Debt Advice Handbook 14th editionChapter 11: Action in the county court: general 2. Before starting court action
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2. Before starting court action
Pre-action protocols
The Civil Procedure Rules contain codes of practice that both parties are expected to follow before any court action is started. These pre-action protocols and a pre-action conduct practice direction are are published in The Civil Court Practice1This is an expensive two-volume publication (plus a separate volume containing prescribed forms), published by LexisNexis. It is known as the Green Book and is published annually with supplements. In addition to the rules, the Green Book contains annotations and commentary, tables summarising various common procedures, details of court costs and fees, the pre-action protocols and excerpts from relevant legislation. (available at justice.gov.uk/courts/procedure-rules/civil).
There have been protocols for possession claims for rent and mortgage arrears for some years and a protocol for debt claims was introduced on 1 October 2017. This can be accessed at justice.gov.uk/courts/procedure-rules/civil/pdf/protocols/debt-pap.pdf.
Regardless of whether there is a protocol for the specific type of case, the practice direction expects the parties to act ‘reasonably and proportionately’ in exchanging sufficient information to enable them to understand each other’s position, make informed decisions and to attempt to resolve the matter without starting court proceedings, including considering alternative dispute resolution (see here).2CPR PD, para 3 This should usually include:
    •the creditor writing to give details of the claim; and
    •the client:
      ◦providing a detailed written response within a reasonable period (14 days is suggested in the case of undisputed debts); or
      ◦acknowledging the letter within 14 days if s/he cannot provide a detailed response within that period and then providing a full response within 30 days if third-party involvement is required (or possibly longer if specialist advice is required).
If the practice direction is not complied with, the court can ‘stay’ (ie, suspend) the proceedings until the required steps have been taken, or make an order not to allow costs or to pay costs to the other party (see here). The court is not concerned with minor or technical infringements and looks at the overall effect of the non-compliance on the other party when deciding whether to impose sanctions.
 
1     This is an expensive two-volume publication (plus a separate volume containing prescribed forms), published by LexisNexis. It is known as the Green Book and is published annually with supplements. In addition to the rules, the Green Book contains annotations and commentary, tables summarising various common procedures, details of court costs and fees, the pre-action protocols and excerpts from relevant legislation. »
2     CPR PD, para 3 »
Pre-action protocol for debt claims
The protocol applies to all debt claims where:
    •the creditor is a business (including sole traders and public bodies);
    •the client is an individual (including sole traders); and
    •no other specialised protocol applies – eg, for rent or mortgage arrears.
The protocol states that its aim is to:
    •encourage early engagement, communication and exchange of information between the parties;
    •enable parties to resolve debt claims without court proceedings, including by agreeing reasonable repayment plans or alternative dispute resolution – eg, the Financial Ombudsman Service (see here);
    •encourage parties to act reasonably and proportionately with one another – eg, not running up costs which do not bear a reasonable relationship to the amount of the debt; and
    •support the efficient management of proceedings that cannot be avoided.
Before starting proceedings, the creditor should send a ‘letter of claim’ to the client, which should contain the following information:
    •the amount of the debt, and whether interest and charges are continuing;
    •if there was a verbal agreement, who made the agreement, what was agreed (as far as possible, what words were used) and where and when it was agreed;
    •if there was a written agreement, the date of the agreement, the parties to it and the fact that a copy of the agreement can be requested from the creditor;
    •if the debt has been sold, the details of the original debt and creditor, when it was sold and to whom;
    •if regular instalments are currently being offered by or on behalf of the client or are being paid, an explanation of why the offer is not acceptable and why a court claim is still being considered;
    •details of how the debt can be paid – eg, the method of and address for payment and details of how to proceed if the client wants to discuss payment options;
    •the address to which the completed reply form annexed to the protocol and accompanying the letter should be sent.
It should also include:
    •a statement of account detailing any interest and charges applied; or
    •the most recent available statement of account with details of any interest and charges applied since that statement; or
    •where no statements are provided, details of any interest and charges applied to the debt since it was incurred; and
    •a copy of the information sheet, reply form and standard financial statement, all of which are annexed to the protocol.
The letter of claim should be clearly dated near the top of the letter and posted to the client on the day it is dated or, if this is not reasonably possible, the following day. If the client does not respond within 30 days, the creditor can start proceedings for the debt (subject to any other obligations the creditor has to the client – eg, under the Financial Conduct Authority’s Consumer Credit Sourcebook).
The reply form gives the client the following options:
    •admitting all, or part, of the debt and to pay or propose payment terms for the amount admitted;
    •confirming s/he is seeking debt advice;
    •disputing all or part of the debt; or
    •requesting documentation from the creditor to enable her/him to understand the debt.
If the client requests documentation, the creditor has 30 days in which to either provide it or provide a written explanation of why not. The creditor cannot start proceedings less than 30 days after the documentation and/or explanation have been provided and must also give the client 14 days’ notice of its intention to start the claim.
If seeking debt advice, the client must indicate on the reply form whether obtaining this will take longer than 30 days and, if so, provide details. In such cases, the creditor should allow a reasonable amount of time for this advice to be obtained. The creditor cannot start proceedings less than 30 days after the reply form has been received and must give the client 14 days’ notice of its intention to do so.
If the client does not fully complete the reply form, the creditor should attempt to contact her/him and obtain any additional information it requires to understand the client’s position. The creditor cannot start proceedings less than 30 days after the reply form has been received and must give the client 14 days’ notice of its intention to do so.
If the client indicates that s/he is disputing all or part of the debt, the parties should take appropriate steps to try to resolve the dispute without starting proceedings and consider alternative dispute resolution – ie, negotiation, referring the matter to a formal compaints process, such as the Financial Ombudsman Service and mediation.
If the client has proposed a payment arrangement and this is not accepted, the creditor should inform the client in writing and give reasons for refusing the proposal. If the proposal is accepted, the creditor should not start proceedings while the arrangement is in force. If client defaults on the arrangement, the creditor must send an updated letter of claim and comply with the protocol again. It need not send any further documents which have already been supplied to the client within the preceeding six months.
If the client responds but no agreement is reached, the creditor must give the client 14 days’ notice of its intention to start proceedings, unless there are exceptional circumstances – eg, if the limitation period is about to expire (see here).1For further details, see T Lett, ‘Pre-action Protocol for Debt Claims’, Quarterly Account 46, IMA
Note: some housing advisers have suggested that, because landlords routinely apply for money judgments in possession claims on the ground of rent arrears, the protocol for debt claims applies to that part of the claim. This is only possible if the claimant is a private landlord, because the pre-action protocol for rent arrears applies to claims by social landlords (see here).
 
1     For further details, see T Lett, ‘Pre-action Protocol for Debt Claims’, Quarterly Account 46, IMA »
Alternative dispute resolution
Using the Financial Ombudsman Service
The Financial Ombudsman Service is a form of alternative dispute resolution. If a complaint has been (or could be) referred to the Financial Ombudsman Service, the court may agree to stay the proceedings.1In Derbyshire Home Loans v Keaney (Adviser 124 abstracts), Bristol County Court stayed possession proceedings for two months to enable the borrower to pursue a possible complaint in view of the lender’s failure to respond to his proposals The Financial Ombudsman Service considers requests to prioritise cases where the client might clearly be disadvantaged by having to wait – eg, through financial hardship. It may, therefore, be worth asking for a case to be prioritised where this can be demonstrated.
The Financial Ombudsman Service has been able to consider complaints against banks and building societies since December 2001 and against all other holders of consumer credit licences in relation to regulated consumer credit debts since 6 April 2007 (although not in relation to events that occurred before this date – see here). From 1 April 2014, it has been able to consider complaints against any firms carrying out regulated activities, including ‘debt-related activities’.2FCA Handbook, Dispute Resolution: complaints, DISP 2.3, handbook.fca.org.uk/handbook/DISP/2/3.html, which contains links to the definitions of ‘regulated activities’ and ‘credit-related regulated activities’ This means it can consider a complaint about:
    •the original creditor, a debt purchaser or a debt collector in relation to a regulated credit debt if the events occurred before 1 April 2014;
    •a debt collector in relation to an exempt credit debt, even if the events occurred before 1 April 2014;
    •the original creditor or a debt purchaser in relation to an exempt credit debt if the events occurred on or after 1 April 2014.
The Financial Ombudsman Service is not a regulator. Its role is to resolve individual disputes between clients and businesses. It does not consider complaints about the way businesses reach their commercial decisions.
In regulated consumer credit cases, although the Financial Ombudsman Service cannot consider a complaint about events that occurred before 6 April 2007, it can ‘take account’ of them. This means that if the complaint is about, for example, excessive charges added to an account before 6 April 2007 which the client did not find out about until after this date, it cannot adjudicate on whether or not those charges are excessive. On the other hand, if the complaint relates to excessive charges added to an account on or after 6 April 2007, in adjudicating on the complaint, the Financial Ombudsman Service can look at the agreement to see what it says, even if it was made before 6 April 2007.
The Financial Ombudsman Service does not determine whether or not a relationship between a creditor and a debtor is unfair (see here). It resolves disputes on the basis of what is ‘fair and reasonable’. The Financial Ombudsman Service looks at the relevant legislation, regulations, any official guidance, relevant codes of practice and standards, and good industry practice at the time of the conduct complained about. This means it can take into account the same issues that a court would consider, but can come to a different conclusion. The Financial Ombudsman Service has an inquisitorial remit and so conducts its own enquiries, rather than just relying on what the parties tell it.3R (on the application of Williams) v FOS [2008] EWHC 2142 (Admin)
Businesses that fall within the Financial Ombudsman Service’s jurisdiction must have a written complaints procedure, and must publicise and operate it. The Financial Ombudsman Service cannot consider a complaint unless the business has had an opportunity to deal with it first. The client should therefore initially complain in writing to the company concerned. On receipt of a complaint, the creditor should:
    •acknowledge the complaint promptly; and
    •keep the client informed of progress; and
    •send a ‘final response’ in writing within eight weeks.
A ‘final response’ is one which:
    •either accepts the complaint and offers redress; or
    •does not accept the complaint, but offers redress anyway; or
    •rejects the complaint and gives reasons for this; and
    •informs the client that if s/he remains dissatisfied, s/he has a right to refer the matter to the Financial Ombudsman Service within six months, and encloses a consumer leaflet.
If no final response has been received after eight weeks, the client can complain to the Financial Ombudsman Service, provided the complaint is within its jurisdiction. Provided a letter is clearly the business’s last word on the matter, the Financial Ombudsman Service accepts the complaint, even if fewer than eight weeks have elapsed and even if it does not contain information on the client’s referral rights.
Unless the circumstances are exceptional or the business does not object, a complaint to the Financial Ombudsman Service must be made within:
    •six months of the date of the final response. This time limit must have been made clear in the final response, otherwise it does not apply; and
    •six years of the matter complained of taking place; or
    •if later, within three years of the client’s reasonably becoming aware s/he might have grounds for complaining.4FCA Handbook, DISP 2.8R. See also R Rosenberg, ‘Legal Round-up’, Quarterly Account 50, IMA for a discussion of two FOS decisions on the time limit for unaffordable loan complaints made more than six years after the loans were taken out.
As noted above, the Financial Ombudsman Service is required to determine complaints by reference to what is ‘fair and reasonable in all the circumstances of the case’. This gives the Financial Ombudsman Service a wide discretion to consider the background and context of complaints within its jurisdiction even where this involves considering matters occurring more than six years before the date of the matter complained of taking place. For example, in R (on the application of Mortgage Agency Service Number Five) v Financial Ombudsman Service, Ms D (a so-called ‘mortgage prisoner’ who was at the end of her mortgage term and being threatened with repossession) made a complaint to her lender, MAS5 in October 2018 about the fairness of the interest rates charged under her mortgage which she subsequently escalated to the Financial Ombudsman Service. The Financial Ombudsman Service decided it could consider the complaint about the interest rates charged from October 2012 (six years before the original complaint) but that it was relevant to the complaint to also review the history of the mortgage from January 2009, the date the mortgage reverted to a standard variable rate, including the rates applied to the mortgage. MAS5 applied for judicial review of this decision on the ground that it involved going back further than six years before October 2018. In dismissing the claim, the Administrative Court held that the jurisdiction the Financial Ombudsman Service had accepted was limited to considering complaints about interest charged after 2012. The Financial Ombudsman Service was entitled to consider the background to a complaint within its jurisdiction and, therefore, its decision as to what it would take into account was not unlawful.5[2022] EWHC 1979 (Admin)
A complaint to the Financial Ombudsman Service should contain the following information:
    •the client’s details;
    •details of the business complained about;
    •reference/account numbers;
    •copies of the final response (if any) and of any other relevant documents – eg, the agreement and correspondence;
    •a summary of the complaint. This should set out the ‘story’ in the client’s own words, if possible, rather than take the form of a legal-type submission (this can be done later in the process, if necessary);
    •how the client wants the business to address the issue. The Financial Ombudsman Service does not grant a remedy just because a business has broken rules – this is the job of a regulator. There must be some consumer detriment, not necessarily financial, such as distress, inconvenience, injury or damage to reputation;
    •a letter of authorisation if the adviser is submitting the complaint on behalf of the client.
The complaints form is available at financial-ombudsman.org.uk/consumers/how-to-complain or you can phone 0800 023 4567. If the Financial Ombudsman Service accepts the complaint, it attempts to resolve the dispute through mediation – ie, assisting the parties to come to an agreement. If not, an adjudicator forms a preliminary view, which is circulated to the parties. If they accept this, the dispute is settled. If they do not, the case is referred to the Ombudsman for determination. If the Ombudsman upholds the complaint, the business can be ordered to:
    •pay compensation for financial loss up to a limit of £375,000 for complaints about actions taken on or after 1 April 2019 (£415,000 where the complaint was referred on or after 1 April 2023) and £170,000 for complaints about actions taken before 1 April 2019 but not referred to the Ombudsman until after that date (£190,000 where the complaint was referred on or after 1 April 2023); and/or
    •pay compensation for non-financial loss (this tends to be a few hundred pounds maximum); and/or
    •take appropriate action to remedy the issue complained about – eg, remove excessive charges from an account.
Financial Ombudsman Service decisions are binding on the business, but not on the client, who can still take the matter to court if s/he remains dissatisfied. A Financial Ombudsman Service decision cannot be appealed. However, the High Court has quashed decisions of the Financial Ombudsman Service following applications for judicial review, but this type of court action requires a solicitor and can incur significant costs.6For example, R(TF Global Markets Ltd) v FOS [2020] EWHC 3178 (Admin) If the business fails to comply with the decision, it can be enforced through the courts. You should seek specialist advice if this becomes necessary.
More information can be found on the Financial Ombudsman Service website (financial-ombudsman.org.uk). The monthly newsletter, Ombudsman News, which often contains features and case studies of interest and relevance to money advisers, is available on the Financial Ombudsman Service website. Informal guidance on practice and procedure is available from 020 7964 1400 or technical.desk@financial-ombudsman.org.uk.
In addition, the Financial Ombudsman Service now publishes the final decisions (‘determinations’) made by an ombudsman (but not the recommendations made by adjudicators which have been accepted by the parties). These are at financial-ombudsman.org.uk/data-insight/ombudsman-decisions. Decisions can be searched for based on a particular creditor or a specific issue.
There is an increasing emphasis on the use of alternative dispute resolution, with some courts offering the services of local court-based mediation schemes. The parties are encouraged to use some form of alternative resolution and, even after a county court claim has been issued, the court can ’stay’ (ie, suspend) the proceedings to enable them to settle their dispute by mediation or other means. Civil Procedure Rule 26.4 allows a party to court proceedings to make a written request for a stay to allow for alternative disupute resolution when that party files its allocation questionnaire. Although the courts have no power to compel parties to do so, when deciding the amount of any costs to be awarded, they can take into account the efforts made before and during the proceedings to resolve the dispute in some other way (see here).
Defended claims that are normally allocated to the small claims track (see here) are referred to HM Court and Tribunal’s free mediation service, provided all the parties indicate in their directions questionnaire (see here) that they agree to mediation.7r26.4A CPR
 
1     In Derbyshire Home Loans v Keaney (Adviser 124 abstracts), Bristol County Court stayed possession proceedings for two months to enable the borrower to pursue a possible complaint in view of the lender’s failure to respond to his proposals »
2     FCA Handbook, Dispute Resolution: complaints, DISP 2.3, handbook.fca.org.uk/handbook/DISP/2/3.html, which contains links to the definitions of ‘regulated activities’ and ‘credit-related regulated activities’ »
3     R (on the application of Williams) v FOS [2008] EWHC 2142 (Admin) »
4     FCA Handbook, DISP 2.8R. See also R Rosenberg, ‘Legal Round-up’, Quarterly Account 50, IMA for a discussion of two FOS decisions on the time limit for unaffordable loan complaints made more than six years after the loans were taken out. »
5     [2022] EWHC 1979 (Admin) »
6     For example, R(TF Global Markets Ltd) v FOS [2020] EWHC 3178 (Admin) »
7     r26.4A CPR »