Practice and procedure update: draft debt claims protocol

As we all know, court proceedings should be seen as a last resort, and there are a number of mechanisms in place which aim to help parties resolve disputes before they get to that stage. Before litigation, parties are required to comply with various pre-action protocols. While there is currently no formal protocol in place for the recovery of debts, in September 2014 the Civil Procedure Rules Committee launched a consultation seeking feedback on a draft preaction protocol for debt claims. The first draft was considered, and the second version was, from November 2015 to January 2016, in circulation for further consultation.¹

The protocol’s aims are as follows:

• To enable the parties to resolve the matter without the need for court proceedings.
• To encourage early exchange of sufficient information.
• To encourage parties to act reasonably when dealing with one another (which includes incurring costs).
• To support the efficient management of proceedings that cannot be avoided.

The letter of claim (aka the letter before action)

Before issuing proceedings, the creditor should issue a letter of claim detailing the amount of debt; whether interest is accruing; where the debt originated; and details of how it can be paid.

… [F]irms may wish to consider their debt recovery procedure and consider whether they are currently acting in the spirit of the [draft] proposal

The requirement under the new proposals state that the letter of claim should enclose the following:

• an up-to-date statement of account;
• a copy of the agreement;
• a copy of the information sheet and reply form; and
• a statement of means form.

The information sheet is designed ‘to set out in plain English [the debtor’s ] rights and obligations’ .² The letter of claim should allow the debtor at least 30 days in which to respond, using the prescribed reply form. This period can be extended if, in its reply form, the debtor indicates the following:

• It is seeking debt advice and that the advice cannot be obtained within 30 days. (The debtor must provide details of the advice it is seeking, and the creditor must allow reasonable extra time for that advice to be obtained, which should be no less than 30 days from receipt of the completed reply form.); or
• It requires time to pay. (At this point, the creditor and debtor should try to reach agreement for the debt to be repaid.); or
• There is a dispute. (The parties should attempt to exchange and/or disclose documents relevant to the dispute to enable them to understand each other’s position.)

Alternative dispute resolution should be considered where an agreement cannot be reached between the parties. This could be the use of the Financial Ombudsman, a mediator and/ or a without prejudice settlement meeting. If the matter continues to litigation, the court will take into account any non-compliance with the protocol. While the draft has not yet been approved, firms may wish to consider their debt recovery procedure and think about whether they are currently acting in the spirit of the proposal.