This dispute occurs in all sectors but is more common in the recruitment market. The debtor’s directors or owners claim that whoever ordered the product or service did not have permission to do so. Sometimes there has been a genuine mistake by the debtor, caused by poor communication and process, but often it is a weak attempt to avoid payment.
In this case our client, a recruiter specialising in IT, had been dealing with the HR Manager of a large workwear clothing manufacturer to place an ERP Manager. All due process was followed correctly, terms were sent and acknowledged, the candidate was hired, so our client sent an invoice for the engagement for £17,500.
Several weeks passed after the candidate had started work and the invoice had not been paid, so our client emailed the HR Manager. He tried calling and left voicemails, but got no response. Eventually he called reception to find that the HR Manager had now left the business. Undaunted our client asked for details for the finance department and sent the invoice there, but he received no reply. Eventually he referred the debt to Sterling.
As soon as the debtor received correspondence from Sterling they engaged their solicitor, who promptly drafted a longwinded, intimidating letter. (Solicitors get paid by the hour so their letters are usually a lot longer than they need to be). Their sole defence was that the HR Manager ‘did not have actual or ostensible authority to bind our client to the terms of business’, which in plain English means that the HR Manager did not have permission from the company Directors to agree terms with the recruiter. The solicitor went on to point out that the costs of legal action would be very high due to the value of the debt, and if the debtor won in court and costs were awarded then our client could be out of pocket for a significant amount.
This is true, for debts over £10k the small claims track cannot be used, a more complicated and costly procedure must be used where costs can be awarded against the losing party. Of course this works both ways, if our client was to win then it’s likely that significant costs would be awarded against the debtor in addition to the debt value.
Sterling drafted a letter explaining why the dispute was not valid. In legal language, the HR Manager had ‘apparent authority to bind the client to the terms of business’ i.e. it would be a natural assumption for any supplier that the HR Manager had authorisation to agree terms and engage them. Whether or not the HR Manager had sought or received approval from a Director was an internal matter for the debtor and not one that would affect the client’s right to fees due under the agreement. We pointed out that it would be inconceivable that the court would find against our client on that basis. We also agreed with the solicitor’s point that should the matter go to court, then the losing party, which would be the debtor, would be liable for significant costs.
Within a few days the solicitor responded that their client had agreed to settle the invoice and payment was made.