Court proceedings in England and Wales should always be seen as a matter of last resort and for this reason the Court rules contain a number of mechanisms to help the parties resolve their disputes wherever possible. This includes the parties complying with a number of steps before a claim is even issued, as contained in the Pre-Action Protocols (the Protocols).
In a previous blog post we explained that the Protocols are designed to encourage parties to make a full exchange of information at the outset so that they can understand the other party’s case, with the ultimate aim of narrowing the issues and/or reaching a settlement.
There is currently no specific Protocol formally in place for debt claims, however in September 2014 the Civil Procedure Rules Committee launched a consultation to seek feedback on a draft Pre-Action Protocol for Debt Claims.
The responses to this first consultation have now been considered and a second draft has recently been circulated for further consultation.
So what do you need to know?
- The Pre-Action Protocol for debt claims applies to any business claiming payment of a debt from an individual (but does not apply to business-to-business debts unless the debtor is a sole trader).
- As with the other Protocols, before proceedings are commenced the creditor should send a Letter of Claim to the debtor. However in response to concerns raised about the first draft, the revised draft has been amended to reduce the amount of documentation that a creditor should provide at this stage. Instead, the revised draft proposes a two-stage approach, where some information (for example details about the amount of the debt, whether interest is continuing, details about how the debt can be paid etc) should be provided in the Letter of Claim, with other information being available on request by the debtor.
- The draft also envisages the creditor providing the debtor with an Information Sheet (which has also been circulated for consultation), which is “designed to set out in plain English [the debtor’s] rights and obligations…” under the Pre-Action Protocol for debt claims.
- The debtor should respond within 30 days but if they indicate that they are seeking debt advice, the creditor must allow a reasonable period for the advice to be obtained before commencing proceedings. This should be at least 30 days.
- As with the other Protocols, the draft proposes an early disclosure of documents and for the parties to consider the use of an appropriate form of Alternative Dispute Resolution (ADR).
- In the event that the dispute proceeds to litigation, the Court will take into account non-compliance when giving directions for the management of proceedings.
Whilst the Pre-Action Protocol for Debt Claims is still in draft form, businesses may wish to start reviewing their debt recovery procedures now and consider whether they already engage with their debtors in the form and spirit of the proposal in plenty of time for the implementation of the final version.
In the meantime, we will keep you updated with any further amendments and the implementation of the final draft as soon as this information becomes available to us.
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