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A 'Small Claims Court' For the Internet 116

angry tapir writes "It's not unusual for a freelance Web designer or developer to be burnt when a client refuses to pay up, citing one excuse or another. And what can you do about it? If a contract only amounts to a few thousand dollars, litigation to recover your fee can be far too expensive, and an increasingly vituperative exchange of emails is often not enough for client and contractor to come to agreement over who owes whom what. Into this gap steps A start-up founded by Peter-Jan Celis that aims to provide internet-based, legally binding arbitration services — a 'small claims court' for the internet — with a particular eye on settling the conflicts that arise over freelance development and Web design."
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A 'Small Claims Court' For the Internet

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  • by angry tapir ( 1463043 ) on Wednesday June 06, 2012 @02:18AM (#40229501) Homepage
    Hello, article author here. Part of the reason exists is because people doing contract work often deal with clients that live in other countries or other locations in the same country. Plus the turn around can be super quick.
  • by Anonymous Coward on Wednesday June 06, 2012 @02:49AM (#40229637)

    As an experienced contractor who mainly deals with overseas clients, all I have to say is that if you go into this sort of work without fully understanding the risks them you should give it all up and go do something else.

    Some basic rules.

    1) Agree a payment plan. Stage paymens for specific milestones.
    2) Use an accountant who knows what they are doing wrt international business
    3) Suggest using an escrow account. Client pays all the money up front. Then agrees to release parts as deliveries are made. Also agree a timeout clause so that if they don't agree the final payment you get it automatically after 6 months. Russuans are very bad at agreeing the final payment.
    4) Use a Lawyer who knows about international contract law.
    5) Both parties to agree that the laws of ONE country shall apply to the contract. UNLESS it is with former parts of the USSR that are not in the EU. Then agree Swiss Law.
    6) Every change no matter how small must be agreed in writing and signed off with agreed costs. Do not do anything as a freebie. This habit is endemic in many countries especially in Moscow.
    7) Make sure that the person on the other side is actually authorized to sign the contract. I've had clients try to wriggle out of payment saying 'He was not authorised to sign the contract so we can't pay you'
    8) If you are gonig to sign away the title of the stuff you develop then make the transfer of title a separate contract. Agree in the original contract that totle will change hands only when the job has been completed AND full payment made.
    9) Learn the language especially the swear words. A few curses in their language can work wonders when a client is being awkward.

    At first doing business in 'foreign' parts may seem like a nightmare waiting to happen. Sometimes it does have its unexpected rewards though. Mine is meeting a beautiful and intellegent woman in Novosibirsk in 1995. We have been maried for nearly 15 years.

  • by CuteSteveJobs ( 1343851 ) on Wednesday June 06, 2012 @03:03AM (#40229701)
    Some quotes from that Salon article. Highly recommended reading:

    "Arbitration is billed as a cheap, quick and private way to resolve civil disputes. The practice gained momentum in the 1980s, when judges, bowing to pressure to alleviate overcrowded courtrooms, began encouraging litigants to resolve their disputes voluntarily. Since then, arbitration has snowballed into an unlicensed industry that’s conservatively estimated at $350 million in annual sales, according to a spokeswoman at the nonprofit American Arbitration Association.

    “We hear a lot of complaints about these cases,” said Gerald Uelman, professor of law at the University of Santa Clara. The for-profit arbitration business is booming, especially in California, he added. “It’s upsetting to the extent that it’s a resource used by institutional litigants.”

    One big reason for the boom is money. Public judges, who earn about $150,000 a year in the public courts, often retire early to become, in effect, rent-a-judges. By doing so they can earn between $100 and $500 an hour — easily doubling or tripling their salaries. Arbitration firms often have powerful attorneys or corporations as steady clients. They pay monthly retainer fees or get volume discounts. As a result, some for-profit justice firms have a vested interest in keeping their clients happy if they want the return business, which has been the topic of seminars sponsored by the California Judges Association.

    The rules that apply in open court often aren’t followed in private court. No laws prevent the hired judges from accepting gifts from attorneys. Another criticism is that the arbitrators and their clients and attorneys often work together regularly. “The same judges are often employed by one side or the other,” said Uelman. As it turned out, Girardi had ties to at least three of the private judges in the PG&E case: Jack Tenner, John Trotter and Jack Goertzen. Had this occurred in public court, judicial rules would have forced the judges to recuse themselves from the case due to a conflict of interest. But no such ethical standards bind participants in private arbitation." []
  • by Anonymous Coward on Wednesday June 06, 2012 @03:04AM (#40229709)

    Going to court is the last thing I ever want to do in any way shape or form. For a few thousand dollars, it's not worth all the horrible hassle. But this also means, that this amount may not very much for clients either then, and proper planning and agreements can successfully solve this issue before it starts.

    1. New clients (in my 13 years exp.) are the ones that will screw you most likely (if you don't know then and they are devious). Old clients with a history of problems, are the second on the list.

    2. Bad communication and unbalanced expectations are the start of most conflicts that end up with you not getting paid.

    3. Lack of planning/preparation will always come back to bite you, not the client.

    1. Document everything you will build. Outlines, descriptions, mockups. The amount documentation depends on the scope and budget of the project. Smaller projects get less specs written, and also have less risk.

    2. Write a Cost Proposal that itemizes the costs by feature or whatever can be broken out and separated. This also allows the client to pick and choose which items they don't want. (lowers your bid and makes your project feel more in the clients control)

    3. Write a timeline with payment schedule and milestones. This is where you put MONEY UP FRONT, as the first item on the list. Depending on the amount of the total project, I usually ask for 30% to 50% up front. If it's a good client, and not much money, I may ask for 100%.

    3b. For each milestone simply include which features will be done, and the dollar amount expected at that point in time.

    4. Have the client AGREE to the payment schedule, the specs documents IN AN EMAIL. I have had a hand full of times where verbal agreements bit me in the ass because the client was slightly manipulative. This is NOT a contract signing thing, just written proof that the client agrees to start work that is documented.

    5. Do NOT start the work until the first payment is recieved. This can be flexible depending on the trust you have with your client.

    1. Now, when/if your client balks at a payment, a) you've already gotten some money, so the stress is greatly reduced, and you have documentation detailing everything you agreed to do.

    2. If client complains that feature X is NOT THERE, you can simply refer to your documentation saying what you agreed to build, and that feature X is NOT in the documentation, and that you can put a proposal together for the client for feature X.

    3. When a client complains "I told you on the phone" (happens FREQUENTLY) you state, that you only do work that is documented or the request is done in writing. (ie, email) BE SURE to state this UP FRONT when you send the specs documenation, and even include this in the specs. Just doing this has SAVED MY ASS.

    4. Follow rules for work, not memory. I had a client say that a missing feature was a "bug". He said I told him on the phone that I would "fix" it. I was lucky to remember this issue from a few months ago (very lucky) but also explained that we had to use a "rule" to distiguish between bugs/flaws (my responsibility) and feature requests (clients financial responsibility)

    5. Don't start on the next milestone, until payment is recieved. This again is flexible based on your relationship with the client.

    6. Take care of your client, they often shoot themselves in the foot. They don't always understand technology, the internet, or design. Education and patience will pay off big time.

    7. Take the blame readily when something is your fault, and fix it. That way, when the client is pulling something, you have no qualms about putting your foot down. (make negotiating infinitely more benefitial to you)

    There's much more that can be said, but for another day...

  • by mpoulton ( 689851 ) on Wednesday June 06, 2012 @03:24AM (#40229763)
    I would never agree to a contract with a arbitration clause if there were any real money at stake. There is a very serious difference between their arbitration process and almost all others: they attempt to completely replace all statutory and case law with "principles of fairness". There are two problems with this: First, statutes and case law exist because they are helpful in resolving cases. Without them to control the outcome, there is no way to accurately analyze the dispute in advance (or even the original contract itself) to determine the probable outcome. You have no way of knowing what whim the arbitrator will use to guide the decision, and no right to complain even if it's unpredictable or contrary to the real law. Make no mistake, the ambiguity is huge - thus so is the risk. This vast unpredictability defeats the entire purpose of having a dispute resolution process.

    The second problem is even bigger: Not all law is waivable. Many procedural protections, consumer protection laws, and some case law cannot be waived by contract. Although the arbitration clause purports to waive all law in favor of their own ideas of equity, this is not legally possible. This creates a total mess. If the arbitrator fails to correctly consider and apply non-waivable law, the losing party could sue in real court to overturn the arbitration award.

Friction is a drag.