The Ministry of Justice has published the Pre-Action Protocol for Debt Claims (the “Protocol”), which comes into force on 1 October 2017. The Protocol applies to any business (including sole traders and public bodies) claiming payment of a debt (the “creditor”) from an individual (including a sole trader) (the “debtor”). It does not apply to business-to-business debts unless the debtor is a sole trader.

Aims of the Protocol

The aims of the Protocol are to:

  • encourage early communication between the parties; and
  • avoid court proceedings.

Letter of Claim

The Protocol requires the creditor to send by post a letter of claim to the debtor, which should contain the following information:

  • The amount of the debt;
  • Whether interest or other charges are continuing;
  • If the debt arises from an oral agreement, who made the agreement, what was agreed, and when and where it was agreed;
  • If the debt arises from a written agreement, the date of that agreement, the parties to the agreement and enclosing a copy or stating that a copy can be requested from the creditor;
  • A statement of account for the debt, including the amount of interest and any other charges imposed since the debt was incurred;
  • Details of how the debt can be paid and what the debtor can do if it wishes to discuss payment options;
  • Enclosing the Information Sheet and Reply Form found at Annex 1 of the Protocol;
  • Enclosing a Financial Statement for the debtor to complete, an example of which can be found at Annex 2 of the Protocol.

After the Letter of Claim

  • The debtor should use the Reply Form (which should be enclosed with the Letter of Claim) to respond.
  • If the debtor indicates that it is seeking legal advice, the creditor must allow the debtor a reasonable period of time to do so.
  • The parties should exchange and disclose documents as early as possible, to help them understand each other's position. The debtor can request copies of any documents from the creditor, and enclose documents it thinks are relevant. The creditor must provide documents or information (or otherwise explain why the documents or information requested are not available) within 30 days of any request.
  • If the parties cannot come to an agreement about the repayment of the debt, they should consider using an appropriate form of ADR, for example without prejudice meeting or mediation.

Can the creditor bring court proceedings?

If the debtor does not reply to the letter of claim within 30 days of the date of the letter, the creditor may start court proceedings, provided that it has given 14 days' notice to the debtor of its intention to do so.

The creditor should not start court proceedings until 30 days from receipt of the completed Reply Form, or 30 days from the creditor providing any documents requested by the debtor, whichever is later.

The court will expect the parties to have complied with the Protocol if the matter proceeds to litigation and will consider any non-compliance when giving directions for case management. This could mean that even if successful a creditor who has not complied with the Protocol could be penalised on costs.

If the debtor responds to the letter of claim but an agreement is not reached, the creditor can commence court proceedings but should give the debtor at least 14 days' notice of their intention to do so (unless urgent action is required).