How do I use the County Court to recover money owed?
If it is necessary for your company to issue court proceedings to recover money owed to it, then a claim can be issued in the County Court. This article outlines the procedure.
Letter of Claim and Pre-action protocol
Before a claim is issued in the County Court, the company making the claim (called the “claimant”) will need to write a letter to the company which owes the money (the “defendant”) asking for payment and giving details of why it is claimed the money is owed. This is not only a matter of common sense but is required by the Pre-Action Protocol Practice Direction under the Civil Procedure Rules: if a claim is issued in the County Court before the appropriate “pre-action protocol” has been followed then the party responsible for not following the protocol may be penalised by being ordered to pay some of the legal costs of the other party. The Practice Direction (available at http://www.justice.gov.uk) defines a number of protocols for different situations (construction and engineering disputes, personal injury, etc.) and also contains guidelines to be followed in cases (such as disputes involving IT) where no specific pre-action protocol applies.
The first step in every case is the sending by the claimant of a Letter of Claim which gives sufficient concise details of the basis of the claim and encloses essential documents such as the contract under which money is due, and the purpose of the protocols and guidance is to ensure that both parties understand each other’s positions and to ensure that the defendant has the opportunity to investigate the matter and pay the amount claimed before court proceedings are issued by the claimant.
When Pre-Action Protocols were introduced in 1999 it was hoped that they would lead to many more cases settling before court proceedings were issued. However in practice many defendants do not seriously consider settling until court proceedings are issued. This is because in most cases where the claim is for a fixed sum of money, up until 14 days after court proceedings are issued and the defendant receives the Particulars of Claim, the defendant has the option of paying the money claimed plus a relatively small amount of “fixed costs”; it is only after 14 days have expired that the defendant may become liable to pay more substantial costs.
So given that statistically a substantial proportion of claimants who threaten court proceedings do not actually go on to issue proceedings, most defendants will wait and see whether the claimant issues proceedings and will seriously consider paying up only after they receive the Claim Form and Particulars of Claim from the court.
Nevertheless correspondence under the Pre-Action Protocol is still of value, even if it does not avoid the necessity of issuing proceedings, because it should reveal what the defendant’s defence (if any) is likely to be, thus enabling the claimant to reassess, in the light of the likely defence, the likelihood of the claim succeeding, before the final decision to issue proceedings is made.
If correspondence between the parties under the pre-action protocol fails to resolve the matter then the next step is for the claimant to send a Claim Form to the appropriate court.
Which court is appropriate depends on whether or not the dispute involves issues or questions which are technically complex. For example if the defendant’s reason for not paying is that the defendant claims that the claimant was late in delivering IT equipment and there is a dispute over the contractual date for delivery, then no technically complex issues are likely to arise.
But, to take another example, if the defendant’s reason for not paying is that the defendant alleges that the IT software development services provided by the claimant were not carried out with reasonable skill and care, and the defendant relies, as evidence of the lack of care and skill, on the fact that the result is software which does not perform satisfactorily, and if the claimant’s case is that the poor performance of the software was due to the fact that the defendant insisted, against the claimant’s advice, on a particular design option, then technically complex issues are likely to be involved.
Where the case is technically complex, the Claim Form is addressed to the Technology and Construction Court at the nearest Court centre which has a TCC court (Birmingham, Bristol, Cardiff, Chester, Exeter, Leeds, Leicester, Liverpool, London, Mold, Newcastle, Nottingham, or Salford, Sheffield, or Winchester). Otherwise the Claim Form will generally be sent to any County Court which is convenient for the claimant.
Claim Form and Particulars of Claim
The Claim form sent to the court is accompanied by a document known as the Particulars of Claim together with the court fee (Issue Fee) which ranges from £30 for claims under £300 to £1,530 for claims over £300,000.
The Claim Form sets out some basic information about the claim such as the names and addresses of the parties, the amount claimed and briefly what the claim is about. The accompanying Particulars of Claim sets out the claim in greater detail.
It must comply with the requirements of Part 16 of the Civil Procedure Rules and it must contain assertions of each essential element of the rule of law under which the claim is made. This is most important as if any element is lacking the defendant can apply to the court to have the claim “struck out” before the claim goes to trial. Because of the critical nature of the Particulars of Claim, it is usually drafted by a barrister.
The County Court will send a copy of the Claim Form and Particulars of Claim to the defendant and the defendant then has a limited time (usually between 14 and 28 days) to decide whether to admit the claim (i.e. agree that the money claimed is owing) or else to send a document known as a Defence to the court. Similar strict rules apply to the drafting of the Defence and, again, it is usually drafted by a barrister.
In the case of a claim for money owed under a contract for services, the Defence might be that the claimant has breached the contract (e.g. by providing sub-standard services) so that the loss which the defendant has suffered as a result of the claimant’s breach should be “set off” against the amount which would otherwise be owed by the defendant to the claimant.
Sometimes the defendant will go further than simply defending the claim and make a Counterclaim against the claimant alleging that the claimant should pay money to the defendant. An example of when this might apply is where the defendant claims that the loss caused by the claimant’s breach exceeds the amount otherwise owed to the claimant. If there is a counterclaim then the Claimant will send a document named “Defence to Counterclaim” (or “Reply and Defence to Counterclaim”) in response.
The purpose of the exchange of these legal documents (collectively known as Statements of Case) is to ensure that both parties, and the court, know the precise nature of the legal claims of the parties, which basic facts are agreed, and which are disputed.
The next step is the Allocation Questionnaire which the court sends to each party. Every case in the County Court is allocated to one of three tracks:
The Small Claims Track
The Fast Track
Generally claims up to £5,000 are allocated to the Small Claims Track, claims of between £5,001 and £25,000, where the trial is unlikely to last more than one day, are allocated to the Fast Track, and claims of more than £25,000 (or where the trial is likely to last more than one day) are allocated to the Multi-Track.
The Court does, however, sometimes allocate cases to a different track to the one normally appropriate (for example a case which raises difficult questions of law may be allocated to the Fast Track even if the amount claimed is less than £5,000) and one of the purposes of the Allocation Questionnaire is to give the parties the opportunity to indicate which track they think the case should be allocated to.
The main practical difference between the tracks is in the amount of court involvement in preparation for the trial. In cases on the Multi-Track the court will as a matter of course require the parties to attend a Case Management Conference at which a judge will review the steps taken by the parties in preparation for the trial and decide what further steps need to be taken, and there will often be other hearings such as a pre-trial review before the trial itself takes place. Such hearings are designed to save time at the trial itself.
In the case of the Fast Track where the trial itself will last no more than a day, it would be disproportionately costly to hold pre-trial hearings in every case, and often the court’s involvement in pre-trial preparation is limited to giving directions in writing when the Allocation Questionnaire is returned by the parties, and later in response to the Pre-Trial Checklist.
In the case of the Small Claims track, less preparation is required of the parties (for example normally each party will only be required to provide the other party with copies of documents that the first party intends to use at trial and, unlike in the Fast Track and Multi-Track, not with every relevant document which the first party has) and the court’s pre-trial intervention is normally limited to giving written standard directions when the Allocation Questionnaire is returned by the parties.
Cases allocated to the Small Claims Track are tried by a District Judge. Multi-Track cases are tried by a more senior judge (Circuit Judge). Fast Track cases can be tried by either level of judge but are usually tried by District Judges.
When making a decision as to which Track the case should be allocated to the court will also give “directions” as to how the parties should prepare for trial. Most directions are standard (e.g. the parties will be directed to exchange witness statements by a specified date) but the Allocation Questionnaire gives the parties the opportunity to ask for additional special directions (e.g. that one party provide a copy of a specified document to the other party – an important direction if the claim is likely to be allocated to the Small Claims Track where disclosure of all relevant documents is not automatic). An Allocation Fee of £200 is payable to the court by the claimant when the Allocation Questionnaire is returned.
Claims in the Technology and Construction Court are automatically on the Multi-Track (even if the claim is for less than £25,000) and are heard by a specialist TCC judge. In a TCC case therefore there is no “Allocation Questionnaire” as such but instead a Case Management Information sheet is completed by the parties before the Case Management Conference.
At any point in the proceedings (or even before proceedings have been issued) either party may make an offer to the other party. For example, if the claimant is claiming £75,000, the defendant might make an offer to settle the case for £60,000. If the claimant accepts the offer then that is the end of the case; if not it will proceed to trial in the normal way. A claimant can also make an offer so that, for example a claimant claiming £100,000 can make an offer to accept £90,000. Most offers are headed “without prejudice save as to costs”.
Without Prejudice offers, if not accepted, cannot be referred to in the court proceedings. The rationale for this is that if a party knew that the offers it made could be shown to the judge hearing the case, the party would be less likely to make the offers in the first place. It is considered to be in the public interest for parties to settle their differences out of court if possible and the ability to make Without Prejudice offers helps to facilitate settlement.
An offer which is “without prejudice save as to costs” cannot be shown to the judge before he pronounces judgment, but once judgment has been given, the “without prejudice save as to costs” offers, which are normally drafted in the form set out in Part 36 of the Civil Procedure Rules, are shown to the judge and can be taken into account by the judge in deciding whether to order one party to pay the other’s costs in Fast Track and Multi-Track cases.
Normally in such cases the party which loses will be ordered to pay all or most of the costs of the party which wins. However, if, for example, the claimant is claiming £200,000 and, fairly early on in the proceedings, the defendant offers to settle for £150,000 but the claimant rejects this offer, and if, at trial, the claimant only obtains judgment for £140,000, the claimant may be ordered to pay most of the legal costs which the defendant has incurred after the date that the claimant rejected the £150,000 offer. This is because, although the claimant company has won, it has recovered less than it was offered and so the costs incurred after the rejection of the offer are seen, with hindsight, as being unnecessarily incurred.
About 3 months before the time set for the trial in a Fast Track or Multi-Track case (but not in a Small Claims Track case) the court will send the parties a Pre-trial Checklist the purpose of which is to confirm that the parties are ready for trial. A Listing Fee of between £25 and £1,000 (depending on the amount of the claim and which track it is allocated to) is payable to the court by the claimant when returning the Pre-trial Checklist.
On the date set for the trial, the parties, their barristers and their witnesses attend the court and, after hearing the evidence of the witnesses and their cross-examination by the other side’s barrister, reading the documentary evidence, and hearing the arguments presented by each party’s barrister, the judge will give a reasoned judgment explaining which party he finds for and why. In cases lasting one day the judge will often give judgment the same day but in longer cases it is common for judgment to be “reserved” – i.e. the judge will take some days to consider his judgment and the parties are then notified of a later date on which the judgment will be delivered.
Once the claimant has judgment in his favour, the defendant will, in the great majority of cases, pay up within the time specified for payment (normally 14 days from the date of judgment). However if the defendant fails to pay the claimant can then seek a variety of court orders to recover the money. A Warrant of Execution is a common means of enforcement and results in court bailiffs seizing the defendant’s goods and selling them to realise the amount owed. Alternatives include a Third Party Debt Order (under which a third party owing money to the defendant – e.g. the defendant’s bank – is ordered to pay money direct to the claimant) and a Charging Order (placing a charge on land – e.g. office buildings – owned by the defendant).
The costs of legal advice and representation.
In Fast Track and Multi-Track cases it is usual to be legally represented. Lawyers cost money but in general you are more likely to succeed in your case if you are legally represented rather than representing yourself. As a general rule if you are successful and are awarded a sum greater than any offers previously made by your opponent, then the court will normally order your opponent to pay most of your legal costs (i.e. the court fees you have had to pay, the fees of your lawyers, any fees for expert witnesses, witness expenses etc.)
Conversely if you lose on the Fast Track or Multi-track you would normally be ordered to pay your opponent’s legal costs. It is important therefore to get the best legal advice, before commencing proceedings, as to the likely prospects of success.
For claims allocated to the Small Claims Track, however, although the unsuccessful party will normally be ordered to pay the successful party’s court fees and witness expenses, generally each party bears its own lawyer’s costs irrespective of which party wins. This rule creates a dilemma for claimants seeking to recover sums less than £5,000. If lawyers are engaged in the usual way their fees may eat a long way into (if not entirely wipe out) the amount eventually recovered. On the other hand if the claimant does everything himself without the benefit of any legal advice, that may reduce the chances of success as even apparently “open and shut” cases can have complications – not always easy to spot - for which legal advice is needed. Points to bear in mind, in small claims cases, include the following:
1. Going to a lawyer just for initial advice is much less expensive than being represented by a lawyer throughout the case, so it is normally justified even for a “small” claim.
2. As well as getting advice from a lawyer about how good your case is, it is important to get advice about how much the claim is worth. It may turn out that it is actually worth considerably more than £5,000 and so would be allocated to the Fast Track or Multi-track in any event.
3. It is also important to get advice from a lawyer as to whether there might be a counter-claim, what the risk of a counter-claim succeeding is, and how much might be claimed in the counterclaim. For example, if you have a claim for an unpaid invoice for goods you have sold, and the customer has been complaining about the goods and says that they are defective and that he has suffered loss as a result, before your issue a court claim for, say, £3,000 you want to know what the risk is of the customer succeeding on a counter-claim. If the customer has a good case, he could take the initiative and bring a claim against you anyway, but in practice they are far more likely to do that if you bring a case against them. There is a natural reluctance to go to court in the first place but if someone has already been taken to court, they may well then make a counter-claim, particularly as the form they will be sent by the court with your claim will specifically ask them whether they wish to make a counter-claim.
Barrister only or Barrister and solicitor?
If you are to be represented by a lawyer, should it be a solicitor or barrister or both? Up until 2004, barristers would only accept instructions via a solicitor so you had to have both a solicitor and barrister. Since 2004, however, it has been possible to go direct to a barrister without going through a solicitor. Going direct to a barrister means paying for one lawyer rather than two (or more than two because a solicitor's firm will typically engage more than one fee-earner on the case) and can result in cost savings of up to 50%.
The essential difference between barristers and solicitors is this. Barristers represent clients in court, and draft the court documents (statements of case). The barrister’s experience in arguing cases in court enables him to give specialist advice on how likely a case is to succeed, and what amount of money is likely to be awarded by the court.
Although there may be a degree of overlap in practice, solicitors spend most time, on correspondence, telephone calls, collecting evidence and processing documents.
Part of the reason why there are cost savings in using a barrister directly, rather than a solicitor and barrister, is that, if engaged direct, a barrister will expect the client to carry out work (such as scanning in documents into files with a specific naming convention) which would normally be part of the work of a solicitor, so in return for saving money you would have to do a bit more work yourself. More information on instructing barristers directly can be found here.
John Antell is a barrister who specialises in contractual disputes particularly those involving IT, engineering and construction. Prior to coming to the Bar he was an IT consultant. He also practises in land law and employment law.
Neither the author nor the publisher can be held responsible for any actions taken (or not taken) as a result of the opinions expressed in this article which are necessarily of a general nature and cannot be a substitute for individual legal advice on your own particular situation. This article refers to the court system in England and Wales: a different court system operates in Scotland.