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[blank h=”20″] [/blank] Polly Hill, Associate in our Commercial Dispute Resolution department outlines below the new debt pre-action protocol.
[blank h=”20″] [/blank] The current pre-action position for a debt claim is to follow the general principles set out in the Practice Direction Pre-Action Conduct and Protocols as presently, there is not a specific protocol for debt claims.

From 1 October 2017 where a business (including a sole trader or public body) claims the payment of a debt from an individual (including a sole trader), the business must comply with the new protocol before commencing court proceedings. The protocol does not apply to business to business debts except for sole traders.

Reason for the introduction of the new protocol

In January 2010 Lord Justice Jackson raised in his Final Report on Civil Litigation Costs that debt claims ‘constitute a huge swathe of business of the courts‘ and need their own specific protocol.

The core principal of this protocol is so that debtors (or alleged debtors) are provided with sufficient information to enable them to obtain advice before court proceedings are commenced and where possible, that the parties attempt to resolve the dispute to avoid the need for court proceedings.

Key aspects of the new protocol

The new protocol encourages the early engagement and communication between the parties. This includes the early exchange of information to facilitate resolving the matter without the need for court proceedings where possible and encourages the parties acting in a reasonable and proportionate manner.

There is a two step pre-action process where the creditor only needs to supply to the debtor with certain information and documentation concerning the debt. There is then provision for the debtor to request further information if required. Therefore if the debtor does not respond at all, the creditor will not incur the cost of providing the further information.

  • Letter of claim

The first step is that the creditors to sends a letter of claim to the debtor before proceedings are started and which contains the information set out in the new protocol and the information contained in the Annexes to the new protocol such as an information sheet, up-to-date statement of account for the debt, a reply form and a standard financial statement form for the debtor to complete with his/her current financial situation.

The debtor has 30 days to respond before proceedings can be commenced.

  • Response by the debtor

The debtor should complete the reply form and can request copies of relevant documents.

The creditor should try to contact the debtor to discuss the reply form and request any further information needed to understand the debtor’s position.

The parties should endeavour to agree payment by instalments based on the debtor’s income and expenditure and the financial statement. If the creditor refuses the debtor’s payment proposals the creditor should provide written reasons.

The creditor cannot commence proceedings until after 30 days of receiving the completed reply form. This period can be extended if the debtor is seeking debt advice, requests further documentation or requires more time to pay.

  • Disclosure of documents

The parties are encouraged to disclose documents and exchange relevant information to help clarify or resolve the dispute.

The creditor must supply any documents requested by the debtor within 30 days and if the document/information is unavailable, explain why.

  • Settlement/alternative dispute resolution (ADR)

If the parties cannot resolve the dispute they are encouraged to consider ADR. If the chosen method is mediation then the parties must take into account if the costs of mediation are proportionate to the debt.

If settlement is achieved the creditor cannot commence court proceedings whilst the debtor complies with the agreement. If court proceedings are required at a later date, an updated letter of claim must be sent and the protocol will recommence afresh. Documentation does not need to be re-sent if it has been provided within the past 6 months unless it needs to be updated

Compliance with the protocol

If proceedings are commenced, the court considers any non-compliance with the protocol when giving directions and can sanction a parties non-compliance by adverse costs orders.. However it is unlikely that the court will be concerned with minor or technical infringements, especially if the matter is urgent.

Taking stock

Following compliance with the protocol a ‘taking stock’ provision requires the parties to ‘undertake a review of their respective positions to see if proceedings can be avoided and, at the least, to narrow the issues between them’.

When a letter of claim and reply have been exchanged but an agreement has not been reached, the creditor must give the debtor at least 14 days’ notice of its intention to commence court proceedings except for exceptional circumstances which require urgent action for example, where the limitation period is about to expire.


This blog was written by:  Polly Hill