able agree upon what would seem to be a sensible way of resolving the dispute at this late hour. Since they cannot do that, it is inevitable that this court can do no more than pronounce what the law is. In my view it leads to the result which I have indicated.

I would allow the appeal.

MR JUSTICE WILSON: As much as I recoil from a result which raises the prospect of further proceedings so wholly out of proportion to the issue between the parties, I entirely agree with what my Lord has said and would also allow the appeal against the circuit judge's order.

Order: Appeal allowed with costs of appeal and before the judge. The costs of hearing before District Judge shall be reserved to the District Judge when the case is heard again.

(Not part of approved judgment)