Identifying the correct opponent at the outset, and assessing their ability to pay is vital when dealing with cases of commercial litigation. Here we set out some considerations that need to be looked at very early on when a dispute develops.
Who is the right defendant?
You might think this is obvious, particularly if it is an individual who you need to claim against. However, an individual could have been acting on behalf of any number of different businesses when doing the work that you want to complain about.
Who is responsible for the work?
The individual who did the work may have been acting on their own, but they are more likely to have been working on behalf of their employer. If the employer is responsible for the actions of its employer, this is called vicarious liability.
How do you know which business an individual is employed by?
The employer company or partnership or sole trader is the entity that you need to claim against. Unless you have something clear like an invoice issued by the correct company, you might be uncertain as to who the correct defendant should be.
It is not unknown for invoices to have been issued by the wrong company or even sometimes to show no company information and just use a trading name. Liability of individuals in partnerships can be notoriously difficult to pin down unless the partnership is a limited liability (an ‘LLP’), and have filed public information on who is in that partnership at any given date.
Gather together all the paperwork (including emails and messages) to piece together who is involved and who you may need to bring your claim against.
Is the contract the last word?
You might have entered into a written contract with a particular business, but they could have subcontracted the works to a third party. A sub-contractor might have done the same. In that situation, you may need to claim against all entities with potential liability. They are likely to try to blame each other, and you may need all the parties in Court to deal with all possible outcomes.
Negligence out of the blue?
There may be no contract, particularly where damage has been caused by accident. You may have no idea who was responsible for the thing that caused the accident or who owns the property where it took place. Some searches can be undertaken such as Land Registry searches, and this can assist, but there may be other parties who you need to claim against such as managing agents or tenants. Investigations are required to avoid wasting time and cost pursuing the wrong party.
Making sure that you have identified the correct defendant(s) really matters if you are approaching the limitation deadline. If you make a claim against the wrong entity to start with, then by the time you realise that another party is more likely to be liable, you could be out of time to make the claim against that new defendant.
You generally have six years from a breach of contract and six years from damage caused by negligence to issue a claim at Court; after that, you lose your right to claim. Other shorter limitation periods apply to different claims so getting early legal advice is essential.
Before issuing a claim at Court, in the pre-action protocol stage, you should be able to identify the right defendant(s), because you should have sent a letter of claim to all potential defendants.
You can consider their reply and assess whether this is a person or company that you need to have in your legal action. If there is no written contract or agreement, you will need to look at the chain of communications, which led to the agreement to understand fully what was agreed and with whom. If the claim is one of negligence and there is no identifiable contract, then you need to look at all parties who owed a duty of care to you. It is not always obvious at the outset exactly who was responsible for the specific bad advice or act or omission that caused the damage.
The pre-action exchanges should assist in flushing this out. Still, it is not unknown for the extra documents disclosed or located later on in a case to reveal an additional person whose involvement needs to be addressed. Early exchange of information and documents can help to flush out any other parties who might need to be named in the action.
If in doubt, you will probably want to claim against all potential defendants, particularly if you are close to the limitation cut-off. Discontinuing after a claim has been issued is safer than losing your claim entirely, although some wasted costs might need to be paid.
Will the defendant be able to pay the damages and your costs if you win?
Once you know who you want to claim against, you need to know that they will be good for the money that the Court orders them to pay.
- Companies House. All companies and limited liability partnerships must file annual accounts, and this is the first source to check. You need to know the company, or LLP still exists of course but, even if they do, the accounts are often out of date, sometimes well over 12 months’ old.
Sometimes they are short form with no reliable information on what assets the company has to enforce a judgment against.
- Land Registry. Property ownership searches can be of assistance to establish whether a company or individual owns a property asset. However, if there is a first (or second or third….) legal charge over that property, you will not know how much money is owed and hence how much equity will remain to pay your damages if the property is sold. Businesses usually lease premises, so a Land Registry search is more likely to be helpful when claiming against individuals.
- Insurance. In some types of case, you may need to know that the defendant has liability insurance. This is not something you can know pre-action, nor can you make an application for information on the extent of insurance cover once you have issued legal proceedings.
Some practical indications can be noted again by using the pre-action protocol: if a defendant has solicitors acting for them, this is usually a helpful indication that insurance is available, particularly if the solicitors are one of the well-known ‘insurer panel’ firms.
It is still not guaranteed that insurers will pay any judgment, but it is a step in the right direction.
Involving your expert legal adviser at an early stage can help to avoid wasting time and money pursuing an incorrect defendant or a defendant that is unable to pay even if you win your claim. A pyrrhic victory is not usually one to celebrate!