New guidelines affecting anyone who has a dispute with any other party over money or otherwise were added to the Civil Procedure Rules last month. These detailed guidelines which are more prescriptive as to the standard of conduct required from parties before the start of court proceedings are included in the new Practice Direction on Pre-action Conduct (PDPAC). For businesses involved with debt recovery claims against an individual there are also additional specific requirements regarding the information that must be given to a debtor before proceedings commence.  

The sentiment behind the PDPAC is two fold. It is seeking to:  

  • Enable parties to settle the issue between them without the need to start court proceedings.  
  • Support the efficient management of court proceedings that cannot be avoided.  

The PDPAC will ensure that potential defendants are given ample opportunity to investigate the alleged claim against them prior to the commencement of court proceedings. It will mean that potential claimants will be required to provide all reasonable information requested by the proposed defendants before a claim can be issued. This should allow each party to understand each other’s position and make informed decisions about settlement and how to proceed. The parties will be required to make appropriate attempts to resolve the matter without starting proceedings, and in particular consider the use of an appropriate form of Alternative Dispute Resolution (“ADR”). The extent of time and money spent to meet the obligations of the PDPAC should be proportionate to the complexity of the matter and any money at stake.  

The new PDPAC stipulates the information which must be contained in the letter of claim. It must contain a clear summary of the facts and detail what the claimant is seeking from the other party. These two requirements do not differ from what used to be expected. However, it is now suggested that the claimant should also:  

  • List the essential documents upon which the claimant intends to rely.  
  • Propose an appropriate form of ADR and invite the other party to agree to the proposal.  
  • State the date by which the claimant considers it is reasonable for the other party to respond.  
  • Identify any relevant documents which the claimant requires and are not in its possession.  

If it is known that the other party is not legally represented, the claimant should refer the defendant to the PDPAC and the sanctions for non compliance.  

In addition, for debt claims where the claimant is a business and the defendant is an individual the claimant is required to:  

  • Provide the debtor with details of how the money due can be paid.  
  • State that the debtor can contact the claimant to discuss repayment options.  
  • Inform the debtor about organisations from whom they can obtain free advice and assistance.  

In turn, the other party is required to provide a full written response within a reasonable period of time. If the matter is straightforward, a reasonable period should normally be 14 days. If specialist advice is required, it may be that 30 days is considered reasonable. In exceptional circumstances, 90 days will be considered reasonable.  

The other party’s response should state whether the defendant accepts the claim in whole or in part. In the event that all or part of the claim is not accepted, the defendant should set out why the claim is not accepted and which facts are disputed (if any) and the basis of that dispute. The letter in response should detail any counterclaim and/or any allegations of fault on behalf of the claimant.  

This approach is designed to allow the parties to take stock at this stage and form a view as to whether court proceedings can be avoided. In principle, the position now is not altogether different from the pre-existing position, the difference is that rather than simply requiring the parties to behave reasonably the guidance now defines reasonable behaviour. It follows therefore that the penalties for non-compliance will be more stringent and the court will punish those parties who have failed to comply. Proceedings now should only be issued as a last resort and the court can apply the following sanctions if there has been noncompliance with the PDPAC:  

  • Staying (that is suspending) the proceedings until steps which ought to have been taken have been taken.  
  • Ordering the party at fault to pay the costs, or part of the costs, of the other party or parties.  
  • Ordering the party at fault to pay those costs on an indemnity basis.  
  • Removing or reducing a party’s claim for interest on a sum of money if the party has failed to comply.  
  • Increasing the rate of interest payable up to the rate of 10% if the party at fault is the defendant.  

Parties to potential court proceedings must therefore take heed of the new regime otherwise the consequences are likely to have a potentially substantial financial impact.  

It is advisable to incorporate the new requirements for letters of claim into your own debt recovery procedures at the earliest opportunity to speed matters up in terms of cash collection.