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​Disputed Debt – When can it be collected?

We have all heard the many excuses (and some of us may have even used them) when it comes to debts owing.  The key is to distinguish between what is being disputed and what is beings used as a deflection of no money to pay.  The difference?  Disputed debts cannot be collected, but those who don’t pay can be chased.

A dispute can be genuine or the dispute can be frivolous.  The key of course is to be mindful that a frivolous dispute to you, the Creditor, could be a genuine and significant dispute to the Debtor.  The first course of action is to sit down and discuss the issues – why is the debt disputed, and how long after the debt was incurred did the dispute arise? 

As an example, let’s say you are a Website Designer and you designed and created a new website for a Client that went live.  You took a 50% deposit but the Client has been slow paying the balance.  After 3 weeks, you contact the Client and ask why they are not paying.  The client tells you that they think the price was too high, that they have talked with other acquaintances who claim their website costs were half the price for the same thing, and besides all of that, there were bugs in it which they had to get some else to fix.  Is this a dispute?

On the face of it, yes it is a genuine dispute.  The dispute has arisen 3 weeks after the website was handed over, but if it had been 3 months then the dispute is simply an excuse to not pay.   The documentation in this case will make or break the dispute and give you options to move forward.  If you have an engagement letter and a scoping document that explains what you have been instructed to do and the price to undertake that work, signed by both parties, then the dispute can be resolved by asking the Client to show how you have not delivered on what was agreed at the agreed price.  If you have done what was asked of you and at the price that was agreed, there can be no dispute.  Buyer remorse is not a reason for a dispute.

However, if there is no paperwork (lets face it, we all experience it once) then it is about working through the issues.  Referring to our website example, there is a cost factor.  Was a quote given at the start?  If so then this diminishes the dispute, unless the invoice is greater than the quote.  Was there additional alterations required?  If so were these requested by email or phone?  If email, that gives a paper trail but ,even then, was the Client aware there was a cost to their requested changes?  (I once was involved in a dispute where by a client wanted copper pipes on their house.  The plumber installed them and then sent the invoice (via the builder).  The builder's client disputed the invoice, on the basis that had the client known the cost of the pipes he would not have had them done.  The outcome, the client was not liable as the “variation” was verbal and the client was not aware of, nor had been made aware of, the extent of the cost.  Learning's – always get the changes signed off and an agreement that they come at a cost, even if the cost is not known at the time.)

The final part to the dispute in our website example is that the Client had to get the bugs fixed.  There are two issues here; the first is that the bugs were not referred back to you (the Website Designer) to fix, and, secondly; what was the cost of the fixes by the other party?  Let’s say that the fixes were minor, but the Client took the opportunity to have additional functionality included and then thinks this is part of the increased costs of fixing the original problem.  The answer would be “no”.  Any cost of fixing the website bugs can be disputed by you as you have not had the right to fix those first.

On the assumption that both parties agree to disagree, then the ultimate party to review the claim is the Disputes Tribunal.  The Disputes Tribunal does not allow Lawyers to be present and is for claims under $15,000.  It is designed to allow lay people to put their claim forward to see what is a fair outcome around the dispute.  The more documentation that is available, the stronger the case.  Some respondents will make a statement to the effect that they reserve the right to take their claim to the District Court.  The Court system takes a dim view of what they consider a waste of their time, so this is usually only on cases of complexity or technical law.

The recommendation – document, document, document as it will save a lot of time disputing it if everything is signed off and wrapped up in a bow!  

Written by David Waine


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