The Pre-Action Protocol for Debt Claims (the “Protocol”) came into force across England and Wales on the 1st of October 2017. The Protocol applies to any business (including sole traders and public bodies) claiming payment of a debt from an individual.
The purpose of the Protocol is to encourage the parties to act in a reasonable and proportionate manner in all dealings to ensure that the costs in recovering the debt do not become excessive. The Protocol attempts to reduce the need for court proceedings by encouraging the early engagement and communication between parties to help clarify the issues in dispute. The Protocol also aims to support the efficient management of proceedings where they cannot be avoided.
What has changed?
Creditors are no longer able to send simple demand letters. They are now required to send an extensive Letter of Claim providing details of the agreement and how it was constituted, an explanation as to why the debt is due and an up-to-date statement of claim. The Protocol also provides further procedural requirements in relation to timescales, the form the Letter of Claim should take and how it should be served.
Debtors are now given 30 days from the date of the Letter of Claim to respond, rather than the previous 14 days. The creditor must provide the debtor with a standard Reply Form alongside the Letter of Claim. The Reply Form gives the debtor the opportunity to request further documentation which was not present in the Letter of Claim. The creditor must then provide the debtor with the documentation and allow them a further 30 days to respond before they can raise proceedings. The Protocol also obliges the creditor to: allow reasonable extra time where the debtor is seeking debt advice; provide reasons in writing where they are refusing a debtor’s request for time to pay; and contact the debtor where they have failed to fully complete the Reply Form.
Even once all procedural steps have been followed the Protocol encourages parties, who still cannot agree, to take appropriate steps to resolve the dispute without raising court proceedings. For example, by considering the use of a form of Alternative Dispute Resolution such as Mediation.
The new procedural changes impose onerous requirements on creditors and allows debtors longer to respond to any claims. Its introduction is hoped to reduce the need for parties to raise proceedings by obliging them to exhaust all other options before doing so. It may help to ease the pressure on the English courts by reducing the amount of claims being brought. However, it will inevitably put pressure on the cash flow of businesses looking to recover debts south of the border. It is likely to now take longer for most businesses to recover debts and will, undoubtedly, be more costly for those who eventually still end up having to raise proceedings.
Should businesses now consider claiming in Scotland?
Yes. If the Scottish Courts have jurisdiction, it may be both quicker and cheaper to pursue the debt in Scotland, where this new protocol does not apply.
It may also be prudent for businesses, particularly those with a large volume of debt recovery work, to review their terms and conditions to consider whether it might be more appropriate to give jurisdiction to the Scottish courts for litigation purposes.