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New Pre-Action Protocol for Debt Claims

A new Pre-Action Protocol for Debt Claims (“the Protocol”), which will come into force on 1 October 2017 has been published by the Ministry of Justice.

The Protocol will apply to any business claiming payment of a debt from an individual. The protocol does not apply to business-to-business debts unless the debtor is a sole trader.

The Protocol aims to:

  • Promote early communication between the parties, including early exchange of information about the debt to assist with identifying the issues in dispute.
  • Enable the parties to resolve the dispute without court proceedings, including by agreeing a repayment plan or considering using a form of alternative dispute resolution.
  • Encourage the parties to act reasonably and proportionately to support the efficient management of proceedings that cannot be avoided.

 

Letter of claim

Under the Protocol, as with the other specific pre-action protocols and the general Practice Direction on Pre-Action Conduct, an initial letter of claim is required. The creditor should ensure that the letter of claim to the debtor contains the following information:

  • Amount of the debt.
  • Whether interest or other charges are continuing.
  • The date of the letter.
  • If the debt arises from an oral agreement, who made the agreement, what was agreed, and when and where it was agreed.
  • If the debt arises from a written agreement, the date of that agreement, the parties and the fact that a written copy can be requested from the creditor.
  • Statement of account for the debt, including the amount of interest and any other charges imposed since the debt was incurred.
  • Where the debt has been assigned, details of the original debt and creditor, when it was assigned and to whom.
  • If the debt is currently being paid on behalf of or by the debtor, an explanation of why these payments are not acceptable and why proceedings are being considered.
  • Details of how the debt can be paid, and what the debtor can do if it wishes to discuss payment options.
  • Enclose the Information Sheet and Reply Form at Annex 1 of the Protocol.
  • Enclose a Financial Statement for the Debtor to complete, an example of which can be found at Annex 2 of the Protocol.

The creditor should post the letter either on the day it is dated or alternatively the following day. The Protocol states that the letter should be sent by post, unless the debtor has made an express request that it should not be sent by post and has provided alternative contact details.

If the debtor does not reply to the letter of claim within 30 days of the date of the letter, the creditor may start court proceedings provided that it has given 14 days’ notice to the debtor of its intention to do so.

 

Response to letter of claim

The debtor should use the Reply Form to respond and can request copies of any documents from the creditor, and enclose documents they think are relevant. The creditor should not start court proceedings less than 30 days from receipt of the completed Reply Form, or 30 days from the creditor providing any documents requested by the debtor, whichever is later.

The creditor must allow the debtor a reasonable period of time to seek legal advice if they indicate that they are doing so.

 

Disclosure of documents

The parties should exchange and disclose documents as early as possible, to help them understand each other’s position. The creditor must provide documents or information (or otherwise explain why the documents or information requested are not available) within 30 days of any request.

 

Taking steps to resolve the matter and alternative dispute resolution

If the parties cannot come to an agreement about the repayment of the debt, they should consider using an appropriate form of ADR.

If the parties reach an agreement for repayment of the debt, which the debtor subsequently breaches, the creditor must send an updated letter of claim and comply with the Protocol afresh before issuing court proceedings.

 

Compliance with the Protocol

The court will consider any non-compliance with the Protocol when giving directions for case management.

 

Taking stock

If the debtor responds to the letter of claim but an agreement is not reached, the creditor should give the debtor at least 14 days’ notice of their intention to start court proceedings (unless urgent action is required, for instance, the limitation period is about to expire).

 

We welcome the Protocol as it provides both parties with consistency and certainty and, if not complied with, can result in sanctions against the party failing to comply. These sanctions will hopefully help the Protocol achieve its aims set out above.

Maitland Walker has a nationally recognised practice in litigation and dispute resolution and attracts instructions from around the country. We specialise in complex, high value disputes with a particular strength in multi-party litigation but we have acted for both business and individual claimants and defendants in debt claims ranging in value from a few thousand pounds to hundreds of thousand pounds.
 
If you wish to discuss a potential or existing debt claim please contact Julian Maitland-Walker or Sheree-Ann Virgin on +44(0)1643 707777.