Contractor Doctor: Client wants to sue, but owes me money – how can we meet half-way?

Dear Contractor Doctor,

I’m an IT contractor based in London and have been working for a US based client for over 12 months. There was never a contract signed; we simply agreed the project spec’ and rates by email. Everything was going well until about three months ago when the project started being badly managed from the client’s end. After a couple of months, I’d had enough and decided to quit, but told the client that I’d help find a replacement and perform a proper handover.

In response, the client has since refused to pay my last invoice and insists that I now complete the entire project unpaid, with no deadline given for when that will end, and has even threatened to sue me if I don’t agree.

Can the client sue me even though we have no contract, and is there a compromise I can offer the client that will enable us to meet half way?

Thanks

Raj

Contractor Doctor says:

Firstly, an agreement via email, provided it contained all the right elements, can be considered to be a binding agreement and is enforceable. So, if you fail to perform what was agreed, then the client might have grounds to sue.

Equally, getting payment for your last invoice might prove difficult. With the client based in the USA, you’d find going down the debt collection route difficult, and you are likely to have to engage a US-based attorney or debt recovery agency. You would also have to prove that you have completed the work according to specification.

An agreement via email, provided it contained all the right elements, can be considered to be a binding agreement and is enforceable

Another thing to check is whether there is an implied termination clause in the exchange of emails? If so, did you breach that when you said you wanted to quit?

Equally, for the client to withhold payment, they have to prove that you were in breach of contract, which you could be as you have not delivered the entire contract or because there was no termination process agreed in your emails.

Does the client have grounds for legal action?

On what grounds is the client threatening legal action? If you have failed to provide your service according to specification, they may have a case. Or if in the initial exchange of emails you agreed to stay on until the entire project was complete, then leaving early does put you in breach of contract.

But could the client actually prove you failed to perform according to a contract based on an exchange of emails? As they are based in the USA, it is potentially as difficult and expensive for the client to take action against you as it would be for you to chase your unpaid invoice.

And, frankly, until you actually get the official legal documents from them threatening to sue you, it's all just posturing. In the UK, there are processes that must be completed by both parties before reaching court. If one party doesn't correctly follow the pre-action protocols, then if the case reaches court, a judge is likely to look less favourably on that party.

When at an impasse, seek a compromise

You situation has developed into an impasse. You are unlikely to see your money, and the client is unlikely to get their project completed by you, or at the very least have it professionally handed over to a replacement. It now becomes an exercise in negotiation to try and meet half way.

You could insist that the client pays your invoice, and be firm and tell them they have no basis on which to sue you. This option is likely to result in you getting no money and a few emailed threats, before the client probably goes quiet and you hear no more. If that happens, you both lose.

Alternatively, you could ask the client to pay your outstanding invoice and offer to help them on a consultancy basis for a pre-agreed maximum number of days per month, for a maximum number of months.

If the client agrees, seek some professional advice and prepare a simple contract. Insist on weekly payment in advance so that if the relationship breaks down again, you’re not too badly out of pocket. This way, both parties stand to gain.

Good luck with your contracting!

Contractor Doctor

Published: Monday, April 11, 2011

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