Small Claims Court

Small Claims Court: A Guide for UK Entrepreneurs

Kurt GraverBusiness Development, Business Start-up Advice, Startups & Entrepreneurship


As a UK entrepreneur, facing a legal dispute with a client or vendor can be a daunting prospect, especially for those running small and medium-sized enterprises (SMEs). Often operating with limited resources, the thought of navigating the complex legal system is enough to make many business owners want to bury their head in the sand and hope the matter resolves itself.

But failing to address legal issues head-on can devastate your business. According to research by WerdCallet UK [1], over half of UK SMEs reported having outstanding unpaid invoices from the 2022/2023 tax year, with 20% being four to six months overdue. For the average London small business, the outstanding amount in late payments is a whopping £27,214[2]. Unresolved legal disputes are a key factor behind these cashflow nightmares.

Fortunately, the UK Small Claims Court provides a relatively informal and cost-effective avenue for entrepreneurs to tackle legal disputes where the claim amount is £10,000 or less. In this guide, we’ll demystify the Small Claims process and equip you with the knowledge to protect your business interests confidently.

Understanding the Small Claims Court Process

The Small Claims Court, also known as the Small Claims Track, is a streamlined legal process designed to resolve lower-value civil disputes more quickly and informally than a traditional court case. Some key things to know:

  • Claim limit: The Small Claims Track handles claims up to £10,000.
  • Types of claims: It covers various business disputes, such as unpaid invoices, undelivered goods or services, property damage, and contract breaches.
  • Legal representation: The process is straightforward enough that many claimants represent themselves rather than hiring a lawyer.
  • Costs: While some fees are involved, it is significantly less expensive than hiring a lawyer for a traditional court case. Court fees range from £35 for claims under £300 up to £455 for a £10,000 claim[3].

The general process involves:

  1. Filing a claim
  2. The defendant responding to the claim
  3. Attempting to reach a settlement
  4. If there is no settlement, proceeding to a court hearing where a judge makes a binding decision

Let’s look at these steps in more detail so you know what to expect.

Determining If Your Case is Eligible

First, confirm your dispute falls within the £10,000 Small Claims limit. This amount includes the money you’re directly owed and any interest.

The types of claims commonly pursued include:

  • Unpaid invoices for goods or services
  • Incomplete or unsatisfactory work by a contractor
  • Damage caused to your business property
  • Breaches of contract
  • Faulty products or equipment
  • Money owed from a former business partner

Some claims are not eligible for the Small Claims process, such as:

  • Claims over £10,000 (unless both parties agree to use the Small Claims Track)
  • Personal injury claims exceeding £1,000
  • Claims involving libel or slander
  • Disputes with a current or former employee, which may fall under Employment Tribunals instead

If you are unsure whether your claim qualifies, contact your local Citizens Advice Bureau for guidance[4]. Many also find it helpful to receive legal advice to properly assess their case before proceeding with a Small Claim.

Gathering Evidence to Support Your Claim

Having strong evidence is crucial for a successful Small Claim. Before filing, gather all relevant documents and information, such as:

  • Contracts or written agreements
  • Invoices and payment records
  • Email or text message correspondence
  • Photographs of faulty products or property damage
  • Receipts for expenses incurred
  • Estimates for repair costs
  • Contact information for any witnesses

Keep records meticulously organized in chronological order. The court will expect you to clearly show what happened when it occurred, any financial loss you suffered, and your attempts to resolve the matter.

If the claim involves an oral rather than written agreement, write down a clear account of what was agreed to the best of your memory. Texts, emails or witness accounts backing up your version of events will strengthen your case.

The more organized and thorough your evidence, the easier it will be to prepare a persuasive claim. Weak evidence results in a weak case, so this step is crucial.

Filing Your Claim and Notifying the Defendant

Once you have gathered evidence, you can file the claim and formally notify the other party (the defendant).

The easiest way is to file online using the UK government’s Money Claim Online service[5]. You’ll need:

  • The full name and address of the defendant
  • A concise explanation of your claim
  • The amount you’re claiming plus interest
  • Your court fee payment

If you cannot file online, claims can be submitted by post using an N1 Claim Form[6].

After filing, the defendant will receive a copy of your claim. They have 14 days to respond, and their response will determine your next steps.

If the defendant agrees they owe the money, you can request a County Court Judgment (CCJ) ordering them to pay. If they fail to respond, you can request a default judgment.

If the defendant disputes the claim, they must submit a defence explaining why. In this case, the court may schedule a hearing for a judge to consider both sides. However, the court will likely encourage you to try to reach an agreement through mediation.

Attempting Mediation Before a Hearing

Mediation involves a neutral third party helping both sides negotiate an agreeable settlement. The Small Claims Court will likely direct you and the defendant to contact the free Small Claims Mediation Service before proceeding to a hearing[7].

Mediation is often the preferred approach, as it saves the time and expense of a court hearing. With the mediator’s guidance, you may be able to reach a compromise without the stress of presenting your case to a judge. Over 60% of cases referred to the Mediation Service are settled[8].

However, if you can’t agree, you proceed to a Small Claims hearing. The court will schedule a date and notify both parties.

Attending the Small Claims Hearing

Small Claims hearings are less formal than traditional trials. Rather than a courtroom, they often occur in a private room with the participants seated at a table.

While not required, seeking legal advice on your case is still recommended. A solicitor can help you prepare a persuasive argument and coach you on what to expect. Some law firms offer fixed-fee Small Claims packages to keep costs manageable for entrepreneurs.

On your hearing date, arrive early and bring at least three copies of your evidence. Dress professionally to demonstrate respect for the court.

The judge will hear from the claimant and defendant, including any witnesses. You’ll each present your case, referring to evidence to support your argument.

After listening to each side, the judge makes a decision, either:

  • Ordering the defendant to pay the claim if you are successful
  • Dismissing the claim if you are unsuccessful
  • Awarding you a portion of the claim in some cases

If you disagree with the decision, you may be able to appeal. The judge will explain your options.

Enforcing a Judgment If You’re Successful

If you receive a judgment ordering the defendant to pay, they should arrange payment directly to you or in instalments as determined by the court. But what if they still don’t pay?

You have several enforcement options[9]:

  • Applying for the court to collect payment
  • Arranging for bailiffs to seize the debtor’s assets
  • Freezing money in the debtor’s bank account
  • Securing the debt against a property owned by the debtor
  • Having the debtor’s employer deduct payment from their wages
  • Obtaining a court questioning the debtor on their finances
  • Initiating bankruptcy proceedings against the debtor

Be aware each enforcement method involves an additional court fee. You’ll need to weigh the likelihood of successfully obtaining payment against the cost involved.

If the judgment debt remains unpaid, it severely impacts the debtor’s credit report, showing up as a CCJ and making it difficult for them to secure financing. A CCJ remains on a credit file for six years[10].

Minimizing the Need for Small Claims with Proactive Strategies

While the Small Claims Track provides a valuable tool for entrepreneurs to pursue legal remedies, the ideal is to avoid disputes in the first place. Consider implementing preventative strategies into your business practices, such as:

  • Insisting on written contracts with clear terms and conditions
  • Performing due diligence on new customers or vendors
  • Maintaining detailed records of all agreements and transactions
  • Using an efficient invoicing system with clear payment deadlines
  • Sending prompt reminders for late payments
  • Offering multiple payment options to accommodate customer preferences
  • Reserving the right to add interest charges or stop work for overdue accounts

By establishing transparent processes and acting quickly at the first sign of an issue, you may be able to resolve disputes amicably without legal intervention.

Conclusion

No entrepreneur wants to find themselves embroiled in a legal battle, but the unfortunate reality is that payment disputes are a common challenge SMEs across the UK face. When needed, the Small Claims Court provides a more accessible and affordable path to justice than a traditional lawsuit.

By understanding the Small Claims process and gathering strong evidence to support your case, you can pursue legal remedies while protecting your business interests. Seeking advice from legal professionals and taking advantage of court mediation services will further position you for a successful outcome.

At the same time, prioritize preventative measures to minimize the chances of landing in court in the first place. Foster a company culture that values clear communication, meticulous recordkeeping, and proactive steps to address issues before they escalate.

Equipped with this knowledge, you can navigate legal disputes with greater confidence and resilience. Remember, burying your head in the sand is never the answer. Facing challenges head-on will better position you to achieve your entrepreneurial ambitions.

References:


[1] https://www.nerdwallet.com/uk/business/late-payment/
[2] https://www.london.gov.uk/who-we-are/what-london-assembly-does/london-assembly-press-releases/impact-late-payments-londons-small-businesses
[3] https://www.gov.uk/make-court-claim-for-money/court-fees
[4] https://www.citizensadvice.org.uk/law-and-courts/legal-system/taking-legal-action/small-claims/
[5] https://www.moneyclaim.gov.uk/web/mcol/welcome
[6] https://www.gov.uk/government/publications/form-n1-claim-form-cpr-part-7
[7] https://www.gov.uk/guidance/small-claims-mediation-service
[8] https://www.judiciary.uk/wp-content/uploads/JCO/Documents/CJC/Publications/CJC+papers/Small+Claims+Mediation+Research+Paper+6.4.15.pdf
[9] https://www.gov.uk/make-court-claim-for-money/enforce-a-judgment
[10] https://www.experian.co.uk/consumer/guides/ccjs.html