The Pre-Action Protocol for Debt Claims

When a party has a debt claim, they must take specific steps before applying to court. Some of these are technical in detail and whether and the extent to which this applies needs to be considered on a case by case basis. We act in disputes across the country and, where instructed, we consider the requirements of any protocol within our instruction. This is not merely box ticking but is important to ensure that you’re able to exert maximum pressure on an opponent (on the one hand), and are well positioned to recover your costs if you win (on the other hand). All parties must comply with the Civil Procedure Rules (CPR), a list of procedural directions which aim to optimise the court’s time and resources. 

The court prioritises ensuring that parties are on an equal footing and handles cases fairly whilst managing costs. The Pre-Action Protocol for Debt Claims supports these objectives by outlining the required steps for both claimants and defendants before escalating a dispute to court as a last resort.

This article explains how the Protocol works, the relevant deadlines, and the consequences of non-compliance. For further advice, contact Helix Law. 

What is the Pre-Action Protocol for Debt Claims? 

The Pre-Action Protocol for Debt Claims applies to businesses (including sole traders and public bodies) claiming payment of a debt from an individual (including a sole trader). Under the Protocol, the parties are required to exchange early and open communication before issuinglegal proceedings in court. Failure to comply with the Protocol can adversely impact a case and result in serious financial consequences.

What is the Purpose of the Protocol?

It encourages meaningful discussions between the parties in the hope they will resolve their issues without court intervention. By following the Protocol, parties can narrow the issues in their case, clarify areas of ambiguity, and reduce hostility before proceeding to court. 

Even if parties cannot settle under this procedure, compliance ensures the dispute is court-ready. You can often learn information during the pre issuance phase which can have considerable value. 

Who Does the Pre-action Protocol Apply to?

Any business that wants to bring a claim against an individual debtor must comply with the Protocol, including sole traders and public bodies. It does not apply to business-to-business debt claims (unless the debtor is a sole trader). 

Steps in the Debt Recovery Process Under the Pre-Action Protocol 

Below we set out the basic steps that should be taken before a claim is issued. This is a general overview rather than comprehensive list. Each case is different and it should go without saying that it is first necessary to consider if this is the most appropriate (and necessary) approach to take. For example if the debtor has admitted a debt but has not paid, rather than pursuing a claim it might be more effective to threatening insolvency, or to pursue a guarantor. This is the type of analysis that we undertake where we are instructed.

Otherwise, where a decision has been made to pursue a claim, a creditor must contact the debtor directly and provide details of their potential claim before applying to court. They must include these details in a “Letter of Claim”, which they must complete and serve properly to ensure compliance with the Protocol. 

Serving the Letter of Claim

The Letter should include a date on the first page, and the creditor should physically post it on the same or the following day. They can also send a copy by email, but this won’t usually constitute proper service unless the debtor has explicitly asked for an email. 

Information to Include in the Letter of Claim

The Letter must include the following information:

• The debt amount;
• Whether interest or other charges apply;
• Details of any agreement, whether oral or written;
• If the debt is assigned, details of the original debtor and creditor and the party it was assigned to;
• If the debtor offered to pay in instalments, an explanation of why this is unacceptable to the creditor;
• Details of how to settle the debt; and
• The address the debtor must send their reply to.

The more detail provided in the Letter, the better; the defendant can respond fully to each element of the potential claim, helping the parties narrow the issues early. 

A letter of claim typically also gives the framework structure to a later claim, if one is likely to be needed. 

Essential Documentation for the Letter of Claim

The claimant doesn’t necessarily have to provide a copy of a written loan agreement with the Letter but must make clear that the debtor can request this from them. The procedural rules require the claimant to do one of the following:

• Enclose an up-to-date statement of account for the debt, including details of interest and other charges;
• Enclose the most recent statement of account for the debt and state the interest incurred and any other charges imposed since that statement to bring it up to date; or
• Where there are no statements for the debt, state in the Letter the amount of interest incurred and any other charges imposed since incurring the debt. 

The creditor must also enclose an Information Sheet with guidance for the debtor, a Reply Form to for the debtor to respond with and a Financial Statement to provide details of their assets, income, outgoings, and liabilities. 

Deadlines and Timeframes for Responding to a Letter of Claim 

The debtor has 30 days from the date at the top of the Letter to respond, provided the creditor serves it correctly. After this period, the creditor may commence legal proceedings if they haven’t received a reply. 

However, the court will account for situations where the creditor doesn’t reply to the Letter until the end of the 30-day period. In this case, giving the debtor an additional few days to respond before filing a formal claim is reasonable. 

The Debtor’s Response to the Letter of Claim 

The debtor should use the Reply Form to complete their response. If they dispute all or part of the claim, they must explain their reasons in detail in a separate document and attach any supporting evidence. 

The rules also require them to disclose any documents they have that may be relevant to the case.

Failure to Respond

If the defendant fails to respond to the Letter of Claim within 30 days, the claimant may file an application to start proceedings. The court may also make a costs order against the defendant for failing to reply in good time, and the lack of communication could work against them when a judge decides the case. 

Debtor’s Requests for Additional Information and Time Extensions

In their response, the debtor should indicate further information or documents they require from the creditor. The creditor must provide this information within 30 days of receiving the request or explain why the documentation is unavailable.

It is reasonable for a debtor to request an extension of time to seek advice following receipt of the Letter, and if they do, they must state this in their Reply Form.

If the defendant indicates that they’re seeking legal advice, the claimant must allow them a reasonable period to obtain such advice before applying to court. Either way, the claimant shouldn’t commence proceedings until 30 days after they receive the Reply Form or after they send the requested documents to the debtor, whichever is later.

When an Agreement Can’t Be Reached 

Although the procedural rules are designed to encourage a swift settlement, achieving this outcome isn’t always feasible. Even so, parties should exhaust all alternative dispute resolution options before proceeding to court.

Exploring Alternative Dispute Resolution (ADR)

ADR encompasses a range of mechanisms to help the parties resolve a dispute without involving the court. Some judges will expect parties to have attempted a form of ADR before commencing proceedings, and a failure to do so can have cost consequences.

Importantly there is no magic in mediation or ADR processes. Our experience, in small value disputes ranging up to tens of millions in dispute, is that you will already have tried to get paid before contemplating litigation. There then hasn’t been an agreement and you contact and instruct us. Disputes settle because the reality (often the fear) of the alternative to an agreement, forces compromise. Within our instructions we seek to position you on the front foot, creating and using pressure and leverage so that your opponent understand the need and value, in compromising with you. It is only in this context that ADR and mediation will be successful. Mediating, or engaging in ADR too early, can actually harm prospects of success in that the opportunity to use these really effective processes can be lost if they arent approached in the right way. 

Mediation is a common form of ADR which involves the parties presenting their positions to a neutral third-party mediator, often with expertise in the relevant legal area. The mediator acts as a go-between and helps the parties work towards an agreement. 

Another type is arbitration, which is similar to mediation except that the third-party arbitrator’s decision binds the parties. Both methods tend to be much cheaper and more efficient than court proceedings. 

Compliance with the Pre-Action Protocol 

The court expects all parties to comply with the Pre-Action Protocol. However, the complex rules can be challenging to navigate, so seeking expert legal advice is advisable to avoid accidental non-compliance. 

If either party fails to comply with the Protocol, the court may penalise them by making a costs order. For example, if a creditor applies to the court without sending a proper Letter of Claim, the court could order them to pay the debtor’s wasted costs of attending an unnecessary hearing. 

Frequently Asked Questions 

What Happens After a Pre-action Protocol Letter?

The debtor must respond with their position within 30 days, and the parties can then negotiate to try to resolve the matter. If the debtor doesn’t respond, the creditor may apply to the court. If the debtor responds but the parties can’t settle, they should consider ADR before issuing proceedings. 

How Long Does It Take to Respond to a Pre-action Protocol?

A debtor has 30 days to respond to a Letter of Claim, but they may request additional time to obtain advice. The creditor must allow them a reasonable period and, in any event, must not commence proceedings until 30 days after they receive the reply. 

Final Thoughts

The Pre-Action Protocol for Debt Claims can be an effective tool ensuring the court and relevant parties handle debt disputes reasonably and efficiently, where it applies. Sometimes there can be a false assumption that the protocol applies, when its not the best route to resolving your dispute. Care is needed regarding this. Where the protocol applies it encourages open communication, the exchange of relevant information, and promotes early resolution all of which should help minimise costs. 

Understanding the Pre-Action Protocol is crucial if you want to make a debt claim or believe you might be a defendant in one. Our team of expert litigation solicitors act in disputes of this type across the country. Contact Helix Law today for specialist advice on navigating these rules or for assistance with debt recovery or other commercial disputes and our team will be happy to assist you.