For two years, the Credit Services Association (CSA) has been engaged in discussions with the Ministry of Justice (MoJ) regarding the Pre-Action Protocol for Debt Claims.
Following the Civil Procedure Rule Committee meeting on 9 December 2016, the final version of the draft PAP was released and has now come in to force.
The intention of the new Debt PAP is to compliment any existing regulatory regime to which the Creditor is subject meaning that if a debt is adequately covered by another Pre-Action Protocol, then the Debt PAP will not apply to it.
The main provisions of the new Debt PAP are summarised below:
1.The Debt PAP will apply to any business (including sole traders and public bodies) claiming payment of a debt from an individual. Perhaps paradoxically, the Debt PAP does not apply to business-to-business debts unless the debtor is a sole trader.
2. One of the main aims of the Debt PAP is to encourage early communication between the parties and avoid court proceedings. Parties may do this by agreeing a repayment plan or considering Alternative Dispute Resolution (ADR).
3. An “enhanced” ‘Letter of Claim’ is required, which must include details of:
- the value of the debt
- whether interest or other charges are continuing
- the date of the letter
- if the debt arises from an oral agreement, details as to who made the agreement, what was agreed, when and where
- if the debt arises from a written agreement, the parties to the agreement and the fact that a written copy can be requested from the creditor.
- a statement of account for the debt, including the amount of interest and any other charges imposed.
- any details of assignment
- if payments towards the debt are already being paid, reasons as to why the payments aren’t sufficient
- details of how the debtor can repay the debt
Information Sheets and a Reply Form (in the form annexed to the PAP) should also be enclosed as well as a Financial Statement for the debtor to complete.
4. If the debtor doesn’t respond to the letter within 30 days then the creditor may start court proceedings (after giving 14 days’ notice to the debtor of its intention to do so).
5. The creditor should give the debtor a reasonable period of time to seek legal advice if the debtor indicates they are doing so
6. Disclosure of key documents should take place as early as possible.
7. In the event of a dispute on substantial grounds, ADR should be considered.
8. If the parties are able to reach an agreement regarding the repayment of the debt but the debtor breaches the new agreement, the creditor must send an updated Letter of Claim and comply with the Debt PAP afresh before commencing proceedings.
9. The court will expect compliance with the Debt PAP and will consider any non-compliance when giving directions for case management.
10. Failure to comply may result in a claim being “stayed” (i.e. put on hold) to allow a period for compliance or, alternatively, sanctions being imposed which may be substantial, including:
- an order that the defaulting party pays the costs of the proceedings, or part of the costs of the other party;
- an order that those costs are paid on an indemnity basis;
- the party at fault may be deprived of interest, or awarded it at a reduced rate;
- an order awarding a higher rate of interest (up to 10% above base rate) to the other party.
The Debt PAP appears to burden creditors with a higher level of responsibility. Under the Debt PAP they will need to provide detailed information to debtors from the very beginning of any potential dispute. However, this follows the current trend towards pushing parties to disclose information at the outset of the matter, with a view to enabling them to understand each other’s position and settle their disputes without involving the courts, or at the very least, narrowing the issues of contention.
It remains to be seen how well the new Debt PAP will work in practice.
If you have any queries in relation to the new Pre-action Protocol or any general litigation queries then please do not hesitate to contact the litigation team on 01228 552600 or 01524 548494.