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A B C D E F G H I J K L M N O P R S T V W Y

The Brief

A quarterly newsletter aimed to keep clients up-to- date with a wide variety of litigation developments ranging from corporate disputes, commercial matter and private client issues.

Latest Issue

In our latest edition of The Brief we look at a negligence claim that couldn't be pursued because it had been caught by terms in a settlement agreement, plus the importance of having proper terms of engagement agreed and what can go wrong if you don't and a selection of our recent blogs.

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A lesson from the High Court: Be careful that you do not settle claims without realising it

Tuesday 7th June 2016

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The Brief - Issue 15

In the case of Khanty-Mansiysk Recoveries Limited v. Forsters LLP [2016] EWHC 522 (Comm), the High Court decided that a negligence claim valued at more than £70 million could not be pursued as it had been “caught” by the terms of a settlement agreement that had previously been entered into in relation to an unpaid invoice.

Oliver Andrews looks at the case and the important considerations this case highlights.

The Defendant firm of solicitors had originally been instructed to advise on the acquisition of an oil exploration opportunity in Russia.

The Defendant raised an invoice for work that it carried out but the amount of the invoice was disputed. The dispute eventually led, in December 2012, to the parties agreeing settlement terms under which a reduced amount was to be paid in respect of the Defendant’s invoice.

It was later discovered that shares in relation to the Russian acquisition had not been transferred properly. As a result, court proceedings were commenced against the Defendant alleging negligence and claiming damages of in excess of £70 million.

In response to the claim, the Defendant said that the settlement terms which had originally been entered into in relation to the disputed invoice covered the subsequent negligence claim and therefore the Claimant was not entitled to pursue it.

The Claimant said that scope of the settlement that had been entered into back in 2012 was not wide enough to cover the subsequent negligence claim which the parties did not know about at the time.

The High Court held that the wording of the settlement agreement was “very wide indeed”.

The settlement agreement was in “full and final settlement of all or any Claims which the parties have, or could have had, against each other (whether in existence now or coming into existence at some time in the future, and whether or not in the contemplation of the Parties on the date hereof)”.

The Court held that the definition of “Claims” was “on its face, extremely wide” too. It included potential claims, claims outside of the contemplation of the parties when the settlement agreement was entered into, as well as claims “in connection with” the original claim for the unpaid invoice.

The Court found that the claim for negligence had been “caught” by the settlement terms already agreed and the Claimant could therefore not pursue it.

The case is a stark reminder of the importance of ensuring that careful consideration is given to the wording of settlement agreements. Parties can very easily give away the right to bring claims without realising it. Settlement terms must always be fully and carefully considered, even if they are for seemingly straightforward disputes such as unpaid invoices.

Need advice or wish to talk with us?

If you would like to discuss any matters about settlement agreements or for any other dispute issues you may have, please do not hesitate to contact:


Oliver Andrews

Solicitor
Tel: 01772 229 810
Email: oliver.andrews@brabners.com


Newlyweds sue student photographer who "ruined" their special day - a look at terms of engagement

Tuesday 7th June 2016

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The Brief - Issue 15

A couple from Leeds have recently sued an amateur photographer whom they claim “ruined” their wedding day.

Glyn Lancefield looks at the case and other recent examples which serve as a reminder to have proper terms of engagement agreed.

Paul and Chareen Wheatley paid £500 to book the photographer for nine hours. They say that the photographer told them that she was an up and coming photographer trying to make a name for herself.

However the couple allege that she was late on the big day, took poor quality photos with people partly cut out, and made the bride walk through boggy woodland. Dry cleaning bills for the wedding dress were apparently £200. The couple were also unhappy when they discovered that the photographer had spent time in a photo booth taking photos of herself during the wedding reception.

The photographer denies these allegations and says that the couple were happy with the photos she’d taken. However the couple obtained judgment against her in the small claims court for a refund.

One issue that the case raises was that the couple argued that the photographer attended with no equipment other than a camera and photography bag, whereas the photographer says that if they’d wanted a professional photographer with lighting and other equipment then they “should have paid for that”. This highlights the risk for anyone providing a service to be clear as to the scope of their services and that they must still provide that service with reasonable care and skill notwithstanding the price paid.

Indeed legal obligations can form even where there is no money changing hands for the service. In January a claim was reported involving an architect who gave free assistance to her friends and neighbours with a garden landscaping project, which resulted in a claim for damages against her of £265,000. You can read more about this in our blog here.

Unfortunately the couple from Leeds isn’t the only example of a wedding photographer being taken to court. In 2009 a couple obtained judgment for a refund and damages after the photographer at their wedding produced photos with heads chopped off and poor lighting, and thank you cards with their names misspelled.

So before reaching for that tripod an amateur photographer would be wise to be clear as to their expertise, and get proper terms of engagement agreed.

Need advice or wish to talk to us?

If you would like to discuss any terms of engagement matters you may have or for any other dispute issues please contact:


Glyn Lancefield

Associate
Tel: 0151 600 3060
Email: glyn.lancefield@brabners.com


Triumph for 'common law marriage'? Woman wins legal battle to the home she shared with her partner against his wife

Friday 26th February 2016

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The Brief - Issue 14

A 69 year old woman, Joy Williams, has succeeded in her claim to the home she shared with her partner of 18 years, Norman Martin, despite never having been married.
 
This case is being widely reported as a triumph to recognise ‘common law marriage’. There remains no such thing as a common law marriage, and couples who are not married or in civil partnerships do not have the same rights as those who are. 
 
In reality, this case is not ground-breaking but it is an important example of the operation of the well-established right of co-habitees to reasonable financial provision from their partner’s estates under the Inheritance Act (Provision for Family and Dependants) Act 1975.
 
Mrs Williams argued that Mr Martin had split from his wife, Maureen Martin, despite remaining married to her. However, Mrs Martin disputed this, arguing that she was not estranged from Mr Martin, and that he was effectively maintaining two separate households.
 
Although Mr Martin and Mrs Williams owned the house that they lived in, the house did not automatically pass to Mrs Williams when Mr Martin died in 2012. The reason for this is because the property was owned by them as tenants in common. This meant that when Mr Martin died his interest in the house would pass to whoever he wished in accordance with his will or, if he had not made a will, in accordance with the intestacy rules. As Mr Martin had not made a will the property was dealt with in accordance with the intestacy rules and would have passed to his wife but for Mrs William’s claim.
 
Faced with the prospect of Mr Martin’s share in Mrs Williams’ home passing to his wife, Mrs Williams issued a claim for a reasonable financial provision from Mr Martin’s estate. A spouse or civil partner would have an automatic right to bring this type of claim but, as Mr Martin and Mrs Williams were not married, Mrs Williams had to demonstrate that either that she had co-habited with Mr Martin for at least 2 years prior to his death, or that she had been maintained by Mr Martin. 
 
Sitting in the Central London County Court Judge Gerald concluded that Mrs Williams met the co-habitation requirement to pursue her claim. Weighing up the competing interests of Mrs Williams and Mrs Martin, the judge went on to determine that Mrs Williams should "retain an absolute interest" in her home.   
 
As she had resisted the claim Mrs Martin was ordered to pay £100,000 on account of Mrs Williams’ legal costs. The early indications are that Mrs Martin intends to appeal the decision to the Court of Appeal.
 
What this case demonstrates is the crucial importance of maintaining an up-to-date will.  
 
Significant legal costs will have been incurred by both Mrs Martin and by Mrs Williams in the litigation.  Had Mr Martin prepared a will that made a specific gift of his interest in the home he shared with Mrs Williams to her, she would not have had to issue the claim.  Of course, in those circumstances it is possible that Mrs Martin may have felt that she had a claim for a reasonable financial provision from Mr Martin’s estate as his spouse.
 
If you would like to discuss any of the issues raised in this article please do not hesitate to contact:
 
Senior Associate
Tel: 0151 600 3394
 
 
 
 
Wills advice: It’s important to ensure that your will is reviewed at regular intervals as over time circumstances, laws and tax rules can change. You may wish to include grandchildren for instance or additional family possessions or inheritances could call for additional provisions. Our Private Client team can offer you expert advice ensuring your will meets your requirements and to ensure it is as tax efficient as possible to avoid any unnecessary Inheritance Tax. If you would like to review your will or for more information on how we can help you please contact Mark Feeny, Partner,  on 0151 600 3450 or email: mark.feeny@brabners.com

2015 – A year to remember for the law of contract

Friday 26th February 2016

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The Brief - Issue 14

2015 was quite a year for English contract law with three important cases being considered by the Supreme Court. All those cases demonstrated a willingness of the court to respect the written words contained within a contract and only depart from that where it is absolutely necessary to do so.

In our blogs, we have already considered the cases relating to penalty clauses (here) and implied terms (here) but it is the case of Arnold v. Britton [2015] UKSC 36 in June 2015 that came first and perhaps set the tone for the two later decisions relating to penalty clauses and implied terms because it dealt with perhaps the most fundamental question of all – what the words in a contract actually mean.

Arnold v. Britton concerned the interpretation of service charge clauses in a number of leases of holiday chalets. The leases were for a term of 99 years from 25th December 1974 but were actually granted at various different times. The terms of the service charge clauses were not consistent across all the leases in question but they were broadly similar and a typical example of the wording was:

To pay to the Lessor without any deductions in addition to the said rent as a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and renewal of the facilities of the Estate and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added Tax (if any) for the first Year of the term hereby granted increasing thereafter by Ten Pounds per hundred for every subsequent year or part thereof”.

Unsurprisingly, the landlord, as the recipient of the service charge, believed that the wording of the clause meant that the amount it could charge started at £90 and then increased each year at the rate of 10% per annum, compounded annually. It was noted that, assuming a start date of 1980, the effect would be that by 2072 the tenants would be paying service charges of in excess of £550,000.

The tenants on the other hand contended that the service charge clause simply required them to pay a fair proportion of the landlord’s costs and that the reference to £90 increasing annually was there to simply be a cap on the amount that the landlord could charge.

The Supreme Court held by a majority of 4 to 1 that the landlord’s interpretation of the clause was correct. Although the effect of a massively expensive service charge was very harsh on the tenants, the court found that the natural meaning of the clause was clear and in those circumstances, the court should not attempt to change the meaning by adopting a commercial common sense approach. As Lord Neuberger said in his leading judgment (at paragraph 20):

The purpose of interpretation is to identify what the parties have agreed, not what the court thinks they should have agreed”.

It is not the court’s role to save one party from a bad deal and the court will only look to commercial common sense to aid in interpretation where there is some form of ambiguity in the meaning of the words written down.

Although the Supreme Court did not make new law in this case, it is a stark reminder that where the meaning of a contract is clear there will be little room for manoeuvre and the written word will apply regardless of how harsh the result might be.  

If you would like to discuss any of the points raised in this article please do not hesitate to contact:
 
Solicitor
Tel: 01772 229810
 

 

 

 

Protecting tenants against forfeiture for breaches of repairing covenants

Thursday 3rd December 2015

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Where a landlord seeks damages or forfeiture of a tenant’s lease for a tenant’s failure to keep property in repair pursuant to the lease, it is important that tenants avail themselves of the protections available for tenants under the Leasehold Property (Repairs) Act (“the Act”).

The Act can be used as a safeguard by tenants to prevent a landlord from forfeiting a tenant’s lease or claiming damages from the tenant without an Order of the Court. While the protection is available for leases of 7+ years which are not in the final three years, it does not apply automatically. In order for the protection to be effective, after receiving notice of breaches from the landlord, the tenant must within 28 days serve a ‘Counter-notice’ on the landlord claiming protection under the Act.

The effect of the Counter-notice is that a Court must decide whether a landlord can be permitted to seek damages or forfeiture. The Court will need to be convinced that damages or forfeiture would be fair in all of the circumstances. The most important yardstick by which this can be measured is whether the value of the landlord’s interest in the property has or will suffer as a result of the alleged breaches. In effect, the question is whether the landlord is justifiably trying protect its interest in the property or, instead, whether the landlord could be seeking to gain re-entry to the property perhaps under the pretence of disrepair.

For example, consider a scenario in which a landlord of a long lease alleges that the tenant has failed to keep the property in adequate repair and seeks to forfeit the lease. A tenant which serves a Counter-notice under the Act will force the landlord to prove to the Court that it should be permitted to take back the property from the tenant. With long-leases of significant capital value, the Act ensures that landlords will face an arduous uphill struggle to bring about forfeiture. 

If you would like more information about any of the issues raised in this article, please contact either:


Jeff Lewis
Head of Litigation, Manchester
Tel: 0161 836 8872
Email: jeff.lewis@brabners.com
 

 


Martin Bloor
Trainee Solicitor
Tel: 0161 836 8827
Email: martin.bloor@brabners.com


Illegality is no defence for dishonest directors

Tuesday 10th November 2015

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The Brief - Issue 13

Two ‘carousel fraud’ directors have failed in their attempt to play ‘merry-go-round’ with liquidators.

In what has been praised as a landmark decision, the Supreme Court has ruled that directors who act fraudulently or dishonestly cannot attribute their conduct to their company in order to disclaim personal liability for their actions.  

The recent decision of the Supreme Court in Jetivia SA and Another v Bilta (UK) Limited and Others centred on the scope of the doctrine of ex turpi causa, commonly known as the illegality defence. The defence is based on the principle that the court will not assist a claimant who brings an action based on his own illegal or immoral conduct. For example, if a thief steals a motorbike and is subsequently knocked down by a negligent van driver, he may not bring a claim against the van driver, because the thief was knocked down whilst committing an illegal act (fleeing with a stolen motorbike).

Generally speaking, where a company brings a claim against a 3rd party, the actions, knowledge or state of mind of its directors are attributed to the company itself. However, there is an exception to this rule where a company brings an action against its own director(s) for breach of fiduciary duty; it would be unjust and against public policy for the director(s) to be able to rely on the illegality defence, by claiming that their own illegal or immoral actions were attributable to the company and that the company could not, therefore, bring a claim against them.

In the Jetivia case, Bilta, an English company run by two directors, was alleged to have been involved in a so-called carousel fraud and the company owed HMRC £38m in unpaid VAT. Bilta was compulsorily wound up in 2009 and its liquidators brought a claim for compensation against Bilta’s two directors, as well as a Swiss company (Jetivia), alleging that they had conspired to commit carousel fraud.

The Supreme Court decided unanimously that Bilta’s directors could not attribute their wrongdoing to the company in order to prevent the company’s auditors from bringing a claim against the directors individually. The Court considered that Bilta’s liquidators were bringing proceedings in order to recover sums due to HMRC and, consequently, it would be against public policy for the directors to be allowed to rely on the illegality defence.

Clearly, creditors and shareholders will welcome this clarification of the limitations of the illegality defence.

To discuss any company dispute matters you may have, please contact:


Jeff Lewis

Head of Litigation, Manchester
Tel: 0161 836 8872
Email: jeff.lewis@brabners.com


Two new court pilot schemes for quicker cheaper trials

Tuesday 10th November 2015

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The Brief - Issue 13

With the intention of resolving disputes in more realistic commercial timescales the Royal Court of Justice has introduced two new pilot schemes.

The schemes are a Shorter Trials Scheme and a Flexible Trials Scheme and they will apply to claims that are issued from 1 October 2015.

For the moment these schemes apply to only to claims that are issued in the Commercial Court, the Chancery Division and the Technology and Construction Court. These pilots will run for two years before a decision is taken on whether to continue them or to expand them to other courts.

New practice directions to the Civil Procedure Rules have been brought in to manage these pilot schemes. The most significant implications for anyone issuing (or receiving service of a claim) are:

Flexible Trials Scheme

This pilot scheme is voluntary and all parties to the dispute would need to agree to use it.

The scheme has been designed to allow the parties to vary the standard trial timetables and directions to suit the circumstances and facts of their dispute. This could include varying the directions for the extent of disclosure obligations and to limit oral evidence from witnesses at trial and the submissions that are appropriate at trial.

Speaking about the scheme the Lord Chief Justice has said: Small and medium sized businesses are the lifeblood of the economy. To prosper, they need disputes to be resolved in a speedy, fair and economic way. The introduction of this judge-led reform will help to ensure that court users can have their disputes resolved quickly, improving access to justice for businesses.”

The intention is to have the parties agree to limit documents and witness evidence to only that which is absolutely crucial. There are obviously drawbacks to this less thorough approach but there are also considerable benefits. In particular, the fewer documents and witnesses the shorter the trial will be and the more likely it is that the Court Listing section can list the matter for trial more quickly. Blocks of Court time in the Court calendar fill up quickly and one or two day trials are more easily listed. Of course, the shorter the trial the shorter the period that the parties will need to pay their representatives too.

Shorter Trials Scheme

The introduction this scheme is voluntary too and, again, all parties to the dispute would need to agree to use it.

The purpose behind this scheme is “dispute resolution on a commercial timescale”. There is a stated goal of the parties obtaining judgment within 12 months of the claim being issued. 

In the main, the scheme targets cases which will not require more than a four day trial and which do not have significant quantities of documents or witnesses. 

The Court directions under the scheme have been curtailed. For example, rather than disclosing all documents relevant to the proceedings the parties will disclose those documents that they rely on in support of their claim/defence and any documents or specific classes of documents requested by their opponent. 

The proceedings would also not be subject to the existing costs management requirements of civil claims that require the parties to prepare detailed budgets of the costs they will incur in the claims to be set by the Court at the first case management hearing and to be varied as required throughout the life of the claim. Instead, the parties simultaneously exchange details of the costs incurred within 21 days of the trial and Court will summarily assess a successful party’s costs. In exceptional circumstances the Court may still assess costs by a detailed assessment if appropriate to do so.

The time taken for a matter to reach trial and the level of costs incurred in getting matters to trial are two of the more frustrating aspects of litigation for clients and solicitors. It is to be hoped that these schemes are effective in achieving the goals of reducing both.

For more information on these pilot schemes or to discuss any dispute matter you may have please contact:


Simon Morris

Senior Associate
Tel: 0151 600 3394
Email: simon.morris@brabners.com


What is "material"? Top tips to consider regarding the termination of your contracts

Thursday 2nd July 2015

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The Brief - Issue 12

The word “material” is commonly found in contracts. In everyday language “material” means important or significant.1 However, that simplistic definition can be misleading as the word can give rise to all sorts of problems when interpreting contracts.

Disputes as to what is “material” most often arise in relation to the termination of contracts because well drafted commercial agreements often provide for an innocent party to terminate the contract if the guilty party is in material breach of the contract. Whether a breach is “material” (and therefore justifies termination) will be of utmost importance to the parties to the contract, particularly as there may be a lot of money riding on the outcome.

The courts have tried to provide some guidance as to what a material breach is but there is, unfortunately, no single approach as to how this question should be answered, primarily because the question of what is a material breach or not will depend on the particular facts of the case and the circumstances of the breach. In other words, each case will be different and so the courts cannot be too prescriptive in setting out guidance on what will or will not be a material breach.

In the case of Compass Group UK and Ireland Ltd (trading as Medirest) v. Mid Essex Hospital Services NHS Trust2, Lord Justice Jackson provided useful guidance on what would constitute a material breach and stated that a material breach is something which is “more than trivial, but need not be repudiatory”. It must be a breach which is “a serious matter, rather than a matter of little consequence”. This is helpful but there is still a huge scope for disagreement as to whether a breach of a contract is material and therefore justifies termination in accordance with the terms of the contract. Those types of disagreements can be costly and so some top tips in order to try and minimise these types of problems are:

  1. Ensure that your contracts are well drafted in the first place. In some circumstances, it might be possible to list a number of particular types of breaches which will be material and will therefore justify termination. Those lists should not be exhaustive but if the parties put their minds to what should be a material breach or not before the contract is entered into then that will help to prevent disputes and ambiguity further down the line.
     
  2. If you suspect that the other party to your contract is in material breach then seek legal advice as soon as possible before acting upon it. It is easy to lose your right to terminate the contract if you sit back and do nothing. If you want to terminate the contract for the breach then you should obtain advice on whether the breach is material and therefore justifies termination. There may also be specific procedures under the contract that need to be followed in order to terminate the contract.
     
  3. A material breach provision is not the only way in which a contract can be brought to an end. There may be other rights to terminate either for repudiatory breach of contract under the common law (a repudiatory breach is one that is so serious that it goes to the very root of the contract) or under other provisions of the written agreement. You should therefore not just focus on the material breach provisions of a contract and be blinkered as to other avenues that could possibly achieve the same end result.

If you would like more information or to discuss any issues you may have with your contracts please contact:


Oliver Andrews

Solicitor
Tel: 01772 229 810
Email: oliver.andrews@brabners.com

 

1 Oxford Dictionaries’ definition - May 2015

2 [2013] EWCA Civ. 200


Owed money or entitled to damages? How Alternative Dispute Resolution (ADR) can help before you end up in court

Thursday 2nd July 2015

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The Brief - Issue 12

You’re owed money, you’re entitled to damages or you have a grievance.

You’ve tried to seek what you’re entitled to but have run into a dead-end. Your heart tells you that as a point of principle you shouldn’t let this lie but your head says that you might need to let it go.

Your only, and final, option is to commence court proceedings, right? Wrong.

The most effective and efficient way to resolve disputes is not always via the courts. Whilst the court process undoubtedly offers one means of settling a commercial dispute, there are always risks and ever increasing cost consequences of litigating through the courts.  

The reality is that there is an obligation upon all parties to a dispute to make efforts to seek a resolution before taking matters to court, this is set out within the various Pre-Action Protocols as contained within the Civil Procedure Rules. This obligation also continues within the course of any court proceedings where parties are expected to consider settling their differences even once proceedings have been commenced.

With the recent increase in the court fees payable at the outset of a claim, requiring parties to outlay substantial monies to start the court process, we have seen an increasing trend of parties who are disillusioned with the traditional court process, now looking at alternative ways in which to resolve disputes, without the assistance of the courts.  

What is ADR?

Alternative Dispute Resolution (ADR) is a phrase used to describe the various voluntary processes and methods that can be utilised to seek the resolution of a dispute outside of the court system.

The principle forms of ADR are arbitration, adjudication, conciliation and mediation, with arbitration and mediation being the most well know and commonly used within the UK. Informal negotiations could also be said to be a form of ADR which seeks to achieve the same objective but does not usually involve an independent third party within the process.

ADR can offer a more cost effective and efficient method of resolving a dispute, often bringing about a final determination much quicker that the traditional court route.

Our Dispute Resolution team have written two useful guides where we explain how you can manage your own small claim and what types of ADR mechanisms are available to you.

Legal Property Solutions – A one stop shop for resolving disputes

In keeping with growing interest and use of ADR, Brabners’ Property Solutions team has launched a new service which allows parties to resolve their property disputes at a live hearing before a lawyer who also sits as a part time judge within the court system), a determination of a dispute on paper, through mediation or at a settlement hearing.

This is believed to be the first time akin to a private court which amounts to a one stop shop for providing legal solutions has been set up.

For more details and descriptions of the various methods of ADR offered by Legal Property Solutions please visit the website: www.legalpropertysolutions.co.uk

You can also read our news release when the service was launched here.

New EU Directive – Helping disputes across member states

In addition, a new EU Directive (The European Directive on Alternative Dispute Resolution) is set to be implemented on 9 July 2015 which is intended to provide consumers within EU states with the ability to seek resolution of their dispute, across member states outside of the courts in a cheap, efficient and fast manner.

This Directive serves to evidence the increased prevalence that ADR is likely to have within civil and commercial disputes in the future.

The president of the Supreme Court Lord Neuberger has also recently backed calls for compulsory mediation in small civil cases, referring to mediation as quicker, cheaper, less stressful and less time-consuming than litigation through the courts.

You can read more about the EU Directive here.

It seems that the use of ADR will only increase in future as more and more may turn to such methods to resolve their dispute.

If you would like more information about ADR or to discuss any dispute matters you may have please contact:


Jack Froggatt

Associate
Tel: 0151 600 3338
Email: jack.froggatt@brabners.com


Statutory Demands - What are they and how should they be used?

Thursday 19th March 2015

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The Brief - Issue 11

A statutory demand is a written demand for payment of a debt of £750 or more. It can be served on either an individual or a company.  If a debtor fails to pay the debt, or to take steps to have the demand “set aside”, within three weeks of having the demand served, the creditor will be entitled to commence bankruptcy (or winding up) proceedings.

When to use a statutory demand

A statutory demand is used to establish that the debtor is unable to pay debts. It should only be served where the debtor owes the creditor a liquidated sum in excess of £750, and when the debt is not genuinely disputed, nor is there any alleged counterclaim or set off against the creditor.

Advantages of using a statutory demand

  • It is quicker than issuing court proceedings
     
  • It is less expensive to prepare than issuing court proceedings
     
  • No fee is payable on serving a statutory demand; and it does not require involvement from the court
     
  • It can serve to focus the debtor’s attention to the debt

Disadvantages of using a statutory demand

  • If the debtor disputes the claim, he is likely to make an application to set aside the demand at court, which, if successful, could result in the creditor paying the debtor’s legal costs
     
  • It can be seen as an aggressive approach and can have a negative impact on any future commercial relationship between debtor and creditor
     
  • A creditor will have to share the bankruptcy/winding up pot with any other creditors who may appear
     
  • There may be more chance of the creditor receiving payment in full if the debtor were allowed breathing space to trade out of a financially difficult period

Preparing and serving a statutory demand

It is important to ensure that the demand cannot be attacked by the debtor for any irregularities in its content or service. The creditor should ensure that the demand correctly identifies the parties to the debt and gives details of how the debt arose and when it became due and should also provide details of any interest or other charges which are accruing. The demand should be signed either by the creditor himself or by an individual authorised by the creditor.

It is best practice for the demand to be in one of the forms prescribed by the Insolvency Act 1986, but the creditor may produce their own version, if all of the requirements of the prescribed forms are included.

How the creditor will serve the demand will vary depending on whether it is pursuing a company or an individual. In respect of an individual, the creditor will be expected to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention and, if practicable in the particular circumstances, to effect personal service of the demand. If the creditor is serving the demand on a company, it will be sufficient to leave the demand at the company’s registered office.

From 1 October 2015, it is anticipated that the threshold debt for issuing a statutory demand or bankruptcy petition will increase, you can read more about this in our additional article here.


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