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Practicalities for contractors when disputes ‘go legal’

Contractors taking the legal route usually do so because the party they are in dispute with won’t budge from its position. The courts are there to help businesses solve disputes when they have tried themselves but can’t manage to find a solution.

The judiciary takes a dim view of parties who fail to exhaust every avenue to resolve their disputes before reaching court. So before getting to the courts, there are practicalities and a process to work through, which may well require professional legal assistance.

But it is often through showing that they mean business, taking legal advice to understand their position and confirming that they will ‘go legal’ if required that many contractors secure a satisfactory outcome for their situation, without court action.

Why ‘go legal’ in the first place?

Although it might not always appear to be the case, the law and the courts are actually there to protect individuals and businesses, and to ensure that if someone agrees to do something, like paying an invoice or delivering a project, they actually do it.

Contractors most often encounter legal disputes when money is owed or a contract has been breached. But other legal issues crop up, such as disputes over confidentiality, intellectual property or company law.

When a dispute occurs, the first step is for one of the parties – usually the contractor, agency or client – to inform the other that something has gone wrong. This could come in the form of everything from a gentle phone call to an aggressive recorded delivery letter.

Try to settle disputes amicably and be professional

What happens next depends on the circumstances. The best response to an aggressive letter is probably to seek immediate legal advice. The response to the phone call might be to respond professionally and promptly with an email clarifying what is in dispute.

Although it might not always appear to be the case, the law and the courts are actually there to protect individuals and businesses

But before formally going legal, contractors should adopt pre-legal action protocols. For example, when chasing unpaid invoices the first step is not a writ, but a reminder after 30 days, then another reminder, then a letter before action and possibly a credit collection agency.

The same is true of disputes over service delivery. If a client is chasing a contractor to complete a project, then what has not been done should be set out in writing and a dialogue should begin to establish who needs to do what and by when.

Trying to go legal too soon, without exhausting non-legal avenues, won’t look good to a judge. But sometimes it does take the threat of legal action to make the other party take a contractor seriously.

Get legal advice, even if the courts seem a long way off

Clients, agencies and contractors typically know less than they think about the UK’s common law system, specific legalisation and precedent relating to contracts, late payments and company law. Some legal principles are even counter-intuitive and don’t seem much like common sense.

So, if a nasty letter or email arrives, on some occasions it is advisable to seek professional legal advice from the outset. Lawyers are expensive, but in the context of what most contractors earn and what a lawyer can achieve in a short time, the cost is usually reasonable.

Investing in one or two hours of a lawyer’s time to review a contractor’s position at £200-£300 an hour can be quite cheap in the context, say, of a dispute over unpaid invoices worth £10,000.

However, there is no guarantee that the court will award costs to a contractor if they win a court case, so securing an idea of legal costs before embarking on legal action is essential. It may be that the sums involved, or the risk of having to pay your own and the other side’s costs, might prevent a contractor from taking action.

Tackling delays and counter parties ‘trying it on’

A common tactic in legal disputes, particularly when payment is at stake, is to delay, perhaps with some ‘sabre-rattling’ added for good measure. A formal letter from a lawyer early on shows the other party that the contractor means business and intends to settle the dispute without being fobbed off. It also shows that the contractor is being provided with professional legal advice.

It is astonishing how many disputes evaporate when challenged by a professional, typically because a recruiter, client or contractor was just trying it on. For example, in the hope that a contractor will be too scared to fight, an agency might write a nasty letter claiming that “because you are in breach of clause x, you owe us £Y”.

A lawyer will be able to advise on whether specific contractual clauses are actually enforceable. Sometimes they may not be, or the actions of the client or agency put them in breach of contract. But contractors should remember that a contract is a contract and the objective of most contracts is that they can be enforced if something goes wrong.

Most disputes are resolved without courts and lawyers

In practice, contractors will find that most disputes will be resolved without the need to involve lawyers or the courts. The majority of contractors go their entire career without resorting to formal legal action.

However, having a knowledge of the law, and specifically contract law, will help when determining whether the threat from the other party – be it an agency trying it on or a client seeking damages – warrants taking the first step and engaging a legal professional.

Contractors, particularly newcomers, should not let themselves be bullied by recruiters and clients into rolling over and not contesting a dispute. But ‘going legal’ from the outset is not usually the best strategy.

Published: 20 November 2013

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