The power of a letter before action in a business dispute

‘An effective letter before action can go a long way towards resolving a dispute,’ says David Hacker, partner and head of dispute resolution at TW. ‘Or it can at least narrow the number of contentious issues before you have to take your dispute to be decided by a court.’

What is a letter before action?

A ‘letter before action’ is a formal legal letter setting out that you have a dispute about an issue, which might relate to money owed, or could be a dispute where you are asking for damages for action or lack of action, as appropriate. This letter precedes the issuing of court proceedings (a letter before court action). It warns the recipient that if they do not come to the table to discuss a resolution of the dispute, the next step will be that legal proceedings will be issued in court, with all of the complications and costs that this entails.

It can be used for any type of business (or private) dispute, but common circumstances include:

• unpaid debts; or
• for damages to recompense for losses caused. This can relate to any loss, for example, a loss resulting in a breach of contract, or a loss following an injury, or a copyright infringement. It can also ask the recipient to take certain action to make good a breach or damage, which may not be financial. For example, to take down a negative and false business review.

The objective of the letter is to invite your opponent to resolve the dispute without having to go to court.

The importance of a letter before action

As soon as you have instructed a solicitor with the details of your dispute, and before going to court, your solicitor will send the letter before action on your behalf.

This may benefit you by ensuring that you achieve an early settlement, without incurring the expense of issuing proceedings in court.

If you do need to go to court, then the letter will help to prove that you have taken appropriate steps to minimise court time and follow appropriate protocols, for example:

• When an individual owes your business money, there are specific guidelines contained in legislation detailing a ‘pre-action protocol’ that should be followed before making an application to court. This includes sending a detailed letter before action to your debtor before going to court.
• For debts owed from a business to a business, while there is no specific pre-action protocol, it is still important to send a letter before action before issuing proceedings in court. There is a general protocol that exists in law that creates a duty to take steps to explore the option of settling a matter before making a formal application to court.

If it later transpires that such steps were not taken, the court will inevitably take this into account when making its decision - in particular in regard to the apportionment of legal costs.

Courts do not look favourably on parties who do not attempt to engage with each other before involving the court, as it wastes court time and goes against the values of the justice system.

What goes into a letter before action?

You must set out what the issue is that you want to resolve, clearly explaining what the problem is and how and when it arose. If you have evidence or additional facts that explain this, then set these out in the letter, attaching anything relevant.

State clearly what you want the recipient to do to resolve the matter to your satisfaction. If this is to pay you a monetary sum, then you must state what this is, and how that sum arose, breaking it down clearly.

For example, if you supplied goods and these have not been paid for; you should state what you supplied, when you supplied it, what the agreement was regarding what and when to pay, detail all invoice(s) sent by you, and confirm what is now outstanding. You may include interest if your contract terms provide for it.

Or, if you believe you have suffered loss due to action or inaction of your opponent, then you will need to set out the circumstances of the loss, when it happened, what loss occurred, and what you want to happen to resolve the position for you.

The letter will invite a settlement of the sums claimed within a reasonable time, which would usually be 14 days, although this may change depending on how much correspondence has already taken place between you.

The letter may also offer an alternative to taking the matter to court, such as attending before an arbitrator to discuss a resolution.

You will also notify the recipient that if they fail to engage with you to resolve the dispute, you will have to make an application to the court to decide on the issues, and this will incur additional costs, which you will be claiming from them if you are successful. This will often help to focus your opponent to the reality of the situation, and show that you are serious.

It is important that your letter does not inadvertently make threats, as these could have a negative effect on the opportunity to resolve matters before involving the court.

Why is a letter before action powerful?

Courts do not look favourably on parties who have ignored reasonable chances to discuss and resolve a dispute.

If your opponent has ignored a letter before action, then if you are successful in court, it is likely that the judge will order that your opponent pays all your legal costs, because if they had answered your letter and opened up negotiations, you would not have been put to the expense of going to court.

Even if you are not successful and the judgment goes against you, you can argue that your legal costs should be paid by your opponent, at least in part if not in full, because their failure to respond to your letter before action forced you to incur the expense of asking a court to decide on your case.

How can a well drafted letter before action help you?

A well drafted letter before action will show that you are serious, and this should prompt an opponent to respond to attempts to resolve a dispute before it gets to court, knowing the risks regarding costs that ignoring a letter hold for them.

As well as helping to achieve a resolution, avoiding court action will reduce your costs, your time, and ultimately the stress of being involved in court action.

The letter can either open the negotiations for a settlement, or if not, it will set you up so that if you have to go to court, you have complied with all the expected protocols, and cannot be criticised or penalised by the court for not giving ample opportunity for settlement. This will put you on a good footing when the court is considering costs, no matter who wins.

How we can help

We have many years of experience in drafting letters before action, many of which have prevented the need to involve the court. Contact us as soon as you are aware of a potential business dispute where we can assist.

For further information and assistance, please call us on 0208 290 0440 to speak to a member of our dispute resolution team, or email us on hello@thackraywilliams.com.