Practice Direction - Pre Action Conduct (“PDPAC”) and its impact on your debt recovery action
The over-riding principle is to allow parties a genuine opportunity to resolve matters without needing to start court proceedings. The PDPAC is not mandatory but parties should comply unless it would be inappropriate (inappropriate circumstances are likely to be exceptional e.g. an application for an order to freeze assets). This note is a brief guide to the most obvious changes for debt collection cases. All those involved in debt collection need to know about these as the courts will expect that parties have complied with the following.
Changes to the Letter Before Action ("LBA")
The Letter Before Action (now called Letter Before Claim "LBC") must allow a "reasonable" period of time for the debtor to respond. Most LBAs used to allow seven days for the debtor to respond. The PDPAC recommends a minimum of 14 days. We have introduced a new Letter Before Claim that routinely allows 14 days for a response. It still sets out the debt, formally demands payment and warns that court action may follow.
Where it is known that the debtor disputes the claim, in addition to the above, the LBC must refer to the documents on which you intend to rely, offer to consider resolving the matter by Alternative Dispute Resolution and refer specifically to the court’s powers to impose sanctions for failure to comply with the PDPAC.
The debtor is expected to acknowledge the LBC within 14 days and seek further time to respond in detail if necessary. Where, for example, the matter requires the involvement of an insurer then the debtor’s full response should be provided within 30 days. The debtor must also provide a list of the documents on which he intends to rely if disputing the claim.
Additional requirements where you are a business and the debtor is an individual.
At any time before the LBC, you must notify the debtor how the money can be paid, provide an opportunity to discuss repayment options and refer the debtor to independent free advice services (a list of appropriate organisations is provided in the PDPAC). The debtor is to be allowed up to 14 days to obtain debt advice.
What happens if you do not comply?
It is important that we know whether or not these new rules have been complied with as we need to confirm that to the court when a claim is issued. Failure to comply runs the risk of the court claim being stayed whilst the rules are complied with, or you could be penalised in the amount of interest awarded and/or be ordered to pay costs.
A full copy of the PDPAC can be downloaded from www.justice.gov.uk
If you would like further guidance on how this affects your business please contact Elizabeth Hope, Head of Recoveries Development.
