Being a business owner means that making agreements and signing contracts can be a regular occurrence. These formal agreements protect your business and ensure that suppliers, business partners and even customers uphold their end of the contract.
The clauses these contracts form the backbone of a business's operations, covering the supply of goods, delivery of services, timeframes for completion and when payments are due. As such not complying with any of the conditions in a contract will often lead to a dispute.
When a party fails to fulfil the terms and conditions in a written agreement, without a lawful or valid excuse, this is referred to as a breach of contract and you must decide how to deal with the breaking of the agreement.
But before you start filling out the court forms, a first step in dealing with a breach is to formally advise the other party with written notice, known as a 'Letter of Claim' or 'Letter Before Action'.
What is a Letter Before Action?
A Letter Before Action is the starting point of many forms of civil legal proceedings and basically sets out your legal claim. It's important to keep in mind that while a Letter Before Action is the first step in taking formal action, it should be the last step in trying to deal with the issue informally.
Calling in lawyers and involving the court at the first inkling of a problem usually won't be helpful. If an aspect of a contract hasn't been complied with or is outstanding, then a polite (but firm) enquiry to the other party on the reason and how they intend to resolve the should be your first act.
Then if informal discussions don't start the process to resolve the issue, sending a Letter Before Action is often a low-cost route to opening a dialogue with the other side to achieve a resolution.
What should a letter before action contain?
Background and context
The letter should start by referencing the specific contract or agreement that has been breached, when it came into force and what it covers. You shouldn't assume that the person who deals with the letter is aware of the existing business relationship and that an agreement in place.
Circumstances and facts
Briefly explain what has occurred and how it is considered to be a breach of the agreement. Ideally point to a specific obligation or clause in the contract and how this obligation hasn't been met. If the failure has resulted in a loss or damage that can be calculated, then this should also be included.
Remedy and resolution
State how the breach can be remedied and how the matter can be resolved to your satisfaction. This resolution will be down to the type of agreement and specifics of the breach, but could involve immediate payment of an outstanding amount, the return of a supplied product, cancelling of a service/contract or a monetary payment to cover a loss.
Timeframe and response
A reasonable period should be given for the other party to comply or at least acknowledge and respond to the letter. A timeframe of at least 14 days would be a minimum, and you also need to comply with any reasonable requests for additional information.
Consequences and legal action
Finally, the whole point of the Letter Before Action is to set out your claim and place the other party on notice that a failure to act could lead to you starting legal proceedings. This should be stated in the letter along with highlighting that you will also be looking to recover any additional costs that are involved with court action from them as well.
Legal Advice with a Breach of Contract Letter.
Before starting down the path of court action, it's always advisable to seek some initial legal advice. While the breach may be an obvious one, a contract dispute lawyer will be able to advise you on your prospects, how any damages would be calculated and what legal proceedings may cost.
Importantly they can also draft your Letter Before Action ensuring it accurately represents your claim and that it complies with the court's Civil Procedure Rules and Pre-action Protocols.
A well-researched and professionally drafted Letter Before Action is your best chance of achieving an early and cost-effective resolution to a contract dispute, so it's well worth getting a solicitor involved from the outset.
If you've a consumer or business issue that you've been unable to resolve with informal discussions or negotiation, the next step is usually civil legal action.
As the Claimant in a claim it will cost you time and money to issue court proceedings and there are three 'tracks' which a claim can be allocated to depending on the complexity and value of the matter.
The majority of disputes and subsequent claims fall into the Small Claims Track which is designed for use without the need of a solicitor. However, in reality, the process can be complex with various procedures, dates and correspondence all to be complied with.
But before starting down the path of issuing a claim, you need to have an understanding of how much it may cost to take someone to the small claims court.
Small Claims Court Fees.
Being the Claimant, you will need to the pay fees to the County Court to start and run the claim. These Court Fees are payable at two key stages of the claim and are required in advance, so ensure you have these available prior to starting your claim.
Should your claim be successful, and a judgment be returned in your favour, all the Court Fees you have paid will be added to the amount the Defendant must pay you.
Small claim court fees and limits and can vary across the UK as well as with different types of claims (personal injury, housing disrepair etc). In this guide we'll be referring to the process in England and Wales for Money Claims.
Small Claims Court Issue Fee.
The Issue Fee is required when you first submit your Claim Form to the court and start your claim.
A claim can be submitted with a paper claim form or via the Internet using the Money Claim Online service. The benefit of submitting the claim online is that the Issue Fees are slightly lower, and you won’t have to print and post the documents. You will however need to register for an online account and you can’t use this service if you don’t know the exact amount you are claiming for.
Regardless of which method you use to submit your claim, the Issue Fee will be based on the amount you are claiming or the amount that you are estimating the claim is worth.
Correct as at 4 February 2019, but please see EX50 for full details and latest fees.
If using the online service this fee is payable by credit or debit card prior to submission. If you use a paper claim form, you will need to include a cheque or postal order for the correct fee.
If your claim isn't disputed or defended, then judgment will be awarded in your favour and no other court fees will be payable.
Small Claims Hearing Fee.
If the claim is defended, then the case will need to proceed to a small claim hearing unless an agreement or settlement is reached beforehand. The court will send both parties a proposed allocation to the small claims track along with a Directions Questionnaire.
The Directions Questionnaire will ask you details about your claim in preparation for the hearing, including proposed court location, any expert evidence, witnesses and any hearing dates to avoid.
Once both parties have submitted a Directions Questionnaire, this will lead to an order from the court giving a date for the hearing, exchange of evidence and a date for paying the hearing fee.
As with the Issue Fee, the Hearing Fee will be based on the amount claimed:
Fees correct as at 4 February 2019, but please see EX50 for full details and latest information.
Small Claims Mediation Service Cost.
The Directions Questionnaire will also ask if you agree to your claim being referred to the Small Claims Mediation Service. If both parties agree to this, then a mediation appointment will be organised by telephone and a mediator will attempt to reach a settlement over the course of an hour or so.
The HMCTS Small Claims Mediation Service is free of cost so should be seriously considered as an option. Also, mediation appointments will be available quicker than court hearings and you won't incur the Hearing Fee if the claim is settled at mediation.
If mediation fails, then the claim will proceed to a hearing and the Hearing Fee will become due.
Small Claims Expert Costs.
Depending on your dispute, you may require an expert to provide evidence to support your claim. You will need the court to grant permission to use an expert and if permission is granted you will then need to pay the expert to produce written evidence.
As with court fees, if using an expert has been approved and your claim is successful, the cost of the expert will be recovered from the defendant up to a maximum of £750.
What costs can be recovered in small claims?
If your claim is successful, as well as the court fees and approved expert costs, there may be other items you can claim and recover from the losing party.
There are various rules and limits around what can be claimed so it is always a good idea to get legal advice before starting your claim. Without legal advice then there is a risk you could miss out on recovering costs that you are entitled to claim from the opposing party.
Examples of small claim costs.
Unpaid Invoice or Loan debt of £1,400.00
£70.00 - Online Issue Fee (due when you submit your claim)
Faulty Goods valued at £2,800.00
£105.00 - Online Issue Fee (due when you submit your claim)
Poor Service or Workmanship costing £450.00
£35.00 - Online Issue Fee (due when you submit your claim)
How much does a lawyer cost for the small claims court?
Although the small claims process is designed to be conducted without legal representation, many people still choose to use a solicitor and can recover some of these costs as part of their claim.
The way legal representation costs for small claim are calculated is complex and relates to the claim amount, how the Claim Form is served and the number of Defendants. There are then further costs that can be claimed if judgment is entered which depends on the amount claimed and how the judgment was obtained.
Correct as at 4 February 2019, but please see CPR Part 45 for full details and latest fees.
Therefore, if you choose to use a solicitor for you small claim, you can typically expect to receive around £60.00 to £100.00 awarded towards your legal costs if your claim was successful.
The relatively low legal representative costs that are recoverable in the Small Claims Court is the reason you don't see 'no win no fee' funding being an option when dealing with small claims. So, if you do decide to seek legal help with a claim ensure you look for a law firm offering fixed fee small claims services.
Do I need a solicitor for the small claims court?
While you may not be able to recover all your legal costs as part of your claim, there are still some compelling reasons to consider instructing a solicitor for a small claim.
Firstly (and most importantly) a solicitor will be able to advise you on the law and your prospects of success. Spending money on issuing and attending a court hearing only to have no basis for a claim would be an expensive mistake.
Secondly a solicitor will be an expert on litigation and the court process, ensuring you comply with the relevant directions/deadlines and that your claim is comprehensive. If your claim is significant, missing out or even miscalculating an item such as your interest entitlement can prove costly.
Finally, even if your claim is successful and judgment is awarded in your favour you may still need to enforce that judgment. A lawyer can advise you on the most cost effective and productive enforcement methods that are available.
Should I take someone to the small claims court?
Taking a person or a business to the small claims court isn't free and not without risk. Knowing the potential costs along when fees will require paying is likely to influence your decision on if it is worthwhile process to undertake.
However, if your claim has merit and you can afford the court fees, then many of your costs will be awarded back to you should your small claim be successful.
No matter what industry you are in, you can't do business on your own. So every company has to have various agreements and contracts in place.
These agreements are often between you and your customers, employees, suppliers or distributors, and the way all these business agreements are enforced is by creating legally binding contracts between the parties involved.
Unfortunately, all too often when things start to go wrong we see businesses suddenly take an in depth look at their agreements only to find that they have an legally unenforceable contract or the agreement they signed doesn't cover what everyone thought it did.
It doesn't matter what kind of formal transaction it is, whether it's an employee contract, partnership agreement, purchase order, or any other business arrangement, the agreement must be recognised legally by the courts for it to be enforceable if someone were to challenge it.
This is why it's important to understand the key components of a legally binding contract when drafting an agreement.
Key Components and Unenforceable Contract Terms.
Legally binding contracts must include a 'bargain'. This is to say one party doing something in exchange for the other party doing something else; which is typically paying money.
But the exchange could also be exchanging services if money is not involved. The consideration has to be significant, but it does not necessarily need to be adequate. There is no law saying that a bargain must be of equal value, just that it must have some value.
Insufficient consideration could be when a contract allows for one party to avoid a penalty for failing to fulfil their end of the bargain which isn't mirrored by the other party.
Top industries for contract claims & disputesIACCM study on the Most Negotiated Terms & Conditions
Unfair or Unenforceable Contract Terms
Another common example of an unfair term are 'penalty clauses' where one party specifies a monetary amount that is payable upon breach of the contract which is disproportionate to the loss that the party would actually suffer due to that breach.
Does an agreement have to be in writing to be enforceable?
Legally binding contracts do not necessarily have to be written agreements, with a few exceptions such as property purchases/sales, so there are many oral contracts made everyday.
However, you should understand that it is always best to have agreement written down and signed by all parties.
If not, you will be stuck with the burden of proving that the oral contract exists and what the specific terms of the contract are. It is also more difficult to prove the 'intention to be bound' in an unwritten contract.
This is why it is always best to put agreements clearly in writing so there will be less room for interpretation should you end up enforcing the contract.
Steps to consider when reviewing a contract.
Ensure a contract does what you think it does
It can be too easy to assume that what was agreed verbally has been translated perfectly into a written agreement. Often this isn't the case, and a party can be caught out by relying more of the 'sentiment' or 'spirit' of what was discussed rather that what made it into the written contract.
Add a Dispute Resolution clause
Inserting a dispute resolution clause into a contract defines how the parties will seek to resolve differences or misunderstandings before they happen. To avoid litigation, a dispute resolution clause can point towards independent mediation or arbitration to settle the dispute in a fair and mutually agreeable way.
Proactively reviewing your contracts
Just don't wait until you need to enforce a contract before checking that it does what you need it to!
Catalyst Law are team of legal professionals with over 20 years' experience helping businesses and people with their legal problems.
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