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Part of the skill of running a successful business is creating good relationships with your customers and suppliers, so that agreements are kept and problems can be sorted out in a friendly way.
When things go sour, your priority is still to settle the dispute peacefully, but there may be times when you have to resort to using the law.
1. Is it worth it?
Going to law is expensive and stressful. Right or wrong, do not litigate on a matter of principle.
How clear is the legal position?
- It may be clear that you have a claim.
- There may be two sides to the story.
- The legal position may be complicated.
- Unless you are completely sure, take advice before starting any legal action.
Does it make financial sense?
- In straightforward claims, you may be able to make a rough estimate of how much you will be awarded.
- If you have rejected goods entirely, you could claim a straight repayment.
- For breach of trading contracts, damages may cover resulting business losses.
- Losses due to an adviser's negligent investment advice may depend on how you would have invested in the absence of advice.
- Whichever track you use, you are unlikely to get back all your costs, even if you win the case. See Who pays?
You can claim interest on most commercial debts at increased rates
- When calculating your claim you should always make sure that you have included all the interest you are entitled to.
- Statutory interest, as well as debt recovery compensation, can be claimed on most commercial debts.
- You can recover interest at 8% above the Bank of England base rate, but calculations can be complicated. You should discuss this with your legal adviser.
If you won the case, would the defendant be able to pay?
- Credit information and credit reference services can provide you with a credit rating and information about court judgments (against the defendant) that have not been paid.
Will you be able to prove your claim?
- In court, you have to prove your case. The defendant does not have to disprove it. Evidence is essential.
2. Initial action
With your legal adviser, plan your approach to solving the dispute
- Your approach will depend completely on the circumstances.
- Your first objective is to settle the dispute without going to court.
- Failing this, your aim is to build up clear evidence that you have given the defendant a reasonable opportunity to settle out of court. This will count in your favour when costs are awarded.
Send your opponent a letter stating the details of your claim
- Insist that you require satisfaction or a fair offer within a reasonable and specified time.
- This letter will be a key document in your legal case. Seek advice on what details it should include.
- Say what you will do otherwise (eg issue a claim). Do not make empty threats. If you give a deadline, stick to it.
- Be aware that the threat of legal action may provoke a counterclaim against you.
- For certain types of cases (eg professional negligence), there is a specific pre-action protocol which you must follow. The court may impose costs sanctions against you for failure to comply with the pre-action protocol.
If there is no satisfactory reply, instruct a solicitor - or abandon the claim
- Choose good lawyers.
- Costs can be high in anything but the most straightforward cases.
Be prepared to compromise both before and during any court case
- You can settle either in or out of court, at any time before judgment.
- Decide whether you are prepared to accept payment by instalments, or payment of less than the full amount.
- Consider whether any offer exceeds or matches what you can expect to win. Make sure you understand your potential liability for costs if you reject an offer but fail to win more in court.
- Consider whether making your own formal offer to settle (a 'Part 36 offer') could save time and costs. Take legal advice.
- State that the negotiations are conducted 'without prejudice'.
- Most cases turn on the court's understanding of disputed facts or points of law, so litigation carries a natural risk even if you think that you have a very strong case. Always take this risk and your likely irrecoverable costs into account.
Consider mediation before issuing court proceedings
- Mediation involves formal negotiations assisted by a mediator.
- Mediation and other methods of alternative dispute resolution may save time and legal costs.
3. Which court track?
Civil court cases are now quicker and less expensive than they used to be.
Cases are allocated to a 'track' depending on the amount involved
- Cases are allocated to a small claims track (claims of up to £10,000), a fast track (£10,001 to £25,000), or a multi-track (more than £25,000).
- Straightforward claims of more than £10,000 can be allocated to the small claims track, if the court and both parties agree.
- Claims for £100,000 and less (or claims up to £50,000 for personal injury) must be issued in the county court. Claims for more than this can usually be issued in either the county court or the high court.
The small claims track and fast track both use standard, simplified procedures
- These are explained in a series of leaflets available from the court.
- In contrast, the multi-track allows the court flexibility to use a variety of approaches, depending on how complicated the case is.
- In a small claims hearing (only), you do not have to attend the final hearing, provided you submit written evidence to the court and a notice of non-attendance at least seven days beforehand.
Follow all the legal formalities to the letter, including any deadlines you are given
- Otherwise, you may provide the defendant with valid grounds for obtaining a judgment in default against you, which means you automatically lose the case.
The case is usually heard at your local court
- If you are suing an individual (eg a sole trader) and the claim is for a specific amount, the case is transferred automatically from your local court to the defendant's.
As the claimant, you usually pay the court fees and expenses during the court case
- Your expenses may include fees for lawyers and for any expert witnesses.
You may be able to reclaim some costs if you win
- If you win a case in the small claims track, the defendant may have to repay you for the court expenses and any enforcement costs. But you still have to pay most of your legal fees.
- If you win a case in the fast track or multi-track, the defendant generally repays your court fees and expenses, and 'reasonable' costs 'reasonably incurred' (which includes legal fees).
- The court is unlikely to award you more than 60 to 80% of your legal costs.
- If you lose in the fast track or multi-track, you pay the defendant's reasonable costs.
Offers of settlement can affect how costs are shared
- If you refuse an offer of settlement, and later win an equal or lesser amount, you will have to pay some of the loser's costs (provided that the defendant followed the correct procedures).
- If your offer to settle is refused, the defendant might end up paying a higher award and more costs.
Some insurance policies offer cover for legal costs
- These may pay the legal expenses if your business needs to bring a legal action.
Collecting evidence can be difficult, expensive and time consuming.
Collect plenty of evidence
- Whatever the claim, without evidence it is worthless.
Collect evidence quickly
- Witnesses can forget important details or disappear.
- Make certain witnesses give objective, accurate statements. Your solicitor will want to interview them and check their statements.
Get evidence in writing
- Written evidence can be used at an early stage and carries more weight in court than an unsupported statement.
- Witnesses may change their story later, or be unable to get it across in court.
Choose a solicitor with litigation expertise and a track record
- Your existing commercial or conveyancing solicitor is not necessarily an expert litigator.
Prepare for the initial consultation
- Your solicitor's time is your money.
- Send a letter of instruction before your first visit, summarising the claim, the facts and the evidence.
- Enclose indexed copies of relevant letters, notes, photographs etc.
- Ask for an indication of how likely you are to win a court case, and whether it justifies the expense and risk.
- A good litigator will be able to provide a clear explanation of the legal position and an idea of the likely expense.
Ask for an initial estimate of costs
- Once a case reaches court, costs can be several thousand pounds, even in relatively straightforward cases.
- Costs are usually based on an hourly rate. In some cases, it may be possible to agree a fixed fee.
- Hourly rates can be £500 or more for a senior London lawyer in a large commercial firm. Rates for junior London partners are about £200 to £360. Outside London, rates are lower.
- Barristers' costs are extra. Specialist barristers can cost thousands of pounds per day. You also pay for their written 'opinion'.
- Court fees are extra.
Ask for updates on progress and costs
- To keep costs down, agree as much of the evidence as possible with the defendant beforehand, rather than arguing it all in court.
- You can ask for your final bill to be referred to the court to be approved as reasonable.
You may lose, even if you think you have a watertight case
- There are defences to even the most straightforward claims.
- Your legal advisers may have over-estimated the strength of your case or given you bad legal advice. Unless you have been given negligent advice, you are unlikely to be able to claim any compensation from them.
- Witnesses may change their stories or refuse to give evidence.
Litigation is stressful and time-consuming
- Your business may suffer if you focus too much on the legal dispute.
Even with a good case, your opponent may be able to delay judgment
- They may be able to take advantage of procedural rules.
You may not be able to enforce judgment
- Enforcement of judgments for £600 or less is carried out by county court bailiffs, who have a relatively low success rate.
- Any judgment of more than £600 you can register in a high court. Enforcement Officers who enforce these judgments are more effective (but could be more expensive) than bailiffs.
7. DIY litigation
It may not be worth using a solicitor for claims in the small claims track (up to £10,000)
- Suing on a cheque, cancelled direct debit or unpaid bills is inexpensive and quick.
- Outgoings are limited to court fees, witness fees and expenses, and your time.
- You may want legal advice if you aren't familiar with the procedures.
Always get legal advice for cases involving substantial amounts and complex cases
- Take advice if the facts are complicated or disputed.
- Property law (eg disputes between landlord and tenant) is complicated. Use a lawyer, even if you handle some of the basics yourself.
- You may need legal advice if you are at risk of a counterclaim.
8. Alternative dispute resolution
Alternative dispute resolution can be quicker and cheaper than court proceedings
- It is also more likely to preserve any future relationship between you and your customers or suppliers.
The main attraction of this approach is the flexibility it provides
- There are a number of different methods of resolving disagreements without resorting to litigation.
- You can agree how formal the procedure should be and who should act as the arbitrator or mediator. In this way you can control costs.
- The process can be less confrontational than going to court.
One form of dispute resolution, if both parties agree, is arbitration
- This involves using a professional arbitrator to resolve the dispute. You can make the arbitrator's decision legally binding.
- In commercial disputes, arbitration is rarely used for claims below £20,000 due to the costs involved.
- The main exception is 'paper arbitration' (where the arbitrator's decision is based on written evidence that both parties have submitted). This can be used for claims as small as £2,000.
An alternative to arbitration is mediation
- A professional mediator works with both parties to help them reach an agreement.
- In many cases, matters are resolved before they reach trial, avoiding the need for court proceedings.
- Find out about any legal helplines offered by your local Enterprise Agency, Local Enterprise Partnership or trade association.
- Find a solicitor through the Law Society.
- Download details of court fees from HM Courts & Tribunals Service.
- Find a mediator or arbitrator through the Chartered Institute of Arbitrators (020 7421 7444).
The law is complicated. This factsheet reflects our understanding of the basic legal position as known at the last update. Get legal advice on your own specific circumstances and check whether any relevant rules have changed.
"Experience shows that mediation can often resolve very difficult legal disputes without the worry and expense of a full court trial." - Lester Aldridge Fast Track Solicitors