The Ministry of Justice has published the Pre-Action Protocol for Debt Claims (the “Protocol”). This comes into force on the 1st October 2017. The Protocol applies to any business, which includes sole traders and public bodies, claiming payment of a debt (the “creditor”) from an individual (including a sole trader) (the “debtor”).
The Protocol does not apply to business-to-business debts unless the debtor is a sole trader.
The aims of the Protocol are to:
– encourage early communication between the parties; and
– avoid court proceedings.
Letter of Claim
The Protocol requires the creditor to send by way of post a letter of claim to the debtor. The letter of claim should contain the following information:
– The amount of the debt;
– Whether interest or other charges are continuing;
– If the debt arises from an oral agreement, it must state who made the agreement, what was agreed, and when and where it was agreed;
– If the debt arises from a written agreement, it must state the date of that agreement, the parties to the agreement and also enclose a copy or stating that a copy can be requested from the creditor;
– A statement of account for the debt to include the amount of interest and any other charge(s) imposed since the debt was incurred;
– 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 which can be found at Annex 1 of the Protocol;
– Enclose the Financial Statement for the debtor to complete, an example of which can be found at Annex 2 of the Protocol.
Following the Letter of Claim
– The debtor should use the Reply Form (which should be enclosed with the Letter of Claim) to respond.
– If the debtor indicates that he/she is seeking legal advice, then the creditor must allow the debtor a reasonable period of time to do so.
– The parties should exchange and disclose documents as early as possible. This is to help them understand each other’s position. The debtor can request copies of any documents from the creditor, and enclose documents it thinks are relevant. The creditor must also provide documents or information (or otherwise explain why the documents or information requested are not available) within 30 days of any request.
– If the parties cannot come to an agreement about the repayment of the debt they should consider using an appropriate form of ADR. This could be by way of without prejudice meeting or mediation.
Can the creditor bring court proceedings?
If the debtor does not reply to the letter of claim within 30 days of the date of the letter then the creditor may start court proceedings. This is provided that it has given 14 days’ notice to the debtor of its intention to do so.
The creditor is advised not start court proceedings until 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 court will expect the parties to have complied with the Protocol if the matter proceeds to litigation. The court will consider any non-compliance when giving directions for case management. This could mean that even if successful a creditor who has not complied with the Protocol could be penalised on costs.
If the creditor receives a response from the debtor to the letter of claim but an agreement is not reached, the creditor will be in a position to commence court proceedings but they should give the debtor at least 14 days’ notice of their intention to do so (unless of course urgent action is required).