Letter before action

This letter before action (also known as a letter of claim) is designed to help if you: want to threaten to sue another business that owes you money; or want to sue an individual who owes you money (it is suitable for a straightforward debt claim against a consumer or a sole trader who has failed to pay your invoices); or are thinking of suing a person or business for anything other than money they owe you. For example, if a supplier sent you the wrong items, or a courier service that you use damaged some of your goods in transit, you might want to sue them for compensation. You must usually write a letter before action or letter of claim to warn the person that you intend to start a legal claim against them, and give them an opportunity to explain themselves or settle the matter with you, eg by paying up. It gives the other business fair warning of your intentions and increases your chances of getting paid or getting a remedy without having to resort to expensive legal action. If you don’t send a formal letter before action to the other side before starting a claim, you run the risk of being penalised by the court if you do go on to make a claim. For example, you might not be allowed to get your legal costs paid by the other side even if you win. You can also purchase this document as part of the Small claims toolkit .
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Handling and resolving disputes
Resolving disputes proactively
Q1:Should I try to resolve disputes before suing someone?

Yes, you should always consider alternatives before commencing any legal action. The court also has power to order the use of – such as – before a case actually gets to a hearing.

Even if you go on to win your case, the court can order you to pay some of the other side's , or reduce the amount of costs that they have to pay you, if you fail to at least try to resolve your dispute between yourselves. Further, going to court is generally the most expensive, time-consuming and stressful method of . It is adversarial and will likely end whatever business relationship you had with the other side. You should also bear in mind that most court hearings are held in public so commercially sensitive documents can be read out in court.

Note that your contract may specify what you have to do in the event of a dispute, in which case you must usually follow what it says.

For guidance on how you can resolve a dispute without going to court, see Q&A 2


Q2:What can I do to find a solution to a dispute with someone?

There are a number of options that you can consider, up to and including legal action:

  1. informal correspondence and negotiation. If this does not work, you can consider sending a formal '' threatening to sue;

  2. arrange a meeting to try and work out the situation;

  3. use any scheme that you are part of, for example if you are a member of a trade association which runs its own scheme, or complaining to the Small Business Commissioner if the dispute relates to you getting paid by a larger business;

  4. (see Q&A 9 and following);

  5. (see Q&A 16 and following); or

  6. bringing a claim in court.

    If the matter is not complex and is worth £10,000 or less, it is a . You can run such a claim yourself without a lawyer if you wish. See Starting a small claim against someone else for a DIY guide on how to bring a , including a template for debt or non-debt claims (Letter before action) and Small claims toolkit, which will take you through all the relevant stages and provide a How-to guide.

Note that issued since 22 May 2024 are automatically referred to a compulsory one-hour with the court's 's Service. These sessions are free.


Complaints and demands
Q3:What should I do if I receive an informal complaint or demand?

See Customer service or Customer service for online sales for details of how to deal with specific complaints. Note that in particular have significant rights when it comes to problems with any product or services you have provided.

If anyone else (eg a supplier or subcontractor) raises an issue with you via informal correspondence, such as by telephone or an informal email, take it seriously and deal with it quickly where possible. This is your best opportunity to resolve the matter informally and minimise time wasted and costs to your business.

Acknowledge the complaint as soon as you reasonably can, take steps to understand it and request further information if you need it. Make sure you keep any documents or other evidence relating to the matter (eg invoices, email chains, proof of delivery). It is very important that you do not lose or destroy any evidence as you could be penalised for this later if the matter escalates to court (see Q&A 4).


Q4:What happens if I ignore an informal complaint or demand?

See Customer service or Customer service for online sales for guidance on dealing with complaints from your customers (whether they are or other businesses).

For all other kinds of complaints or demands, if you do not engage properly, it can affect your business relationships and reputation. If the matter is serious and eventually escalates to court, you could be penalised for ignoring it. You might:

  1. have to pay more of the other side’s ; or

  2. have to pay more of your own costs than you would have otherwise.

These costs consequences do not normally apply if the dispute is worth £10,000 or less.

A failure to find an informal early on does not necessarily mean the dispute will end up in court; there are other options you can try (see Q&A 2).


Mediation
Q9:What is mediation?

is a popular form of . An impartial (the ) meets with you and the other side together and helps you to reach an agreement between yourselves. The meeting can take place at a physical location or online via video-conferencing.

A is not like a judge or an as they will not make a decision about your dispute.


Q10:Should I agree to a request for mediation?

It is always worth considering when it is offered. It can be quick and cheap, as most processes will only require a day or two. There can be consequences if you unreasonably refuse to (see Q&A 11).

The focus of is on your broader interests, rather than on technical legal rights. For this reason, factors such as reputational issues, personal emotions or business relationships can be taken into account if necessary. This means that, if successful, the process can assist in maintaining your commercial relationship with the other side. Further, unlike litigation, you and the other side get to decide the outcome, as opposed to having a judge's decision imposed on you.

issued since 22 May 2024 are automatically referred to a compulsory one-hour with the court's Service. These sessions are free.


Q11:What happens if I ignore a request to mediate?

You are legally obliged to at least consider methods of resolving a dispute without taking it to court. If you behave unreasonably in refusing to and the matter ends up in court, you may be ordered to pay more of the other side’s , or have to pay more of your own costs than you would have otherwise. These costs consequences do not normally apply if the dispute is worth £10,000 or less.

If you ignore a request to before the claim is issued, you may find yourself in anyway at a later stage. The court has power to order the use of once a claim has been issued, and all will be referred to the Service early on in the litigation process.


Q12:Is what is said in a mediation confidential?

If a does not end in an agreed , everything that was said and done during it is confidential. This means that in any legal action, the judge will not be told what went on at the . It means you can speak freely during a without having to be concerned about prejudicing any later .


Q13:How much does a mediation cost?

Unless you hire a lawyer to help you (see Q&A 43), the cost of will usually just be the 's fee and the hire of a suitable venue to meet if you do not have anything available. Your will explain what sort of venue will be suitable for your .

This ’s fee is dependent on the amount of money involved in the claim and the you choose, but typical fees range from a few hundred pounds to a few thousand pounds.

The costs of the and location are usually divided equally between the parties, although you can agree a different divide if you want to. through the court's Service is free.


Q14:How do I find a mediator?

If you agree to try , search for a qualified . Try the Centre for Effective Dispute Resolution website (use the 'find a CEDR ' tool on the right hand side) or the Civil Mediation Centre directory..


Q15:Can a mediation be conducted online?

Yes. Although conventionally a is conducted at a physical meeting between the parties, mediations may be (and increasingly are) conducted remotely via online video-conferencing apps like Zoom and Skype, or by telephone, eg via the Service.


Arbitration
Q16:What is arbitration?

is a process by which a dispute is resolved by an impartial , in private. It aims to provide a final and binding decision on a dispute, and is often used to resolve larger-scale disputes between businesses without the expense and publicity of going to court.

An hearing can be conducted at a physical location or sometimes online via video-conferencing.


Q17:Do I have to agree to arbitration?

Yes, if you have any kind of written agreement that says you have to resolve any disputes using , you cannot refuse it unless the other side agrees.

If you do not have a written agreement to arbitrate, it is up to you whether you wish to or not.

Check any agreement, terms and conditions or correspondence between you and the other side for mention of . There does not have to be a signed contract between you; an exchange of correspondence in which you both agree to is enough.


Q18:Should I agree to arbitration or not?

First check if you are legally required to arbitrate (see Q&A 17). If you are free to choose, consider:

  1. Privacy

    is a private process, unlike going to court which is open to the public. Therefore, if you want a dispute to remain confidential, might be preferable for you.

  2. Flexibility

    is more flexible than going to court. You can choose the , set timetables, adapt the rules and generally tailor the whole process to your specific circumstances.

  3. Cost

    may often be cheaper than going to court, but not always. See Q&A 19.

  4. If the other side is overseas

    If the other side is based abroad, resolving the dispute by can create a decision that is easier to enforce than a judgment from the courts of another country.


Q19:How much does arbitration cost?

can be cheaper than going to court, but it is not always, especially in small or low-value matters. It is certainly not cheap – the will usually charge between £250 and £750 per hour.

You are likely to want a lawyer to represent you at an , just as you would in most court cases, so they must be paid for too. Usually, the will decide who will pay the costs, including the lawyers' fees, at the end of the process. As a general rule, the loser pays the winner's costs.


Q21:How do I find an arbitrator?

The Centre for Effective Dispute Resolution's Arbitration Services page is a good starting point to search for arbitrators, although you should generally hire your own lawyer before engaging in (see Q&A 43) and they will advise you on suitable arbitrators and how to begin the process.


Q22:Can an arbitration be conducted online?

Yes. Although normally an is carried out at a physical hearing attended by the parties and their advisers, arbitrations may sometimes be conducted remotely via online video-conferencing apps like Zoom and Skype.


Negotiations and Part 36 offers
Q23:What is a 'Part 36 offer'?

A '' is a special type of offer to settle a dispute with specific consequences attached to your acceptance or refusal of the offer. You can recognise such an offer as it must be in writing and must state that it is a . It may do this by stating it is made under 'Part 36 of the '. Either a claimant or a defendant can make a .

If you have received a general offer to settle a dispute that does not state it is a see Q&A 29.


Q24:How do I decide whether to accept a Part 36 offer?

When thinking about whether to accept a and pay the amount specified, consider:

  1. the rights and wrongs of the situation, alongside the impact on your business of standing your ground. Bear in mind a legal dispute can steal time and focus from the development of your business;

  2. the consequences of accepting the offer – acceptance of a normally requires the paying party to cover the of the receiving party; and

  3. the potential consequences of not accepting if the matter proceeds to court. If you ultimately do less well than the offer, you will be penalised, unless the matter is a (simple and worth less than £10,000). The penalty depends on whether you are defending the claim or bringing it. See Q&A 25 if you are defending the claim and Q&A 26 if you are the one who is claiming something.

If you have received a general offer to settle a dispute that does not state it is a see Q&A 29.


Q25:What is the penalty for not accepting a Part 36 offer if I am defending the claim?

If you do not accept a and the eventually made is less favourable to you than the offer was, there are consequences. On top of any amount due that was the subject of the claim you will usually have to pay a penalty, unless the matter is a (simple and worth less than £10,000). The penalty is payable to the other side and consists of:

  1. additional interest (up to 10% above base rate) on the sum you have been ordered to pay;

  2. their dating from the deadline for a reply given in the offer;

  3. interest on those (up to 10% above base rate); and

  4. a penalty charge. Where the claim is just for money, the penalty is 10% of the amount (up to £500,000) you are ordered to pay the other side, and 5% on any amount over £500,000. The penalty is capped at £75,000.


Q26:What is the penalty for not accepting a Part 36 offer if I am the claimant?

If you have alleged that the other side owes you money, and the court orders them to pay you the same or less than they offered you in settlement, there are consequences. You will usually have to pay a penalty, unless the matter is a (simple and worth less than £10,000). The penalty is payable to the other side and consists of:

  1. their dating from the end of the period for response given in the offer; and

  2. interest on those costs.


Q27:How long do I have to reply to a Part 36 offer?

You must act promptly if you receive a . It will usually say that you only have 21 days to respond, although you can accept it at any time until it is actually withdrawn.


Q28:How do I accept a Part 36 offer?

You can accept the by sending a written letter of acceptance. If have started, you must also send your acceptance to the court. You must then pay any settlement amount you have agreed to within 14 days from your letter of acceptance.


Q29:How do I decide whether to accept an offer to settle a dispute?

If you are in a dispute and the other side sends you an offer to settle it, you should take time to consider the settlement's terms carefully.

If you have received an offer from the other side in a dispute and it is stated to be a '' or an offer under 'Part 36 of the ' see Q&A 23 and following.

When considering whether to accept an offer to settle a dispute, consider:

  1. the rights and wrongs of the situation;

  2. the impact on your business of standing your ground. Bear in mind a legal dispute can steal time and focus from the development of your business;

  3. any need to maintain a working relationship with the other side; and

  4. the financial consequences of not accepting the offer. If the matter escalates to court and you are ordered to pay more than the other side offered to accept, or the other side is ordered to pay you less than they offered, you will normally be penalised. The court does this by ordering you to pay some or all of the other side's , even if you have technically won the case.

    These costs consequences for failing to beat an offer at trial do not normally apply if your case is a (ie a simple claim worth £10,000 or less).


Using a lawyer
Q43:How can I find a lawyer?

For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service. Note that if you have legal expenses insurance that will cover the cost of a lawyer, check the terms of your cover as you may be obliged to use a particular firm.

When considering potential lawyers, you should consider the following factors:

  1. whether they will give you a fixed-fee or free initial consultation to discuss your case with you;

  2. how much they charge for their fees. Some lawyers will charge a fixed fee for your whole dispute; others will charge you per hour which they work, so costs are harder to predict and could grow rapidly. Some might offer a 'no-win-no-fee’ service, although this is less commonly available for business disputes. All lawyers must give you an accurate assessment of their costs before you engage their services and as the matter progresses;

  3. their experience in dealing with similar matters to yours, including whether they are familiar with the sector in which your business operates; and

  4. any recommendations or reviews of their service.