On the 1 October 2017, the new Pre-Action Protocol for Debt Claims came into force. Contained in the Civil Procedure Rules (CPR), businesses will be expected to follow the new protocol prior to commencing proceedings where they wish to recover a debt.
What is a Pre-Action Protocol?
A pre-action protocol explains the steps that should be taken by both parties in a civil case prior to taking the matter to court. In turn, this furthers the overriding objective contained in the CPR, which is an important principle in English and Welsh law, which enables the court to deal with cases justly and proportionate to cost.
There are currently 13 protocols in force which relate to specific actions (this will increase to 14 with the addition of the new protocol for debt claims). Where a claim is not specifically covered by a pre-action protocol a party should follow the guidelines contained within Practice Direction on pre-action protocols.
The aim of a pre-action protocol is to:
- Ensure the parties understand each other’s positions so they can make a decision about how to proceed;
- Encourage parties to settle issues without proceedings;
- Support efficient management of proceedings; and
- Reduce the costs of resolving a dispute by encouraging the parties to settle using a form of alternative dispute resolution.
What does the Pre-Action Protocol for Debt Claims do?
The protocol applies to any business trying to recover a debt from an individual (it therefore, does not apply to business to business debts unless the debtor is a sole trader).
The reason behind the introduction of this new pre-action protocol is to encourage claimants to provide the debtor with information so they can make an informed decision regarding the payment. The hope is that this will stop proceedings being issued prematurely and provide the defendant with a chance to review and consider all the information and ultimately, allow the parties to settle outside of court. The appeal being that it is much more cost and time effective than taking a matter through the rigmarole of a trial.
A potential problem with the new protocol is that it provides a ‘one size fits all’ solution. The effect of this is that debts of all different sizes which fall under this protocol will be required to adhere to the same timescales, and this could result in a delay of the creditor being paid.
Implications of not adhering to the Pre-Action Protocol
Both claimants and defendants should use their best endeavours to follow the relevant pre-action protocol as a failure to do so may result in serious implications.
The court may consider non-compliance with the protocol when providing directions as to the management of the case and when making orders for costs.
Stay of Proceedings – If parties are found to be non-compliant with the protocol, the court may order ‘stay of proceedings’. This means that any proceedings are halted in order for parties to undertake steps in accordance with the protocol.
Cost Orders – if parties are non-compliant, the court may also impose sanctions on parties in relation to costs, such as:
- Ordering the non-compliant party to pay the costs of the proceedings or part of the costs of the other parties;
- Order the non-compliant party to pay costs on an indemnity basis;
- Deprive the party at fault from being awarded interest on any amount awarded to them; and
- If the defendant is the non-compliant party, an order may be made awarding the claimant a higher rate of interest of any sum of money awarded to them.
This article should not be considered as legal advice and should in no circumstances be relied upon as such.
Should you wish to discuss pursuing a debt claim please contact a member of the Advisory and Dispute Resolution team of EHL Commercial on 0330 024 9643, or alternatively, the Cash Protection Agency on 0116 268 8965.