Take ‘Em to The Cleaners!
Posted on: 20 Mar, 19
There is more to commercial litigation than going to court. With the potential expense and impact on your business of court proceedings, it is important to consider all the options available when commercial disputes arise.
What’s going on?!
Well, I was having a really good run in to Christmas with my business: new clients coming on board, orders being made and even more in the pipeline but I think all that Christmas cheer might have clouded my judgment.
What goes on at the Christmas party stays at the Christmas party, Oury.
That judgment was fine thank you very much, Clark. The problem is that people are breaching these contracts we’ve made quicker than they break their new years’ resolutions.
Well, there’s ways you can resolve these issues and get things back on track.
Nope. I’m not taking any rubbish this year. I’ve decided. I’m taking them to the cleaners!
Whoa. Slow down there, Oury. Is that really what you want to do?
Hmm…I’m not actually sure…I’ve just always wanted to say that.
From experience, you really need to think long and hard before commencing litigation proceedings. Taking someone to the cleaners…suing someone…is not a simple process. It can be long and expensive, ultimately causing your business more harm than good.
But I am really angry…and I’m worried about how much the unpaid invoices and breaches of contract might cost the business.
That’s completely understandable but it’s really important to adopt a commercial approach in these circumstances. Damage limitation is the aim of the game, not getting your own back. In the end, it is the continued success of your business that is of paramount importance…so really it depends on what kind of money we are talking about here.
I haven’t done the maths on everything yet so I’m not certain on the figures but I know one of the claims will be for less than £30,000.
You might not want to hear this but it really isn’t worth pursuing commercial litigation where the amount in dispute is less then £30,000.
But that’s a lot of money…
I know but there is a real risk…in fact it is highly likely…that even where you win (!) the costs you are unable to recover will be higher than the amount you are fighting over...so imagine if you lose.
So, I just stand here and let a £30,000-shaped-hole crash through my business and not do anything about it? Not only is that not fair but it doesn’t sound like particularly commercial advice to me, Clark, and that’s not like you.
I’m not saying there is nothing you can do just that when it comes to an amount under £30,000, commencing litigation proceedings isn’t commercial because of the costs that you are unable to recover.
What can I do then?
Well, if the amount is less than £10,000 then you can bring a claim in the Small Claims Court. This is a shorter (and cheaper) procedure than full-blown commercial litigation and legal representation is not required. Even here, though, you are unlikely to recover all your costs.
And the other option?
Alternative Dispute Resolution…or ADR.
I’ve told you that I want to take these guys to the cleaners, Clark, and ADR doesn’t sound much like that so I don’t want to hear it.
I think you should hear me out on this, Oury.
No sir. Hear me out because there is another potential claim that is definitely worth over £30,000.
Will it be for under £300,000?
Well…yes…but it’s a fair amount over £30,000…so you can’t tell me that I can let that go. The business is only an SME and that’s a hell of a lot of money…so I really want to take them…
…to the cleaners…I know. But even for claims worth over £30,000 but under £300,000 the costs of the proceedings are an issue that you really have to consider before steaming ahead (see what I did there) with commencing commercial litigation.
What are all these costs that add up to so much?
Think of it like a production, Oury. Going to trial is like putting on a show. There is a whole host of directors, actors, technical experts and supporting cast who need to be paid for the time and effort they spend both preparing for and taking part in the play plus paying for the “venue” and all the additional costs that brings.
But surely that doesn’t cost so much?
You’d be surprised. There are the costs of assessing and evaluating the claim, going through all the documents associated with the case (and this could be an awful lot of material when taking all the information off various computers and other devices used by the business and staff), advising on the plan of action, preparing witness statements and various court documents, getting experts involved and preparing their statements and instructing barristers. It can add up to a lot of hours worked.
Oh right…do I pay for the wigs and robes too?!
Not exactly but the additional costs involved are called “disbursements”. These are often made up of costs such as barristers’ fees , the cost of issuing the claim at court and process servers.
There’s a fee just for issuing the claim?
I’m afraid so. Court fees vary based on the amount being claimed but when you get to a claim of over £10,000 then the fee is 4.5% of the claim amount when issued online (5% when issued in paper form). The maximum court fee is £10,000. Any claim over £100,000.01 must be issued in paper form. Additional court fees can also arise from making various interim applications to the court or having to oppose these types of applications.
Wow. So the question I need to be asking is “to sue or not to sue”?
Exactly. Are you ready to talk about forms of Alternative Dispute Resolution now?
Before we do, I just want to know what my options are where a claim is for over £300,000…asking for a friend?
The major difference where the claim is for more than £300,000 is that it is much more likely that the amount you recover (if you win!) will be more than what you spend on bringing the claim.
Hooray! I can have my day in court!
You can, Oury, but ADR needs to be considered not just from a commercial perspective. It is necessary to attempt ADR as part of the process of bringing a claim in court. Courts will penalise parties in the form of costs where they fail to at least attempt ADR.
Well, with all these costs of bringing a claim I want to hear these alternative dispute resolution options anyway, even more so if it will cost me for not doing so. Let’s hear it.
ADR, Alternative Dispute Resolution, can take various forms and you know I love a table so this should help set things out:
| Non-binding ADR processes without third-party intervention | Non-binding ADR processes with third-party intervention | Binding ADR processes |
|---|---|---|
| Negotiation | Mediation Executive tribunal Conciliation Early neutral evaluation (non- binding) | Expert determination |
What is the point in the non-binding options? These clients of mine have already broken contractual promises so I have little confidence they will respect agreements they don’t have to.
Third party involvement in disputes (the middle column) can help parties come to a more realistic assessment of their chances of success and the value of the claim. This in turn can help parties reach a financial settlement or other arrangement which satisfies both and allows them to get back to running their business.
And can I just pick and choose or are some types of ADR more suited to certain circumstances?
Expert determination is often used to decide technical issues; early neutral evaluation to determine the facts, evidence and law on a particular issue and processes such as arbitration are almost a mini-trial. They each have particular strengths but what they share is that they are generally far quicker and cheaper than going all the way to court.
So, I guess it would make sense to agree the preferred type of ADR process in contract? Otherwise you could end up arguing, about the way you want to argue, before you start arguing…
Exactly. In the same way as you agree the governing law of a contract it can be useful to agree an ADR clause so you can move to resolve disputes quickly when they arise with the flexibility of Med-Arb being particularly attractive.
And there’s always the trusty statutory demand where smaller amounts arising from unpaid invoices are in dispute right?
Yes there is and it is often cheaper than issuing a claim in court. You can serve a statutory demand on a client who has failed to pay a debt of more than £750 (for companies) or £5,000 (for individuals). Where the debt remains unpaid for three weeks following the service of the statutory demand then you can begin bankruptcy or winding-up proceedings against the client. You have to be careful, though, as it is a double-edged sword: whilst it can lead to quicker payment of the amount due, it can be seen as an overly aggressive step and damage your relationship with the client.
Well, I can’t deny that I was kind of excited to take ‘em (all of them) to the cleaners you know, Clark, but what this little chat has shown me is that there are a number of options available when in dispute with a client and there is more to going to court than having a point to prove.
Whether the claim is for £3,000 or £300,000 the considerations must be the same: is it commercially viable to bring a claim?
Cost is not only monetary. Smaller businesses in particular need to consider the indirect costs to the business of key decisions makers spending their time and resources being tied up in the litigation proceedings – collating evidence, making witness statements, meetings with legal representatives and attending hearings. Added to that is the potential bad PR for the company, particularly as most hearings are public and so can be reported in the press.
Sometimes it is best to square away any dispute quickly, move forward and focus on the continued success of your business.
Lose the battle to win the war!
Exactly right, Oury. Now where’s that money I owe you for coffee this morning…
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We are but two fictitious characters throwing out ideas and comment to stimulate debate and collect information. As professional service firms, we are open minded people and think independent thought and debate is essential to help understand, as well as navigate, complex problems. By joves – doing business across Europe (and the world) is set to become a whole lot more complex in light of recent seismic political events. As businesses - we provide information and hopefully some wisdom - and we see this blog and its caricatures merely as a much more fun, perhaps slightly controversial way, of stimulating debate and collecting ideas. We’re searching for some true pearls of wisdom, and as we find them, we’ll share them with you.
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You know, Clark, I’m getting really annoyed.