Writing for Business Advice, solicitor David Walker tells readers how to settle a dispute – and reach the best possible outcome for your small business – before a case goes to court.
In my last article I explained how to win in court without a lawyer. However, as confident as you might be about your chances of success, going to trial is always risky and the outcome is never guaranteed. So, you should always try to settle a dispute before you get there.
I deal with a huge number of late payment disputes, and when I suggest to a client that they should try to settle their dispute and consider accepting a lower amount, they’re often not keen. They’re owed money, they’ve done all the hard work, so why should they accept anything less than the full amount?
I fully understand this, but you have to face facts. At this point they have exhausted their credit control procedures and their client still isn’t paying up. It’s taking time and effort to fight this dispute so they have to consider whether this is the best use of those resources.
Now, I’m not for one moment suggesting you should just roll over and accept anything. And I’m not saying you shouldn’t put up a fight, because you definitely should. I’m simply making the point that this is business, and there is a commercial reality to the situation.
Also, remember that your client will be thinking along similar lines. In most cases, they will be delaying payment for as long as possible to ease their cash flow, and will only pay up to settle a dispute when they really have to.
How long are they going to hold out if they know they will ultimately lose the battle and be forced to pay up?
They will have to balance the risk of paying something now, or holding out and potentially being forced to pay more if you go all the way to trial.
So, to settle a dispute and get the best outcome for your business, i.e. to recover as much money as you can as quickly as you can, you need to increase the pressure on your client.
You do this by using the legal system to your advantage. As much as our aim is to avoid court, the legal system is actually designed to encourage settlement and make a trial the last resort.
Even before you start legal action, the court rules encourage the parties to a dispute to share information as early as possible and try to settle a dispute.
It is very much a “cards on the table” approach, so neither party should be hiding anything from the other or keeping information or evidence back. This will help you get to the real reason why your client hasn’t paid.
If there is a genuine reason why your client hasn’t paid, the procedure you follow will enable you to get to the bottom of it. You can then resolve the problem or reach a sensible compromise.
If there’s no good reason for not paying, starting legal proceedings will show you are committed to recovering your unpaid invoices. This will increase the pressure on your client because there will be a clear timetable to get to court. They will then be at a serious risk of losing and being forced to pay everything they owe you – plus interest and court fees.
This puts you in a much stronger position to demand a higher settlement.
Starting legal action doesn’t mean that settlement discussions have to stop. On the contrary, your client may start taking them more seriously.
To assist in reaching a settlement, the courts have a small claims mediation service. This is free to use for any claims valued at less than £10,000 and in my experience is excellent.
I have had some very good results using this service in the past, where previously my opponent has refused to even speak to me.
Mediation is a form of alternative dispute resolution. It’s confidential and “without prejudice”. This means the discussions are off the record, so anything you say, or concessions you make, can’t be used as part of the legal proceedings if you don’t reach a settlement.
If you use the small claims mediation service, an independent mediator will be appointed to help you settle a dispute.
A mediator isn’t a judge, so they won’t decide who is right or wrong or how much one party should pay to the other. Instead, they will act as a go-between and help the parties see the strengths and weaknesses of their case.
The mediation will be held on the telephone and each party will speak to the mediator in turn. The mediator won’t know anything about the case before they speak to you, so take the time to prepare for the call.
Make sure you can explain your case clearly and concisely in a couple of minutes and make it clear what evidence you have to back up your arguments.
The mediator will relay everything to your client, and then listen to what they have to say before reporting back to you. These exchanges can go back and forth as often as needed, and the whole process generally lasts around an hour.
If a settlement is reached the mediator will help prepare a settlement agreement, which is a legally binding contract. If your client breaches the agreement by, for example, not paying, you can apply to the court and get judgement straight away without ever having to argue your case in front of a judge.
There’s a final point I would like to make about settlement negotiation.
Some people will tell you that you should never make the first move and doing so is a sign of weakness. I completely disagree. There’s nothing wrong with making the first move and in fact, being pro-active and taking the initiative is often the best thing you can do.
Catch up on the rest of David Walker’s dispute resolution series:
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