If the threat comes in written form (a letter or other document), take it seriously. Don't throw it in the waste paper bin, or put it on one side to deal with later. It will generally contain a deadline by which you are required to respond (or pay up), failing which the other party will start court proceedings. You need to respond in writing within that deadline, even if you are denying the claim, because this is your best hope of minimising the damage.
If the other party considers that it has a legal basis for the claim, it may issue proceedings if you fail to respond, and may decide to do so despite your response. This is the point at which the legal costs start to increase. So it is worth considering the allegations carefully, and deciding whether you want to try for a settlement before things get to that stage.
If you think that the claim is unjust or unreasonable, but are uncertain about your ability to defend it, take professional advice. A solicitor will be able to advise you on the merits of the case, and suggest a strategy or strategies for resolving it.
First, you need to establish that you have a legal basis for your claim, consulting your solicitors if necessary. Next, you need to notify the other party, in writing, that you are considering commencing court proceedings, giving them an opportunity to put things right (for example, by paying an outstanding debt, or negotiating an acceptable settlement). If they fail to do so - and you believe they will be able to satisfy any judgment (see 14, below) - you may proceed with a claim.
To start court proceedings you need to complete a claim form and send it to the appropriate court (for example, your local county court), together with particulars of your claim and a court fee. In the case of simple debts, you can start the claim online via Money Claim Online, which can be found on the court service website. For more complicated claims, you would probably do better to use your solicitors, who will draft the claim for you and issue it at court. A copy will then be sent to the other party, who will have time to respond. If they intend to fight the claim, the court will allocate the case to one of three tracks:
The court will also make an 'order for directions', setting out how the case is to be conducted - for example, when documents are to be disclosed, what the timetable will be and so on - so that both parties can prepare for the trial. Finally the claim will be 'listed' for trial before a particular judge, who will decide the outcome.
Apply to the court where the claim was started for the claim to be struck out and/or for a summary judgment. If the claim discloses no reasonable grounds for bringing it - or the claim form and particulars are so badly drafted that no legally recognisable claim is disclosed - ask to have it struck out. If, however, there is a reasonable basis for the claim, but there is no real prospect of the claimant succeeding and no other compelling reason why the case should go to trial, go for a summary judgment instead. You can apply for a summary judgment as soon as the claim comes in, so you do not have to spend time and money on drafting an unnecessary defence. You must set out in your application:
A judge will consider these arguments, and you may have to attend a short court hearing. If you succeed in an application to have a claim struck out or for a summary judgement, you can ask the court to order that the other side should pay your reasonable legal costs.
Use your solicitor's experience in solving problems to provide you with a range of options, tailored to your commercial needs and expectations. If you find yourself mired in a commercial dispute, your solicitor will be able to analyse its legal basis, advise impartially on the strengths and weaknesses of your position, and set out the potential cost consequences of each of the available options. This is particularly useful where court proceedings may become necessary, because the courts have complex rules on the recovery of legal costs. Where a dispute is particularly acrimonious, the involvement of solicitors may also help by encouraging the parties to focus on the main issues, with a view to reaching an early resolution.
If you are involved in court proceedings, as a general rule you must disclose any documents relevant to the matters in dispute, even if they may harm your case. If the other side asks for documents, the questions you need to consider are:
It would be unreasonable, for example, to require 10 years' worth of documents for a small value claim: the cost of retrieving them would not be justifiable. You do not have to let the other party see any documents prepared for the purposes of the litigation, or for the purpose of giving or receiving legal advice. These are 'privileged'. However, you may not be able to prevent the other side from seeing documents that you consider to be 'commercially sensitive', if they are relevant. As well as requesting documents, the other side is entitled to ask for further information based on what you said in initiating (or responding to) the claim. This will usually be to clarify a point. If you fail to respond to this request, the other party may make an application to court, under the Civil Procedure Rules, for an order requiring you to respond, and you could be billed for the costs they incur in making this application.
Litigation is a public process. So your involvement in court action may result in the publication of personal and business affairs. This is a risk you will have to live with. If it worries you, consider an alternative method of dispute resolution, such as mediation. You may seek to prevent your opponent from inspecting a document containing material which is potentially harmful to your business, if in the circumstances of the case it would be disproportionate to require you to divulge it. However, your opponent can apply to court to allow inspection of the document, giving reasons for the request.
Once a court claim has been issued, the defendant has a maximum of 14 days from service of the claim to respond with a fully-reasoned defence, and deliver this to the court. Generally, the court will post the claim form to the defendant and it will be deemed served two days after posting. The court will then send the parties a questionnaire, which is used to allocate the case to one of three tracks. The small claims track is used for lower-value cases (under £10,000) of a simple nature; the fast track is used for reasonable cases of more moderate value (£10,000 - £25,000); and the multi-track is used for complex and high value cases (over £25,000), where the trial is likely to last more than one day.
Small claims should generally be heard within three to six months of the start of the court proceedings; fast track claims may take six to nine months; and claims on the multi-track can take considerably longer because of the complexity of the issues involved. However, these timescales are useful only as a guide for the average case; if more complex issues arise the whole process can take considerably longer.
The court will usually try to ensure that important hearings and trials are listed for a date and time convenient for the parties. Once a hearing has been listed, it is not possible to vary the date simply by agreeing with the opposing party. Any attempt to change the date or time must be by way of an application to the court - which is not bound to agree, even if the opposing party is amenable. However, the court will consider the request, taking into account the overriding objective of the Civil Procedure Rules - that cases should be handled justly - as well as the importance of not wasting court time.
If the defendant is an individual, the case will automatically be transferred to their home court when they respond to the claim. If the defendant is not an individual, there is no automatic transfer provision and the court can decide where the case is held as part of its case management powers. When the court is allocating the case to a track, it will ask the parties if they would prefer the case to be heard at a particular court, consider their requests and decide on the most appropriate location. The court will also consider whether the matter is a specialist claim that should be dealt with by a specialist judge.
Litigation can be very time-consuming, and complex cases can involve a lot of preparatory work. You will need to check what documents you have that could relate to the issues in the case, which will probably involve going through a lot of correspondence and emails, as well as identifying the contractual documents. You will also need to meet your solicitor to provide them with full details of the background to the dispute, and to discuss your objectives. If you are bringing a claim it makes sense to invest the time early on, because as soon as a claim is issued the court will impose a timetable that must be complied with. If you are not properly prepared in advance, you may be called away from your business for considerable periods of time, and at very short notice. If you are defending a claim time may be even more restricted, so put some work in as soon as possible. This will allow your solicitor properly to evaluate the strength of your position, and could influence the strategies they suggest for resolving the situation.
Assuming that your case goes to trial, witness statements will have been taken and exchanged with the other party beforehand. If you have given a witness statement, it will usually stand as your 'evidence in chief'. This means that you will not normally be able to expand on the content of your statement without the judge's permission. You will be cross-examined on the content of this statement by the other party's representative. At court hearings other than trials (for example, a hearing for summary judgment), evidence is normally given by witness statement only. Even if you are reluctant to give evidence, one of the other parties could obtain a witness summons from the court, compelling you to do so. If you then fail to attend the trial to give evidence, committal proceedings (ie proceedings committing you to prison) could be taken against you.
Depending on the court - and the type of hearing - your solicitor might be able to act as your representative. However, barristers are experienced advocates, and - particularly in complex or high-value claims - your solicitor might well advise you to use one. There are two ways in which you might want to use a barrister:
If a barrister's opinion would be useful, your solicitor will know how to find the relevant expert, and will 'brief' (instruct) him or her. You will not be able to instruct a barrister yourself; a solicitor will do this on your behalf.
That will depend on the nature of the case and the purpose of the hearing. The majority of claims never reach a court hearing because they settle before trial, or are discontinued for some other reason. Trials of cases allocated to the small claims track should take no more than a few hours, as they are relatively informal. Trials of cases on the fast track should not last longer than a day. Claims on the multi-track could last from little over a day to many months, depending on their complexity.
You need to consider before you start a claim whether or not the potential defendant will be able to satisfy a judgment: otherwise you might end up with a moral and legal victory, but no financial recompense and a substantial bill for legal expenses. Once a judgment is obtained, it is effective immediately, and the debtor should comply with its terms. Unless it states that payment should be made 'forthwith', however, the debtor should be given a reasonable period of time in which to pay. If it is necessary to have the judgment enforced, it can be done in several different ways. The court will not do it, however, unless you ask for it. The way in which you are required to make the request is determined by the method of enforcement you choose, so you might need legal advice at this stage. You could, for example, ask for a warrant of execution, an attachment of earnings order, a third party debt order, or a charging order. A warrant of execution gives county court bailiffs or High Court enforcement officers the authority to take goods from the defendant's home or business. But there are limits on the type of goods that can be seized, and goods sold at auction will only achieve a fraction of their value.
An attachment of earnings order can be sent to the debtor's employer, authorising them to deduct an amount from the debtor's pay cheque each pay day, and send it to a collection office, from which it will be sent on to the creditor. If the debtor has cash or other assets, but is refusing to pay, a third party debt order can be issued to stop them from removing money from their bank or building society account, and authorising the bank or building society to pay the creditor from the account. A third party debt order can also be sent to anyone who owes the debtor money. A charging order prevents the debtor from selling assets (such as property, land or investments), without paying what is owed under the judgement. Finally, if the amount owed is more than £750, the creditor can apply to make the debtor bankrupt.
In almost all civil cases, you have to ask the court for permission to appeal against its decision. This will only be given if the court considers:
Slowly, and with some difficulty. Depending on where the party you wish to sue is based, permission of the English/Welsh court may be required before a claim can be issued at all. If permission is required, you would have to apply to the court (in England or Wales) where the claim is to be issued, for permission to serve it out of the court's jurisdiction. The defendant will have to be given longer to respond than a defendant in England or Wales would get, the length of time depending on the country in which the claim is to be served. If you find yourself in this position, consult your solicitor before you do anything. They may be able to suggest a more commercial way of achieving your objectives, possibly including advice as to whether you may be able to sue in the country in which the debtor is based.
You can issue a claim against a debtor based in Scotland in exactly the same way as against one based in England - with one proviso: there must be no existing proceedings concerning the same claim in another court. You must include a statement on the claim form to this effect. If the claim is against a business, you can choose in which court to issue it. As with a debtor based in England (see 14), you need to consider carefully before you start the extent to which the debtor will be able to satisfy any judgement, and how much you will have to expend in time and money if you have to enforce it. This is particularly the case if the debtor's assets are in Scotland. If you obtain a judgment against the debtor, you will be able to register it in the High Court and enforce it as if it were a judgment from a Scottish court, but Scottish law, procedure and enforcement differ from English, so the business will be time-consuming and expensive, and may have practical difficulties.
If a case goes to court, the loser is usually called upon to pay some part of the winner's costs - but this is not an absolute rule. The court looks at each case on an individual basis, and exercises its discretion under the Civil Procedure Rules. Where the loser is required to pay costs, it will not necessarily be the whole of the winner's costs. The court will consider:
You can get together with the opposing party (or parties) ahead of the hearing, to agree the amount of costs that will be paid by the losing party, and thereby avoid the additional costs of an assessment by the court. But bear in mind that if you win, but do not recover all of your costs from the other party, you will still be responsible for paying your solicitor's costs in full. In some circumstances you may only be entitled to recover a fixed amount from the other party - for example, where you obtain a default judgement, or if you make a claim for a specified amount and the defendant admits the claim. There are no rules on recovery of costs where an alternative method of dispute resolution (such as mediation) is used. In such cases it will be a matter for the parties to negotiate.
Litigation is usually funded by the client paying their solicitor's costs at regular intervals, the amount of the payment being determined by the solicitor's hourly rate, and the amount of time spent on the matter. However, where one (or more) of the parties is unable or unwilling to pay legal fees, it may be possible to use a conditional fee arrangement.
A conditional fee arrangement (CFA) works by splitting the risk of the action between the solicitor and the client. The solicitor conducts a risk assessment (to determine whether there is a reasonable prospect of winning), and depending on the outcome, may agree to conduct the case on a 'no win, no fee' basis. In these circumstances the solicitor will charge no fee if the case is lost but will charge their usual fees, plus a percentage (the 'success fee'), if the case is won.
The maximum by which they can increase their fee is 100%.
If you use a CFA and win your case, the court may order the losing party to pay your reasonable basic costs, plus all or part of the 'success fee', plus any expenses incurred, plus the premium for any insurance policy purchased under the CFA (see below). However, if the court does not make such an order, or the order is made but not complied with, you remain liable to your solicitor for all these costs. If you use a CFA and lose your case, you will not have to pay your solicitor's fees, but will still be liable for out of pocket expenses, and may be ordered by the court to pay the winner's costs. You can take out insurance to cover this potential liability (see 20).
You (or your solicitor) must tell the other parties involved in the case about the existence of any CFA, and also whether insurance has been taken out to cover the loser's potential liability. This is required under the Civil Procedure Rules as it may have an impact on the way in which a case is handled, and whether and when there are offers to settle.
You can (usually) obtain insurance cover against the risk of being landed with a large bill for legal costs and expenses (your own, and those of your opponent if the court so orders), should you lose your case. These policies, called 'after the event' policies, provide cover just against the legal costs arising as a result of a disputed event, or an accident. They are not cheap. The cost varies with the type of case, but cover against the potential legal costs of even a simple road traffic accident would start at around £350. However, you may be able to recover the cost of the premium from your opponent if you win your case.
Expert witnesses are called to give their opinion to the court on matters within their expertise: for example, in a company or partnership dispute, an accountant might be asked to give their view. The expert's role is to assist the court in areas which fall outside the knowledge of the court, and his duty to the court overrides any obligation to the party by whom he has been instructed or paid. Where an expert is required, the parties will be encouraged to appoint a single joint expert. In some cases, however, it may be more appropriate for each party to appoint its own expert. In such cases the court considers the arguments of the parties in the light of the overriding objective to deal with cases justly and proportionately, and makes directions for witness evidence accordingly.
Where negotiations are said to be 'without prejudice', it means that nothing that is said or done is admissible in evidence in any subsequent trial should the negotiations fail. The object of the exercise is to encourage parties to make genuine attempts to settle disputes, without fear of their discussions - and in particular their potential concessions - being subsequently disclosed in court. There are two circumstances in which 'without prejudice' statements may be admissible in later court proceedings:
Yes. In th case of commercial disputes, the main alternatives are negotiation, mediation and arbitration. The courts say that litigation should be a last resort, and actively encourage the parties to disputes to use alternative dispute resolution (ADR). From the point of view of the parties, too, litigation is costly, and may not provide the best commercial solution. With mediation, a neutral third party helps the parties to the dispute to reach their own solution. The aim is to take away the adversarial atmosphere, and allow them to focus on the issues. The procedure is voluntary, consensual, and can be significantly quicker and cheaper than litigation (depending on the situation). Either party can withdraw at any time, and neither has to accept the proposed solution. For commercial clients, mediation has another significant advantage in that it is a private process, unlike litigation, which is public. However, for mediation to succeed both parties must enter into the process voluntarily, and in a spirit of co-operation.
If a settlement is reached, it will be recorded in a written agreement that can be enforced as a contract. Arbitration, in contrast, is an adjudicative process (like litigation). The parties voluntarily refer a dispute to an independent third party, who is appointed by them to make a decision based on the evidence and arguments presented. The parties agree in advance to be bound by the arbitration award, which can then be enforced by application to the High Court as if it were a court judgement. Like mediation (and unlike litigation), arbitration is a private process. Arbitrators can also be chosen for their particular expertise, which can be useful in technical cases that might fall outside the expertise of High Court judges. Many commercial agreements contain 'dispute resolution' clauses specifying that a particular method of ADR should be used, before resort to the courts. The terms of these clauses should be carefully checked for the correct contractual procedure for dispute resolution.