After the capacity service is finally delivered to customers and the service is working well, a carrier may have to deal with certain customers who fail to pay the carrier's invoices. There are a variety of scenarios behind this attitude, such as bankruptcy filings, delays in processing payment orders, or even emails sent directly to spam folders in customers' mailboxes.
And there is a special group of challenging debtors: customers who had no intention of paying their debts in the first place and have strategically positioned their pawns accordingly.
Here are some tips for dealing with these special and time-consuming customers.
Clear contract terms with customers
These difficult debtors know that a key factor in any collection process is negotiating a good service agreement that solves the common multi-jurisdictional problem where the customer's location and assets are different from the cable owner's location, and the governing law may not even match the courts or arbitration venue.
Therefore, if the customer insists on local law and courts, it is advisable to consult with local counsel in that jurisdiction to avoid surprises later. This includes situations where the local legal process may be excessively slow or even opaque, with a suspiciously consistent tendency to favour local companies in case law.
Other suspicious requests during contract negotiations may include:
Low interest rates on past due invoices.
Cure periods of more than 30 days to correct a breach of contract.
Refusal to pay reasonable upfront fees in an IRU.
The right to terminate without cause during the initial term of the contract and only in favour of the customer.
None of these individual instances may be considered sufficient to designate a counterparty as a "potential debtor". However, if they accumulate, they can potentially lead to significant problems before the ship even sets sail.
Certainly, this is an inherent risk for international carriers that can be eliminated or minimized through measures such as letters of guarantee, deposits or upfront fees, but most of the industry may find it difficult to bear the associated costs. Therefore, a carrier should also rely on its own behaviour to ensure that customers honour a signed contract.
Send a strong message
Unfortunately, in every industry, there is a minority of operators who are unwilling to pay their bills and are on the verge of bankruptcy because they know they will not pay their bills after they get a deal. The key for a cable operator is to take a firm stance, similar to the signs commonly seen in supermarkets to deter shoplifters, by making it clear that the company will always pursue legal action or impose fines regardless of the amount stolen.
This customer is relying on the fact that small amounts of money owed may not be worth a cable operator's time to pursue the case in court. This is true. Each jurisdiction has its own costs, including attorneys' fees, discovery, expert witnesses, or even the risk of having to pay the other party's attorneys' fees as well. This "cost-benefit test" for pursuing litigation is well known to such debtors. Other tests relate to the concept of "economic viability" of small cases: at least a 1:10 ratio of costs to recovery, meaning that the total budget for pursuing the case (typically attorneys' fees and other costs mentioned above) must not exceed 1/10 of the value of the claim (e.g., the amount of the invoices plus interest).
Even some of the usual preventive measures taken by creditors may prove insufficient, such as analyzing the financial situation of a customer from the moment of signing the contract. This type of debtor usually leaves no trace of their financial records, or they hide them in such a way that it can lead to a false positive of a good status situation.
The cable owner should also consider litigation assignment or funding to reduce budgetary pressures, but this may be too expensive or burdensome for small cases.
Much of the deterrent effect on habitual debtors comes from the company's unwavering policy of thoroughly investigating and, if necessary, relentlessly pursuing its claims to the end. This simultaneously demonstrates financial strength, persistent commitment to carrier service, and a consistently strong deterrent to any potential debtor in the industry who will think twice before spending time and money to default on a contract.
This is a key strategy for winning the high moral ground before the battle even begins in court and increasing the likelihood of a successful settlement afterward. Otherwise, the debtor will view the cable owner as weak and willing to settle for any amount, and at worst, the carrier would send the wrong internal message within its own organization that would attract other potential debtors.
Protect the staff
The carrier's employees are often the most vulnerable in this scenario, as they serve as the first line of defence against the passive violence/fraudulent behaviour of a difficult debtor. There is a risk that their conversations, emails, and other forms of communication may be used against them in court.
A carrier's in-house counsel must show empathy and maintain a heightened sense of vigilance at all stages to protect the company's personnel from the debtor's malicious arguments and bad faith counterclaims in court or before the national telecoms regulator.
This is especially true when it comes to service level agreement (SLA) disputes, such as late service delivery and service outages due to force majeure. All of these scenarios can be maliciously asserted as exceptio non adimpleti contractus, or an excuse for the debtor to withhold payment due to a prior breach of contractual obligation by the carrier.
This type of survival strategy, sometimes desperate, causes great distress to network operations personnel and salespeople who find themselves in the spotlight within their own company and potentially in subsequent litigation over whether there has actually been a breach of the SLA. In-house counsel should carefully and objectively determine the underlying facts, whether the customer has clearly rejected the invoices after sending them to the customer in accordance with the dispute resolution procedure in the contract, or whether the service delivery has been a real nightmare for the customer with regular outages and lack of support in accordance with the escalation list in the SLA.
This approach should be followed throughout the process, with periodic evaluations of whether it makes more sense to continue, negotiate, or drop the case.
Know the facts
An attorney must first know the facts and avoid a witch-hunt mentality unless a crime or wilful misconduct is involved. They should ask the right questions of their own employees and subcontractors to assess the weakness of the case at the outset, before a claim letter is sent, not after everything has been said and done.
In addition, the attorney chosen for this task should be a meticulous person who digs into the details and is prepared to have a clear mind to turn the changing scenarios into legal evidence of the debtor's disrespectful behaviour and to conduct the pre-trial negotiations if they are unsuccessful.
Attorneys must instil confidence in employees to get the real facts; otherwise, the same facts may emerge during trial or discovery, creating an embarrassing situation for both the attorney and the salesperson that could quickly change an entire case. Every carrier employee needs to understand that the truth needs to be known before a claim letter is sent, and that includes prior discussions during meetings, exchange of high-voltage emails, or even mistakes that have not yet been discovered by the other party.
To do this, the attorney must fully understand the company's internal processes for preparing a claim and resolving a cable outage, and of course, look for any clues or missing information in the various email exchanges:
The customer has effectively triggered the dispute resolution process set forth in the capacity lease agreement, which does not allow for the suspension of the termination until such dispute is resolved.
The carrier network area did not properly respond to multiple emails from the customer to resolve a series of minor service outages.
The SLA escalation list was not properly updated, resulting in miscommunication between both parties.
Of course, no company is free from service delivery errors, but that does not diminish the role of a lawyer who must evaluate the evidence and assess whether they have a strong case or not. When faced with a weak case, it is advisable to consider not pursuing it beyond a simple exchange of letters of claim with the debtor, rather than increasing legal costs with a low probability of success in court.
An attorney can provide advice on how to respond to emails from debtors' representatives, how to protect each employee without putting them in a conflicted position, and how to avoid these common email mistakes:
Responding to some of the customer's arguments and forgetting to accept or reject others, which can lead to the misconception that the carrier has accepted them.
Replying to a new email thread without the previous disclaimers about the risk of delays for a requested new activation date that were in another email thread.
Responding inappropriately to a customer's email that is provocative and uses bad manners.
We are human, and it is unrealistic to expect everyone to think like a litigator in order to avoid forced errors. Fortunately, the courts usually consider the principles of good faith and fair dealing when deciding these cases.
Andrés Fígoli the director of Fígoli Consulting, where he provides legal and regulatory advice on all aspects of subsea cable work. His expertise includes contract drafting and negotiations under both civil and common law systems. Additionally, he has extensive experience as an international commercial dispute resolution lawyer. Mr. Fígoli graduated in 2002 from the Law School of the University of the Republic (Uruguay), holds a Master of Laws (LLM) from Northwestern University, and has worked on submarine cable cases for more than 20 years in a major wholesale telecommunications company. He also served as Director and Member of the Executive Committee of the International Cable Protection Committee (2015-2023).
This article was first published in Submarine Telecoms Forum Magazine #132 – September 2023.
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