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New Pre-action Protocol for Debt Claims



On 1 October 2017 a new pre-action protocol for debt claims will come into being, applying to business creditors seeking to recover debt from an individual. Sole traders will count as both businesses and individuals.

The new protocol significantly increases the amount of work that must be done before even a simple debt claim is issued. Whilst it may guide parties towards a resolution that might not otherwise have been reached, the Protocol is also likely to increase costs for both sides.

More than ever, creditors should carry out a thorough cost-benefit analysis before embarking on any litigation – and be wary that the courts will now have even more ways in which to scrutinise the parties' pre-action behaviour when considering costs. Compliance with the Protocol will be essential if the dispute is litigated and either party wants to recover any proportion of their costs from the other side.

Broadly speaking, the Protocol formalises the pre-action process beyond the usual "letter before claim – wait – issue" process followed in most simple debt claims. The principal steps are summarised below.

1. Write a letter before claim.

Not much will change here – as was always good practice under the CPR, the letter before claim should contain full particulars of the debt, how it arose, and how it could be paid.

There are, though, some new enclosures that creditors must include. First, if the debt arose under a written agreement, that agreement must be enclosed. Secondly, the creditor must include a Reply Form, an Information Sheet and a Financial Statement, all in the forms annexed to the Protocol. That requirement rather mirrors the Response Pack that must be served with issued claims, and is a step that must not be missed.

Lastly, the creditor should include a statement of account for the debt – either one that is up-to-date, or an older (but still "recent") one with an explanation in the letter of any additional charges or interest that have accrued since the date of it. Alternatively, if there are no statements of account, the letter should particularise interest and charges (as is good practice now, anyway).

2. Wait for a response.

It is no longer up to the creditor to decide what period of time the debtor should reasonably be allowed to respond – the Protocol specifies that the creditor must not issue until 30 days have elapsed from the date of the letter. However, even that may be premature: creditors are asked to take account of "…the possibility that a reply was posted towards the end of the 30-day period." That is vague, but two extra working days ought to suffice.

3. Engage with the debtor.

The debtor should reply using the new Reply form. The Reply form, properly filled out, will tell the creditor whether or not the debt is disputed, whether or not the debtor can pay, whether or not the debtor is seeking advice, what documents the debtor has sent to the creditor and which, if any, are expected in return.
The Reply form is likely to prove a useful device. By quite rigidly framing the debtor's response, it ought to assist with the early exchange of information and to flush out any defences the debtor may have to a contemplated claim.

4. Disclosure.

Perhaps the most striking element of the Protocol is the mini-disclosure regime included within it. First, the debtor is asked (by the wording of the Reply form) to send any relevant documents to the creditor with its Reply.

In return, the debtor may request (again, on the Reply form) any documents or information "…sufficient to enable [the parties] to understand each other's position." Upon receipt of such a request, the creditor "must" within 30 days either provide the document or explain why it is unavailable.

Note that the creditor is permitted only to explain why a document is "unavailable" – and not to say that it is irrelevant.

5. Consider alternative dispute resolution.

If the parties still cannot agree, they are asked to consider informal ways to resolve the dispute without resorting to court proceedings. This is a familiar plea to those familiar with the CPR and its inclusion in the Protocol is perhaps unsurprising.

6. Take stock.

The last section of the Protocol urges the parties to "take stock" of their positions. In the light of the heavy pre-action burden placed on parties by the Protocol, that is wise advice.

In "taking stock," the creditor must not issue proceedings unless 30 days have elapsed since (if requested) either documents were provided to the debtor or the debtor was told that they were unavailable. Secondly, the creditor must not issue before a "reasonable time" has elapsed for the debtor to seek debt advice.

Finally, if the creditor is satisfied that the Protocol has been met with full compliance – it still must wait, giving the debtor 14 days' notice of its intention to issue proceedings. There is a reprieve available in "exceptional circumstances," which will include those where limitation deadlines must be met.

In some ways, the Protocol is merely a codification of good practice. In others, though, it places a much heavier burden on the parties to try to resolve their disputes before a claim is issued. Creditors should pick their way over the new Protocol with care, and be ready for scrutiny on costs if compliance was anything less than complete.

If you require further information on anything covered in this briefing please contact Oliver Blundell([email protected]) or your usual contact at the firm on 020 3375 7000. Further information can also be found on our Disputes page.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, April 2017

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About the authors

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Oliver Blundell

Senior Associate

Oliver is a litigator who specialises in high-value and complex cases. Oliver has a particular focus on international civil fraud and asset recovery, regulatory investigations, and sanctions work. Oliver has represented clients before the City of London Police, the Financial Conduct Authority, and the Insolvency Service.

Oliver is a litigator who specialises in high-value and complex cases. Oliver has a particular focus on international civil fraud and asset recovery, regulatory investigations, and sanctions work. Oliver has represented clients before the City of London Police, the Financial Conduct Authority, and the Insolvency Service.

Email Oliver +44 (0)20 3375 7234

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