The Pre-Action Protocol for Debt Claims
When one party has a claim for debt, they need to take certain steps before filing a court case. Some of these are very technical and it is important to consider the case-by-case basis to determine if and how this applies. We are involved in disputes all over the country, and we take into account any protocol that is part of our instruction. This is more than just a box to tick, but it is important to ensure you can exert maximum pressure on your opponent (on one hand) and are well-positioned to recover costs if you lose (on the other). Civil Procedure Rules (CPR) are a set of procedural guidelines that aim to optimize the court’s resources and time. The court gives priority to ensuring that all parties are treated equally and fairly while managing costs. The Pre-Action Protocol for Debt Claims helps achieve these objectives by defining the steps that claimants and defendants must take before escalating the dispute to court. Contact Helix Law for more information. What is the Pre-Action Protocol for debt claims? The Pre-Action Protocol for debt claims is applicable to businesses (including sole-traders and public bodies) who are claiming payment from an individual. The Protocol requires that the parties exchange early and open communication prior to bringing legal proceedings in court. Failure to comply with the Protocol can adversely impact a case and result in serious financial consequences.
What is the Purpose of the Protocol?
It encourages meaningful discussions between the parties in the hope they will resolve their issues without court intervention. By following the Protocol parties can narrow their issues, clarify areas of confusion, and reduce hostility prior to going to court. Even if the parties are unable to settle their dispute under this procedure, adherence ensures that the dispute is ready for court. During the pre-issuance phase, you can learn valuable information that can be of great value.
Who is affected by the Pre-action Protocol?
Any company that wants to make a claim against a debtor, including sole traders or public bodies, must comply with the Protocol. It does not apply for business-to-business claims (unless the debtor in question is a sole-trader).
Steps of the Debt Recovery Process under the Pre-Action Protocol.
Below, we outline the basic steps to be taken before issuing a claim. This is more of a general overview than a comprehensive list. It should be obvious that each case is unique and that you must first determine if it is necessary or appropriate to pursue this approach. If the debtor has acknowledged a debt, but has not paid it, it may be more effective to threaten insolvency or pursue a guarantor. This is the type of analysis that we undertake where we are instructed.
Otherwise, where a decision has been made to pursue a claim, a creditor must contact the debtor directly and provide details of their potential claim before applying to court. These details must be included in a “Letter of Claim” which must be completed and served properly to ensure compliance with Protocol.
Serving a Letter of Claim
The first page should have a date, and the creditor must post the letter the same day or the next. The letter can be sent by email but it is not considered proper service unless they have been specifically asked to do so.
Information to Include in the Letter of Claim
The Letter must include the following information:
The debt amount;
Whether interest or other charges apply;
Details of any agreement, whether oral or written;
If the debt is assigned, details of the original debtor and creditor and the party it was assigned to;
If the debtor offered to pay in instalments, an explanation of why this is unacceptable to the creditor;
- Details of how to settle the debt; and
- The address the debtor must send their reply to.
- The more detail provided in the Letter, the better; the defendant can respond fully to each element of the potential claim, helping the parties narrow the issues early.
- A claim letter can also serve as a framework for a subsequent claim, if necessary.
- Essential documentation for the Letter of Claim
- The Claimant does not have to include a copy of the written loan agreement in the Letter, but they must make it clear that the Debtor can request one. The procedural rules require the claimant to do one of the following:
- Enclose an up-to-date statement of account for the debt, including details of interest and other charges;
Enclose the most recent statement of account for the debt and state the interest incurred and any other charges imposed since that statement to bring it up to date; or
Where there are no statements for the debt, state in the Letter the amount of interest incurred and any other charges imposed since incurring the debt.
The Creditor must also include an Information Sheet that provides guidance to the debtor and a Reply form for the debtor’s response. A Financial Statement is required to show the debtor’s assets, income, expenses, and liabilities.
Deadlines for responding to a letter of claim
- The creditor must serve the letter correctly to ensure that the debtor is given 30 days to respond. If the creditor has not received a response after this period, they may initiate legal proceedings.
- However the court will take into account situations where the creditor does not reply to the Letter before the end of the 30 day period. In this situation, allowing the debtor a few extra days to respond before submitting a formal claim seems reasonable.
- The Response of the Debtor to the Letter of Claim.
The debtor must complete the Reply Form in order to respond. They must provide detailed reasons for disputing the claim in a separate document, and attach any supporting documents. Failure to Respond
If a defendant does not respond to a Letter of Claim in 30 days, a claimant can file judicial proceedings. The court can also order the defendant to pay costs for not responding in a timely manner. This lack of communication may work against the defendant when a judge decides on the case. The creditor must provide this information within 30 days of receiving the request or explain why the documentation is unavailable. The creditor must provide this information within 30 days of receiving the request or explain why the documentation is unavailable.
It is reasonable for a debtor to request an extension of time to seek advice following receipt of the Letter, and if they do, they must state this in their Reply Form.
If the defendant indicates that they’re seeking legal advice, the claimant must allow them a reasonable period to obtain such advice before applying to court. The claimant should not begin proceedings until they receive the Reply form or send the requested documents back to the debtor. Even so, parties should exhaust all alternative dispute resolution options before proceeding to court.
Exploring Alternative Dispute Resolution (ADR)
ADR encompasses a range of mechanisms to help the parties resolve a dispute without involving the court. Some judges will expect parties to have attempted a form of ADR before commencing proceedings, and a failure to do so can have cost consequences.
Importantly there is no magic in mediation or ADR processes. In small disputes, ranging from tens of thousands to millions, we have found that parties will first try to settle the dispute before considering litigation. Then, there hasn’t yet been an agreement. You contact us and instruct us. The reality (often fear) of an agreement without compromise forces disputes to settle. In our instructions, we aim to put you in the driving seat, using pressure and leverage to make your opponent see the value and need of compromising with you. ADR and mediation can only be successful in this context. ADR or mediating too early can harm your chances of success. You may miss out on the chance to use these highly effective processes if you don’t approach them the right way.
Mediation, a form of ADR, involves parties presenting their respective positions to a neutral mediator who is often an expert in the relevant legal field. The mediator is a go-between who helps the parties reach an agreement.
Another form is arbitration. It is similar to mediation, except that the decision of the arbitrator is binding on the parties. Both methods are usually cheaper and more efficient than court procedures.
Compliance With the Pre-Action Protocol.
The Court expects that all parties comply with the Pre-Action Protocol. To avoid accidental non-compliance, it is best to seek expert legal advice to navigate the complex rules.
If one party does not comply with the Protocol, then the court can penalise that party by issuing a costs order. If a creditor fails to send a Letter of Claim to the court, the court may order that they pay the debtors’ wasted costs of attending a unnecessary hearing.
Frequently asked questions
What happens after a pre-action protocol letter?
The creditor must respond within 30 days with their position, and then the parties can negotiate to try to settle the matter. The creditor can apply to court if the debtor does not respond. If the debtor replies but the parties cannot settle, they should first consider ADR. How long does it take to respond to the Pre-action Protocol
?
A letter of claim is due to be responded to by a debtor within 30 days. However, they can request an extension to get advice. The creditor should give them a reasonable time to respond and in any case, they must not initiate proceedings until 30 calendar days after receiving the reply.
Final thoughts
The pre-action protocol for debt claims can be an effective tool to ensure the court and parties involved handle debt disputes in a reasonable and efficient manner, when it is applicable. It is possible to make a false assumption about the protocol when it’s not the best way to resolve your dispute. This is a matter that requires attention. The protocol encourages open communication and the exchange of information relevant to the case. It also promotes an early resolution.
Understanding the Pre-Action Protocol is crucial if you want to make a debt claim or believe you might be a defendant in one. Our team of litigation solicitors are experienced in handling disputes of this nature across the country. Contact Helix Law for expert advice on how to navigate these rules, or for assistance with commercial disputes or debt recovery. Our team will be happy assist you.
