To remain profitable and operational from a cashflow perspective, it is crucial for a brewery that it receives timely payment from its customers for the goods it sells.
But unfortunately, there may well be times when legal action is required to pursue payment. In this context, we are really talking about the ability of the brewery to enforce debts owing to them from trade customers, such as bars/pubs and retail distributors, who purchase in bulk given your average “walk-in” customer will pay for their cans on the spot (and for the most-part will not purchase in bulk!).
Debt collection
Before lodging a claim for a debt owed, businesses are expected to follow and comply with various pre-action protocols. The pre-action protocol rules are intended to assist parties with disclosing and sharing information so that they can identify the issues in dispute and hopefully work towards settlement of the claim without proceedings needing to be issued. Notably, if the relevant pre-action protocol rules are not followed it may later result in sanctions during trial.
Before pursuing litigation, you should consider the potential outlay as it might be more cost effective to first negotiate full or partial settlement of the outstanding amounts or possibly offer a revised payment schedule if the customer is suffering with their own cashflow difficulties. Furthermore, alternative dispute resolution (ADR) methods might enable the dispute to be settled more amicably through mediation or arbitration.
As an obvious starting point, when seeking to recover debts, you should ensure that the debtor is made aware of the outstanding account or unpaid invoice (i.e., sending invoices or a notice of the outstanding payments to the customer). Thereafter, a letter of claim formally demanding payment can be sent. The letter of claim can suggest negotiation or ADR but if payment is resisted and/or an agreed approach cannot be reached, you can then take further steps to initiate proceedings.
Once proceedings commence, your case will be managed or “allocated to a track” depending on the value and complexity of the claim. Claims with a value of less than £10,000 are allocated to a small claims track, while claims exceeding £10,000 are allocated to the fast track or the multi-track. It is worth noting that for small claims, it generally isn’t possible to recover legal costs from the debtor even if you win.
Depending on the strength of your case, you may apply for summary judgment in the early stages of the proceedings, or the court may, at any stage in the proceedings, decide to order a summary judgment where they are satisfied that the defendant’s case has no reasonable prospect of success.
Contractual enforcement
It is worth noting that litigation can also be pursued where there has been non-performance of contractual obligations or wrongful termination of the contract by suppliers or customers. An example of non-performance might be where a craft brewery has placed an order with a hop supplier and the hops eventually delivered have been damaged or the wrong quantity has been delivered.
ADR can similarly be sought before litigation and may even be required if the terms of your contract with the supplier stipulate that mediation or arbitration must be utilised in the first instance so any written terms will need carefully checking. A letter of claim or a letter before action should be served on the customer or supplier outlining the agreed terms of the contract and clearly indicating which terms have been breached.
If the breaches are disputed and you decide to initiate proceedings, the remedies available may include the following, either as a standalone remedy or a mixture thereof:
- A court order for specific performance which compels the customer or supplier to perform their contractual obligations;
- Awarding damages (plus interest) for any losses experienced as a result of the breach; and
- Rectification of the contract.
Conclusion
Litigation should perhaps be considered the nuclear option in the context of a long-standing customer relationship, and we would always recommend taking reasonable attempts to resolve disputes in an amicable manner in the first instance but sometimes there is simply no other option than going to court.
When contemplating taking legal action, especially for claims with a value of more than £10,000, you should certainly consider seeking legal support.
If you would benefit from advice, please do not hesitate to contact Daniel Finn or Oliver Andrews.
