Time to pay

Posted: 16th November 2017

Debt RecoveryOn 1 October 2017 a fourteenth specific pre-action protocol was added to the list that accompanies the Civil Procedure Rules

The aims of pre-action protocols generally are to encourage the parties to communicate and discuss the issues between them rather than rushing to issue court proceedings which are seen as likely to increase costs and entrench positions. It’s all about acting in a “reasonable and proportionate manner” - in everyone’s interests.

If the dispute can’t be resolved pre-proceedings then the hope is that compliance with the protocols will reduce the time and effort required within the litigation process to prepare the case for determination by the court. The Pre-Action Protocol for Debt Claims truly aims to put the brakes on rapid court action against individuals.  Many creditors have already branded it a “debtors charter”.

The rules apply to any business pursuing payment of a debt from an individual and for these purposes an “individual” includes a sole trader.  In other words, the business creditor is required to follow the protocol unless the debtor is a partnership or limited company.

The central provision is the requirement for the creditor to send a letter of claim to the debtor before proceedings are started.  Put another way, the creditor shouldn’t start proceedings without first sending a letter of claim as described within the protocol.

Seems simple?  Well, the catch if you want to look at it in those terms is that the protocol is very specific about the information that needs to be contained in or accompany the letter of claim and the periods of time initially that must be allowed to elapse before moving on to issue of proceedings.

The protocol sets out at paragraph 3.1 the list of information required in or with the letter of claim. Basically, it’s an explanation of how the debt arises, interest provisions, methods of payment etc.  A full calculation of the current balance needs to be provided and the debtor must be sent guidance notes and a form of a reply.

The debtor has 30 days initially to respond.  If further documentation is requested, then another 30 days must be allowed.  If the debtor wants to seek advice on payment of the debt then a further 30 days may not be sufficient and the creditor is bound to consider what (longer) time is reasonable.  If at the end of the process when the parties “take stock”,  proceedings are inevitable then the creditor still needs to give the debtor another 14 days notice of that.

Director Michael Williamson says, “The information provisions are really no big deal and make sense for both sides.  Whilst creditors often want to seize the initiative, and sometimes secure an advantage by moving too quickly for the debtor, it can often backfire.

We often recommend to our clients that they let us examine the terms of the agreement and be clear about where the entitlements to interest (and perhaps costs) arise.  Sometimes the formal defence to proceedings can expose holes in the case that everybody wishes had been identified before the proceedings started”.

“It’s the timetable for responses that’s causing the most angst amongst creditors”, he adds.  Whether or not they are justified in playing for time, it’s clear that a debtor who understands the rules can spin it out”.

It shouldn’t be difficult for debtors to understand what they can make of the protocol where the guidance notes the creditor is required to send with the letter of claim contain such assistance as:-

If you return the reply form within the 30 days, you and the business will have at least a further 30 days to discuss the debt, or for you to seek debt advice, before the business takes you to court.  During that time, you should discuss with the business how you can resolve the matter, ideally without going to court.

If you request more information in the reply form, the business must wait at least 30 days after it gives you the information before taking you to court.

“It doesn’t take a great deal of imagination to understand how compliance with the protocol may add another three to four months to the timetable for recovery of the debt.  In some cases, that’s prejudicial to the creditor”, suggests Michael.

So, what if the creditor pushes all that to one side and presses ahead with proceedings, perhaps after a more familiar brief warning that enough is enough and it’s time for action?

As in the case of other protocols, the likely sanction is in relation to costs.  First, the court has power to deprive a successful claimant of costs that might otherwise have been awarded at conclusion of the proceedings in line with the normal start point that loser pays. Secondly, the court has further power to order a creditor to pay some or all of the debtor’s costs.

Theoretically, an award of costs could be made against a claimant even though they are successful in the proceedings, particularly if a defendant takes a reasonably passive approach and says it could all have been sorted out amicably without going to court.  This may even be a risk in small claims track matters, bolstering the little-used existing provision for costs orders where a party has conducted the proceedings in an unreasonable fashion.

Inevitably within this pre-action code there’s the now familiar exhortation to consider and if possible use mediation or other forms of ADR (Alternative Dispute Resolution).

Like so many things that we don’t necessarily like, it may well be good for us in many situations.  Similarly, many creditors will find it difficult to see it that way.

You can read the full protocol through this link.  For further assistance with recovery of business or personal debts, see our Debt recovery page and email us or call 01460 200450 to talk to our experts.