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The growth in cross border trading activity, particularly since the early
nineties, has meant the problem of late payment has emerged on a new stage.
Statistics show that debts are paid more quickly by debtors in northern Europe
than in southern Europe and many UK companies find northern European customers
pay up more quickly than customer in the UK.
Law firms and debt collection agencies have found their clients now want debts
pursued throughout the Continent. Consequently, it is not enough simply for law
firms to offer their clients an introverted debt collection service covering
only the British Isles.
As a result, debt collectors have had to "swot up" on jurisdictional issues and
develop ties with colleagues throughout the Continent who can provide agency
services on their behalf.
Solicitors and debt collection agencies will inevitably have to devote more time
and effort in building relationships with foreign agents if they are to offer
the comprehensive service sought by UK businesses.
The problems
International debt collection has been codified throughout Europe by the 1968
Brussels Convention on enforcing judgments and the 1989 Lugano Convention.
It allows a business the convenience of suing a foreign debtor in a UK court if
this is incorporated as a contractual term.
Debt collectors need to give this proactive advice to clients to give them this
sort of tactical edge on the European market.
Debt collectors will also have to consider pinning down foreign agents on the
matter of costs as a common complaint of European agents is that they are slow
and expensive.
This must be addressed, as clients will expect the same swift, low cost service
when recovering overseas debts as they get when recovering UK debts.
Lawyers must be made to remember that in business terms, the European market is
all about playing a level playing field.
Why should the businessman's credit control and debt recovery not also be played
on a level playing field?
Why should he pay more for the same service, simply because the debt is in a
different part of one big market?
One solution may be to set up European-wide groups or consortia, where fixed
agency costs arrangements can be set up between debt collectors in all European
countries.
Either for enforcement purposes only, or where a client cannot sue a foreign
debtor in the UK Courts, agents in the debtor's jurisdiction must be used. Speed
is important and the client does not wish to wait while his lawyer paws through
a directory of foreign lawyers.
Another problem is that some foreign agencies, for example in Belgium, cannot
obtain judgments by themselves for a client. This is simply a feature of their
legal system which needs to be accepted. They would, therefore, be of little use
to a UK debt collector wishing to instruct a Belgian debt agency.
Knowledge of who can do what in each European country is, therefore vital.
Europeans will want us to make greater efforts to bridge the language gap. Even
a lawyer who sues every foreign debtor in the UK Courts will, more often than
not, have to enforce it in the debtor's country, and, therefore, ties with
familiar foreign agents are essential.
Jurisdictions
The limitation of actions in various jurisdictions is another important element
of European debt collection.
For example, those debts relating to goods or services provided are subject to a
two year limitation period in Germany, whereas in France there is a ten year
limitation period for debts between business entities.
Lawyers must therefore advise clients accordingly, so UK business can maximise
its cash flow.
A particular practical obstacle to swift action is the service of proceedings.
Under the Brussels and Lugano Conventions there are rules as to how Court
proceedings issued in the UK must be served on an overseas debtor.
For example, imagine that a creditor in the UK sues a Belgian debtor, on the
basis of a contract for the supply of goods to the debtor, and that contract
contains a clause conferring jurisdiction on the UK Court.
The action is brought in the High Court. The creditor may think he has been
particularly smart by incorporating the jurisdiction clause within the contract.
Indeed, if the matter was to go to trial he would definitely have a home
advantage and a costs advantage.
But debt collection is not all about expensive, fully blown trials.
Most actions are dealt with by default or summary judgment, or sometimes a
settlement is reached on the basis that a full trial is not cost effective,
bearing in mind the size of the debt.
In most cases, the creditor will never reach that stage in the proceedings where
he has a home advantage.
Translation delays
During the preliminary stages of the legal proceedings against the Belgian
debtor, the creditor will have to arrange for the pleadings to be translated.
Is the translation to be into French, Belgian or Flemish? This of course depends
on where the debtor resides within Belgium.
Next, the proceedings must be filed at the Foreign Process Office of the Royal
Courts of Justice in person.
This many mean that a London Agent must be instructed to comply with the
formality where the creditor's solicitor or collection agent is based outside
London.
There then follows an average delay of three months while the papers are sent to
the Belgian authorities for service to be effected.
The papers are returned to the High Court with a Certificate of Service (written
in Belgian) which needs to be translated. If the debtor fails to respond to the
proceedings, default judgment can be entered after 21 days.
The above example merely demonstrates the time and, inevitably the cost,
involved in effecting service upon a foreign debtor.
This could have been avoided if the contract had not contained a UK jurisdiction
clause.
Instead, the UK debt collector could have arranged with a consortium colleague
in Belgium for the entire action to take place overseas with less delay and
expense involved.
This is not to say that UK jurisdiction clauses are ill advised. To the
contrary, they serve their purpose.
Moreover, in some EC jurisdictions the delays may be so lengthy that it is still
quicker to proceed in the UK Courts and endure the delays of overseas service.
If nothing else is remembered, perhaps the best policy is to take legal advice
prior to entering a regular trading relationship with an overseas customer.
If it is anticipated that debt collection may be necessary (i.e. almost always
unless payment is made in advance) then solicitors advice can be sought on
whether legal proceedings would be quicker and cheaper in the UK Courts or under
foreign jurisdiction.
Even where a trading relationship exists, it will usually be possible to include
or remove a particular jurisdiction clause.
That deals with the technical and jurisdiction problems. As far as the business
is concerned these issues can to a certain extent be left to the legal advisors,
but businesses themselves must address the logistics of making deals with
European customers.
Terms of trade
There is no avoiding the reality that debt collection across European borders is
a headache for businesses.
It necessarily involves additional time, and usually more than one set of legal
advisors - one in each territory. Increased costs are a by product of this.
Having said this, a UK business can plan ahead, particularly if most or a
significant part of its trade is with overseas customers.
Credit managers, credit controllers, or finance directors should be aware of the
risks involved in granting any form of credit to customers on the Continent.
Credit searches should be carried out wherever possible.
Remember that if an independent opinion or advice is obtained concerning the
creditworthiness of a customer and that advice is incorrect then,
notwithstanding the collapse of the customer's business, there may be a cause of
action in negligence against the person giving the advice.
This could provide a neat escape route in the event of serious losses on an
overseas contract.
Businesses should think in advance about the particular markets where they
operate and, if necessary trade under slightly different terms and conditions in
various markets.
This might mean that an exclusive UK jurisdiction clause might be inserted in
the terms and conditions of business when trading with a Greek company. By contrast, it might be more practical to confer jurisdiction on a German Court
when trading with a German company.
Factors to consider include whether or not a jurisdiction has a fast track
litigation procedure for undisputed debts, the cost of such proceedings,
including Court fees and lawyer's fees, precisely who has rights of audience in
each Court, and whether or not there is the equivalent of the English form of
summary judgment.
When drafting terms and conditions, a business must ensure that the correct
jurisdiction clause is incorporated.
The distinction must, of course, be drawn between a choice of jurisdiction (i.e.
where the action takes place) and a choice of law (i.e. which legal rules will
be relied upon). For example, it is possible to surrender to English Law, but
agree to settle all proceedings in Belgium or Denmark, etc.
The obvious point of incorporation of terms and conditions must be made.
It is no good having immaculately drafted terms and conditions if they are not
expressly agreed by the parties. They should be clearly referred to on the same
sheet which is signed by both parties and dated.
The actual terms should, if possible be printed on the reverse of the same
document.
Conclusion
If a debt becomes overdue the first step to take is to send, preferably by fax,
a letter to the debtor as quickly as possible.
Do not allow the debt to go unchased for any length of time since this sends a
message to the debtor that you are not serious.
It is tactically a good idea to hit the debtor from two sides. Therefore, it may
be worthwhile to coincide the letter with a warning letter from the company's
lawyers or overseas agents.
This is where it is important to have in existence a link with overseas agents
who are familiar with the business.
It may be possible to negotiate a deal with them in advance, whereby they write
a first letter to the debtor for free, if they know that you will instruct them
on a regular basis. Going in hard and swiftly at the outset will, more often
than not, persuade the debtor to make payment.
For a minimum outlay in fees the debt will have been recovered.
If proceedings are still necessary then it is equally important to have an
existing relationship with agents or lawyers in Europe.
This can be arranged very easily by the company's UK lawyers and, quite often,
reasonably favourable terms can be agreed if it is clear that there is a
substantial amount of business between the parties.
Various jurisdictions have differing Court systems and it may be possible to put
into action fast track debt recovery proceedings.
The actual procedures in each jurisdiction are extremely varied and there is
insufficient space to set these out in detail here. However, the most important
point to note is that the same fundamental principles apply throughout all
jurisdictions.
No matter which jurisdiction, the effectiveness of the procedure can be greatly
enhanced by taking proactive steps with foreign agents, setting up fee
structures in advance, formulating action plans and fixed time scales for the
sending of letters before action and the issue of proceedings.
It all comes down to cost and cost effectiveness.
If debts can be recovered without being sucked down the lengthy litigation route
then more UK businesses will compete in Europe with greater confidence and
profitability.
Richard Piper is a
solicitor at Eversheds Hepworth and Chadwick
Source:
Credit Control Journal
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