You might have a good claim, but jumping in with a strongly worded letter threatening court proceedings if settlement is not achieved by return of post, and then issuing proceedings immediately when it isn't, is not necessarily the best, or cheapest, way of achieving your desired outcome. Consider the following:

Is confidentiality an issue?

Once proceedings are commenced, non-parties may obtain copies of all statements of case, orders and other documents filed at court under the Civil Procedure Rules (CPR) 5.4. If confidentiality as to the nature of the proceedings, or the terms of any subsequent settlement, is an issue, or could be, consider more private alternative methods of dispute resolution such as mediation or arbitration. See also the forthcoming part 17 of our survival guide on how to keep your settlement confidential.

If you are claiming for breach of contract, does the contract contain an alternative dispute resolution (ADR), arbitration or jurisdiction clause?

If so, consider the requirements of any ADR clause, which forum you should issue the proceedings in and whether that should be in England and Wales or in another jurisdiction.

Is the defendant worth pursuing?

Careful consideration of the defendant's financial position will help determine whether commencing proceedings will simply be a case of throwing good money after bad. In the current economic climate, the most recently filed accounts will not usually reflect the current financial position of a company. If the defendant is unlikely to be able to satisfy a judgment, the costs of obtaining the judgment will simply be adding to what is already an irrecoverable bad debt. Consider the possibility of a structured repayment plan, payment in kind or something similar but bear in mind potential insolvency issues.

Are insolvency proceedings, or at least the threat of them, more appropriate?

If there is no defence to the claim, consider issuing a winding-up petition or serving a statutory demand. It will certainly get you noticed! For more on this see part 4 of our survival guide.

Are you out of time to bring a claim?

Although the basic limitation period is six years for claims in contract and tort, there might be a contractual provision providing for a shorter limitation period.

Might the defendant dissipate its assets or destroy important evidence if forewarned of the potential claim?

If this is a real possibility, consider making an application for interim relief, such as a freezing order, to ensure that any subsequent judgment has something to bite on, or a search and seize order to ensure important evidence is preserved. Such applications are expensive but essential in certain cases.

Does any pre-action protocol apply?

Under the CPR, pre-action protocols apply to a number of areas of disputes including professional negligence, construction and engineering and personal injury claims. Where no specific protocol applies, there are still certain pre-action steps that a party is required to comply with, including acting reasonably in exchanging information and documents relevant to the claim and generally in trying to avoid the necessity of commencing proceedings. Failure to comply can lead to costs sanctions being imposed by the courts.

Is your letter before action sufficient?

In most claims, other than straightforward debt recovery claims where there is no defence, or claims where interim relief as referred to above might be necessary, a detailed letter before action should be prepared to ensure compliance with the CPR pre-action protocol requirements. The letter should:

  • give sufficient, concise details to enable the recipient to understand and investigate the claim
  • be accompanied by copies of all relevant documentation
  • ask for a prompt acknowledgement of the letter and a full written response within a reasonable time – generally one month
  • state whether proceedings will be issued if a full response is not received within the time proposed
  • state (if this is so) that the claimant wishes to enter into mediation or some other form of ADR
  • draw attention to the relevant pre-action protocol and the fact that the court is likely to impose sanctions for non-compliance. If the recipient is likely to be unrepresented, a copy of the pre-action protocol should be enclosed

What about lost management time?

Often a considerable amount of management time will be taken up by any litigation. Although some management time might be recoverable, (and you should have in place some form of record to provide evidence of the time spent) inevitably, much of it won't be. The cost and the disruption to the business incurred by having to be involved in the litigation should not be underestimated. This is one of the factors to bear in mind when considering whether to mediate at an early opportunity. For more on this see the forthcoming part 11 of our survival guide on recovering wasted staff and management time.