Challenges ahead with the final version of the new pre-action protocol (PAP)
As you may well be aware, the Ministry of Justice released the final version of the new pre-action protocol (PAP) for debt claims on 21 March 2017 and this will come into force on 1 October 2017.
Currently, there is no specific protocol for debt claims and those seeking to make a debt claim must follow the general principles set out in the Practice Direction Pre-Action Conduct and Protocols. The need for a debt pre-action protocol was first raised as long ago as January 2010 by Lord Justice Jackson in his Final Report on Civil Litigation Costs published in January 2010, on the grounds that debt claims ‘constitute a huge swathe of business of the courts’ and required their own specific protocol.
Following a lengthy consultation process, we now have the final text of the new PAP, the core principal of which is that debtors should be provided with sufficient information to enable them to obtain advice on their position prior to the issue of a claim and that, if possible, the parties should attempt to resolve the dispute without the need for court proceedings.
Up until the recent announcement there had been uncertainty as to whether any transitional arrangements would apply to the new protocol but it has now been confirmed that this will not be the case. This effectively means that from 1 October 2017, where a business (including a sole trader or public body) issues a letter before action with a view to claiming payment of a debt from an individual (including a sole trader or partnership), the new protocol will apply and parties will need to comply with its provisions prior to commencing a claim.
As the specific requirements of the PAP have already received widespread coverage and comment, I do not propose to recant these in any detail here but, instead, I would like to focus on several key areas that are of particular interest in terms of how the PAP has developed since the first draft and some of the challenges the industry is likely to face as a result of its implementation.
One particular bone of contention during the consultation and drafting period has been the volume of paperwork and information that creditors should be obliged to provide to the debtor under the provisions of the PAP. Initial drafts of the PAP required the creditor to provide detailed statements of account, a whole host of other documents and information relating to the debt, a full copy of the PAP itself and a copy of the written agreement the debt is based on. Argument was put forward that this was totally disproportionate, particularly given that almost 95% of debt claims go undefended. Thankfully, as the PAP has evolved, a number of these requirements have subsequently been dropped.
For example, it is now clear in the new protocol that businesses making a claim will not have to send a copy of the agreement but, they will have to inform the debtor that a copy can be requested. Though this is no doubt a compromise, this nevertheless represents somewhat of a ‘win’ for the industry, as it should in many instances avoid less scrupulous debt advisors sifting through the credit agreement line by line in an attempt to find a technicality.
In another recent development, the PAP’s use of the Standard Financial Statement has now been confirmed, though it is highly likely that some businesses will not have implemented the SFS yet by the 1st of October, let alone the pre-action protocol itself. That said, we should still be thankful that the CPRC decided at the eleventh hour to adopt the Standard Financial Statement, as the Ministry of Justice were hitherto intending to implement their own non-standard statement format – a decision I think we can all agree would have been regrettable.
From the debtor’s perspective, our view is that the new protocol and its complex forms represents a missed opportunity to simplify a process for individuals whose finances are likely to be in a mess. Furthermore, at a time when many businesses are finally making real progress towards the paperless office summit, the many additional sheets the debtor will now be required to fill in represent a stumble back towards base camp.
A further missed opportunity comes in the form of the multitude of boxes the debtor will be required to tick, such as: “tick this box if you agree you owe all or part of the debt and can pay what you think you owe now”, and: “I will pay but I need time to pay”. Despite a groundswell of opinion during the consultation and drafting process that this part of the process could be completed via other means, such as over the phone, the Civil Procedure Rule Committee (CPRC) concluded that this still needed to be done via written form.
The spectre of box-ticking also looms large over claimants following the inclusion of an “I need more documents” option that can be ticked by the debtor – copy agreements, statements, descriptions of charges and copies of notices of assignment are just some of the examples that could be requested here. This has been met with a collective groan by many of our clients, all too aware of the likelihood of this ending up on certain internet forums as an addition to the litany of template debt avoidance tools already in circulation.
An unavoidable conclusion to be drawn from the introduction of the new PAP is that it elongates the whole process for creditors, DCA’s and purchasers, as a timescale of 30 days, plus 30 days and then a potential delay relating to debt advice is entirely plausible (particularly when you consider reference to obtaining debt advice is plastered all over the information sheet that must be sent to the debtor). On this note, what constitutes a ‘reasonable’ period for getting debt advice is yet to be fully bottomed out.
Despite the numerous challenges the PAP will no doubt extend to our industry, the new PAP should not be viewed entirely without optimism. Indeed, while it is highly likely that we will see a significant increase in the response levels at the letter before action and PAP states, we should also attempt to take advantage of the opportunity for positive engagement that this could bring. We have been asked on more than one occasion whether, under the new rules, it will be permissible to call a customer while the PAP is in effect. The answer to this question is that there is nothing in the PAP that precludes good customer service and dialogue and therefore calling the customer at the end of the 30 day period or even towards the end of this period does not represent non-compliance.
With less than six months to go, it is clear that businesses that make claims or are involved in the claims processes will need to take urgent action to revise their pre-action processes to ensure that they are compliant with the new procedure with effect from 1 October 2017. This is sure to represent a significant undertaking, particularly for large organisations where the successful planning and implementation of aspects such as I.T., process, and training within timescales will invariably be a challenge.
Finally, some food for thought: was there even a need to introduce a pre-action protocol for debt claims at this stage, given that we know the new Online Court will be introduced in 2020? At the point this is implemented, all money claims under £25,000 (which represents the vast majority of claims) will not require a PAP, meaning that in many senses what is about to be introduced is already somewhat of a white elephant, and a potentially onerous one for debt claimants at that.
How things will stand between 1st October 2017 and 2020 of course remains to be seen but it could well be the case that certain creditors will choose to rush the issuing of claims leading up to the autumn before delaying future claims until the Online Court is operational. The adoption of any such tactics would create a feast before famine scenario for solicitors and legal recovery firms, while the implications for the HM Courts and Tribunals Service itself are significant and potentially even severe.