Implications of the Pre-action Protocol Changes relating to Debt Claims

Currently, there is no specific Pre-action Protocol that needs to be followed in respect of debt claims, claimants must simply follow the general Practice Directions on Pre-Action Protocol under the Civil Procedure Rules. From 1st October 2017, claimants and their advisors will need to comply with the latest protocol which will now specifically apply to debt claims, where a business is claiming recovery of a debt from an individual. It will not apply to business-to-business debts, unless the business is a sole trader.

It is geared at increasing pre-action communication and negotiations between the parties, and will involve a two-step pre-action process which negates the unnecessary disclosure of further information to a debtor, often when the debtor is non-responsive to the creditor.

Letter of Claim

The first step is in issuing a letter of claim, which must contain:-

1. Information regarding the debt and any interest accruing thereon;
2. Details of the agreement under which it arises;
3. Details of any assignment of the debt;
4. Details of any instalments being offered/paid and why they are not acceptable;
5. Details of how the debt is to be paid or how to discuss payment options;
6. Address for return of the response form.

The letter must now also be accompanied by an information sheet, response form and financial statement form (all of which are contained in standard form in the annexes to the Protocol). Strict provisions on service apply. The debtor then has a period of 30 days in which to respond before proceedings are issued.

Response

During the 30 day period, the Creditor and Debtor are expected to liaise over the content of the response form and to discuss any documents required to understand the position of the other party. The creditor would then have 30 day period to provide any information requested or to explain why the information cannot be provided.

Alternative Dispute Resolution (ADR)

The parties are then expected to consider ADR to reach a settlement, and if agreement is reached, the creditor should not issue proceedings whilst the debtor complies with the agreement. If no such compliance takes place, a further letter of claim needs to be send before commencing proceedings, though disclosure need not be re-sent.

Taking Stock

The Protocol contains a ‘taking stock’ provision, requiring the parties to re-assess their positions following compliance with the Protocol’s. If agreement still cannot be reached, the creditor must give the debtor a 14 day warning that they are going to issue.

This new Protocol has clearly been developed following LJ Jackson’s 2010 report on Civil Litigation Costs and on the amount of Court time/costs that business debt actions take up. The Protocol seeks to serve the overriding objective and help facilitate an out-of-court resolution to debt issues. The procedure as whole appears to greatly benefit the debtor, and the main aim of the process is to enlighten the debtor by ensuring they have requisite information to understand their position and seek advice on their position.

If you are a business contemplating debt recovery action against an individual (including a sole trader) once this Protocol comes into place, then it is advisable that you seek professional advice to ensure compliance with the Protocol and therefore with the CPR. The Courts can be quick to penalise a claimant for non-compliance, and this can have a substantive impact on the prospects of success and on claims for costs.

The Litigation department at McCarthy Bennett Holland Solicitors has a wealth of experience in pre-action conduct and is readily available to advise on compliance with the CPR ahead of issuance of proceedings. If you do require assistance with this, or with the commencement of proceedings generally, please do not hesitate to contact us directly on 01942 206 060.