The latest revision to the Practice Direction on Pre-Action Conduct (PD PAC), the Pre-Action Protocol for Debt Claims (PAP), will come into force on 1 October 2017. Creditors take serious note.
Following the Civil Procedure Rule Committee meeting on 9 December 2016, industry experts didn't anticipate any significant amendment to the latest draft of the PAP, which was recommended to the Master of the Rolls for adoption. The final version has now been released and it has been confirmed that this will come into force on 1 October 2017.
The PAP is intended to apply to any business (including sole traders and public bodies) claiming payment of a debt from an individual (paradoxically, also including a sole trader, even in business-to-business debts) and describes the conduct that the Court will normally expect from those parties prior to issuing a Claim Form. It is thought that this should help and protect debtors facing prospective legal proceedings from their creditors.
At first sight, the revisions appear to roll back the clock to the 2009 PD PAC, which introduced the provision of additional information and "signposting" to individuals. However, on closer scrutiny, the current draft of the PAP in fact goes much further than that.
An "enhanced" 'Letter of Claim' is required, including details of the basis of claim extending to: dates and parties to a written contract; the contractual words spoken, when and where, in an oral agreement; and details in respect of any assignment.
The paperwork required to be sent to an individual in addition to the Letter of Claim is substantial. Necessary enclosures are:
We estimate that the correspondence and enclosures required are likely to run to a minimum of 13 pages – 7 in duplex – unlucky for some! Unfortunately, there is no relief for more sophisticated creditors seeking to save on costs by sending out this bundle electronically – explicit consent will be required and it is not sufficient to simply pay regard for this in general conditions of sale incorporated in the contract.
Whilst a previous provision for a copy of the actual agreement has now been discarded, it is understood that the Letter of Claim will need to prominently state that such documents are available upon request (notwithstanding the direction to such documentation provided in the Reply Form), so creditors may see increased requests for documentation once the PAP is implemented and run a significant risk of further delay and cost, should this not be provided at the outset.
An individual will have 30 days to reply to the Letter of Claim (though a creditor should account for 'the possibility that a reply was posted towards the end of that period') and they may:
A creditor should take pro-active steps to attempt to engage with a debtor, even upon receipt of a partially completed response. An indication that a debtor requires time to pay should be met by a creditor trying to agree affordable sums for repayment, with regard for the Standard Financial Statement. In the event that the debtor seeks extra time to obtain advice then the creditor must consider whether it would be reasonable to allow for that, in the circumstances. Finally, if a request further documentation is made then the creditor must respond to that request, providing the documentation or otherwise explaining why it will not be provided, within 30 days. Whichever response, a further 30 days should be allowed before commencing proceedings.
In the event of a dispute on substantial grounds, Alternative Dispute Resolution (ADR) should be considered. It is arguable that even if the reply is a bare denial or sets out no coherent statement of facts then a further 14 days' notice should be given of the creditor's intention to start court proceedings.
Again, compliance with the PD PAC / PAP remains important for litigants. Failure to comply may result in a claim being "stayed" (which is to say put on hold) to allow a period for compliance or, alternatively, sanctions being imposed.
Such sanctions may be substantial and can include:
These sanctions are no different in practice from those defined in PD PAC 2015 though, unfortunately, the PAP makes no similar step back to the 2009 version in respect of the provision for such costs being applicable even in cases allocated to the Small Claims Track; this might have had a deterrent effect, given the increased costs that creditors will have to bear.
The latest quarterly civil justice statistics (released 2 March 2017) demonstrate that a consistently high percentage of specified money claims simply result in Judgments "in default" (86%), indicating that the defendant has either failed to file an acknowledgment of service or a defence in the formal Court process. The second largest type of Judgments are "admissions" (an additional 9%).
In view of these statistics, it is certainly questionable as to whether the prospective "help and protection" that will be offered to debtors through the PAP will not simply incur delays for creditors seeking to enforce; worse, they may provide a "shield" for debtors seeking to delay payment, if not invite the abuse of process. The antithesis of what the overriding objective of the Civil Procedure Rules set out to achieve, we believe that the PAP could potentially:
It remains to be seen whether this will reduce the Court's resources allotted to money claims significantly, when it comes to determination / re-determination of admissions.
We are where we are, though, and the time for feedback is now over. What remains is for creditors to digest the final revisions and use the implementation period that has been requested to make the necessary systems and process changes. We would recommend that readers raise corporate awareness and responsibility for this change because:
Now is the time to raise corporate awareness and responsibility for the winds of change are blowing and creditors must be ready for this coming into force on 1st October 2017.
Whether reactive to issues affecting the debt collection industry proactive in anticipation of issues such as the PAP, our highly professional and experienced Recoveries Management Team can act as an extension to your business to protect your reputation and brand.
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