23 FAQs people ask about commercial disputes
- What do I do if someone threatens to sue me as the result of a commercial dispute?
- How do I set about suing someone?
- If someone is proceeding against me with a nonsense case, how do I get it thrown out?
- What will a solicitor do for me that I couldn't do for myself?
- The other side's solicitors are demanding information from us. Do we have to give it?
- What do we do if we think they are asking for information which is commercially sensitive?
- How long will it take for a commercial dispute case to come to court?
- What happens if the court hearing comes at an inconvenient time? Can we get it changed?
- Where is the case likely to be held?
- How much work will I have to do beforehand?
- Will I have to appear as a witness?
- Do I need a barrister to represent me?
- How long will the court hearing take?
- How will a judgment against me be enforced, or if I have a judgment in my favour, how do I enforce it?
- Under what circumstances would it be worth appealing against a court judgement?
- How do I proceed against an overseas debtor?
- How do I proceed against a debtor based in Scotland?
- What are the basic rules on costs recovery?
- How does a conditional fee arrangement or damages based agreement work?
- Can I insure against losing?
- What is an expert witness?
- What is the meaning of 'without prejudice'?
- If I have a commercial dispute, are there any alternatives to taking someone to court?
1. What do I do if someone threatens to sue me as the result of a commercial dispute?
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 legal proceedings - start a court case against you - 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.
2. How do I set about suing someone?
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.
For certain types of claim the steps the courts think you should normally follow before starting court proceedings (such as writing to the other side in the dispute first) are set out in ‘pre-action protocols’. If a protocol applies and you do not follow it, the court could penalise you when it comes to deciding how it will allocate legal costs between the parties, even if you win.
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, on the HM Courts & Tribunals 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 a set time to respond. If they intend to fight the claim, the court will allocate the case to one of three tracks:
- small claims (claims with a value of less than £10,000 which will last less than a day);
- fast track (claims with a value of £10,000 - £25,000, which will last a day or less); and
- multi track (complicated claims/claims with a value in excess of £25,000 and/or which will last more than one day).
Which track applies will affect the procedures to be followed and how much of your legal costs each party can recover from the other side if they win. Particularly, in fast track and multi track cases the parties’ solicitors must normally (although there are exceptions) prepare costs budgets estimating what their respective legal costs might be, and update them periodically, and these are referred to when the court decides the costs payable by the loser to the winner at the end of the case.
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.
3. If someone is proceeding against me with a nonsense case, how do I get it thrown out?
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:
- why the claim has no prospects of success, and
- why there is no other reason for the case to proceed to trial.
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.
4. What will a solicitor do for me that I couldn't do for myself?
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.
A solicitor can also advise you on tactics once a court case has started, such as how to use the procedural rules to your advantage.
5. The other side's solicitors are demanding information from us. Do we have to give it?
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:
- whether the information requested is relevant to the issues in the case, and
- whether the request is proportionate to the claim.
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.
6. What do we do if we think they are asking for information which is commercially sensitive?
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.
7. How long will it take for a commercial dispute case to come to court?
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.
8. What happens if the court hearing comes at an inconvenient time? Can we get it changed?
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.
9. Where is the case likely to be held?
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.
10. How much work will I have to do beforehand?
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.
11. Will I have to appear as a witness?
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.
12. Do I need a barrister to represent me?
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:
- to provide specialist legal advice (an 'opinion') at an early stage - this can be particularly useful in complex, high-value cases, where knowledge of the strengths and weaknesses of your case might enable you to negotiate an early settlement; and
- to represent you in court.
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 can instruct a barrister directly under the Public Access Scheme, but it is more usual for a solicitor to do this on your behalf.
13. How long will the court hearing take?
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 a little over a day to many months, depending on their complexity.
14. How will a judgment against me be enforced, or if I have a judgment in my favour, how do I enforce it?
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 it to. 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 £5,000, you can apply to make the debtor bankrupt.
15. Under what circumstances would it be worth appealing against a court judgement?
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:
- that the appellant has a real prospect of success; or
- that there is some other compelling reason why the appeal should be heard. For example, further evidence might have come to light after the original judgment, or there might be allegations of a serious procedural or other irregularity.
16. How do I proceed against an overseas debtor?
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.
17. How do I proceed against a debtor based in Scotland?
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.
18. What are the basic rules on costs recovery?
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:
- to what extent the winner's costs were reasonably incurred, and are proportionate in the circumstances of the case;
- the conduct of the parties, including whether any have unreasonably refused to take part in mediation;
- whether a party has succeeded in all or part of its case; and
- whether there have been any offers to settle and whether the amount the winner is awarded in due course is less than the amount they were previously offered in settlement.
There are steps you should follow before starting certain types of legal action (such as writing to the other side in the dispute), set out in rules about how parties should conduct litigation called ‘pre-action protocols’, or the court could penalise you when deciding how to allocate costs, even if you win.
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. 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.
19. How does a conditional fee arrangement or damages based agreement work?
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 (CFA) or a damages based agreement (DBA)..
A 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 fees (or only a discounted fee) if the case is lost but will charge their normal fees, plus a percentage (the 'success fee'), if the case is won. The terms of the CFA will be set out in an agreement between you. You can enter into a CFA with your solicitor whether you are bringing a claim or defending one.
The maximum your solicitor can add as a success fee is 100% of their normal fees. So, provided you agree, they can receive up to double their normal fees if you win, but no more than that.
Many CFAs for commercial disputes provide that third party expenses (lawyers call a client’s third party expenses, such as the costs of a valuation or an expert’s fees, ‘disbursements’) are payable by the client whether they win or lose.
A client entering into a CFA will often also take out ‘after the event’ (ATE) insurance (see below), which covers any payment the client has to make towards the other side’s legal costs if the client loses, and also their expenses (see 20).
If you use a CFA and win your case, the court may order the losing party to pay your reasonable basic costs. However, following rule changes on 1 April 2013, if you enter into a CFA and/or take out ATE insurance you cannot recover either the success fee or the insurance premium from the losing party if you win. So you can still enter into a CFA with your lawyer, and take out ATE insurance, but you will have to pay the success fee and any insurance premium out of your damages if you win, rather than being able to recover them from the losing side, as had been the case before 2013. If the amount you are likely to get in damages is low, you have to consider how much you will have left (if any) after you have paid your solicitor, when deciding whether to go to court in the first place.
If you use a CFA and lose your case, you won't have to pay your solicitor's fees (or will only have to pay discounted 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 ATE insurance to cover this potential liability.
A damages based agreement (DBA) also splits the risk between a client making a legal commercial claim and their solicitor, but in a different way.
The DBA rules (which only apply in England & Wales) allow solicitors to act for clients in commercial disputes (both in the courts and in arbitrations) in return for a percentage of the client’s damages if the client wins. This percentage can either be in addition to other fees payable to the solicitor, or the solicitor’s only payment. A DBA will also provide for any barrister’s fees and VAT to be paid out of your damages too.
As the percentage payable under a DBA is based on the damages payable if the client wins, DBAs are only used where the client is making a claim, not where they are defending a claim, because defendants do not receive damages even if they successfully defend the claim against them.
Another way to fund litigation is to use a third party funder. They will pay the costs of your litigation in return for a share of your damages if you win. If you lose, they receive nothing. Third party funders are regulated and are restricted in their ability to influence how you conduct your case. In certain circumstances you may have to tell the other side you have a third party funder and who they are, which can affect your strategy in the litigation.
Your solicitor will advise you on which (if any) combination of the different types of funding is suited to your circumstances, and the consequences for your strategy.
20. Can I insure against losing?
You can (usually) obtain insurance cover, after a dispute has arisen, against the risk of being landed with a large bill for your opponent’s legal costs and also for 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, are not cheap. The cost varies depending on, for example, the insurer’s assessment of your prospects of success, the stage the dispute has reached and the amount of any excess you agree to pay, but cover against the potential legal costs of a commercial dispute can be anywhere between 20% and 60% of the cover provided. You cannot recover the cost of the premium itself from your opponent if you win your case.
21. What is an expert witness?
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 their duty to the court overrides any obligation to the party by whom they have 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.
22. What is the meaning of 'without prejudice'?
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:
- where protection is waived with the express or implied consent of both parties
- where a settlement is reached following 'without prejudice' negotiations, but one of the parties subsequently fails to honour the terms of the settlement, and the matter therefore ends back in court.
Simply saying communications with the other side are ‘without prejudice’ is not enough. They must have been made in the context of an actual or potential legal dispute, and the communications you are seeking to protect must have been made with a genuine view to settlement of that dispute. It can be worth taking legal advice before entering into what you think are without prejudice communications, just to be absolutely sure the other side won’t be able to tell the court what you said in your communications if negotiations break down.
23. If I have a commercial dispute, are there any alternatives to taking someone to court?
Yes. In the 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 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.