The pre-action protocol for debt claims comes into effect on 1 October 2017. The courts will expect the parties to have complied with it and failure to do so may result in sanctions or delay.


When Does the Pre-Action Protocol For Debt Claims Apply?

The protocol applies to “any business (including sole traders and public bodies) claiming payment of a debt from an individual (including sole trader).” Therefore, it will cover a lot of claim for unpaid invoices.

It will not therefore, strictly apply to people pursuing companies or partnerships for unpaid money. However, the courts still expect compliance with the practice direction on pre action conduct in those circumstances. At the very least, in those circumstances the court will expect a letter of claim to have been sent with a reasonable opportunity to reply provided.

Nor will it apply if the type of claim is covered by another protocol, such as those for Construction and Engineering or Mortgage Arrears claims.


Why is There a Pre-Action Protocol for Debt Claims?

As with the other protocols, it is a set of steps the court expects the parties to follow before a claim is commenced at court. The aim of taking this steps is to resolve the matter without having to involve the courts at all or to at least narrow the issues so that the parties know each side of the argument.


What Does it Require Me to do?

There is no substitute for reading the protocol yourself. However, in short, the person bringing the claim is expected to send a letter of claim setting out details of the claim and key supporting documents.

The main difference to the practice direction on pre-action conduct is that the protocol says that if the debtor does not reply within 30 days, the person bringing the claim can then issue proceedings. That is quite a long time indeed. Usually, letters of claim for simple matters such as unpaid invoices, give a short deadline of 7 days.

The protocol also requires two standard documents to be enclosed with the letter. The first is a response form which is largely tick box to say whether the debt is disputed or not and if so why. It also invites the debtor to set out whether it needs time to pay and if so why. If time to pay is sought, the second document is a form for the debtor to set out its financial circumstances.

The debtor should complete the first form and if appropriate the second and send it to the person bringing the claim within the 30 day period.

If the debtor seeks time to pay and the person bringing the claim refuses the proposals, it must write to the debtor confirming its reasons.

The protocol also encourages the parties to engage in alternative dispute resolution (ADR).

If the debtor has responded to the letter of claim, the person bringing the claim should give at least 14 days notice of intention to start court proceedings.


Why Should I Bother Following It?

The protocol creates delay and encourages the debtor to plead poverty in the hope of agreeing instalments or avoiding the debt altogether. So, it would be tempting to ignore it altogether. The risk of not complying with the pre-action protocol for debt claims is that the court can impose sanctions. Firstly, it could put the proceedings on hold for a period for the parties to carry out the steps that ought to have been followed, in particular to allow for negotiation and ADR.

Secondly, it can impose costs sanctions, such as ordering one party to contribute to the other’s costs, when that ordinarily would not happen. Costs sections are much less likely in small claims due to the small claims costs rules but still possible.

Unless there is good reason not to, the the pre-action protocol for debt claims should be followed.

Our view is that the protocol is likely to go ignored early on. Most people will not even know it exists. Debtors who are provided with the pages of forms may well ignore them or not know what to do with them. It will only be if the courts impose sanctions that awareness of the requirements and failure to follow them might become better appreciated.