The New Pre-Action Protocol for Debt Claims: Explained in 7 Simple Questions

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The Ministry of Justice published in March 2017 the New Pre-Action Protocol for Debt Claims (“the Protocol”), which came into effect on 2 October 2017. The Protocol directs how to handle debt claims before issuing court proceedings. This article seeks to address the main questions regarding the Protocol and how it could affect your debt claim.

1. What is the Purpose of the New Pre-Action Protocol?

One of the main aims of the Protocol is to promote early communication between the parties and, at the same time, avoid court proceedings e.g. by agreeing a repayment plan or using a form of alternative dispute resolution (“ADR”).

The Protocol also seeks to promote parties to act reasonably and proportionately to the size of the debt, whilst supporting efficient management of proceedings in cases where proceedings cannot be avoided.

2. Does it Apply to Me?

It will apply to businesses (including sole-traders) and public bodies claiming payment (“the Creditor”) of a debt from an individual (“the Debtor”). It will not apply to business-to-business debts, unless the Debtor is a sole trader. The Protocol is intended to be read alongside the Financial Conduct Authority’s Handbook or other regulatory regime to which Creditors may be subject.

The Protocol does not apply where:-

  1. The debt is covered by another Pre-Action Protocol such as Construction and Engineering or Mortgage Arrears
  2. The claim is issued by Her Majesty’s Revenue and Customs and is for The Recovery of Taxes and Duties.

3. What Requirements does this New Protocol Place on Creditors?

The Protocol sets out the information that the Creditor needs to provide to the Debtor in a Letter of Claim, prior to proceedings. This information includes key things such as the amount of the debt itself and whether interest and/or charges are accruing. However, it also includes more specific information such as details of the agreement from which the debt arises. A full list of information to be included can be found in the Protocol requirements itself at: https://www.justice.gov.uk/courts/procedure-rules/civil/pdf/protocols/pre-action-protocol-for-debt-claims.pdf

The Letter of Claim (and Reply Form, explained later) must be posted and cannot be served via email, unless this Debtor specifically asks that it is done so.

If the Debtor asks for any further information then the Creditor has 30 days to provide this.

4. What Requirements does this New Protocol Place on Debtors?

The Debtor has 30 days to respond to the Letter of Claim. Failure to do so will mean that the Creditor is able to commence court proceedings, provided it has given the Debtor 14 days’ notice of this intention.

The Debtor must complete the Reply Form (sent with the Letter of Claim), and send this back to the Creditor again by post. Upon receipt of the Reply Form, the Creditor may not begin court proceedings for a minimum of 30 days. If the Debtor requests further documentation, then the Creditor is not able to begin court proceedings for a minimum of 30 days from the date the documentation was sent to the Debtor.

The Creditor must only begin proceedings when the later of these two 30-day periods has lapsed. Alongside this, if the Debtor states that they are seeking professional advice, then the Creditor must allow them reasonable time to obtain this advice. It is likely that the court would take a poor view of any Creditor beginning proceedings without allowing such reasonable time.

5. What Other Requirements are Placed on Both Parties?

The parties are both required to provide proportionate disclosure to the other so that each party can understand the other’s position. This should be done early and efficiently so that it prevents the dispute escalating further.

6. What Happens When the Parties Cannot Agree?

Where the parties do not agree a position, ADR should be sought, in order to prevent the need for court proceedings. Such ADR may, for example, take the form of simple negotiations between parties or mediation.

Where a settlement is agreed, if the Debtor breaches that agreement, the Creditor will need to start this Protocol process again from the beginning, before it could enforce the claim.

7. What Happens if a Party does not Comply with the Protocol?

A failure to comply with the Protocol may mean that the court takes this into account when making directions for the proceedings or even when making orders for costs. However, it is unlikely that much weight will be given to a minor infraction of the Protocol.

We can assist either the Creditor or Debtor on these types of debt claims. For more information on debt claims or any other dispute issue, please contact our experienced dispute resolution lawyers on 01895 207954 or email commercialdisputes@ibblaw.co.uk.