Commercial litigation is considered to be a broad area of law, encompassing many types of disputes that relate to businesses and the issues that can arise within them. We run through the most frequently asked questions relating to commercial litigation, and when exactly to instruct expert legal support.
Commercial litigation is an ever-expanding field of law, its growth spurred by the current trend of home businesses, entrepreneurship, and the diversification of existing businesses. The types of issues that can be found are as varied as the many types of businesses that are out there. We take you through a succinct overview of some of the key questions and answers relating to commercial litigation.
The important thing is to act quickly. As soon as a court document is served on you, the clock starts ticking as generally you only have a limited period of time within which to respond. Together with the claim form, you may have received a set of documents called a “Response Pack”. You have the choice of either acknowledging service, or entering a defence. Usually, the most advisable course of action is to send off the Acknowledgement of Service to the court immediately while, at the same time, obtaining an appointment with a solicitor that specialises in commercial litigation as quickly as possible.
It is very important that you do not ignore court forms. If you fail to observe the strict deadlines, judgment can be entered against you, or you can be debarred from filing evidence.
Preparation is the key to defending legal proceedings, so the best course of action is always to contact your solicitors for legal advice as soon as you receive a claim against you.
There are several options available to businesses that have debtors that will not pay. At the outset, it is necessary to examine the reasons why your debtor will not pay. If your debtor has a genuine complaint, then there is a dispute and a keen litigator can help you try to resolve this quickly and cost-effectively through a number of processes.
Firstly, it is always advised to have a solicitor send a letter demanding immediate payment to your debtor. This will usually result in either payment of the debt, or in your debtor putting forward their complaint. Lawyers will then negotiate on your behalf. If negotiation does not produce an acceptable settlement for you, court proceedings can be considered alongside other alternative methods of dispute resolution.
The most appropriate method of resolution will depend on the circumstances of your particular case. Generally, when you wish to preserve a commercial relationship with your debtor, the most user-friendly and non-adversarial method of resolution is often mediation.
If the debt that you are owed is less than £5,000, you may also wish to consider making a claim in the small claims court. The small claims court was set up to provide individuals and businesses with a forum to resolve legal disputes without the need for legal representation. The process is a less formal and more simplified version of the full-blown court claim system. Whether you win or lose, there are usually no legal costs ordered to be paid by either side, so the parties usually bear their own legal costs. At the end of the process, if you are successful, you will obtain a judgment order which is enforceable through the courts. Please see the enforcement section below.
If your debt is between £5,000 and £15,000, any claim made in the County Court would be allocated to what is known as the “fast-track”. This means that the court will aim to list your claim for trial within 30 weeks from its commencement. Unlike the small claims court, a successful party will usually be entitled to repayment of most of their legal fees from their opponent. Parties to a dispute in the fast-track will usually have legal representation.
Disputes over sums between £15,000 and £50,000 are most often allocated to what is known as the “multi-track” of the County Court, which is a more flexible resolution procedure, and the time it takes for your matter to reach trial will depend on its complexity. Disputes involving sums over £50,000 will normally be dealt with by the High Court.
In cases where there is no apparent complaint or dispute from your debtor, there is a further alternative. Consideration will be given to the commencement of insolvency proceedings against your debtor, initially by service of what is known as a “statutory demand”.
A statutory demand is the first step in insolvency and bankruptcy proceedings. As with court claims, time is of the essence as there is a limited period to respond if you dispute the debt. This is done by applying to the court to set aside the demand. If you have no dispute over the debt, you have a period of 21 days within which to pay the debt. If you fail to take the appropriate action within these deadlines, your creditor will then be able to present a petition to the court to make your company insolvent or, if you are an individual, to make you bankrupt.
Due to the time pressures involved, you should take urgent legal advice.
The first port of call in disputes of this nature is to examine the terms of the contractual agreement. The terms of an agreement are more often than not contained in “terms of business” or “terms and conditions”, but may also be found in specially drafted documents, as well as in correspondence, order forms and orally communicated words, promises and representations.
The first step in any contractual dispute is to analyse what terms have been agreed, and what obligations are actually contractually binding. Your options will then depend on whether the term that has been breached goes to the heart of the contract. This is called a “fundamental breach”. If there is a fundamental breach, this will usually allow the innocent party to end the agreement and claim compensatory damages. If the term that has been breached does not go to the heart of the contract and is therefore not a fundamental breach, then this will usually mean that the contract must continue, but the innocent party can also claim damages.
If you believe that your supplier or contractor may have committed a fundamental breach, you should take urgent and legal advice. The danger is that if you delay in terminating the agreement, this may be considered as waiving your right to terminate which means that the contract must continue.
You can request that the County Court Bailiff attends your opponent’s premises to request payment. If no payment is made, or payment is insufficient, they can seize the goods for sale. This is called execution.
It is recommended that, if execution is required for significant debts, your request for execution is transferred to the High Court so that collection is put in the hands of certificated High Court enforcement officers, who are much more likely to act quickly and are often far more effective and persuasive than County Court Bailiffs.
Your legal team can also look at other methods of enforcing judgment orders, including applying to the court for an attachment of earnings order, which is where an order is sent to the debtor’s employer so that a specified amount can be taken from the defendant’s earnings each payday and sent to you, until the judgment debt is paid off in full.
Another alternative is to make an application for a third party debt order. This is useful when you know that the defendant is owed money by a third party. An order allows you to step into the shoes of the defendant so that you receive the payment, which you then may apply to the debt owed to you.
Sometimes, however, the defendant may not have enough money or valuable possessions to pay off a debt. It is often the case with individuals that the only significant asset to their name is their home or other properties. In such cases, it is often advisable to apply to the court for a charging order. This prevents the defendant from selling his/her property or land without first paying you what is owed. In some circumstances, you will be able to apply to the court to request an order to force your debtor to sell the asset in order to pay off the debt.
You may be confident of successfully defending a claim, but at the same time, you may be seriously concerned that your opponent is not able to pay any legal costs awarded against it. The usual costs award rule in court proceedings is that the unsuccessful party will be ordered to pay most of the successful party’s legal costs.
In certain circumstances, a defendant is able to make an application to the court early on in proceedings for an order that the claimant pays money into court as security for the legal costs that he might become liable to pay if he loses the claim. If the court grants this order, the claimant will not be able to proceed with his claim unless he makes a payment into court.
The legal issues surrounding such applications for security for costs are complex, and the court will only normally make such an order if you are able to present evidence to the court to show that your opponent’s finances are, or will become, critically fragile. You must also be able to show that you have good prospects of successfully defending the claim. Alternatively, you may be able to show the court that your opponent is a company or individual resident outside England and Wales, or is nothing more than a nominee claimant, or has given unreliable address details with the intention of evading a costs order. If your opponent is resident abroad, you will also need to show that there may be difficulty in enforcing any costs order in that foreign jurisdiction. This is not normally the case where your opponent is resident in another EU member state.
Sometimes, circumstances exist where immediate action is required. For example, you may have been evicted from your business premises or home unlawfully, or another business may be using your registered trademark, or a debtor may be about to flee the country with your money. It is always recommended to seek legal advice and take immediate action, if appropriate, by making applications to the court for emergency injunctions. These can include the following:
You may consider forfeiting the lease. You might be able to do this if the lease contains a term allowing you to re-enter the premises, and whether any associated pre-conditions have been met. You will not be able to forfeit the lease if you have inadvertently waived your right to do so. You must tread carefully here as it is possible to waive your right to forfeit the lease simply by demanding outstanding rent, or accepting rent, among other actions. Therefore, it is always best to seek legal advice before taking any action.
Forfeiture may be the best option for you if you want to redevelop the premises, or you are confident that you can re-let the premises quickly, and at an equivalent rent.
You should only proceed with forfeiture using a reputable certificated bailiff and after receiving legal advice. The reason for this is that you will become the bailee of all goods found on the premises, and you have legal duties to account for those goods.
An alternative may be to levy “distress”. This is where a certificated bailiff is instructed to enter the premises and seize a tenant’s goods. The goods are held until the tenant pays the arrears, and if the tenant fails to discharge the debt, the goods may be sold and the proceeds of sale applied towards the arrears. Levying distress can be particularly effective as it puts a great deal of pressure on certain tenants to pay, and is usually a quick process. However, it is not always appropriate – legal advice relating to this should always be sought.
If your tenant has sub-let, it is sometimes possible to step into your tenant’s shoes and collect rent directly from the sub-tenant. This can be done by serving notice under Section 6 of the Law of Distress Amendment Act 1908.
If the lease was granted before 1996, there is also the possibility of pursuing the original tenant for the outstanding rent, even though they may have moved away from the premises long ago. With newer tenancies, it may be possible to pursue a former tenant, but only if they have signed an authorised guarantee agreement (“AGA”). If you wish to pursue any of these options you will need to serve the correct notice, and there are strict time limits to be observed.
In addition to the above, there are also the traditional debt recovery routes to be considered, including the commencement of a debt claim in the County Court or insolvency proceedings. These have advantages because they allow the lease to continue, and so liability for the rent to continue to accrue. Where there is an AGA in place signed personally, this can be the best route to maximize your recovery from the premises.
Finally, it is important to be aware that, just because there may be a rent deposit, this does not automatically mean that you can use it. It is always recommended that the Rent Deposit Deed is checked thoroughly before any action is taken to ensure that the proposed action is legal, and all necessary notices have been issued.
This will have implications on your ability to either forfeit the Lease, levy distress for rent or claim rent by alternative means. Much will depend on the type of insolvency, such as administration, administrative receivership, bankruptcy or liquidation. Therefore, it is important to seek further detailed legal advice.
If there has been a breach of the terms of the lease by the tenant, it is sometimes possible for the landlord to re-enter the premises and physically take back possession. This is called peaceable re-entry. However, great care must be taken before you embark on such action. Firstly, one must consider the possibility of committing a criminal offence under the Protection from Eviction Act. This is relevant where part of the business premises may be used for residential purposes. Secondly, consideration must also be given to the terms of the lease, as re-entry as a means of forfeiting the lease can only be used if the lease allows.
Often, the safest way of evicting your business tenant is to commence a claim in the County Court for possession. Care must be taken before proceedings are issued in the court, as often the appropriate notice must be served on the tenant, together with a letter before action.
If you are a small, medium or large business owner and require further legal assistance relating to any of the above scenarios, Pinney Talfourd can assist. We have an experienced and dedicated team of specialist commercial litigation solicitors based in our offices across Essex and London.
We have late night and Saturday appointments available in our offices in Brentwood, Hornchurch, Upminster, Leigh-On-Sea and Canary Wharf for those that find it difficult to make appointments during working hours. We are also happy to meet with you onsite at your own premises if more convenient.
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.