Website built and live. and customer refusing to pay.

[calibra11]

Hello,

I am an IT contractor with my own Ltd company.


I started building web software for a client 2.5 years ago (lets call it Product 1). There was never any written contract between us. Basically I would go in every month, demo what I'd built in the previous month, discuss what my client wanted in the following month, and get an invoice paid for £3000. As I already have other clients I work for during the day, I worked on the stuff on evenings and weekends. It was extra income for my company, rather than my main income.

Product 1 has been live for over 2 years, and my client has many of his customers using it. I'd go as far as to say the software is now the backbone of his company.

In April, he asked me if I wanted to form a new company to build a Product 2, loosely based on Product 1. I agreed and did 12-18 hour days throughout May on Product 2 (and some Product 1) in May, for which he paid me the standard £3000. I estimate that at my standard day rate I did 9-12k's worth of work that month.

We agreed I would earn 35% of the new company.

I also worked during June and July for him, both on Product 1 AND Product 2. There is a long list of requests for work off him and his staff via email, and subsequent replies and source code check-ins to prove the work was done.

I issued an Invoice for 3k for June at the end of June, which still hasn't been paid, and I was about to issue an Invoice for 3K for July for dev work I have been doing on Product 1 this month.

2 weeks ago we had a disagreement on how we would operate the company. A misunderstanding of what we were agreeing to. The outcome of that was that we may need to change our agreement but renegotiate the equity %.

Last week he informed me he was no longer forming the new company for Product 2 with me, and he had found another developer to do it with instead. I was shocked and disappointed, but I guess I haven't really lost anything because the company hasn't been formed yet. And as long as I get paid for the work I do, I don't really mind.

Yesterday he told me that he was not going to pay me for June and July. He brought up a throwaway comment I had made previously about how sometimes some work can be done quicker than estimated.

So now we are in dispute.

I sent him an email demanding payment for the work I'd done, especially when you consider the 18 hour days I put in in May for a product he told me I would own part of.

He replied telling me he had concerns about comments I made to him in person and via email (I was always very careful and polite) and that his solicitor would be in touch.

I have evidence of work requested and done on both Products during June and July. There has been no payment for either.

I am the only person with access to the code, the hosting etc. In fact, the hosting for Product 2 is linked to MY company credit card.

So I'm trying to work out where I stand and what rights do I have.

My first reaction is to bring down both Product 1 and Product 2 sites until he pays up. However I do not want to leave myself open to any lawsuits for loss of earnings.

Also, both Product 1 AND product 2 use external services that I pay for from my company account, such as SMTP email services etc. I could remove access to those without touching the Product 1 and Product 2 sites at all, and the sites would immediately break.

Again though, I don't know where I stand, legally.

I'm guessing I'm going to be battling his solicitor, and I am willing to defend myself if need be, as long as I don't put myself in too much risk.

Thanks

Cal

[ostell]

So you send him a letter before claim listing all the outstanding bills with full details, including the mail services. Don't just pull the plug on the mail services without giving him a chance to pay. Presumably the total is below £10,000 so it will stay in the small claims track.

Of course if the domain is registered to you does he realise what a sticky wicket he is on? If you go that route warn the registrar of the contention so stop them pulling it out from under you.

[calibra11]

So you send him a letter before claim listing all the outstanding bills with full details, including the mail services. Don't just pull the plug on the mail services without giving him a chance to pay. Presumably the total is below £10,000 so it will stay in the small claims track.

Of course if the domain is registered to you does he realise what a sticky wicket he is on? If you go that route warn the registrar of the contention so stop them pulling it out from under you.

The domains for both sites are registered to him. But the sites are hosted in my hosting account. The site for Product 1 is attached to his credit card. The site for Product 2 is attached to my credit card.

I think Product 1 is more tricky, as its a mature site that I have never owned any part of. He has paid me monthly for it for 2.5 years. All that's outstanding is the dev work and support and maintenance I did through June and July.

Product 2, however, was a joint venture. He paid me 3K for 9-12k worth of work, based on the premise that I would own part of it. He has now decided that I won't own any of it, but is refusing to compensate me. The site uses a domain he owns, but I would question who owns the code. Do I have the right to pull that site down?

What is the worst he can do here?

[ostell]

Depends what's in the contract. You may own it until he pays you for it then it transfers to him.

Put the warning shot across his bows just to show that you are not willing to just go away on this issue. Just the threat may make him at least talk about it and come to some agreement.

[calibra11]

Depends what's in the contract. You may own it until he pays you for it then it transfers to him.

Put the warning shot across his bows just to show that you are not willing to just go away on this issue. Just the threat may make him at least talk about it and come to some agreement.

There is no contract. Never has been. Just emails, phone requests and a history of payments made every month. He owns the domain for Product 2, but has only paid 3K for the Product 2 application, which cost much more than that in terms of development effort, which I was happy with while owning a portion of the new company.

[calibra11]

I sent my client an email yesterday demanding payment. At the end of the letter I wrote the following...

"If you still choose not to pay, then I will move the invoice into dispute status, stop support and maintenance to both products, and immediately take other actions as I see fit (both software and otherwise) after taking legal advice"

I have now received a letter from my client's solicitor saying...

"The above statement clearly falls within the provisions of Section 21 of the Theft Act 1969 and constitutes an attempt at blackmail, namely the making of an unwarranted demand of our client with menaces with a view to making a gain or causing a loss

Whilst we await out clients fuller and detailed instructions our client' rights are fully reserved in relation to the above and the referral of your threats to the appropriate authorities"

That's starting to sound scary. Is there basis to this? Are they saying I need to provide support and maintenance to a product without being paid?

[calibra11]

This seems a crazy position to be in. I can't get paid for the work I did. The sites are costing me money to run. And I can't pull my credit card or SMTP server from the sites because that will cause the site to go down and then I'm causing him losses?

[ostell]

The solicitor has only heard your clients side of the story. So an email to the solicitor simply telling them that you will not be making any further payments on their clients behalf as you have not received recompense for payments already made and their client is refusing to agree to future payments. This is not a threat of blackmail merely a reasonable business decision taken to guard against future losses to your company caused by the behaviour of his client.

If it causes you no grief then stop paying for services he is dependant on.

As I said send a properly constructed letter before claim to him itemising the missing payments.

[calibra11]

That seems to make sense. Pulling down sites would cause loss.

However if I am forced to provide support and maintenance and pay for external services without payment from the client, then that would cause my company to make a loss.

Am I still OK to send in a letter before action detailing what I believe I'm owed, without any formal contract ever existing? Is the 2.5 year history of work and payments to my company along with the email of work requests and proof of dev work done enough to make it worth going through small claims. Without any formal contract?

[ostell]

With all the emails you have requesting work then yes they have contracted with you.

Don't do anything positively to damage the web sites, he has refuted the contract and therefore you have no need to continue working at a loss

[calibra11]

That's what I thought. The lack of no contract works both ways. If he uses it as an excuse not to pay, then I can also use it as an excuse to not do any further support or maintenance work.

I think I'll reply using points you made above and also include that I'm more than happy to negotiate a cost to export and transfer the sites over to him. He would then be free to install it anywhere he likes and get another developer to maintain it (which would be very difficult as the new developer wouldn't have a clue how the software works). The mad thing is, all this is likely to cost my client more than the 6k of invoices he refuses to pay.

If I do this, am i in a better position legally? It shows I'm being reasonable and there was no threat, but an attempt to stop further losses for my company

[ostell]

Ask for payment up front if he wants transfer of code, because of previous behaviour. Appear reasonable, it will help if things escalate later.

the response in #8 was for the solicitor.

Yes contact him and say that from his behaviour you believe that he has repudiated any contract that existed between you, would he care to confirm. Then you can tell him that as you believe there is no contract you will no longer make any payments on his behalf nor commit to providing support or maintenance. Offer to transfer the software to him, give him a quote, erring in your favour, and ask for a response. If he agrees then ask for payment.


and start writing that letter before claim in readiness

[calibra11]

I'm now thinking of a reply to the solicitor stating your points in #8

I also think that the £6k loss for unpaid work, and the future state of play regarding support and maintenance are 2 separate things.

The £6k, I should put in a letter before claim and chase it through small claims, based on the 2 months worth of emails (there are about 150 emails, many asking me to do stuff).

Then separate from that, the future state of play regarding support and maintenance, I can give my client 2 options,

1. Negotiate a fee up front to export the site over to him where he can hire a new developer, install the site somewhere, and take the many months required to understand how it all works OR

2. Give him the option of putting this all behind us, and we can negotiate a new fee for ongoing support and maintenance (which will be more expensive than it was previously). Any future deal would be put in a contract.

Does that sound reasonable? Is it likely to make the "blackmail" shout go away?

If so, should I send all of that to the solicitor? Or just your points in #8? And then a separate email to my client with the rest?

[jaguarsuk]

I would say just send the points in post #8 to the solicitor.

you don’t currently have to provide and maintenance and support because he’s breached the contract between you.

You can begin discussing the latter matter Of him buying product 2 or entering into a new written contract once this issue has been resolved.