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Pre-action debt protocol: The front loading of legal costs

As part of the Jackson reforms the Rules Committee has started down its latest path. This time their focus is on pre-action protocols. Specifically, the aim of the Committee for this discrete project is to either implement brand new protocols or to revisit old ones. For those that are not familiar with pre-action protocols, these are the steps parties to proceedings are asked to follow before legal proceedings are issued at court. They are categorised by claim type i.e. personal injury, construction & engineering, defamation etc.  

As part of the Rules Committee’s review, the previously considered and dismissed pre-action protocol for debt claims has reared its head again and it is gaining a greater level of support. There is a fear that this time it could be implemented, which would have huge consequences for the industry. This is a worry for all sectors of commerce that rely greatly on the speed and efficiency of the current debt recovery system. It will affect any business which offers credit to its customers.   

A pre-action protocol for debt claims has the potential to harm the industry. If implemented, the general economy would be affected as businesses will not be able to collect their cash as quickly and as cheaply as before. The protocol also introduces a number of labour-intensive obligations, which many consider to be unnecessary. The measures will unintentionally give professional debtors, playing an already debtor centric system, even more tactics to delay in making payments that are due.

If adopted, many businesses are likely to find themselves suddenly priced out of the legal market and will have the additional extra burden of doing it themselves. Many commentators believe they will not be able to pay their lawyers extra fees or employ extra staff to conduct the pre-action steps themselves on the large volume of debt cases many businesses have to handle. This will ultimately mean less money is recovered and businesses will either go out of business if they decide not to act, or they will lose their competitive edge as the price of their goods and services are increased to compensate for the additional cost. Our view is that the negligible benefit the consumer is given with one hand may quickly be taken away with the other. 

DWF opposes the pre-action protocol for a number of reasons, all of which have been voiced in our full response to the consultation. Click here to read a full copy of our response. If you have any queries on our response then please do not hesitate to contact the team. 

Breaking news

Shortly before this article was published we were advised that the Civil Court Users Association (CCUA), which represents the interests of the bulk users of the Courts by lobbying and liaising with the Ministry of Justice (MOJ) and Her Majesty’s Courts & Tribunals Service (HMCTS) on behalf of its members, has taken advice on the Proposed Debt Protocol from Senior Counsel on behalf of the Association and its members.  Based on that advice, action has been taken and we are assured that the CCUA are taking a strong stance and steps to challenge the Rule Committee’s proposal.

It is naturally hoped that the Rules Committee will enter into meaningful discussions with the Association and that the matter can be resolved satisfactorily.

We will keep you informed of progress.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Debt Recovery

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James Perry

Director Technical - Co-Manager of the Recoveries Team

I am a Director Technical at DWF and Co-Manager of the Recoveries Team.

David Scottow

Director - National Head of Recoveries

I am a Senior Director and National Head of Recoveries with almost 40 years’ experience in debt litigation, insolvency and credit management..

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Neil Jinks

Director

I am a Director within the recoveries team at DWF. I have over 25 years of experience working in law firms, the credit industry and High Court enforcement sector, managing and developing debt recovery operations and client relationships.