Nick Henchie offers a lawyer’s appraisal of the options for contractors wanting to avoid small claims litigation
The plight of AJ Danieli & Son seems to have caused quite a stir. It has led eminent columnist Tony Bingham to put forward his “humble solution” (13 May, pages 58-59), which recommended that an “arbitral investigator” investigate the dispute and come up with a binding decision, so as to avoid the costs of litigation.
Although Tony Bingham’s solution may be possible, given that it seems that the two employers in question have apparently refused to even meet with Mr Danieli or answer solicitors’ letters, one does question whether or not using an arbitral investigator (which would require all parties’ consent) is likely to be any more successful than the steps already taken by AJ Danieli & Son.
So what other ammunition does a prospective small-value claimant, concerned to avoid protracted litigation and the inherent costs risks, have available to him where there is essentially no defence to his claim? Is the situation as bleak as Mr Danieli appears to have been advised? I would say not.
In the first place I would advise such a claimant to issue a statutory demand against the debtors. If this is not satisfied within three weeks, then the claimant could bring bankruptcy proceedings (against an individual) or winding-up proceedings (against a company). This is a procedure to be used where there is no defence to the sums claimed. It is usually very effective in persuading debtors to pay the sums due because otherwise they risk having the company wound up or being made personally bankrupt.
An alternative to threatening winding-up/ bankruptcy proceedings, would be commencing court proceedings and applying for summary judgment. This is a procedure devised by the court for cases such as Mr Danieli’s. Part 24 of the Civil Procedural Rules governs the procedure for summary judgment. The procedure enables a claimant to obtain judgment at an early stage without the time and expense involved in proceeding to a full trial. The court will give summary judgment if the defendant has no real prospect of successfully defending the claim or issue. It should be possible to obtain summary judgment with minimal legal costs involved in a matter of weeks. If successful, the claimant would be entitled to recovery of his reasonable legal costs expended on the application.
The above options, of course, assume that in the contract between the parties there is no provision for adjudication. For small businesses such as Mr Danieli’s, it is sensible to include an adjudication clause in contracts which would not automatically be governed by the Construction Act (for example in contracts for building works at residential premises) so that there is a quick contractual route to recovery when sums are being wrongfully withheld.
I do not agree with Mr Danieli that the general public is able to steal goods and services from a small construction firm
If all of these options are unavailable or fail, then there is still the prospect that, if the case has some merit, a solicitor or claims consultant would take the case on a contingency basis, so that the claimant would have no responsibility for legal costs unless the case was won, in which case the costs would largely be paid by the defendant. This is a so-called no win-no fee arrangement that many solicitors and claims consultants are willing to take on these days.
Thus, I do not agree with Mr Danieli that the general public is in a position where it is able to steal goods and services from a small construction company, safe in the knowledge that they would generally walk away scot-free. Of course, on occasions, a business that wishes to pursue its proper entitlements and legal remedies will have to pay out some money to do so, but the processes are in place whereby recoveries can be made without the need to incur disproportionate legal fees, and indeed, the Civil Procedure Rules have been redrafted in recent years to provide safeguards against this.
Finally, if all else fails Mr Danieli and others like him might consider acting as a litigant in person and representing himself in court. Litigants in person are not to be underestimated and usually courts will be sympathetic to them and ignore procedural and other errors in formalities if the merits of the case are clearly with them.
Nick Henchie is a partner in the Construction and Engineering Group at Mayer, Brown, Rowe & Maw