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The New Pre-Action Protocol for Debt Claims

September 2017

Pre-action Protocols have been a feature in Civil Procedure for a number of years. In areas as diverse as Personal Injury, Professional Negligence and Construction and Engineering Disputes, the relevant Protocol acts as a guide as to how parties should approach their dispute from the very start, and before legal proceedings have been issued.

The aim of the Protocols has always been ideally to encourage parties to settle their disputes without involving the Courts, by taking a 'cards on the table' approach. Any party clearly failing to comply with their duties may find themselves being penalised in respect of the costs of the case when the case has been decided at Trial.

Until now, there has never been a specific Protocol for general debt claims as such. That all changes from 1st October 2017, when the Pre-action Protocol for Debt Claims comes into force.

In the main, the new Protocol tends to follow the format and intention of the existing Protocols in its scope. However, it also contains certain guidelines which may cause some disquiet amongst businesses, given that the Protocol seems likely to have a large impact on how debt claims are to proceed from 1st October.

It is important to understand that the new Protocol will apply when a business claims payment of a debt from an individual. A 'business' in this context includes sole traders and public bodies, whilst an 'individual' also includes sole traders.

Of particular note, when a Claimant (or 'creditor' under the Protocol) sends a letter of claim to the Defendant (or 'debtor'), they will now be obliged to attach to that letter a standardised information sheet, reply form and financial statement form.

The Protocol allows the creditor to commence Court proceedings if the debtor doesn't respond to the letter of claim within 30 days. However, if the debtor does respond within that time and asks for disclosure of specific documents from the creditor, or indicates that they are to obtain debt advice, the period of time before a creditor should issue proceedings will be extended by a minimum period of 30 days.

There has for many years been an understanding that, in respect of debt claims generally, in most cases, a creditor should allow a 'reasonable' length of time for a debtor to respond to a letter of claim before going ahead and issuing a claim at Court. Whilst what is 'reasonable' has always been open to debate, the new Protocol seems expressly to extend the 'reasonable' period fairly significantly.

It should also be noted that the Protocol makes it clear that if a case can't be settled and proceedings are issued, Courts will expect parties to have complied with the Protocol. The wording of the Protocol may well indicate that Courts will be willing to 'stay' (in other words, to place on hold) legal proceedings to allow for any perceived non-compliance with the Protocol to be rectified; the suggestion must be that there will no short cuts for creditors.

Clearly, time will tell as to how the Courts will interpret the terms of the Protocol as and when new cases start to filter through the system, and what effect the Protocol will have for debtors and for creditors in practice.

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