My law firm has been contacted over the years by a numerous businesses having trouble getting payment for work completed. In many cases they have attempted using debt collectors with less than favourable outcomes and by the time my firm has been contacted events generally are moving so fast that in essence the ability to secure the debt becomes harder. In this article I will dissect some typical debtor situations in the marine industry and provide practical suggestions as to how to secure payment for work completed. However, just like the preparation to secure a berth, the securing process for debt recovery starts well before any work is commenced.
While the marine industry is possibly one of the last bastions where business is done on a gentleman’s handshake, in today’s legal world, this may not provide enough securitity and a written contract should be considered. Apart form the usual things such as defining the parties, the vessel, its owners and the work to be completed; importantly the contract should consider when and how payments are to be made and what happens when payment is not received. These later contractual terms should also be reflected in the terms written on the Invoice that may include:
When payment is payable
The terms of payment for work completed should be clearly defined, for example ‘All invoices and accounts to be paid before your vessel is launched or released.’ Aditionally, payment should be received in advance for parts, especially large items such as engines, where there are long waiting periods for delivery of these parts. The importance of this advanced payment is evident where a simple service or repair can become complicated with estimate blowouts, this payment ensures supply lines stay open to the business despite the fact that your client’s running accounts may not have been paid in full. Further, if there are time variations make sure any verbal agreements are followed with written confirmation of the work required describing how and when progress payments will be made for these terms are often different to the invoice and contract terms.
Define the interests payable if not paid on time
If your invoice is not paid on time, then depending on who your client is and the nature of the work, you may choose to waive the interest payable clause. However, if you do not have this type of clause you loose the bargaining power that comes with such a clause and more importantly you can not claim any interest on the outstanding debt from when the invoice becomes overdue upto when legal action is commenced in the court.
An invoice should stipulate the repairer holds a ‘Repairer’s Lien’ over the vessel until payment is made
This Lien is not however, enforcealble if the vessel in question is no longer in the repairer’s possession. In one situation the repairer had lost the power of the Lien by allowing the owner access to the vessel before the invoice had been paid. The owner had changed locks on the vessel and readied the vessel to be removed and even though the repairer attempted to regain control by moving and chaining the vessel to his work mooring, it was gone the next day. The lesson’s were numerous, the repairer had initially engaged a debt collector who new nothing of the client’s rights under a Lien and failed to inform the repairer of the importance of not releasing the vessel. Further, due to the owner having access to the vessel, before paying the invoice, he was able to change locks and ultimately limit our client’s access to the vessel. And significantly our client was unable to secure the vessel properly on the hardstand that may have resulted in the repairer being liable for these costs, not the owner, as there was no storage cost clause.
An invoice should state the cost of slipping and storage plus reasonable costs when payment is not made
The result where the repairer’s invoice does not stipulte storage costs can be a significant cost to the repairer that may not be claimed in most cases. Therefore, the repairer may be left with some awkward decisions especially where it does not own or run the slipping/hardstand business. For the repairer, it is left with the stark reality of either soaking up the slipping and hardstand costs that may be over time a poor commercial decision or leaving the vessel in the water where the owner, armed with a pair of bolt cutters, can release the vessel and take it from the clutches of the repairer.
The terms should define how a vessel will be dealt with if payment is not made in a certain period of time
In one particular scenario a vessel was dropped at a repairer the work completed but when it came to paying the invoice the person who delivered the vessel claimed, as he did not own the vessel, he was not liable for the account. The repairer was then faced with several problems, who owned the vessel, was the person who dropped of the vessel acting as an agent or as a bailor/bailee. Ultimately, it tuned out the person who delivered the vessel was liable but then it also became apparent this person had no money or assets to make a claim against. The vessel remained at the repairer’s work for numerous months with the delivery persons vanishing. This bizarre set of circumstances ultimately left the repairer to deal with the vessls in accordance with the Uncollected Goods Act.
A significant issue in the above situation was the question of ownership and practically a difficult question to broach with your client without possibly offending them. One suggestion is that this when taking initial instructions ownership is proved by a Bill of Sale or through checking the Personal Propertys Security register and this may be explained to the owner as being for the purpose of insurance.
An Invoice should include a costs clause setting out any legal costs charged in the recovery process
When a business owner is confronted with an unpaid invoice and seeks legal advice from our firm, we want our client to be certain of their options through preparing the matter properly, it’s not just a case of sending out a letter of demand that may end up being a paper tiger. The claim needs to be checked so that all the terms of what form a contract are present and the claim needs to be considered in respect to commercial reality and whether the debtor has deep pockets or at the very least owns enough of the vessel in question to be able to pay the debt from its sale. Other typical commercial questions are:
- do I right-off the debt as there are no debtor assets to sell or ability to pay or
- do I pursuing the debt with the hope that there will be some money left from the sale of assets or from garnishing wages to pay legal costs and the debt.
The cost of this process will vary depending on the complexities of the matter and therefore the invoice should state that all legal costs will be payable by the debtor in respect to an unpaid accounts. This clause is especially important where the debt is reasonably low and not commercially viable to pursue due to legal costs.
It must be impressed on the reader that these suggestions are not a definitive list and will not stop bad debts from occurring, however they may assist in limiting them and assist in the claims process. As all circumstances are different early legal assistance should form part of a business’s business plan to limit bad debts and avoiding costly litigation.