Recovering a trade debt
There is a lot to consider before starting court proceedings in England & Wales:
- The court has to deal with matters “justly and at proportionate cost.”
- Do a cost/benefit analysis before starting proceedings, including the cost of enforcement.
- Check the other party is good for the money – there’s no point incurring the cost of litigation if you can’t enforce the judgment.
- Don’t start proceedings if you don’t intend to see them through. Unless it’s a small claim (less than £10,ooo) you’ll almost certainly be liable for the other party’s costs if you discontinue the claim.
- Be careful about always threatening to sue if you don’t mean it – don’t just “cry wolf” – the word will get round to your contacts and damage your reputation.
- Recovery of your legal costs depends on:
- who wins or loses;
- your conduct as well as compliance with court rules and orders (for example, a failure to comply with a pre-action protocol can have cost consequences even for the party that wins);
- when the matter ends (whether before or after proceedings have been started);
- the financial value of the claim and the “track” the claim is allocated;
- how the claim is concluded (whether by agreement or at trial).
Reaching a settlement
Litigation can be disproportionately expensive to the sums being argued about, the outcome is uncertain, the court is only able to offer a limited range of remedies and litigation often destroys any prospect of the parties resuming a commercial relationship so consider alternatives -for example:
- It might be possible to recover the debt or agree an alternative future course of action by opening a negotiation with the debtor.
- This can be done verbally or in writing (which includes e-mails).
- Parties usually negotiate on a without prejudice basis.
- The without prejudice rule generally prevents statements made in a genuine attempt to settle an existing dispute from being used as evidence of admissions against the party which made them.
- This rule means that, if the negotiation or mediation fails and the business then issues court proceedings, any statements that the parties made in a genuine attempt to settle the dispute (whether in writing or orally) will not be put before the court in the proceedings.
- Mediation is a flexible, voluntary and confidential form of dispute resolution in which a neutral third party helps parties to work towards a negotiated settlement of their dispute.
- The parties retain control of the decision whether or not to settle and on what terms.
You can always simply write off the sum but before taking this step, consider the:
- Size of the debt.
- Likely cost of recovering the debt.
- Importance of the current relationship between the parties.
- Likelihood of maintaining an on-going commercial relationship between the parties.