The Complete Guide to Debt Recovery

B DEB T RECOVERY THE COMPLETE GUIDE TO How to use the legal system to collect debts quickly and painlessly ROGER MASON...

Author: Roger Mason

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B DEB T RECOVERY THE COMPLETE GUIDE TO

How to use the legal system to collect debts quickly and painlessly

ROGER MASON

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THE COMPLETE GUIDE TO DEBT RECOVERY

ROGER MASON

Published by Thorogood 10-12 Rivington Street London EC2A 3DU Telephone: 020 7749 4748 Fax: 020 7729 6110 Email: [email protected] Web: www.thorogood.ws

© Roger Mason 2003 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without the prior permission of the publisher. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than in which it is published and without a similar condition including this condition being imposed upon the subsequent purchaser. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author or publisher.

A CIP catalogue record for this book is available from the British Library. PB: ISBN 1 85418 227 7 Cover and book designed by Driftdesign. Printed in India by Replika Press.

Special discounts for bulk quantities of Thorogood books are available to corporations, institutions, associations and other organisations. For more information contact Thorogood by telephone on 020 7749 4748, by fax on 020 7729 6110, or e-mail us: [email protected]

The author

Roger Mason is a Chartered Certified Accountant and a Chartered Secretary. He started his career with the Midland Bank and worked for the Ford Motor Company before holding a senior position in the film and television business. He was then, for 14 years, Finance Director and Company Secretary of a leading British greetings card company. He has a great deal of practical experience, particularly in the legal aspects of credit control and in credit control generally. Roger writes for several publications and has twelve books published. These are on subjects related to credit control, accounting, business, company law and the duties of company directors and company secretaries. He is joint editor of the prestigious Financial Factbook which is published by Gee Publishing Ltd. Roger presents seminars on the subject on which he writes, including the very successful Legal Aspects of Credit Control. Details of this and other seminars can be obtained from UK Training (Worldwide) Ltd, 4/5 The Mayflower, Liverpool Road, Formby L37 6BU, Tel: 01704 878988.

This book relates exclusively to the legal system of England and Wales. It should not be relied upon if the legal system of Scotland or any other territory applies.

Preface

A very important campaign is waged every working day in numerous businesses across England and Wales. It happens as directors, partners, proprietors, managers, credit controllers and their staff try to collect the money that is owed to them or their organisations. They almost always succeed in the end, but all too often the end is much too long coming. The culture of slow payment continues to be a problem and for some it can be a life or death problem, at least in the business sense. These good people sometimes eventually turn to the courts and it is generally for one of two reasons. Usually it is because the customer just will not pay, or at least will not pay within an acceptable period. There is no real dispute though there may sometimes be a bogus one. Everyone knows that the money is owing and it is necessary to threaten legal action. Sometimes it is necessary to carry out the threat and it is the part of the credit control routine that comes after the last letter. More rarely there is a real dispute. The customer believes that there is a good reason to withhold payment and the supplier, with greater or lesser confidence, elects to let the courts decide. I have done all this and, to coin a phrase, I have felt their pain. They have my best wishes and this book is written with them very much in mind. Of course customers and defendants have a point of view as well and my book should be of use to them too. It should also help people who want to use the courts to recover outstanding loans and for other purposes. You will probably notice that I have used the word ‘he’ extensively. This follows the time-honoured, but not always followed, understanding that ‘he’ means ‘he or she’, unless the context indicates otherwise. In fact, in this book ‘he’ often means ‘he, she or it’. This would be cumbersome and I hope that all readers understand. No offence is intended. I have tried to provide a very practical guide that will help in many situations. I hope that it does and my best wishes to everyone who consults it. Roger Mason

Contents

ONE

TWO

Preface

iv

The decision to take legal action

1

Introduction

1

Does the customer have the money?

1

Will the customer evade his responsibilities?

2

What are the chances of winning?

3

Are you prepared for the costs?

4

Are you sure what terms govern the contract?

6

Arbitration

7

Negotiation

8

The exercise of retention of title rights

9

Bad debt write off

10

Preliminary planning

11

Introduction

11

The importance of acting decisively

11

The final warning letter

12

What professional help will you employ?

14

Your relationship with your solicitor or credit agent

15

Choice of legal route

16

Claim the maximum possible amount

17

The correct identification of the defendant

17

THREE

FOUR

Interest

19

Introduction

19

Interest permitted by a contract

19

Statutory interest

20

Interest at the statutory rate

23

Interest after judgment

24

The issue and service of a claim

25

Introduction

25

The issue of a claim

25

Bulk issue of claims

27

Correct designation of the defendant

FIVE

SIX

and also of the claimant

27

A detailed study of the claim form

31

A claim for a dishonoured cheque

35

A specimen claim form

36

Service of the claim

36

The defendant’s options on receipt of a claim

39

Introduction

39

The documents explained

40

The permitted time for the defendant’s response

41

The defendant’s options

41

After a defence has been entered

46

Introduction

46

Documents received by the claimant

46

An outline explanation of the three tracks

47

The importance of the allocation questionnaire

48

A detailed study of the allocation questionnaire

49

Notification of allocation to a track

52

SEVEN

EIGHT

Pre-trial and trial

53

Introduction

53

Summary judgment

54

Part 36 Offers and Payments

55

A case in the small claims track

57

A case in the fast track or multi-track

60

The time taken for a case to come to court

63

An appeal

64

Introduction to enforcement

66

Introduction

66

The court order, payment by instalments

NINE

and continuing interest

67

An order to obtain information

68

The Register of County Court Judgments

71

Transfer of enforcement to a High Court Sheriff

72

The enforcement measures

75

Introduction

75

High Court Sheriff and county court bailiff

75

Attachment of earnings order

78

Third party debt order

80

Appointment of a receiver

82

Charging order

82

Bankruptcy or winding up

84

TEN

Bankruptcy, winding up, receivership and administration

85

Introduction

85

The Enterprise Bill

86

Bankruptcy and winding up

87

Order of priority in the distribution of funds

90

Receivership and its consequences

91

Administration and its consequences

94

Wrongful trading

96

ELEVEN Progress of the civil justice reforms

102

Introduction

102

The main civil justice reforms

102

TWELVE Frequently asked questions

107

Questions about the claim form

107

Questions about the issue and service of a claim

108

Questions about interest

110

Questions about what happens after the service of a claim

111

Questions about enforcement

114

Miscellaneous questions

118

APPENDIX ONE

Court fees

120

The County Court

120

The High Court

123

APPENDIX TWO

Important court forms

125

ONE The decision to take legal action

Introduction This book, from Chapter 2 onwards, explains the various steps that can be taken in using the courts to recover money that is owing. The first chapter is different in that it considers some of the issues involved in the decision to take legal action or not. It is not intended to put you off, but it is only wise to make a sensible decision and to do so before costs are committed. The chapter starts by posing five important questions and then moves on to studying four possible alternatives to legal action.

Does the customer have the money? Legal action is pointless if the customer does not have the means to pay the amount of the judgment awarded. In fact it is worse than pointless because you stand to lose the court fees and possibly other costs too. There is a time-honoured saying that in matters of the law the only person who can defeat a very rich person is a very poor person. If the customer does not have the money, it is unlikely that a rich philanthropist will be found to provide it and you had better not start legal proceedings. Despite this you would be wise to be very sceptical when you hear that the customer just does not have the money. The claim is usually not true and the means can often be found if the customer’s bluff is called, perhaps with difficulty, perhaps by favouring one customer over another and perhaps by paying in instalments. If the business is a company and it is continuing

ONE THE DECISION TO TAKE LEGAL ACTION

1

to trade, the directors may well be taking on personal liability if the claim is true. This should be pointed out to the directors, forcibly if necessary. The legal position may be summarised as: ‘Directors may be personally liable for debts if the company carries on trading when they know, or ought to know, that there is no reasonable prospect of avoiding insolvent liquidation.’ It may of course be difficult in practice to establish whether the customer does or does not have the means to pay. Credit reference agencies may be a source of good information. Another good indicator may be the Register of County Court Judgments. This is covered in Chapter 8.

Will the customer evade his responsibilities? Unfortunately there are a few customers who will do everything possible to ‘play the system’. They will use technicalities to delay the legal process and, after the defence has failed, to avoid or delay paying up after judgment has been obtained. This may involve legitimate defensive tactics or it may entail outright cheating, such as claiming that documents were never served when that was not the case. Reforms made in recent years have made it harder to do this and the claimant is more likely to be able to defeat these tactics. Nevertheless, there is still some scope for such behaviour. Regrettably it probably will not stop when judgment is obtained and it might not be easy to enforce the judgment and obtain actual payment. Advice on this is given in Chapters 8 and 9. If you are in the right and if you are both patient and determined, you should succeed in getting judgment in the end, and so long as the customer has the means to pay, you should get the money in the end. It will just be an exasperating process. So long as you correctly claim interest as described in Chapter 3, you should have the consolation of getting that as well. Of course only a minority of customers would consider using such tactics. Let us hope that your customer list does not include many (or preferably any) of them.

2


What are the chances of winning? Statistically you are very likely to win, especially if you define winning as obtaining judgment. If, more realistically, you define winning as getting paid, your chances are less, but still quite good. However, statistics can be very misleading, as was noted by a man with one foot in a bucket of ice and the other foot in a bucket of boiling water. He had just been told that, statistically speaking, he should be comfortable. The great majority of cases are not defended. The defendant either pays, admits the debt and asks for time to pay, or does nothing at all. All three possibilities mean that the claimant can get either payment or judgment by default. In most cases there is no real dispute and the only problem is that the customer will not pay in a reasonable timescale, unless he is forced to do so. In such cases there should be few doubts about issuing a claim. Much more thought is necessary if you face the prospect of a real dispute and a seriously defended claim. This is a different matter. Both sides will start to incur costs and it could get expensive. There will probably be a commitment of time as well. Just possibly, a counterclaim maybe issued. This makes you a defendant too and closes off your option of abandoning the claim and walking away. None of this is intended to deter you from pursuing your claim and seeking redress. If you think that you are in the right, this is usually the best thing to do. Nevertheless, if a seriously defended case is in prospect, such a course should not be commenced lightly. It would certainly pay to have a cool, dispassionate look at the case and perhaps seek another opinion, possibly from a solicitor.


3

Are you prepared for the costs? Prospective claimants are often nervous of the costs that they will incur and of their prospects of recovering them from the defendant. They are right to consider them, especially if the case is complicated with an uncertain outcome or if the defendant is likely to try and evade payment after judgment has been awarded. Costs can be put into three categories as follows:

1

Court fees The main court fees are listed in Appendix 1. This is correct at the time of publication but it might be wise to check that changes have not since been made. A court fee is payable when a claim is issued and it will be on a sliding scale according to the size of the claim. If a defence is entered and if the claim is for an amount greater than £1,000, the claimant must pay a fee to file the allocation questionnaire. There are other court fees, in particular in the area of enforcement of judgment. Court fees must be paid in advance and the required action will not happen if this is not done. All court fees may be added to the claim and are recoverable from the defendant if the case is won or undefended. All properly claimed court fees for enforcement are recoverable from the defendant. Payment of the court fees is enforceable in exactly the same way as the original debt. However, you must succeed in obtaining payment from the defendant. If you cannot do this, the court fees must ultimately be written off as irrecoverable.

4


2

Solicitor’s costs These may be added to the claim if, and only if, it is prepared by a solicitor. So long as the claim is undefended or successful, they are recoverable from the defendant. Solicitor’s costs may also be claimed in respect of certain other forms that may be necessary. As with court fees you must succeed in getting them from the defendant, and if this cannot be achieved, they are irrecoverable. Solicitor’s costs are added to the claim according to a scale. The amount added to the claim may well not be the same as the amount actually charged by the solicitor.

3

Legal and other costs If the case is not defended, you will be responsible for your own legal and other costs. These may be small or, if you have not employed a solicitor or other specialist, they may be non-existent. The starting presumption in a defended case is that the loser will pay the winner’s costs. However, the judge has discretion and may take into account the behaviour of the parties. He may not award costs or only award a reduced amount. If the claim is for less than £5,000 and is decided in the small claims track, legal costs will not be awarded but reasonable out of pocket expenses may be awarded. A further factor is that costs awarded will be according to an approved scale, and may well be less than what has actually been paid. It is an extremely rough guide but you may perhaps get two thirds of the amount actually spent. Wide variations will be encountered and if you employ very expensive legal practitioners, the amount recovered will probably be less than two thirds of the sum spent. A final point is that you must succeed in getting the defendant to pay the amount awarded, and the usual enforcement remedies are available to you for this purpose. If you do not succeed, the costs awarded will be irrecoverable.

All this is best illustrated with an example. Let us suppose that both you and the defendant spend £3,000, and let us further suppose that full costs


5

are awarded and that the two thirds rule of thumb is a good guide for both parties. If you win you will recover £2,000 of the £3,000 spent and will be £1,000 out of pocket. If you lose, you must pay £2,000 to the defendant and pay all your own £3,000 costs, so you will be £5,000 out of pocket. Before leaving the subject you may be relieved to know that many solicitors are willing to provide their services on a ‘no win, no fee’ basis. This is explained further in Chapter 2.

Are you sure what terms govern the contract? Sellers (and buyers too) often get it wrong and misunderstand the legal position. This does matter. Sellers frequently think that because they have printed their conditions of sale on invoices and statements their terms will govern the contract. It is certainly a good idea to print seller’s terms on invoices and statements, but by itself this is not enough. What matters is what is agreed at the time that the contract is made. Invoices and statements are issued after this has happened. A contract is made when an offer is unconditionally accepted. This does not have to be in writing, though it makes it clear for all concerned if it is. To be absolutely sure the buyer should have signed to accept your conditions of sale, either for just one order or in a general document covering all future business. It is not uncommon to be presented with ‘buyer’s terms and conditions’ and if you sign them you will be bound by the buyer’s terms. If neither side signs or agrees the other side’s terms, it is probably the case that the last assertion of terms will prevail. It can all get very childish but it is the law. There is no law that gives an automatic period of credit of 30 days or any other such period. The period of credit will be what is stipulated by the contract or agreement. It frequently happens that there are no terms because neither side has produced them. If this is the case, there probably is no period of credit and the invoice will be due for payment immediately after it has been issued, though (as with other points) custom and practice may be a factor.

6


If everything goes well, your terms and conditions may not matter much, but if things go wrong, it may be crucial that they have been accepted and govern the contract. For example, if you want to charge interest permitted by the terms or if you want to rely on a retention of title clause, you will probably have to show that the terms have been accepted. You will certainly have to do so if you are dealing with a liquidator or receiver.

Arbitration Quite often there is no point in arbitration because there is nothing to arbitrate. Everyone knows that the money is owing and the only problem is that the customer cannot or will not pay within an acceptable period of time. In these circumstances you have to threaten legal action and be prepared to carry out the threat if necessary. A threat to offer arbitration does not carry the same conviction. On the other hand, arbitration may be worth considering if there is a real dispute and both sides believe that they have a case. Apart from anything else legal action usually ends a relationship with a customer, regardless of who wins. Arbitration may cause less ill feeling and allow scope for future trading. Arbitration may be particularly suitable when a dispute is very technical or specialised. In these circumstances both sides may prefer to trust the judgment of an appropriate arbitrator. Some contracts contain clauses which specify that disputes will be settled by arbitration, and the law allows parties who are not bound by such clauses to choose to resolve a dispute by arbitration. One of the organisations offering non-court based arbitration is: The Chartered Institute of Arbitrators 12 Bloomsbury Square London WC1A 2LP Tel: 020 7421 7444


7

Negotiation The parties may at any time try to negotiate a settlement and they may do this in any manner that they choose. Negotiations can take place after a claim has been issued as well as before, and they can even take place whilst a trial is in progress. Alternatively there is a formal system for making offers to settle, and this must be employed using strict rules. The system is known as Part 36 Offers and Part 36 Payments and it is covered in Chapter 7. This system can only be used after a claim has been issued. Negotiation does not have to be conducted on a without prejudice basis, but there are obvious advantages in doing so. You should make it clear that you are negotiating in this way, and the words ‘without prejudice’ should be prominently marked on any letters and perhaps on other documents too. This means that if the negotiations fail, you will be free to present your strongest case in court and to press the full amount of your claim. Documents marked in this way may not normally be used without your permission, but they may be taken into account when costs are awarded. The law about acceptance of without prejudice offers may be summarised as follows: •

a without prejudice offer may be withdrawn at any time before it is accepted;

•

if a without prejudice offer is accepted, it becomes a contract and is binding on both sides;

•

an oral agreement is usually binding on both sides, but it is sound practice to confirm it in writing. This avoids arguments about exactly what was agreed.

8


The exercise of retention of title rights There may be a clause in your conditions of sale that states that you retain ownership of goods after delivery until payment has been made, and that you may repossess the goods if you have not been paid. Such a clause will only be of use if your conditions govern the contract and the pitfalls in this area were explained earlier in this chapter. Of course such a clause is only of use if you supply physical goods, as it is not possible to repossess a service that has been performed. Recovery of goods is almost always less attractive than payment but it may well be worth considering, especially if you fear a possible bad debt. Retention of title clauses are usually very technical. Yours may be an ‘all moneys’ clause which gives you the right to recover all goods if any payment is overdue, or it may only allow you to recover goods that have not been paid for. Obviously, ‘all moneys’ clauses give better protection. In exercising retention of title rights you are likely to face the following limitations: •

Rights are only against the customer. They cannot normally be extended to a third party who has brought goods in good faith.

•

Goods cannot be repossessed that have been materially altered. For example, cloth that has been used to make clothes cannot be taken.

•

The seller is responsible for the transport costs.

•

Full credit must be given, even if the goods are old, soiled or out of fashion.

•

Repossession may only be accomplished with a court order or with the agreement of the customer. You do not have the right of forcible entry.


9

Bad debt write off At first sight this may seem a very poor alternative to legal action and it will probably look that way on second sight as well, but there are two alternatives that are even worse than writing off the debt. One is to bring a case and lose. The other is to bring a case and win, but fail to enforce the judgment and get actual payment. In both instances court fees and perhaps other costs must ultimately be written off, as well as the original debt. If VAT is included in the amount written off, it should be recoverable from Customs and Excise. If the debt was incurred as a result of a transaction for profit, then tax relief (income tax or corporation tax) may be claimed at the top marginal rate. This can be illustrated with an example of a bad debt of £11,750 (including £1,750 VAT) written off by a company that pays corporation tax at a marginal rate of 30%. The after-tax cost of the writeoff would be £7,000.

10


TWO Preliminary planning

Introduction Chapter 1 posed the question whether or not legal action should be taken and it explained some of the factors that should be considered in reaching the decision. It also explained some of the alternatives to legal action. This chapter moves on to some of the points that should be considered after an affirmative decision has been made and before the claim is issued. It is a sound military axiom, reputedly first enunciated by the Duke of Wellington, that time spent on reconnaissance is seldom wasted. It makes sense for legal actions too. A few minutes thought may increase the chances of success. It is worth considering the issues raised in this chapter.

The importance of acting decisively A customer that is having problems paying your invoices is probably also having problems paying other suppliers too. Your legal action may well put you into competition with these other suppliers and early decisive action may give you the advantage. This applies to issuing a claim, pursuing a claim through to obtaining judgment and to action to enforce the judgment. It is widely believed that money obtained from a customer as the result of an enforcement measure goes pro rata to all claimants with outstanding judgments. This is not usually the case, and money is normally applied to the judgment creditors (as the successful claimants will usually then be called)

TWO PRELIMINARY PLANNING

11

in the order in which they applied for the relevant enforcement measures. The following illustrates the principles: •

A Ltd issued a claim for £10,000 against X Ltd on 10th January and obtained judgment for this amount on 8th September;

•

B Ltd issued a claim for £6,000 against X Ltd on 17th January and obtained judgment for this amount on 26th September;

•

B Ltd applied for enforcement action by a county court bailiff on 28th September;

•

A Ltd applied for enforcement action by the same county court bailiff on 29th September;

•

The county court bailiff seized the assets of X Ltd and these were ultimately sold. After deducting fees and expenses the amount realised was £8,000;

•

B Ltd gets £6,000 plus any properly claimed continuing interest and court fees. A Ltd gets whatever is left.

This shows exactly why it may be beneficial to act quickly and decisively, but even if there are no competitors, you will still want your money as soon as possible.

The final warning letter You should almost always send an explicitly worded final warning letter before commencing legal proceedings and there are two sound reasons for doing so. The first and most important is that it often works and you could well get payment without resorting to the courts. The second reason is that it is expected, and a judge may be displeased and penalise you on costs if one has not been sent. A good final warning letter should be short, not abusive, should state exactly what is going to happen and should state when it is going to happen. By definition there should only be one final warning letter. If you send two or

12


more, you were not serious the first time and it may adversely affect your reputation. The following is indicative of what might be sent:

Mrs L James Company Secretary Faltron Services Ltd 14 Kerry Drive Aylesbury Bucks HP18 1PR

11th May 2003

Dear Mrs James Overdue Balance of £3,148.26 We notice with regret that the above balance is still outstanding. Although we wrote on 23rd April and 2nd May we have received neither payment nor a reason why payment should not be made. We must now tell you that we expect payment to be made by 18th May. If payment has not been received by that date, we will pass the matter to our solicitors with instructions to commence proceedings. This will be done without further warning to you. Yours sincerely,

P Jones Credit Manager


13

What professional help will you employ? The issue of a claim and perhaps fighting a case is well within the capabilities of most readers of this book, and so is enforcement action after judgment has been obtained. You should seriously consider the do it yourself route. This is encouraged, though not required, for claims up to £5,000 handled in the small claims track. Legal costs will not be awarded in the small claims track. The second option is to employ a solicitor and this is a requirement for a company issuing a claim in the High Court. Solicitors are specialists likely to give good service and there are advantages in using specialists, even in doing things that we are able to do ourselves. The use of a solicitor is probably wise if the claim is large or not straightforward, and it may make sense if it is likely to be defended. Thirdly, you could use one of the many credit agencies that offer services in this field. These will employ solicitors or use the services of solicitors as necessary. Credit agencies range from large organisations operating nationally or internationally, through to small businesses specialising in particular sectors of the market or areas. Experience and personal recommendation may well be factors in the choice of solicitor or credit agency, if one is used. Small firms of solicitors are likely to collect debts alongside many other sorts of work. Larger firms are likely to have specialist departments to handle debt collection. These specialist departments do have certain advantages. The traditional way for a solicitor to charge for his services is on the basis of time expended plus reimbursement for expenses incurred. However, many solicitors and virtually all credit agencies offer some variation of ‘NO WIN, NO FEE’. This sounds too good to be true, and of course it is because they are remunerated by a percentage of the money eventually recovered. The precise details are negotiated and the percentages are usually on a sliding scale. The solicitor or credit agency is banking on a spread of cases with the successful ones paying for the failures. It is a matter for negotiation but court fees and perhaps some other costs will probably be payable by the client regardless of the outcome. ‘NO WIN, NO FEE’ has obvious attrac-

14


tions, but of course solicitors and credit agencies normally make satisfactory annual profits and do not suffer. Do think carefully before handing over a straightforward claim for a large amount and with a good chance of success. This could be expensive.

Your relationship with your solicitor or credit agent You may well have heard the advice that having appointed your credit agent or especially having appointed your solicitor, you should step back and let him get on with it, just speaking when spoken to and answering any questions that he may ask. They are after all, the experts. There may be some sense in this and in legal matters you should rarely challenge a solicitor’s advice, but in some respects it does not have to be this way. Most solicitors and credit agents press on remorselessly according to a preset pattern. This is a cost-effective approach and is most likely to achieve the maximum payment in the minimum time. It is exactly what is wanted by most clients. The client hands over the case, hopefully banks a cheque at the end and does not think much about it in between. This is probably right for you, but you can change your mind and you can ask questions. You can decide to accept a customer’s proposal, and you can come to feel sorry for the customer and call the whole thing off. This does happen and not all slow payers are rogues. Some may be facing real personal tragedies. It is of course the solicitor’s privilege to give you frank advice, perhaps including the advice that you are being silly. It is probably also the solicitor’s privilege to charge for abortive work undertaken. There may be a little scope for cutting back on your time commitment. Clients routinely photocopy all outstanding invoices for their solicitors and this can be a big job. It may be worth asking if it is really required in all cases. An acceptable substitute may be a list of the outstanding invoices showing the invoice numbers, amounts and invoice dates.


15

Choice of legal route Right at the beginning you must choose between issuing a claim in the High Court or a county court, or presenting a winding up or bankruptcy petition. The issue of a claim is the route normally taken and most of this book is devoted to it. However, it is worth giving some thought to the other option, which is explained in more detail in Chapter 10. Winding up applies to a company and bankruptcy applies to an individual or general partnership. In each case the amount owing must be at least £750 and you must be in a position to establish the case very clearly. Winding up and bankruptcy are available as a means of enforcement of judgment and this is explained in Chapter 9, but it is also possible to go straight for winding up or bankruptcy without issuing a claim and obtaining judgment first. The threat of a winding up or bankruptcy action can be extremely effective. It is virtually guaranteed to seriously annoy the customer and will probably end any chance of further business, but it is unlikely that you will want such business anyway. The prospect of the threat succeeding is the main attraction and actually doing it has disadvantages. Apart from anything else the person who does it does not get any priority when the assets are distributed, which may well take a long time. If you issue a claim, which is by far the most common option taken, you must decide whether to do so in the High Court or in a county court. The limits on the choice are: •

A claim regulated by the Consumer Credit Act must be issued in a county court. You cannot choose the High Court.

•

All claims may be issued in a county court. There are no minimum or maximum amounts.

•

Only clams in excess of £15,000 may be issued in the High Court.

Since 1999 many of the differences between the High Court and the county courts have no longer applied, and the great majority of claims are issued in a county court. The High Court is more suited to really big cases involving difficult or involved points of law or fact and perhaps with large amounts at stake. Cases destined for the so-called ‘small claims court’ are issued in a county court in the same way as other claims.

16


Claim the maximum possible amount Sometimes the amount that can be claimed is clear and obvious, being the sum total of all the outstanding invoices, though interest should be claimed as well and this is explained in the next chapter. Sometimes, though, it may be possible to raise further invoices ahead of the issue of a claim. Perhaps some things have been overlooked. Perhaps a few ancillary items have not been invoiced for reasons of goodwill, but at this stage goodwill should not be a factor. Have a close look and bill everything that can be billed. It may even be possible to raise invoices in respect of matters not covered by the contracts against which the claim is being made. The Statute of Limitations specifies a limit of six years for England and Wales (five years for Scotland). Perhaps further charges can be made in respect of business done over this six year period. It may well not be possible and you may have effectively taken payments in full and final settlement. Legal advice on the point may be necessary. The above suggestion might be considered unethical, though there is nothing ethical about a customer not paying money that is owing. Needless to say only amounts that may legally and legitimately be claimed should be considered.

The correct identification of the defendant This sounds obvious and easy but a lot of mistakes are made. It is important and you should get it exactly right. Getting it nearly right may well not do. A common fault is failing to recognise that the customer is a company, rather than a sole trader or a partnership. You may know the customer as Smith and Jones but if it is really Smith and Jones Ltd, this is what must be stated on the claim form. An interesting possibility arises if the reason that you do not know that the customer is a company is because this fact was not disclosed to you, and in particular if it was not disclosed on your customer’s


17

company notepaper. In these circumstances one or more people may have taken on personal liability for the debt. Another common mistake is confusing two companies in a group, perhaps with similar names. Each company is a separate legal entity and you must name the right one. Black and White (Midlands) Ltd is not the same as Black and White (North) Ltd, even if they are both owned by Mr Black and Mr White. It is a legal requirement that a company must disclose on its notepaper its exact registered name, its registered number and place of registration, and the address of its registered office. Certain other types of organisation are also required to disclose specified information on their notepaper. It is an excellent idea to check a recent piece of notepaper or some other document issued by the customer. You may use the information yourself or you may send the document to your solicitor or credit agent. Be prepared for a call from them thanking you because they do not often get this level of help from their clients. An alternative source of information is Companies House whose main address in England and Wales is: Companies House Crown Way Maindy Cardiff CF14 3UZ Tel: 0870 333 3636

18


THREE Interest

Introduction There are three different sorts of interest that can be claimed, though only one sort may run at any one time. This chapter explains each of them in detail and also explains the possible right to continuing interest after judgment has been obtained. You would normally wish to claim all the interest to which you are entitled and the threat of doing this might possibly give the customer an incentive to pay without the commencement of legal proceedings. Unfortunately, statutory interest sounds very similar to interest at the statutory rate, but they are not the same and the terms are explained in this chapter. Provided that both buyer and seller are acting in a business capacity, you should be able to claim statutory interest up to the issue of the claim, and this is to be preferred because the rate of interest is higher. From the issue of the claim interest at the statutory rate (currently 8%) takes over. This can and should be claimed.

Interest permitted by a contract This is not all that common in Britain and such interest is often not enforced, even when the seller has a contractual right to do so. Nevertheless, it is sometimes included in contracts and in conditions of sale, and it can be extremely important. Advice was given in Chapter 2 about the possibilities for maximising the amount of the claim and interest can be a significant way of doing that. It might even be possible to charge interest on late payments made in the past.

THREE INTEREST

19

To be effective the conditions of sale must govern the contract and not merely be printed on the invoice. Advice on this point was given in Chapter 1. Subject to this, interest permitted by a contract may be charged on unpaid debts included in a claim. A contract takes precedence over statutory interest so long as it provides a ‘substantial remedy’. It also takes precedence over interest at the statutory rate (currently 8%). Interest permitted by a contract is likely to be at a higher rate than this, although it may be lower. You may have seen examples such as ‘two per cent per month’ or ‘6% over the base rate of Barclays Bank PLC applying from time to time’. The courts will not enforce usurious rates of interest but they will enforce commercial rates, even high commercial rates.

Statutory interest A long-running campaign for a general statutory right to interest if debts were paid late was finally rewarded by the Late Payment of Commercial Debts (Interest) Act 1998. This does provide for substantial interest penalties and should in theory have led to a marked improvement in the late payment culture that is so prevalent in Britain. Unfortunately the results of the Act are generally regarded to have been very disappointing, although as large businesses have only been able to claim this interest since August 2002 it is possible that this judgment will eventually have to be reassessed. The key points of the Late Payment of Commercial Debts (Interest) Act 1998 may be summarised as follows:

Implementation in stages This has been in three stages: 1

contracts made from 1st November 1998: small businesses against large businesses and the public sector;

2

contracts made from 1st November 2000: small businesses against all businesses and the public sector;

20


3

contracts made from 7th August 2002: all businesses and the public sector against all businesses and the public sector.

A small business is one that has 50 or fewer employees on average in the group in the year prior to the contract being made. Part-timers are counted pro rata.

The compulsory basis of the Act It is not possible to contract out of the Act, even if both parties wish to do so. However, a contract that provides a ‘substantial remedy’ for late payment will take precedence.

Contracts that are covered by the Act The Act only applies to contracts where both buyer and seller are acting in a business capacity. Certain categories of debt, such as mortgages, are excluded. There are no minimum or maximum amounts to the debts on which interest may be charged.

Definition of ‘late payment’ Payment dates in a contract will fix the due payment dates, so long as the contract is commercially realistic and provides a substantial remedy for late payment. In the absence of contractual terms it is possible that established custom and practice will fix the payment period, so long as a substantial remedy is provided, but this is not easy to establish. In the absence of both a contractual term and custom and practice, the allowed payment period is 30 days. This is not a right to 30 days credit and a legal case to recover the principal sum may be commenced within this period.

The rate of interest This may be fixed by a contract or by established custom and practice, so long as a substantial remedy is provided. In the absence of either of these it will be 8% over the base rate. The base rates at 31st December and 30th

THREE INTEREST

21

June apply throughout the succeeding six month periods. So, for example, if the base rate at 31st December is 5%, the rate of interest that may be charged until 30th June is 13%. It is simple interest only, not compound interest.

Debt recovery costs Debt recovery costs may be claimed as well as interest. The amount varies according to the size of the debt as follows: Debt

Amount Claimable

Up to £999.99

£40

£1,000 to £9,999.99

£70

£10,000 or more

£100

The time limit for making a claim A claim may be made at any time until the matter becomes statute-barred. This is six years in England, Wales and Northern Ireland and five years in Scotland. It is possible to make a claim after the debt has been paid as well as when it is still outstanding. This is potentially a very powerful weapon indeed. A supplier can go back several years and demand statutory interest. This might, for example, be done when an account has been closed and there is no prospect of further business. Such a claim may be made against a liquidator when a company is insolvent.

22


Interest at the statutory rate This may be added to all claims. The statutory rate may be changed from time to time but it has been 8% per year since 1993. Only simple interest may be charged, not compound interest. You might like to note that 8% is equivalent to 22 pence per thousand pounds per day. Interest at the statutory rate may be charged from the date that payment was contractually due up to the date of the issue of the claim. This is a precise sum that is incorporated into the particulars of a claim. There is no statutory period of credit and, in the absence of an agreement to the contrary, interest may normally be claimed from the date of delivery or performance of the service, provided that payment of the main amount has been requested at the same time, usually by means of an invoice. The calculations may be very complicated. If there are many invoices, many separate interest calculations may be necessary. It is not necessary to show the individual calculations and only the total claimed need be shown. Of course this must be correct or it may later be challenged by the defendant. It is also possible, and of course desirable, to claim continuing interest up to the date of judgment or earlier payment. The following is an example of the correct wording for a county court claim. It relates to a debt of £10,000 due for settlement on 4th July and the subject of a claim issued on 25th July. ‘Interest under Section 69 of the County Courts Act 1984 amounting to £46.03 from 4th July 2003 to 25th July 2003. The total now due is £10,046.03 (ie £10,000 plus £46.03 interest). Interest as above is also claimed from 25th July 2003 at the rate of £2.20 daily until judgment or earlier payment.’ If the claim is issued in the High Court, reference should be to Section 35A of the Supreme Court Act 1981.

THREE INTEREST

23

Interest after judgment Interest at the statutory rate runs after all High Court judgments. It is charged on the remaining unpaid balance on a day-to-day basis and it does not stop whilst enforcement measures are being taken. Interest does not run after judgment on county court judgments up to £5,000. Interest at the statutory rate does run after judgment on county court judgments over £5,000. However, it stops running whilst most enforcement measures are being taken, and also when an application is made for an order to obtain information from a judgment debtor. You might think that the distinctions are not entirely logical, but that is the law.

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FOUR The issue and service of a claim

Introduction According to the defendant’s response to the claim, the later chapters in this book may or may not be needed, but this chapter is always very relevant. This is because every single claim starts with the completion and issue of a claim form which must be served on the defendant. This chapter explains it step-by-step. The following documents are reproduced at the end of the book and are relevant to this chapter: •

Claim form completed with sample details (2 pages)

•

Notes for claimant on completing a claim form (2 pages)

The issue of a claim Until April 1999 a case started with the issue of a summons or a writ. These have now been replaced by a claim form and the same form is used whether the action is to be in a county court or in the High Court. Claim forms may be obtained from any county court or downloaded from the court service website: www.courtservice.gov.uk. Various other forms that you may need later may also be obtained from this website. You must decide whether to issue your claim in the High Court or a county court and advice on this was given in Chapter 2. There are approximately 200 county courts in England and Wales and you can choose any one for any reason. A full list with contact details can be obtained from the website www.courtservice.gov.uk. They are also listed in the telephone directory

FOUR THE ISSUE AND SERVICE OF A CLAIM

25

under ‘COURTS’. If you are using a county court, it would be normal to use the one closest to you but this is not a requirement. Some courts have a better reputation for efficiency than others and this could be a factor in your choice. If the case is defended and if the defendant is an individual not in business, the case will later be transferred to the defendant’s local court. This takes a little time and could be a reason to issue the claim in the court that is local to the defendant’s address. Claim forms are provided with a leaflet entitled ‘Notes for claimant on completing a claim form’. This is reproduced in Appendix 2. It is well written and gives helpful advice. There are also various other leaflets available. Court staff are normally very helpful when asked for advice about procedures or filling in the form. However, they will not give legal advice and are not allowed to give an opinion about a claim’s chances of success. The form should be carefully completed and detailed advice on this is given later in the chapter. It should then be signed in ink and photocopied. You will need one copy for the court and one for each defendant. Assuming that there is only one defendant, you will need the original signed form plus two photocopies. The form should be typed or printed in ink. All the forms should be taken or sent to the court that you have chosen. It is essential that the court fee is paid and these are listed in Appendix 1. The court fee is on a sliding scale based on the amount of the claim. Cheques should be payable to ‘Paymaster General’ or ‘HMPG’. Court staff will check the form. This is not a detailed examination but they will check that all essential boxes contain an entry, that the correct court fee has been paid and that everything appears to be in order. They will then allocate a claim number and issue the claim. The claim number will be used throughout the life of the claim and throughout the life of any enforcement measures that may be taken later. It must be quoted on all forms and will not be changed if the claim is later transferred to another court. When the claim is issued one of the claim forms will be retained by the court, one will be returned to the claimant and a form must be served on each defendant. Service is essential and is covered later in this chapter.

26


Bulk issue of claims There is a special facility for claimants who need to issue a large number of claims through the county court. This is for users such as local authorities that issue claims for unpaid council tax, and for utility companies. Such users may, unfortunately, need to issue thousands of claims. The Production Centre is located at Northampton and its use is restricted to approved users. Communication with the centre is by means of electronic data and is regulated under a code of practice. There are advantages for bulk users and a reduced scale of fees is applicable.

Correct designation of the defendant and also of the claimant It is very important that the defendant is correctly identified and designated, and that the correct address is given. A hypothetical example will illustrate the importance of this. Suppose that your customer is John Peter Kendall and that he lives with his sister Judith Pauline Kendall. You will be asking for trouble if you just put J P Kendall followed by the common address. So it is worth taking some care to get it absolutely right. You might get away with a small mistake, especially if it is not challenged by the defendant, but on the other hand you might not. It is better to put too much detail rather than too little, so long as you are confident that the detail is right of course. So you are advised to be careful and to be pedantic. It will not do any harm and it might do some good.


27

The correct wording for most of the various categories of defendant is as follows:

An individual You should put the surname and if possible all forenames, but failing this as many forenames as you can. You should also put the style by which the person is known (Mr, Mrs, Miss, Dr, Rev, etc). Examples are: •

Wing Commander Peter Cecil Harrison

•

Ms Tracey Karen Farraday

The address to put is normally the home residential address.

A sole trader The full name and style should be given, as for an individual. If there is a trading name, this should be given following the words ‘trading as’. An example is: •

Miss Wendy O’Reilly trading as Wigan Quality Sandwiches

It is normal to specify a business address if there is one, but a residential address may be used.

A partnership The term for a partnership is ‘a firm’. It sounds rather sinister but it is the correct term. The full name of the partnership should be given followed by the words ‘a firm’. It is not necessary to name any or all of the partners. Examples are: •

Jenkins and Johnson (a firm)

•

Wessex Holiday Services (a firm)

It is normal to specify a major place of business if there is one, but the residential address of any partner may be used.

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A company registered in England and Wales The exact registered name of the company should be entered. There are more than 1,500,000 such companies, which shows the importance of getting it exactly right. A private limited company’s name ends with the word ‘Limited’ or the abbreviation ‘Ltd’. A public company’s name ends with ‘Public Limited Company; or the abbreviation ‘PLC’. There are just a few unlimited private companies and their names include neither the word nor the abbreviation. It is not essential or even very common, but to be absolutely sure you can add the company’s unique registered number which must by law be shown on its notepaper. The example at the end of the book shows this. The address can either be the company’s registered office or an office that has a connection with the claim. There are often advantages in picking the company’s registered office because a company cannot ‘go away’ from its registered office, even if in practice that is what it does do. All companies have a registered office.

A company registered overseas The exact registered name of the company should be entered. If the company is registered at Companies House as an ‘oversea company’, it will have a registered address in Britain and this address should be used. Probably surprisingly, ‘oversea company’ is the correct legal term and there has not been a spelling mistake. Norway, for example, is only over one sea. If the oversea company is not registered at Companies House, a place of business having a significant connection with the claim should be used.


29

A club or other unincorporated body You should put ‘sued on behalf of’ following the name of the person concerned. The following hypothetical example may exercise the imagination of people who enjoy the poems of John Betjeman: •

Miss Joan Hunter-Dunne sued on behalf of Aldershot Lawn Tennis Club

A corporation (other than a company) The full exact name should be stated. For example: •

The British Broadcasting Corporation

The address should be either the principal office or an office having a significant connection with the claim.

A person acting in a representative capacity The full name should be given and the phrase ‘as the representative of’ should be added. An example is: •

Mrs Hilda Gregory as the representative of Mr Frederick Albert Gregory (deceased)

The above details relate to the correct identification of the defendant. Exactly the same principles are used to correctly identify the claimant.

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A detailed study of the claim form Every single claim starts with the completion of a claim form. It is a key form and there is no avoiding it, so it is worth studying in very considerable detail. The following does just that with every box on this two sided form mentioned and examined.

The court If the claim is to be issued in a county court, the name of the chosen one should be inserted. If the claim is to be issued in the High Court, you should insert, as appropriate, either: ‘In the High Court of Justice ...........................Division............................ District Registry’ or ‘In the High Court of Justice............................Division............................ Royal Courts of Justice’

Claim No This should be left blank. It will be allocated and inserted by the court when the claim is issued.

Claimant This is the person or body claiming the money. The various possibilities were examined in detail earlier in this chapter. It is in the claimant’s interest to include a telephone number.

Defendant(s) This is the person or body being sued and from whom payment is claimed. The various possibilities were examined earlier in this chapter.


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Brief details of claim The key word is ‘brief’. It is the place where you sum up what the claim is for and the remedy that is sought. Fuller details are put into the section ‘Particulars of Claim’. In debt collection cases the remedy sought is ‘payment in full’. This may seem so obvious that it does not need stating, but it should be remembered that the same form is used for other types of claim as well. One of the following would be suitable for a great number of debt collection claims: ‘The claim is for the price of goods sold and delivered. The remedy sought is payment in full.’ or ‘The claim is for the price of services ordered and performed. The remedy sought is payment in full.’

Value This should be left blank in claims for debt recovery where a precise amount is claimed. Details of the calculation should be given in ‘Particulars of Claim’ and the total entered in the ‘Amount Claimed’ box on the front of the form. The ‘Value’ section of the form is for a claim where the claimant is required to assess a value. An action relating to personal injury is an example.

Defendant’s name and address This may seem like overkill because the defendant has already been identified. The defendant’s address is specifically required and, although it is not a requirement, it is a good idea to put the defendant’s telephone number if known. This will enable the court to telephone the defendant if necessary and just might minimise delays later.

Amount claimed and issue date The amount claimed is taken from the ‘Particulars of Claim’ on the back of the form. The amount should include interest if it has been claimed.

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The amount of the court fee should be inserted. This is on a sliding scale according to the amount of the claim. A list of the current court fees is given in Appendix 1. The fee is based on the amount of the claim including any interest claimed. So, for example, if the claim is issued in a county court for £5,200 (£4,900 plus £300 interest) the court fee (at present rates) will be £230 and not £115. An amount for ‘Solicitor’s costs’ may be added if, and only if, the claim has been prepared by a solicitor. The amount is a scale charge and will not necessarily be the amount actually charged by the solicitor. The Total amount is the sum of Amount claimed, Court fee and Solicitor’s costs. This is the amount that the defendant is required to pay if a defence is not entered, though unless payment is made on the date of issue, continuing interest, if claimed, must also be paid. The issue date should be left blank. It will be inserted by court staff when the claim is accepted and issued.

Question about the Human Rights Act 1998 This question is self explanatory. It will, presumably, be right to tick the ‘No’ box in most cases.

Particulars of claim This will probably be the most difficult part of the form to complete. What is required is a concise statement of the facts relevant to the claim. If there is more than one invoice outstanding, the particulars should include a list of them showing, for each one, invoice date, invoice number and invoice amount. It should be clear what the claim is for and perhaps a sentence can sum it up. An example might be: ‘All the invoices relate to the sale of garden furniture to the defendant, in all cases delivered on or before the dates of the relevant invoices.’ The claim for interest should be set out and the correct wording is shown in Chapter 3. It is also illustrated in the completed claim form in Appendix 2.


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If there is not enough space on the form, the particulars of claim should be set out on a separate sheet of paper and reference to this should be made on the claim form. The separate particulars of claim can be served on the defendant up to 14 days after the claim form. If the particulars of claim are on a separate sheet, three copies should be prepared – one for the defendant, one for the court and one for the claimant. The separate document should include the names of the parties, the court, the claim number, the address for service and a statement of truth. The following is an example of how it might be headed: IN THE WATFORD COUNTY COURT

CLAIM NO ….…….

BETWEEN Cardew and Brown (a firm)

Claimant

and F P Quant Ltd

Defendant

PARTICULARS OF CLAIM

Statement of truth The signatory asserts a sincere belief that the contents of the claim form are true. It is important that this sincere belief is held, and the person signing may be personally penalised if this is later found not to be the case. The responsibility is a personal one and the belief must be held by the person who actually signs. Of course a solicitor may sign the claim form on behalf of the claimant, but he will make it clear to his client that he is repeating information given to him and that the responsibility is that of the claimant. If and when a defence is entered, the defendant must sign a statement of truth relating to the contents of the Defence and Counterclaim form. Statements of truth are also required on certain other documents. This poses the rather superficial question of how, if both parties are telling the truth, there can be a disputed case. There are, of course, many possible reasons. One or both parties might be sincere but mistaken. Both parties might be telling the complete truth, but a judge might have to decide the legal implications, or which set of facts is more relevant than the other set of facts or how the facts relate to a contract.

34


Claimant’s or claimant’s solicitor’s address This should be completed if the claimant wishes documents or payments to be sent to an address different from the one already given. It is in the claimant’s interest to include a telephone number.

A claim for a dishonoured cheque There are advantages in suing on a dishonoured cheque and this course should normally be taken if one is available. One advantage is that the particulars of claim may be much simpler to complete, but the main advantage is that it will be taken by the court as prima facie evidence that the money is owing. The onus will be on the defendant to show that the money is not owing if he can. The following is the wording that might be used for the ‘Particulars of Claim’ for a hypothetical case: 1

P L Brown Ltd claims £100,000.00 against Cornell Supplies Ltd as drawer of a cheque dated 25th February 2003 on Barclays Bank PLC and payable to the claimant.

2

The cheque was presented for payment on 4th March 2003 but was dishonoured on 8th March 2003 and returned marked ‘refer to drawer.’

3

Notice of dishonour was given by the claimant to the defendant on 10th March 2003, but the defendant has failed to pay the sum claimed or any other sum.

And the claimant claims 1

£100,000.00.

2

Interest under Section 69 of the County Courts Act 1984 at the rate of 8% per year amounting to £2,235.60 from 28th February 2003 to 10th June 2003. The total now due is £100,000.00 plus £2,235.60, ie £102,235.60.

3

Interest as above from 10th June 2003 at the rate of £21.92 per day.


35

A specimen claim form A claim form completed with specimen details is included in the forms at the end of the book. It is worth paying close attention to it as a completed claim form is required at the commencement of all cases. The following features (among others) should be noted: •

A partnership is suing a limited company. The partnership is correctly designated as ‘a firm’. The company registration number of the company is given. This is arguably overkill, but it does no harm and puts the identification of the company beyond doubt.

•

The ‘Particulars of Claim’ section gives a concise statement of the key facts and interest is correctly claimed.

•

A partner has signed the statement of truth on behalf of the partnership.

Service of the claim Valid service of the claim form is essential and it should be noted that the period in which the defendant may respond runs from the deemed date of service. The requirement for service to take place does unfortunately leave scope for problems and skulduggery. Innocent mistakes can occur and unscrupulous defendants may deny that service has taken place. This can be hard to disprove. The court will prepare a response pack and this must be served with the claim form. Separate particulars of claim, if prepared, must be served as well as the claim form, and this can be done up to 14 days later. The method of service is for the court to decide. The usual method is for the court to post it by first class post, not registered post, and this is done to the address specified on the claim form. Unless there is evidence to the contrary, it is deemed to be served two days after posting. If the envelope is not delivered and returned by the postal authorities, the claim will be sent back to the claimant and it will be up to him to arrange service. The county court bailiff used to be available to do it, but this is no longer the case.

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The claimant may serve the claim personally, employ a process server or have it done in some other way. The technicalities must be correctly observed and service may be deemed to be invalid if they are not. The claimant must file a certificate of service with the court within seven days of service and judgment in default may not be obtained unless this has been done. The claimant may at the outset ask the court to serve the claim himself, rather than have it posted by the court. He may do this for a number of reasons, including a belief that an unscrupulous defendant might deny receipt of the claim. The defendant may have nominated an address for service or authorised a solicitor to accept service, and of course service may be achieved by handing it to the defendant. Subject to conditions, service may also be by fax, document exchange or by electronic means. The place of service would normally be as follows: Individual

Usual or last known residence

Proprietor of a business

Usual or last known residence, or place of business or last known place of business

Individual who is being

Usual or last known residence, or

sued in the name of a firm

place of business or last known place

(partnership)

of business

Corporation incorporated

Principal office of the corporation, or

in England and Wales other

any place within the jurisdiction of the

than a company

court where the corporation carries on its activities and which has a real connection with the claim

Company registered in

Principal office of the company or any

England and Wales

place of business of the company within the court’s jurisdiction which has a real connection with the claim


37

Any other company or

Any place within the court’s jurisdic-

corporation

tion where the corporation carries on its activities or any place of business of the company within the court’s jurisdiction

It is worth pointing out that a company is not allowed to ‘go away’ from its registered office. It may only do this by formally changing its registered office and properly notifying Companies House. A claim pushed through the letter-box of an empty building can be properly served, if it is the registered office of a company. Deemed dates of service are as follows: First class post

The second day after it was posted

Personal service

The date of personal service

Delivering the claim to or

The day that it was delivered to or left

leaving it at a permitted

at the permitted address

address There are special rules about situations where it is necessary to serve outside the jurisdiction of the court. It is recommended that legal advice be taken if this is necessary. The claim form must be served within four months of the issue date, but six months if service is outside England and Wales. If service does not take place within these periods, service may only be made following a successful application to the court.

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FIVE The defendant’s options on receipt of a claim

Introduction The service of a claim is bad news for the defendant and he can respond in one of several ways. This includes not responding at all, if it can be grammatically correct to call this a response. The other responses range from immediate payment in full through to the most hostile of all, which is the lodging of a defence and a counterclaim. This chapter looks at all the defendant’s options and at what the claimant should do in response to the responses. It also looks at the time available to the defendant and at the key documents. The following documents are reproduced in Appendix 2 and are relevant to this chapter: •

Notice of Issue (specified amount) (2 pages)

•

Response Pack

•

Notes for defendant on replying to the claim form (2 pages)

•

Defence and Counterclaim (specified amount) (2 pages)

•

Admission (specified amount) (2 pages)

FIVE THE DEFENDANT’S OPTIONS ON RECEIPT OF A CLAIM

39

The documents explained The court will send to the claimant a form headed ‘Notice of Issue (specified amount)’. This is a two page document and it is reproduced in Appendix 2. The form notifies the claimant of the claim number allocated, the issue date and the date on which the claim will be deemed to be served. A section of this form is headed ‘Request for Judgment’ and this should be completed by the claimant and sent to the court, if and when he is in a position to do so. This may be when the time limit for filing a defence has expired without a defence having been filed, or when the defendant has admitted that all the money is owing. In addition to the claim form itself and, if applicable, the particulars of claim served separately, the defendant will receive: •

A Response Pack

•

Notes for defendant on replying to the claim form (2 pages)

•

Defence and Counterclaim (Specified amount) (2 pages)

•

Admission (specified amount) (2 pages)

All of these are reproduced in Appendix 2. The Response Pack seems badly named because it is a single side of paper, but perhaps its name is derived from the practice of putting it on the top of the other documents. The Response Pack summarises the defendant’s options and draws his attention to the ‘Notes for defendant’. It contains a section entitled ‘Acknowledgment of Service’ which the defendant may use to claim an extension of the period allowed for filing a defence. The Defence and Counterclaim form is for use if some or all of the claim is to be defended. It may also be used to make a counterclaim against the claimant. The Admission form allows the defendant to admit some or all of the claim. The defendant must use it to provide details of his financial circumstances and, if he is not making immediate payment of the part of the claim that is admitted, make a payment proposal. This will be either payment by instalments or payment at a specified future date. These forms are explained more fully later in the chapter.

40


The permitted time for the defendant’s response The time limit starts running from the deemed date of service. However, if the particulars of claim are served after the claim form, the time limit starts running from this later date. Particulars of claim served separately must be served within 14 days of the claim form. The defendant has 14 days to file a defence and the claimant may submit a ‘Request for Judgment’ if he has not done so at the end of this period. However, the defendant may complete the Acknowledgement of Service section of the Response Pack and return it to the court. This states the defendant’s intention to defend all or part of the claim, or to contest jurisdiction. If this is done, the defendant is automatically allowed 28 days instead of 14 days. The intention to defend is not binding and the defendant can allow the 28 days to pass without filing a defence. The claimant can then submit ‘Request for Judgment’ at the end of the 28 days.

The defendant’s options The defendant has the following options: •

pay the amount claimed;

•

do nothing;

•

admit all the claim and ask for time to pay;

•

defend the claim;

•

defend part of the claim, admit part of the claim and pay the admitted part;

•

defend part of the claim, admit part of the claim and ask for time to pay the admitted part;

•

file a counterclaim in conjunction with all but the first two of the above.

These are now studied in turn, together with their significance to the claimant and what the claimant should do in response.


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Pay the amount claimed From the claimant’s point of view this is the ideal outcome and it does quite often happen. The defendant’s bluff is called or he is forced to snap out of his inertia. Unfortunately some people (and businesses) only pay when they are forced to do so. The defendant is required too pay directly to the claimant within 14 days, or within 28 days if Acknowledgement of Service has been filed. The claimant should keep good records of payments made and give a receipt if asked. This is all that is needed and there is no requirement for the claimant to tell the court. However, the court would like to know so that the file can be closed, and it is courteous to do so. The defendant is required to pay the total amount of the claim plus, so long as it has been claimed, continuing interest at the daily rate up to the date of payment. It sometimes happens that the claimant will pay the original debt but not all of the court fee, solicitor’s costs (if applicable) and continuing interest. If this happens, the claimant has a policy decision to make and may decide not to pursue these amounts. On the other hand, they are payable and the resources of the courts are available to enforce payment. After waiting for the required period the client can request judgment, which will be granted, then set about enforcing the judgment and getting payment.

Do nothing This too quite often happens. The claimant must wait 14 days from the deemed date of service and may then apply for default judgment which will be given. This is done by means of the Request for Judgment section on the Notice of Issue form and the application may include continuing interest so long as it has been claimed. The claimant may request an order for immediate payment, payment by instalments or payment at a specified future date. Not surprisingly, immediate payment is the option most often chosen.

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Admit all the claim and ask for time to pay The defendant must complete the form ‘Admission (specified amount)’ and send it to the claimant within 14 days of the deemed service date, or 28 days if Acknowledgment of Service has been sent to the court. The form calls for details of the defendant’s financial circumstances and this is so that the claimant, and if necessary the court, can assess the reasonableness of the request and the offer. It is humiliating to have to provide the details but it is a humiliating position to be in. The questions have obviously been framed with an individual in mind but the form may be used by other sorts of defendants, such as companies or partnerships. Like certain other forms it must be signed as a declaration that the information that it contains is true. The form asks the defendant to make a proposal about payment. This may be for payment by instalments or for payment in full at a specified future date. On receipt of the form the claimant should apply for judgment which will be given. This is important because it is a pre-requirement for any enforcement measure that may be taken later. The claimant may decide to accept the defendant’s offer and in this case the court will make an order that instructs the defendant to make the appropriate payments. Alternatively the claimant might decide to reject the offer or an offer might not be made. In this case the claimant should make an alternative proposal to the court. This alternative proposal might be for quicker payments, or (in theory at least, slower payments) or it might reject any delay and ask for immediate payment in full. If the defendant and the claimant cannot agree, the court will decide, and it may do so with or without a hearing. The court’s decision may be to accept either proposal or it might be a third way, usually somewhere between the two. The court’s order is binding on both parties. The defendant is safe from enforcement action so long as he makes all the payments in accordance with the order, but he must do this and the claimant may take action immediately any payment is not made in full on the required date.


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Defend the claim If the defendant decides to defend the claim, he must complete the ‘Defence and Counterclaim (specified amount)’ form and return it to the court. This must be done within 14 days of the effective service date or 28 days if Acknowledgment of Service has been filed. If the defendant is an individual not in business and the claim was issued in a county court that is not his local court, it will be transferred to his local county court as soon as a defence has been entered. If the defendant entering a defence does not come into this category, it will not be transferred. An important question on the form is ‘Do you dispute the claim because you have already paid it?’ If the answer to this is yes, the defendant is asked to state where and how the money was paid. This, if true, is the most conclusive of all the possible defences. All other defences must be outlined in section 3 of the form. The defendant can if he wishes put full details of the defence, but this is not needed. What is required is an outline of the defence on which the defendant intends to rely. For example, a key phrase might be ‘delivery of the goods never took place’. This would leave the defendant to provide supporting details and evidence later. The detailed defence used later should be within the limits of the outline defence stated on the form. The defendant would, for example, have a problem if he later admits that delivery did take place and that the real defence is that the goods were faulty. Such a change may only be made with the permission of the court and such permission might not be given. Instead the defence might be struck out, which means that the claimant has won. If permission is given, it may result in the defendant being penalised on costs. The form contains a statement of truth which must be signed by the defendant or someone acting on his behalf. This is exactly the same as the statement of truth on the claim form and the defendant should have a sincere belief in the truth of everything asserted on the form. He may be personally penalised if this is later shown not to be the case.

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Defend part of the claim, admit part of the claim and pay the admitted part The defendant must complete the ‘Defence and Counterclaim (specified amount)’ form and send it to the court within the permitted period. The form must identify the amount of the claim that is admitted and the amount that is disputed. The previous section of this chapter sets out some guidance for the defence form and this is equally applicable when only part of the claim is defended. The defendant should pay the undisputed part of the claim directly to the claimant and this should be done before the form is sent to the court. The claimant may decide to accept the part payment but if he does not, the case will proceed in respect of the disputed part.

Defend part of the claim, admit part of the claim and ask for time to pay the admitted part The defendant must complete the ‘Defence and Counterclaim (specified amount)’ form and send it to the court within the permitted period. The form must identify the amount of the claim that is admitted and the amount that is disputed. The admission form must also be completed and sent to the court. Both forms were explained in detail earlier in this chapter. The claimant may decide to accept the part admission, but if he does not, the case will proceed in respect of the disputed part.

File a counterclaim in conjunction with all but the first two of the above This is, potentially at least, the worst response for the claimant. The counterclaim may arise out of the same contract or contracts that are the subject of the claim, or it may relate to a completely different matter. Once a counterclaim has been made the claimant loses the option of just abandoning the claim and walking away. Claim and counterclaim go forward together, so effectively there are two claimants and two defendants. There is a part of the ‘Defence and Counterclaim (specified amount)’ form that relates to a possible counterclaim and this must be completed by the defendant. A fee is payable by the defendant when the form is filed with the court.


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SIX After a defence has been entered

Introduction After a defence has been entered the claimant and defendant will each be required to complete an allocation questionnaire. These will be studied by a judge and the case will then be allocated to one of the three tracks. This allocation, the questionnaire and an outline of the tracks are the subjects of this chapter. The following documents, reproduced in Appendix 2, are relevant to them: •

Notice that a (Defence) (Counterclaim) has been filed

•

Allocation questionnaire (4 pages)

•

Notes for completing an allocation questionnaire

•

Notice of Allocation to the Small Claims Track

Documents received by the claimant Shortly after a defence has been filed the court will send the following documents to the claimant: •


•

Allocation questionnaire

•

Notes for completing an allocation questionnaire

All these documents are reproduced in Appendix 2. An allocation questionnaire and notes for completing an allocation questionnaire are also sent to the defendant.

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If the defendant has made a counterclaim, the claimant must file a copy of his defence to this with the completed questionnaire.

An outline explanation of the three tracks The prime purpose of the allocation questionnaire is to provide information to help allocate the case to the most suitable of the three tracks. This allocation is a matter for the court but the following is an outline of the three tracks:

The small claims track This is for claims with a maximum value of £5,000 and it is therefore used exclusively in the county court. It is intended for cases that do not raise complex issues of law or fact. Most cases for amounts up to £5,000 are allocated to the small claims track, but not all of them. Cases not falling within the guidelines may be allocated to one of the other two tracks.

The fast track This is mainly for claims with a value of more than £5,000 but not more than £15,000 and therefore, like the small claims track, it is used exclusively in the county court. It is primarily for claims within these limits that do not raise issues or law or fact so complex that allocation to the multi-track is appropriate. Furthermore, the fast track is intended for cases not expected to take more than one day in court. One day is for this purpose defined as five hours.

The multi-track This is for all claims above £15,000 and for claims up to £15,000 that have features making them suitable for this track. All High Court cases are multitrack cases and some county court cases are too.

SIX AFTER A DEFENCE HAS BEEN ENTERED

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The small claims track leads to what is sometimes known as the small claims court. Standard directions will probably be given to the parties. Proceedings are likely to be informal and the strict rules of evidence (at the judge’s discretion) do not apply. The fast track endeavours to provide a streamlined procedure suitable for the less complex cases. The aim is to ensure that the costs are proportionate to the amount in dispute. Standard directions will be given and there will be minimum case management intervention by the court. The multi-track is intended for the more complex cases and those involving a higher amount. It does not provide standard procedures. Instead it will proceed in a way that is appropriate to each individual case. More details about the progression of cases in the three tracks is given in the next chapter.

The importance of the allocation questionnaire An allocation questionnaire will be sent to both the claimant and the defendant shortly after a defence has been entered. It is a most important document that should always be taken seriously. If the claim is for an amount of more than £1,000, the claimant must pay a fee of £80 to file the allocation questionnaire. Like other court fees this may be added to the claim and if the claimant ultimately succeeds in getting judgment, it is ultimately recoverable from the defendant. The defendant does not normally pay a fee to file the allocation questionnaire, but exceptionally,if the case is proceeding on a counterclaim alone, it is payable by the defendant but not by the claimant. The parties are notified of the date by which the allocation questionnaire must be returned to the court and it is important that this date is adhered to. If it is not, the court will probably write to the party at fault giving another date in the very near future, but there is no requirement for the court to do this. If the questionnaire is not returned by the new date, the judge may strike out the claim or the defence according to which party is at fault. This means that either the claimant or the defendant has lost. Alternatively the judge may order an allocation hearing, and he may order that the party at fault pay the cost of this.

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It is expected that the claimant and the defendant will cooperate as necessary to provide information for each other’s questionnaires. In reality this may sometimes be an ambitious expectation because the defendant and client are not likely to be on good terms. Nevertheless it is expected, and a party that does not cooperate may later be penalised on costs. It is usually a good idea to communicate and ask questions in writing. Such communications should be businesslike and polite, and never abusive, whatever the temptation. A failure to get a reply should not stop you returning the allocation questionnaire by the due date. You should do the best that you can in the circumstances and attach copies of letters that have not received a reply. This will do you no harm at all. One of the questions on the form calls for an estimate of how long the trial will take and this is an example of where cooperation may be needed. It is difficult to answer without some knowledge of the other person’s intentions. As already explained, the prime purpose of the allocation questionnaire is to provide information for the court to use in allocating the case to the most suitable track. However, there are other purposes, including providing information to help the efficient management of the case.

A detailed study of the allocation questionnaire The allocation questionnaire is a four page document and it is accompanied by a page of helpful notes. All five pages are reproduced in Appendix 2. The following explains key sections of the questionnaire:

Settlement There is an opportunity to request a one month stay (delay) so that an attempt can be made to reach a settlement. Either or both parties can request this. It is the court’s decision whether or not to grant a stay if one is requested, but in practice it is very likely to do so. This is because it is policy to encourage the parties to reach a settlement where possible. Unfortunately this means that an unscrupulous defendant may quite cynically take a month’s delay without any serious intention of trying to settle. This will not affect the final


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outcome but the defendant will have bought time. This may be very annoying for the claimant but he will have the consolation that, so long as it has been properly claimed, interest is continuing to run. This is all very negative and depressing, but in many cases there will be a sincere wish to make an attempt to reach a settlement. It is up to the parties how they do this. The notes refer to ADR which is alternative dispute resolution. The various possibilities include arbitration, conciliation and informal negotiation. Advice on this was given in Chapter 1 and, in particular, the importance of the words ‘WITHOUT PREJUDICE’ was stressed. Negotiations can take place at any time, including during the trial itself and during an appeal. There is also a special form of negotiation under Part 36 and this is explained in Chapter 7. At the end of the one month stay either or both parties can request an extension. Again it is the court’s decision, but this is much less likely to be granted semi-automatically. A judge will want to know what is happening and that there is a real possibility of success if an extension is agreed.

Location of trial The notes explain this very well. There is an opportunity to request a particular location and reasons should be given. The convenience of witnesses is an example of a possible reason that could be given.

Pre-action protocols Lord Woolf in his final ‘Access to Justice’ Report recommended the development of pre-action protocols. The aims of these are: •

more pre-action contact between the parties;

•

better and earlier exchange of information;

•

better pre-action investigation by both sides;

•

to put the parties in a position where they may be able to settle cases fairly and early without litigation;

•

to enable proceedings to run to the court’s timetable and efficiently, if litigation does become necessary.

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A limited number of protocols have been issued, but these do not include one for debt collection cases. The answer to the Part 1 question asking if there is a relevant protocol is therefore ‘No’. When there is not an applicable protocol the parties are expected to act within the spirit of them. This includes things such as sending a warning letter before issuing a claim and taking steps to understand the defendant’s case. It also includes exchanging documents, evidence and information and a question asks if this has been done. You should be able to answer ‘Yes’ and if you cannot, it is a good idea to comply as soon as possible.

Case management information You are asked if any applications have been made and if so to give details. Two examples of possible applications are given and an application for summary judgment is the most common. This is explained in the next chapter. The court wants to know about any applications because they may affect the case management directions which will be given. There are questions about proposed witnesses and experts and these should be self-explanatory. You are asked to state which of the three tracks is the most suitable for the case. The court will decide but may take into account the views of the parties. The starting consideration will be the size of the claim and only exceptionally will a case not be allocated on this basis, but other considerations may be taken into account. These include the expected time that the case will take in court and the complexity of the evidence or legal issues.

Trial or final hearing You are specifically asked to estimate how long the trial or final hearing will take. This may be relevant to the decision about track allocation and it may be a difficult question to answer. Obviously you should do your best and time will tell how accurate your estimate was. There is an opportunity to give dates when it is difficult for essential witnesses or yourself to attend the trial or final hearing.


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Proposed directions Following the allocation of the case to one of the tracks the court will issue directions, and this is covered in the next chapter. The parties will often leave this to the court but there is an opportunity for them to supply proposed directions for the court’s consideration. This may be done jointly or by just one of the parties. Any proposed directions should be sent in with the allocation questionnaire.

Costs This is only to be completed by a solicitor and not when the case is stated as being suitable for the small claims track.

Other information There are a number of specific questions including a space for ‘any other information’. This should be used for anything that is relevant and that would help the court.

Notification of allocation to a track When a decision has been made about allocation to a track, the claimant and defendant will be notified. There is a separate form for allocation to each of the three tracks and the form for allocation to the small claims track is reproduced in Appendix 2. In all three forms the name of the allocating judge is given and so are the reasons for the allocation. In the case of an allocation to the small claims track, the precise place, date and time for the hearing will be given. The estimated duration of the hearing will also be given and the hearing will usually take place within eight weeks of allocation. In the case of an allocation to the fast track, a period for the trial is given rather than a precise date. The period is usually three weeks and it is usually within 30 weeks of allocation. The venue will be notified later. In the case of allocation to the multi-track, the trial may well not take place within 30 weeks. It will depend on various factors including the complexity of the case.

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SEVEN Pre-trial and trial

Introduction The chapter starts with an explanation of summary judgment. This is an option for the defendant, but an application is much more likely to be made by the claimant. It is often done in conjunction with the allocation questionnaire but it can be done later. Summary judgment, if obtained, is a way of getting a quick and favourable decision when the other side has a very weak case, or even no case at all. A second important subject covered is Part 36 Offers and Payments. These are formal systems of offering to settle for less than the full amount of the claim. The chapter then moves on to the events between allocation and the hearing or trial, and what actually happens at the hearing or trial. A frequently asked question is how long a case takes to come to court and this is examined in detail. If the case is allocated to the fast track or the multi-track, both parties will be required to complete a listing questionnaire. This is a four page form and it is reproduced in Appendix 2.

SEVEN PRE-TRIAL AND TRIAL

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Summary judgment An application for summary judgment is appropriate if it is considered that the other party has no real prospect of success. From the point of view of the claimant, the defendant must have no real prospect of defending the claim. Prior to April 1999 only the claimant could apply for summary judgment but since then the defendant too has had the option, but in practice the great majority of applications are made by claimants. Prior to April 1999 the test was ‘no arguable defence’ but it is now ‘no real prospect of success’. The two phrases may sound very similar but ‘no real prospect of success’ is a lower threshold and easier to show. Part 24 of the Civil Procedure Rules puts it as follows: The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if: a) it considers that: i)

that claimant has no real prospect of succeeding on the claim or issue; or

ii) that defendant has no real prospect of successfully defending the claim or issue; and b) there is no other compelling reason why the case or issue should be disposed of at a trial. Rule 3.4 makes provision for the court to strike out a statement of case or part of a statement of case if it appears that it discloses no reasonable grounds for bringing or defending a claim. An application for summary judgment is an application for a judge to dispose of the matter without a trial. A modest amount of time will be set aside for a summary judgment hearing which should be held quickly. A summary judgment hearing is not the same as a full trial. The judge will review the case in outline and there are three possible outcomes to an application made by the claimant: 1

The judge may decide that the defendant has no real prospect of defending the claim and grant summary judgment. This means that the claimant has won.

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2

The judge may reject the application. This means that summary judgment has not been granted but it does not mean that the claimant has lost. The case can go ahead with a normal timetable and will ultimately be decided on its merits in the normal way.

3

The judge may give the defendant leave to defend the case but impose one or more conditions. These might include, for example, that the defendant be required to pay the amount of the claim into court.

An application for summary judgment may be a way of defeating a defendant who is using delaying tactics and has a very weak case. It is normally made when the allocation questionnaire is returned and this is preferred by the court, but it may be made later.

Part 36 Offers and Payments The possibility of settling a dispute by negotiation was covered in Chapter 1. This particularly related to negotiation as an alternative to the issuing of a claim, but it can be done at any time including after the issue of a claim. It can even be done during the trial and there is a time-honoured tradition of settling on the steps of the court. The parties can negotiate in any way that they wish but the importance of the words ‘WITHOUT PREJUDICE’ should be stressed. Part 36 Offers and Payments are a special way of trying to reach a settlement. They involve making an offer to settle for less than the full amount of the claim and doing so in accordance with the provisions of Part 36 of the Civil Procedure Rules. The consequences of a Part 36 Offer or Payment are not the same as those of an informal ‘without prejudice’ offer. A Part 36 Offer or Payment may be made at any time after proceedings have started and they may be made during appeal proceedings. They may not be made before a claim has been issued. If the case has been allocated to the small claims track, they will not have the consequences set out in this section unless the court orders otherwise. If the offer is made by the defendant, it is called a Part 36 Payment and if it is made by the claimant, it is called a Part 36 Offer.


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An offer by the defendant is called a Part 36 Payment because it must be accompanied by a payment into court of the offered amount. The procedure is for the defendant to complete a form ‘Notice of payment into court (in settlement – Part 36)’ and send it to the claimant. The defendant can incorporate a proposal about costs into the Part 36 Payment. The claimant has 21 days to respond. He can accept during this period and, if he does, a form must be sent to the defendant and to the court. The court will then pay the money to the claimant. If the claimant does not accept, the payment into court will after 21 days be returned to the defendant and the case will proceed. Obviously an offer to settle by the claimant is not made in conjunction with a payment into court, and this is because the claimant intends to receive payment, although less than the amount of the claim. The claimant’s offer must be in writing and it must be in a form consistent with Part 36. The defendant has 21 days to accept or reject the offer. If a Part 36 Offer or Payment is rejected, the case will proceed. Both sides will be free to present their strongest case and will not be restricted by what has happened. The judge will not be aware of any Part 36 Offers or Payments until he has given his decision. However, they will be taken into account when costs are awarded. The principles are as follows:

Where the claimant fails to do better than a rejected Part 36 Offer or Part 36 Payment Unless it considers it unjust to do so, the court will order the claimant to pay any costs incurred by the defendant after the latest date on which the payment or offer could have been accepted without needing the permission of the court.

Where the claimant does better than proposed in his rejected Part 36 Offer The court may order interest on the whole or any part of the award at a rate up to 10% over the base rate for some or all of the period, starting with the latest date on which the defendant could have accepted the offer without needing the permission of the court.

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The court may also order that the defendant must pay the claimant’s costs on an indemnity basis from the last date when the defendant could have accepted the offer without needing the permission of the court. The court may also order payment of interest on these costs at a rate of interest not exceeding 10% over the base rate. Space prohibits a fuller examination of Part 36 and it should be realised that the above is just a summary of key points. Other details may need to be taken into account. A Part 36 Offer or Payment may put a lot of pressure on the person receiving it and it may cause the recipient to do an agonising appraisal of his chances. For a claimant, the fact that the offered settlement sum has been paid into court may be a factor. He knows that the offered sum is secure and that there will be no need to take enforcement measures to get it. Both parties will know that they stand to suffer on costs and perhaps interest if they reject a Part 36 Offer or Payment, then do worse than the offer. Perhaps costs, and maybe interest, will amount to a large sum, and perhaps they will only fail to achieve the offered amount by a very small sum.

A case in the small claims track The so-called ‘small claims court’ was introduced in 1973 and was then available for claims up to £500. The limit has been increased over the years and in 1999 it was raised from £3,000 to £5,000. The correct title is the small clams track and the majority of cases are allocated to this track. The small claims track is intended to be ‘user friendly’ and, to coin a phrase, to bring justice to the people. It is intended that the majority of claimants and defendants will speak for themselves and efforts are made so that this can happen. It is, though, possible to be legally represented or to be represented by a friend or some other person, such as a trade union official perhaps. However, legal costs will not be awarded, even if the case is won, though reasonable out of pocket expenses may be awarded. The judge has a great deal of freedom to decide on procedures. The strict rules of evidence do not normally apply and evidence is not normally given under oath.


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Claimants (and defendants) often prefer the small claims track and there are three obvious reasons for this: •

the case will be heard more quickly than is normal with the other tracks, probably much more quickly;

•

the relatively informal procedures are often welcomed;

•

costs are lower, perhaps much lower.

The possible downside is a consequence of the advantages. Rules, procedures and safeguards may be, and often are, irritating, but they usually have a reason. A decision reached in the small claims track may not be quite so reliable as a decision reached in one of the other tracks, though this is probably cancelled out by the practice of not allocating complex cases to it. A case for a claim in excess of £5,000 may be held in the small claims track if the claimant and defendant agree and if the judge does not object. All must agree and any one of the three can prevent it. It may be possible for a claimant to split a claim then have both cases heard in the small claims track. This cannot normally be done if all the outstanding amount arises out of one contract, but it should be possible if this is not the case. For example, consider a furniture shop that sells a dining room table for £4,000. The purchaser is so pleased with it that he returns the next day and buys the matching set of dining room chairs for £3,000. If payment is not made, the shop should be able to issue claims for £4,000 and £3,000, rather than a single claim for £7,000. If a claim for more than £5,000 is allocated to the small claims track, costs, including solicitor’s costs, may be awarded. Before leaving the subject, it is worth noting that a claimant can voluntarily limit the amount of a claim to £5,000. This would not normally be worth contemplating, but it might be considered if the amount of the claim is only slightly over £5,000. If this is done, the client would set out the particulars of claim in the normal way, but would terminate them with the words ‘but the claimant voluntarily limits the claim to £5,000’.

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The notice of allocation to the small claims track will give ‘directions’. These will cover such matters as the permitted use of experts and will give instructions on such matters as the exchange of documents. The deadline for this could, for example, be not less than 14 days before the hearing is due to take place. Either or both of the parties can request that the date of the hearing be rescheduled and this will then be at the discretion of the judge. Either or both of the parties can request that the case be decided in their absence. The person requesting this should write to the court no later than seven days before the scheduled hearing date and a copy of the letter should be sent to the other party. The letter should request the judge to take into account any written evidence that has been supplied to the court and to the other party. If a case is decided in the absence of the claimant or the defendant (or their representatives), the absent party can apply for the judgment to be set aside and the claim re-heard. The application must be made within 14 days of receipt of the judgment. The judge will only grant the application if there was a good reason for the absence (illness for example) and he believes that the applicant has a reasonable prospect of success at the re-hearing. The judge might call for a preliminary hearing. This could be because either the particulars of claim or the defence do not show any reasonable grounds for bringing the claim or defending it, or if it appears to him that one of the parties has no real prospect of winning and he wants to dispose of the claim as soon as possible. Alternatively, it might be because he wants to explain some ‘special directions’. Another possibility is that the judge may propose to decide the case without a hearing. This would be because he believes that a just decision can be reached using the written evidence only. If this is proposed, the parties will be sent the form ‘Notice of Allocation to the Small Claims Track (no hearing)’. Either side can veto this and, if this happens, there will be a hearing.


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The hearing may be in a court room but is more likely to be in a much smaller judge’s room. It may be held in public but the judge has a lot of discretion in deciding that the public should be excluded. The judge also has a lot of discretion about how the hearing is conducted. An explanatory court leaflet on the small claims track puts it as follows: The judge can adopt any method of conducing the hearing which is fair. Generally, however: •

the hearing will be informal;

•

the strict rules of evidence will not apply;

•

the judge need not take evidence on ‘oath’ (make you swear or affirm) that you are telling the truth; and

•

can limit the time you and the defendant have to cross examine (put questions to) each other, or your witnesses; and

•

can also limit cross examination to a particular subject or issue.

At the end of the hearing the judge will tell you the decision reached (the judgment) and give brief reasons for it. After the hearing the claimant and the defendant will be sent an order (or judgment) setting out the judge’s decision. If either party did not attend the hearing, brief reasons for the decision will also be given.

A case in the fast track or multi-track As with the small claims track, the decision about track allocation is communicated by means of a form. This will give the reason that the particular track has been selected, and in the case of the fast track a period (usually three weeks) for the trial to be held will be given. The decision about track allocation is usually taken just on the basis of the allocation questionnaires, but it is possible that an allocation hearing will be ordered. If the case is allocated to the fast track, the allocation form will usually give the directions and state the date by which the listing questionnaire must be returned to the court. Directions are at the discretion of the judge but

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standard directions may well be considered appropriate. The following are typical directions and a typical timetable for a case allocated to the fast track: •

disclosure (followed by inspection) – 4 weeks after allocation;

•

exchange of witness statements – 10 weeks;

•

exchange of expert reports (where experts have been allowed) – 14 weeks;

•

court to send out listing questionnaires – 20 weeks;

•

return listing questionnaires – 22 weeks;

•

trial – around 30 weeks.

There is no standard procedure for cases allocated to the multi-track and each case will be managed according to its individual circumstances. The judge may use one of, or a combination of, standard directions, case management conferences and a pre-trial review. Directions are likely to include an order for disclosure and inspection of documents, a date for filing a listing questionnaire and, as soon as possible, a period of one week during which the trial will begin. A listing questionnaire is required for fast tack and multi-track cases and there is a trial fee which is payable when the listing questionnaire is filed. At the time of publication this is £200 for a case in the fast track and £300 for a case in the multi-track. The fee is payable only by the claimant unless the case is proceeding on a counterclaim alone. In this event it is payable just by the defendant. As with the allocation questionnaire, the parties are expected to co-operate in providing information for it. It is an important document and, again as with the allocation questionnaire, the return of the listing questionnaire should not be held up if the co-operation is not forthcoming. The court may impose sanctions on a party that does not return the listing questionnaire on time. Sanctions can include striking out the claim, defence or counterclaim.


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The listing questionnaire is a four page document and it is reproduced at the end of the book. A court publication gives the following things that a judge might decide following receipt of the listing questionnaires: •

confirm that all the previous directions given have been complied with;

•

decide whether or not any further directions are necessary to prepare your case for trial;

•

decide whether or not to give permission, if you have been allowed to use expert evidence, for your expert to give oral evidence at the trial;

•

confirm how long is required for the trial;

•

set a timetable for the trial itself; and

•

give directions about the filing of any trial bundle (ie a bundle of information and evidence which you provide for the court), the documents it should contain, the order and manner in which they should be presented, for example, how they should be numbered and in what order.

The same publication states that the purposes of a pre-trial review, if one is held, will be to decide the following: •

a timetable for the trial itself;

•

who will give evidence at the trial and in what order;

•

the content of the ‘trial bundle’ (all the papers required for the trial) and the date by which it has to be ‘lodged’ (delivered) at the court; and

•

the ‘trial estimate’ (time to be allowed for the trial).

If it is a fast track case, it may be heard by a circuit judge or a district judge. If it is a multi-track case it may be heard by a circuit judge or a High Court judge. The informal procedures at a hearing of a small claims track case will not be used at a trial of a fast track or multi-track case. Evidence will be given under oath and the rules of evidence will apply. Following the trial the parties will receive an order (judgment) and this will set out any order for costs that was made.

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The time taken for a case to come to court This section of the chapter tempts providence because unusual circumstances can occasionally lead to unusual delays that are outside the time frames set out here. Nevertheless, it is useful to know the minimum and maximum periods likely to be encountered in normal circumstances. First of all, though, it should be remembered that most claims are not defended. The claimant can, if payment has not been received, apply for judgment by default 14 days after the deemed date of service or 28 days after the deemed date of service if the defendant has returned an Acknowledgment of Service. The period from service of the claim to allocation to one of the three tracks should be the same, regardless of which track is selected. The stages are: 1

Defendant files a defence: 3 days to 28 days

2

Court sends out allocation questionnaires: 4 days

3

The parties return the allocation questionnaires, possibly after a reminder from the court: 4 days to 21 days

4

Either party may request a one month stay to try and reach a settlement (a possible extension of the stay is discounted): 0 to 31 days

5

Court allocates the case to a track: 5 to 14 days.

This gives a period to allocation of between 16 days and 98 days. However a period of close to 16 days would be very unusual and there must be quite a bit of feet dragging to get it to 98 days. Of course, a few defendants are champion feet draggers. A case in the small claims track is likely to be given a date up to about eight weeks after allocation. So adding 56 days, we get extremes of 72 days and 154 days. Of course most cases are heard around the middle of this range. A case in the fast track is likely to be heard up to about 30 weeks after allocation. So adding 210 days we get extremes of 226 days and 308 days. Again somewhere in the middle is likely. There is a considerable range of possibilities for a case in the multi-track but the period to trial is likely to be longer than for a case in the fast track.


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An appeal A fee is payable and the time within which an appeal can be made is limited. The appellant’s notice must be filed within the time limits set by the judge whose order is being appealed against, or if the judge has set no time limit, it must be filed within 14 days of the decision which is the subject of the appeal. In most cases it is necessary to obtain permission to appeal and this will only be given if it is believed that there is a real prospect of the appeal succeeding. A feeling that the judge got it wrong is a good start but will not by itself be enough. It must be shown that a decision was wrong or unjust because of a serious procedural or other irregularity. Where the appeal is against a case management decision the court will also consider: •

whether the issue is significant enough to justify the costs of an appeal;

•

the overall effect on the case management timetable, eg whether the loss of the trial date is more significant than the procedural point you wish to appeal; and

•

whether it would be more convenient to deal with your point at the trial.

An application for permission to appeal and the appeal itself are both done by means of Form N161 which is called ‘Appellant’s Notice’. This is an eight page form and it is accompanied by 13 pages of explanatory notes. The size of these documents plus the rather specialised subject are the reasons that they are not reproduced in this book. Appeals will be heard as follows: •

an appeal against a decision made by a District Judge in a county court claim or case will be dealt with by a Circuit Judge;

•

an appeal against a decision made by a Master or District Judge in a High Court claim or case will be dealt with by a High Court Judge;

•

an appeal against a decision made by a Circuit Judge, Master or District Judge that is a final decision in a claim allocated to the multitrack will be dealt with by the Lord Justices of Appeal;

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•

an appeal against a decision made by a Circuit Judge in a county court matter, other than a final decision in a multi-track claim will be dealt with by a High Court Judge;

•

an appeal against a decision made by a High Court Judge will be dealt with by the Lord Justices of Appeal.


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EIGHT Introduction to enforcement

Introduction In an ideal world this book would end at Chapter 7. This is because the award of judgment would end the matter. The losing defendant would warmly congratulate the winning claimant and immediately write out a cheque for the judgment amount. This does sometimes happen, though perhaps not very often accompanied by warm congratulations. Unfortunately it sometimes does not happen and the winning claimant is then in the position of having a piece of paper but not the payment. In these circumstances the judgment debt must ultimately be written off or successful steps must be taken to compel payment. This chapter explains some of the main principles involved in enforcing judgment to get payment. There are six main measures available and they are each examined in the next chapter. They are: •

High Court Sheriff and county court bailiff

•

Attachment of earnings order

•

Third party debt order

•

Appointment of a receiver

•

Charging order

•

Bankruptcy or winding up

The court will provide the means for the claimant to enforce the judgment but it will not act independently. Nothing will happen unless the claimant applies for it to happen and pays the appropriate court fee. The court fees

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for enforcement are added to the judgment debt and are recoverable from the defendant. If the action is in a county court and if the case has not already been transferred to the defendant’s local court, it will, if the defendant is an individual not in business, be transferred to his local court. This will be done when there is an application for an enforcement measure or an application for an order to obtain information. Most of the enforcement measures can only be taken in turn, not simultaneously. One must be stopped before another one is started. It was explained in the first chapter that it very often pays to act decisively and that other claimants may be trying to enforce judgments too. In many cases money obtained goes to the claimants in the order in which they applied for the enforcement measure, not pro rata to the size of the outstanding judgment debts. A key section of this chapter concerns an order to obtain information. There are two forms for this, one for use when the defendant is a company and one for use when the defendant is an individual. A completed example of the one for use when the defendant is a company is shown in Appendix 2.

The court order, payment by instalments and continuing interest As its name implies, the court order communicates the fact of the judgment and orders the defendant to pay the claimant a specified sum. This will be the amount decided by the judge, which may or may not be the amount of the original claim, plus interest if it has been properly claimed, up to the date of the judgment. The terms ‘defendant’ and ‘claimant’ may from the point that judgment is granted be replaced by ‘judgment debtor’ and ‘judgment creditor’. The word judgment means that payment has been ordered and a debtor is a person (or legal entity) that owes money. A creditor is a person (or legal entity) who is owed money. The terms defendant and claimant are still sometimes used throughout this chapter and the next one, but in many cases the other words are interchangeable.

EIGHT INTRODUCTION TO ENFORCEMENT

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The court order may be for immediate payment, or it may be for payment by instalments or at a specified future date. It was explained in Chapter 5 how the defendant can admit some or all of the claim and ask for time to pay. This step can also be taken by the defendant after the case has been lost and judgment awarded. Either the claimant or the defendant can apply later to have the order to pay by instalments or at a future date varied. This might be done, for example, if the defendant’s circumstances change. The defendant must make immediate payment or must exactly comply with the terms of the order. If he fails to do so, even if the failure to comply is marginal, the claimant can take enforcement measures. So long as the defendant does exactly comply with the order, the claimant cannot do this. If immediate payment after judgment is not made, the claimant may be entitled to continuing interest. The rules are: •

interest does not run after judgment on county court judgments up to £5,000;

•

interest at the statutory rate does run after judgment on county court judgments over £5,000. However, it stops running whilst most enforcement measures are being taken and when an application is made for an order to obtain information from a judgment debtor;

•

interest at the statutory rate runs after High Court judgments. It is charged on the outstanding unpaid balance on a day-to-day basis, and it does not stop whilst enforcement measures are being taken.

An order to obtain information It is important to note that an order to obtain information is not an enforcement method and will not by itself produce payment. It is exactly what its name suggests, namely a method of discovering useful information. This information may be used to select the most effective enforcement method and to target it effectively. Just possibly the information may lead the judgment creditor to decide that further action is pointless. As with each of the enforcement measures a fee is payable. This fee is added to the

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judgment debt and is recoverable from the judgment debtor, but if enforcement fails, it must ultimately be written off. The sort of information (if applicable) that might be discovered includes: •

employment status;

•

if appropriate, details of employer and wages or salary;

•

details of dependents and outgoings paid from income;

•

details of any additional income;

•

details of any property owned (house, car, caravan, etc) which may have a saleable value;

•

details of any bank or building society accounts and the balances in them;

•

details of company assets;

•

copies of company accounts.

An application for an order can be made at any time after judgment has been obtained and it can be done more than once. It does not have to be when the judgment debtor is behind with instalments. Having said that, the most common time is shortly after judgment has been obtained. There are two application forms for an order: •

Application for order that the debtor attend court for questioning

•

Application for order that an officer of the debtor company attend court for questioning

The forms have many similarities. The first is used when the judgment debtor is an individual and the second is used when the judgment debtor is a company. In the latter case a company officer should be named to attend, and it is usual for this to be a director or the company secretary. You can name the one that you want and it might be appropriate to choose the managing director or the finance director. The name and address must be given and if you do not have this information you must find it out. Companies House is a very good source of information. The form specifying an officer of the debtor company is reproduced in Appendix 2.


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There is a standard list of questions that will be asked and a standard list of documents that must be produced. These include such things as bank statements, hire purchase agreements and outstanding bills. The judgment creditor can request that specified additional documents be required and that specified additional questions be asked. The questioning is usually done by a court official but the judgment creditor can request that it be done before a judge. Reasons for this must be given. The questioning may not take place at the court where the application is issued, and the judgment creditor may be required to pay the judgment debtor’s travel expenses to enable him to attend court for questioning. A copy of the order to attend must be personally served on the judgment debtor and this must be done not less than 14 days before the questioning is due to take place. The judgment debtor (or officer) is required to attend and is required to bring the specified documents. He is questioned under oath and is required to cooperate and to answer fully and truthfully. The ultimate sanction for failing to do this is imprisonment. There will be warnings and further chances before this happens, but imprisonment is a possibility. It is not necessary for the judgment creditor to attend court for the questioning, but he may attend and observe if he so wishes. The court officer will ask the standard questions and any further relevant questions that have been requested and agreed. The answers will be written down and at the end the judgment debtor (or officer) will be requested and required to sign to say that it is a full and accurate written record. The record will also say what documents were brought to court. After the questioning a copy of the record will be sent to the judgment creditor.

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The Register of County Court Judgments All county court judgments in excess of £10 are entered on a register. This is just county court judgments, which are the great majority of all judgments. High Court judgments are not included. Of course virtually all judgments are for amounts in excess of £10, so virtually all county court judgments are eligible for the register. The register is maintained by: Registry Trust Ltd 173/175 Cleveland Street London W1T 6QR Tel: 0207 380 0133 All information is automatically sent to Registry Trust Ltd by the county courts and details are kept on file for six years from the judgment date. They are then removed. Once a judgment debt has been paid in full and reasonable evidence of this is shown to the court, a certificate of satisfaction will be issued by the court. If payment in full was made within one month of the judgment date, the entry will be removed from the register. If payment in full was made after one month from the judgment date, details will remain on the register for six years but the entry will be marked to show that the debt has been satisfied. If payment in full is not made within a month, the entry will only be removed if the judgment is subsequently set aside by the court. This could happen if a fundamental mistake is subsequently discovered, such as the fact that the claim was never served and that the defendant was not aware of it. There has been bad publicity in recent years about businesses which, for a fee, undertake to ‘repair’ credit records. In some cases there is a promise or semi-promise to get details of county court judgments removed from the register. Such promises should be viewed with great scepticism as nothing can be done that could not be done by the defendants themselves. Unfortunately there have been reports of defendants encouraged to lie in order to get judgments set aside. The Register of County Court Judgments may be inspected on payment of a fee. It is something that you might consider doing and it is very widely


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done by lenders and by prospective lenders. Entries, and particularly unsatisfied entries, can make it very difficult to obtain credit. The defendant might not be fully informed about the register and the problems that will ensue if payment is not made within a month of the judgment date. The claimant might in some circumstances consider telling him. It can be an inducement to pay the judgment debt.

Transfer of enforcement to a High Court Sheriff High Court Sheriffs and county court bailiffs do essentially the same thing. This is seize the property of judgment debtors, hold it and, if necessary, ultimately sell it. The net proceeds are then passed to the judgment creditor. The whole process is of course subject to safeguards and due process. Further details are given in Chapter 9. The county court bailiffs are salaried government employees and are attached to each county court. They should not be confused with private bailiffs or other types of bailiff. The High Court Sheriffs are self-employed and their areas of operation are based on counties. The Sheriffs are remunerated according to the results that they obtain. Of course both the bailiffs and the Sheriffs are supported by staff. High Court judgments are normally enforced by a High Court Sheriff and county court judgments are normally enforced by a county court bailiff. However, in many cases it is possible to transfer enforcement of a county court judgment to a High Court Sheriff. This can be done for a judgment over £600, so long as it is not regulated by the Consumer Credit Act. Claims regulated by this Act can only be issued in a county court and resulting judgments can only be enforced in a county court. A fee is payable if a transfer is made, but if the Sheriff is successful, it is ultimately recovered from the defendant. A county court judgment over £5,000, unless it is regulated by the Consumer Credit Act, must be enforced by a High Court Sheriff.

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Many people believe that, on the whole, the Sheriffs achieve better results than the bailiffs and that it is worth ‘transferring up’. This perception is probably unfair to many bailiffs, but it is very widely believed and almost certainly contains a lot of truth. It is worth seriously considering transferring the enforcement to a Sheriff. There are probably three reasons for the Sheriffs’ greater success: •

being remunerated by results they have a greater incentive to succeed;

•

they generally have smaller caseloads than the bailiffs and are less likely to be swamped;

•

they have marginally greater powers than the bailiffs.

Enforcement must be by the Sheriff that covers the area where the assets are located, which may not be the same as the area of the court where judgment was obtained. Similarly, enforcement must be by the county court bailiff whose court area covers the address where the assets are located. The time-honoured way of ‘transferring up’ is to seek out the correct Sheriff at the correct address. This can still be done but in recent years the Sheriffs have started marketing their services and it can now be done more easily. They have set up the Sheriffs Lodgment Centre which will act as a single clearing house for all transfers. The contact point is: Sheriffs Lodgment Centre 20-21 Tooks Court London EC4A 1LB Tel: 020 7025 2555 • Fax: 020 7025 2556 A certificate of transfer from the county court is required in order to transfer the enforcement to a Sheriff. The following is a reproduction of the form used to make the transfer. The Lodgment Centre will send a supply of the forms on request.


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NINE The enforcement measures

Introduction The last chapter explained the main principles of enforcement. This one consists of a detailed examination of the six main enforcement measures. The following forms are relevant to the chapter and completed examples are in Appendix 2: •

Request for Warrant of Execution

•

Request for Attachment of Earnings Order

•

Application for third party debt order (2 pages)

•

Application for charging order on land or property (2 pages)

High Court Sheriff and county court bailiff An outline description of the roles of a High Court Sheriff and a county court bailiff was given in Chapter 8. It was accompanied by a summary of the circumstances in which enforcement can be transferred from a county court to a High Court Sheriff and, if this can be done, it is something that should be considered. Seizure of the judgment debtor’s goods by a Sheriff or bailiff is the most common of the enforcement measures.

NINE THE ENFORCEMENT MEASURES

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A warrant in the High Court is called a writ of fi fa. In a county court it is a warrant of execution. A completed form ‘Request for Warrant of Execution’ is included in Appendix 2. This is worth studying and the following points may be noted: •

The address for the bailiff to visit need not be the address specified on the claim form when it was issued. The address chosen should be the one where goods with a value are most likely to be found. It may be necessary to transfer the enforcement to the court whose bailiff’s area covers the specified address.

•

The court will note the date and time at which the request for a warrant was received. If more than one warrant is issued for the same judgment debtor, the judgment creditor that applied first will get priority, even if the interval was just a few minutes.

•

The judgment creditor must certify that the judgment debtor is in arrears with the payment or payments.

•

There is an opportunity to give helpful information to the bailiff. This may be extremely useful, as the judgment creditor may have information about the property of the judgment debtor, where it is located and the time that the premises are most likely to be occupied

•

The applicant for a warrant is asked to tell the bailiff about any known difficulties that he may encounter. These could include, for example, potential danger such as a fierce dog.

The laws relating to Sheriffs and bailiffs are very old and in need of reform, which will probably happen soon. The Sheriffs have slightly more powers than the bailiffs. As an example of the problems: bailiffs can only enter the judgment debtor’s home if they are allowed to enter by the person there. If there is nobody there, the bailiff can enter if a door is unlocked or through a window that is already open. Bailiffs may be able to break into business premises if there is no living accommodation attached and they believe that the judgment debtor’s goods are inside. They can also enter if the bailiff has previously been allowed to enter and is returning to the judgment debtor’s house to collect goods to be sold.

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The Sheriff or bailiff can only take goods that belong to the judgment debtor or which are jointly owned. They cannot take goods belonging to wives, husbands, other family members, landlords, hire purchase companies or others. They may not take the defendant’s ‘tools of the trade’. This literally means a set of tools, but the definition is quite widely drawn and may include such things as computers and reference books. Essential household goods also cannot be taken. These include such things as clothing and bedding. Goods taken may ultimately be sold at a public auction but some classes of goods may achieve disappointing prices. Second hand furniture and electrical goods, for example, may come into this category. The Sheriff or bailiff will only take goods that he considers worth taking and which will, after deducting fees and expenses, realise a worthwhile sum. Assuming that the judgment debtor does not pay, the following is an outline of the steps that are most likely to take place after the issue of a warrant of execution: 1

The bailiff will usually send a letter to the judgment debtor asking for payment of the amount due within seven days. If payment is forthcoming, that is the end of the matter.

2

The bailiff will visit the nominated premises and look for suitable goods to take. Provided that he finds suitable goods, he may take them at once or he may offer a walking possession agreement. If a walking possession agreement is offered and accepted, he will identify goods to take later but leave them in the possession of the judgment debtor. The judgment debtor may continue to use the goods, but it is a criminal offence for him to move them or sell them.

3

At the end of a period and provided that payment has not been made, the bailiff will return and take the goods covered by the walking possession agreement.

4

The goods will be kept by the bailiff for a specified period. During this time the judgment debtor can get his goods back by paying the outstanding amount. Also any third party may claim ownership of the goods during this period. This may include, for example, a leasing company or a hire purchase company.


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5

After the period has expired the goods will be sold at a public auction. The bailiff’s fees and expenses will be deducted from the amount obtained and the net proceeds will be paid to the judgment creditor.

After a warrant has been issued, the defendant can make a payment proposal and apply to have the warrant suspended. The claimant can agree with the proposal and suspension of the warrant, reject the proposal and the suspension, or agree to the suspension but demand a more favourable payment schedule. If the defendant and client cannot agree, a district judge will decide.

Attachment of earnings order An attachment of earnings order does exactly what its name implies. It is an order to a named employer requiring him to deduct specified sums from the defendant’s earnings and pay them to the Centralised Attachment of Earnings Payments System (CAPS), which in turn will send payments to the claimant. Application is made by means of a form ‘Request for Attachment of Earnings Order’ and a completed example of this is included in Appendix 2. This form should be sent to the court that covers the address where the defendant lives. If judgment was obtained in a different court and if the case has not already been transferred, it will be necessary to transfer the case to this court. An attachment of earnings order is an instruction to a named employer. If the defendant changes his employer, it will be necessary to apply for a new order and a new court fee will be payable. An order can only apply to an individual in employment. It cannot apply to the self-employed, partners and the unemployed. There are separate arrangements for members of the armed forces and for merchant seamen. Private pensions from a former employer may be attached, but not the state pension or social security benefits. Following an application for an attachment of earnings order the defendant will be required by the court to fill in a form giving details of his earnings and financial commitments. A court officer will examine the form and decide how much the defendant needs for his living expenses and how much he

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can afford to pay. He will decide a ‘protected amount’, which is what the defendant needs for food, rent, child support, living expenses, etc. If and only if, the defendant earns more than the protected amount will an order be made. The claimant does not have to accept the court officer’s decision concerning the protected amount and the amount of the order. He can write to the court giving reasons for objecting and ask a district judge to review the decision. The protected amount is what the defendant receives after deductions for tax and national insurance contributions. How an attachment of earnings order works can best be illustrated with examples. Mr A’s employer is instructed that protected earnings are £1,000 per month and that £100 per month should be deducted. November – Mr A’s earnings after deductions are £1,108 £100 must be deducted December – Mr A is paid his Christmas bonus and receives £3,000 after deductions £100 must be deducted January – Mr A’s earnings after deductions are £1,030 £30 must be deducted February – Mr A’s earnings after deductions are £990 Nothing must be deducted March – Mr A’s earnings after deductions are £1,400 £100 must be deducted. The under-deductions in the previous two months are not made up. An attachment of earnings order does not run for a prescribed period of time. It runs until it is terminated by the court. It is not uncommon for a defendant to be the subject of several attachment of earnings orders, which can result in unwieldy administration. Anyone involved, including an employer and the defendant, can request that all the


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orders be amalgamated into a consolidated order. If one of these is issued, the employer will make a single deduction and pay it to CAPS. From time to time CAPS will send a dividend to each of the claimants. Attachment of earnings orders can work well and they are widely used by such bodies as the Child Support Agency, utility companies and by councils to collect outstanding council tax. They can be avoided by a defendant frequently changing jobs, taking money from the black economy or by deliberately earning less than the protected amount. They are most effective when the defendant is a responsible person in settled employment, though of course this is exactly the sort of person least likely to get into difficulties in the first place.

Third party debt order A third party debt order is an order to a third party that owes money to the defendant to pay it to the claimant instead. A bank or building society account in credit is a debt owing to the account holder by the bank or building society. These come within the scope of a third party debt order and most orders are aimed at them, but many other sorts of debts can also be named. However, a few debts cannot be the subject of an order. Legacies and maintenance orders are two examples. Until March 2002 third party debt orders were known as garnishee orders. Garnishee is an old anglo-saxon word and of course quite a number of old anglo-saxon words get used in the collection of debts. An application for an order is made by means of the form ‘Application for third party debt order’ and a completed example of this is included in Appendix 2. The money held by the third party must be owing solely to the defendant. A joint bank account, for example, cannot be touched unless both account holders are joint defendants to the claim. The money that can be obtained is only the amount of the debt owing by the third party at the time that the order is served on it. This can be particularly important in the case of a bank or building society. It means, for example, that if a bank account is overdrawn at the time that the order is served, nothing can be obtained, even if a large amount is paid into the account on the following day.

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If a judge is satisfied with the information provided on the application form, he will make an interim third party debt order. Copies will be sent to the third party and to the claimant, but a copy will not be sent to the defendant for a further seven days. This is to reduce the risk of the defendant taking the money before the third party is aware of the order. The order will include a date for a hearing at which the judge will decide whether money that has been frozen should be paid to the claimant. The claimant must attend this hearing. If the third party is a bank or a building society, it must within seven days carry out a search to identify accounts held in the name of the defendant. Details of the accounts, including the balances, must be supplied to the court and to the claimant. If the third party is not a bank or a building society, it must within seven days tell the court and the claimant if it claims that it does not owe any money to the defendant or if the amount that it owes is less than the amount claimed in the interim order. The third party and the defendant (after he has received the interim order) may object to the order. They should raise the objections in writing not less than three days before the date of the hearing. Copies should be sent to each other, the court and the claimant. If the defendant is an individual and the third party is a bank or a building society, the defendant can apply for a hardship payment to be made. This must be based on the defendant (and his family) suffering hardship through not being able to meet day-to-day living expenses. At a hearing the judge will consider any relevant points submitted by the claimant, the defendant and the third party. The claimant should attend this hearing and the others may do so. Relevant points may include a submission that money is not actually owing by the third party to the defendant. Following the hearing the judge may issue a final order which may be sent to all three parties. This may instruct the third party to make a payment directly to the claimant and the date by which the payment must be made. This payment cannot be more than the amount originally frozen. Although most third party debt orders are directed to a bank or building society, there is no reason why one should not be directed to a customer of the defendant. If it is known that the defendant is a major supplier to a


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business, a third party debt order at any time is very likely to find money owing. If the defendant’s customer is a company, the order can be directed to its registered office. The address of any company’s registered office can be obtained from Companies House records.

Appointment of a receiver This is the appointment of a receiver to stand in the place of the defendant to obtain money that will come to him in the future. The receiver will ‘receive’ the money and account for it. The receiver’s rights and obligations only extend to assets named in the order. It is particularly suitable when the judgment debtor owns property from which he is expected to receive future rents. It may also apply to such items as a forthcoming pay-out under an endowment policy.

Charging order A charging order is an order of the court that places a charge on the defendant’s property. The charge might be on land or property, or it might be on some type of financial security such as shares. The charge will be registered and the property then cannot be sold without the claimant being paid. The charge will rank in order of priority behind any charges that are already registered. This means, for example, that a charge on a house ranks behind a charge on it already taken by a building society as security for a mortgage. A charging order does not compel the sale of the property but it gives the claimant some assurance that he will ultimately get the money. Interest will continue to run, unlike many other enforcement measures. When the asset is sold, payment of the specified amount plus continuing interest will be made to the claimant. The claimant’s interest in the proceeds will rank behind any other charges already registered, but ahead of the defendant and any other charges subsequently created.

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Once a charging order has been made the claimant can apply for an order that the property be sold. This may be granted at the judge’s discretion and it may well be granted in the case of financial securities, second homes, investment properties, etc. A judge will almost certainly be reluctant to give an order if the property is a family home and other family members are affected. He may also be reluctant if the amount due to the claimant is relatively small in relation to the costs of sale and the general difficulties that a sale would cause. An example will illustrate some of the principles: A house was purchased for £150,000 in 2001 by Mr Grant. He paid £10,000 and took out a £140,000 mortgage. This was with a building society and secured on the property. In 2002 Mr Smith obtained a charging order for £40,000. In 2004 the sum owing to the building society has been reduced to £130,000 and the house is sold for £200,000. The money, in order, goes to: •

£130,000 to the building society

•

£40,000 plus accumulated interest to Mr Smith

•

The remaining balance to Mr Grant

If in 2004 the house is sold for £160,000, the money will go as follows: •

£130,000 to the building society

•

£30,000 to Mr Smith (who will be able to take other enforcement action to obtain the balance owing to him)

•

Nothing to Mr Grant

There are two different application forms. ‘Application for charging order on land or property’ relates to land or property and a completed example of this form is in Appendix 2. The other form is ‘Application for charging order on securities’. Court staff will prepare the application and refer it to a judge. If he is satisfied with the information supplied, an interim charging order will be issued. This will be sent to the claimant and the defendant. The interim order will include the date and time of a hearing to determine whether or not a final


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charging order should be made. The claimant must attend this hearing and should register the interim charging order as soon as it is received. His position will be protected from the date of this registration. At the hearing the judge may confirm the interim order and issue a final order. Alternatively he may refuse a final order and lift the interim order. Following the hearing the claimant should contact the Land Registry, provided that the order related to land or property. This is to notify it, if appropriate, that the interim order has been made into a final order. If a final order was refused, this fact must be communicated to the Land Registry.

Bankruptcy or winding up Bankruptcy relates to an individual or a general partnership. Winding up relates to an incorporated company. It is possible to present a bankruptcy petition or a winding up petition without first issuing a claim and obtaining judgment. It is also possible to apply to make the defendant bankrupt or have it wound up as an enforcement measure after judgment has been obtained. This can only be done if the outstanding judgment debt is at least £750. This can be expensive and may take some time. Furthermore, the claimant taking the step does not get priority in the distribution of the assets. Before leaving the subject it is worth noting that the threat of bankruptcy or winding up proceedings can be a powerful incentive for the defendant to pay up. Bankruptcy and winding up are explained in detail in Chapter 10.

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TEN Bankruptcy, winding up, receivership and administration

Introduction This chapter covers several subjects but the linking factor is very severe financial difficulties for a company or for an individual. In the case of bankruptcy or of the winding up of an insolvent company, at least some creditors will not receive payment in full. This will probably also happen in the case of receivership and it may happen in the case of administration. Receivership involves the appointment of an administrative receiver but it is not the same as administration. The similarity in the terms can be misleading and the two things should not be confused. Unfortunately everything in this chapter may be relevant to a person seeking to obtain payment of unpaid debts. Indeed, an experienced collector is almost bound to have encountered some of the problems. You should know what happens and do what you can to protect your position, although the scope for doing this may be very limited. The subjects covered are big and it is not possible to cover all aspects of them. This chapter provides an outline, but it may be necessary to consult a more extensive work or to obtain professional advice. The chapter concludes with a reproduction of the four page form ‘Statutory Demand on a Company’.

TEN BANKRUPTCY, WINDING UP, RECEIVERSHIP AND ADMINISTRATION

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The Enterprise Bill This book is intended for publication in early 2003, which means that the Enterprise Bill is a complicating factor for this chapter. At the time of writing it seems likely that the Act will receive Royal Assent very late in 2002. Secondary legislation will follow and the Act will be implemented in stages between Spring 2003 and Spring 2004. Of course the Bill could fail to reach the statute book, though this seems unlikely. Significant amendments are a definite possibility and the details of the secondary legislation will be important. The Bill is a large one and it deals with many more topics than those embraced by this chapter. However, the following is a brief summary of its key provisions in the areas of bankruptcy, winding up, administrative receivership and administration: •

The stigma and consequences of bankruptcy will be reduced for most bankrupts. Those not judged to have been reckless or criminal will be discharged after one year (or even less in some cases), instead of three years as happens now. Many of the irrelevant and outdated restrictions that currently apply to bankrupts will be removed. It will be possible, for example, for a non-culpable bankrupt to be a member of parliament. Some commentators have expressed surprise at this, but many people take the view that the quality of the legislature will not be diminished.

•

The consequences of bankruptcy will be maintained or increased for a minority of bankrupts judged to have been culpable. These bankrupts will have to comply with bankruptcy restriction orders for between two years and fifteen years.

•

Income payment orders will run for a period of three years, irrespective of the date of discharge from bankruptcy. These will ensure that bankrupts make an affordable contribution to their debts out of their income.

•

The Crown’s preferential right to recover unpaid taxes ahead of ordinary creditors in winding up and bankruptcy will be abolished. It is expected that secondary legislation will ensure that a propor-

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tion of the money that would have gone to the Crown will be available for unsecured creditors, rather than it all going to secured creditors. •

There will be measures to restrict the use of administrative receivership where a single secured creditor has effective control. The single secured creditor is usually a bank.

•

There will be greater emphasis on administration orders and there will be detailed changes in this area.

The proposed abolition of crown preference has been very widely welcomed and this will no doubt be the response of most readers of this book, although employees of the Inland Revenue and Customs and Excise may have some regrets. It will result in more money being available for unsecured creditors, and it will reduce the incentive of the Inland Revenue and Customs and Excise to act hastily in instigating winding up and bankruptcy proceedings. However, there must be a risk that ring-fencing some of the savings for unsecured creditors will be bureaucratic, with semi-random consequences according to the amount of tax owed and the relative weight of secured and unsecured creditors. We will see. It is expected that administration will be used more and receivership less. This too has been generally welcomed because there may be more prospects of saving companies and because the unsecured creditors may do better. No doubt the banks will still succeed in safeguarding their interests.

Bankruptcy and winding up Let us first of all make sure that the terms are properly understood. Bankruptcy applies to a person or a general partnership, whereas winding up applies to a registered company. The bankruptcy of a general partnership involves the bankruptcy of each partner. The terms are widely misunderstood, sometimes by people who should know better. These are often the same people who wrongly regard the words accountant and auditor as being virtually interchangeable. In particular, ‘bankruptcy’ is sometimes used as a generic


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term for the financial difficulties of a person, partnership or company. This is not correct. One more point before moving on: winding up may be for a number of reasons. Solvent companies may be wound up as well as insolvent companies and when this happens all the creditors eventually get paid in full. In Chapter 2 it was explained that, so long as the debt is at least £750, it is possible to go straight for winding up or bankruptcy without first issuing a claim and obtaining judgment. This section shows in detail how it is done. In Chapter 9 it was explained that winding up or bankruptcy can be an enforcement option if the defendant does not pay after judgment has been obtained, and this section explains the consequences of doing that. Before the detailed study it is worth repeating a point made in Chapter 2. A credible threat of winding up or bankruptcy proceedings can be extremely effective in persuading a customer to pay. In fact a customer that can pay and that does not want to be wound up or made bankrupt will almost invariably do so or make a serious proposal. This does of course depend on the customer believing that it is a serious threat which will be carried out if necessary. The threat, let alone the reality, will probably seriously upset the customer and kill any chances of further business. This probably does not matter because further business is unlikely to be wanted anyway. The courts will give even-handed justice and they will give due consideration to a petition presented by a very small supplier to have a FTSE 100 company wound up. Of course FTSE 100 companies do not actually get wound up as the result of a petition presented by a very small supplier. Instead they pay the amount owing, which is a very satisfactory outcome. Alternatively they show that the claimed debt is not owing. This route is available to small suppliers and they should sometimes take it, especially if they are felling vindictive, but they would be well advised to be very sure of their grounds and the procedure. To get it wrong might have expensive consequences.

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The threat of winding up or bankruptcy may well produce the money, but actually carrying out the threat has certain disadvantages. They are: •

the creditor that brings the petition does not get priority;

•

there are significant up-front costs: they are recoverable out of the proceeds as a first priority, but it may take a long time;

•

it can be a messy and protracted business;

•

preferential debts get paid before ordinary debts and if money is short, there might not be enough for your debt.

If judgment has not been obtained and winding up or bankruptcy is therefore an enforcement measure, the first step is to serve a statutory demand on the person or company that owes the money. There are different forms, one for bankruptcy and one for winding up, but they have many similarities. A specimen example of a statutory demand on a company is shown at the end of this chapter. The forms may be obtained from a legal stationer. The recipient of a statutory demand has 18 days from service to apply to have it set aside. Otherwise a person or company has 21 days in which to respond. After 21 days from service of the statutory demand has elapsed, and provided that payment has not been made and there has been no application for the statutory demand to be set aside, the creditor may present a petition. This is either a winding up petition or a bankruptcy petition and it may be presented to the High Court or to one of many (but not all) county courts. An affidavit must be presented in support of the petition which must be advertised in the Gazette. The petition will then be heard by the court which may accept it, reject it or adjourn the hearing. The petitioner must show that the stated sum is unambiguously owing and that the correct procedure has been followed. The following is an outline summary of what happens next: •

upon the issue of a bankruptcy order or winding-up order the Official Receiver takes provisional charge. In the case of a company this automatically relieves the directors of their powers;


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•

creditors are asked to lodge details of their claims. This will enable them to vote and to participate in the distribution;

•

a meeting of creditors is held and this appoints the liquidator of a company;

•

the liquidator or the Official Receiver takes steps to realise the assets;

•

payments are made to the creditors. This is according to certain rules and precedence as shown in the next section. Final distribution can take a very long time, sometimes several years. For this reason one or more interim distributions may be made;

•

eventually a limited company is struck off the register.

Order of priority in the distribution of funds One is tempted to misquote George Orwell’s Animal Farm – ‘all creditors are equal, but some creditors are more equal than others’. Secured creditors are paid out of the proceeds of their security. If this is insufficient, they rank as ordinary creditors for the deficiency. If there is a surplus, it is available for the creditors generally. Charging orders come into this category and these were examined in Chapter 9. Banks (and others) that are secured by a fixed charge debenture are secured by the assets covered. Apart from this, available funds are applied in the following order: 1

the expenses of the bankruptcy or winding-up;

2

preferential debts (but not interest due after the bankruptcy or liquidation);

3

debts secured by a floating charge (but not interest);

4

ordinary debts (but not interest);

5

interest on preferential and ordinary debts;

6

any remaining surplus to the ‘bankrupt’ or to the members of the company.

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Most unpaid suppliers are likely to rank as ordinary debts. If the assets are insufficient to pay off a category in full, each debt is paid at the rate of x pence in the pound and debts in a lower category get nothing. Preferential debts rank equally amongst themselves and (in summary) are: •

arrears of employee’s wages or salaries up to a period of four months, but subject to a limit for each employee;

•

accrued holiday pay for employees;

•

PAYE and national insurance, and also deductions from sub-contractors for a period of up to a year;

•

VAT owing for the previous six months;

•

general betting duty, bingo duty and car tax in arrears for a period up to a year;

•

money owing to third parties in connection with debts which would have been preferential had they not been paid by the third parties.

It is likely that crown preference will soon be abolished. This will mean that PAYE, national insurance, deductions from sub-contractors and VAT will rank as ordinary debts.

Receivership and its consequences An administrative receiver may be appointed under the authority of a fixed charge and, if this is the case, his authority only extends to assets covered by the fixed charge. If he is appointed under the authority of a floating charge, his authority is over all assets and he has the power to run the company. Most bank debentures are in the form of a fixed and floating charge and they give the receiver the power to take control of all the assets and to manage the company. The directors are relieved of their powers during the course of this type of receivership. The appointment of a receiver is often, but not always, made by a bank and the circumstances in which a receiver may be appointed depend on the wording of the debenture. A receiver must be a licensed insolvency


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practitioner and must act in a professional manner, with due regard to the interests of creditors in general and members of the company. However, it should not be forgotten that the first duty of a receiver is to protect the interests of the people who appointed him. Their interests are not the same as the interests of the creditors in general and the unsecured creditors may be disadvantaged. One of the duties of an administrative receiver is to draw up a report and send it, amongst others, to all known creditors. This will include an estimate of how much (if anything) is expected to be available for preferential creditors and how much (if anything) is expected to be available for unsecured creditors. At the end of the receivership the company may well be put into liquidation and if this happens, the receiver will hand any available funds to the liquidator. If the company is not to be wound up, the receiver relinquishes control and hands control of the company back to the directors, though this does not happen very often. Imminent legislation is likely to reduce the number of receiverships and increase the number of administration orders, under which unsecured creditors sometimes fare better. Details were given earlier in this chapter. The appointment of an administrative receiver is almost certainly bad news for an unpaid ordinary creditor. It means that the company has got problems, probably severe problems and quite possibly terminal problems. It also means that assets that would have been available to fund the payment due to him have been taken out of the pool of assets that may be used for that purpose. It means that he is probably going to be saddled with a bad debt, although this is not always the outcome. Unfortunately there is not much that can be done about it, though he should receive information from the receiver. No legal action may be commenced or continued against the company and no execution may be levied against the company or its goods. This sounds, and is, gloomy, but before leaving the subject it is worth mentioning two strategies that just may be of some use to an unsecured creditor.

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1

Retention of title

The appointment of an administrative receiver does not prevent the exercise of retention of title rights. This is unlikely to be of use to a claimant who has already started an action because, if it was possible to do it, recovery of goods would presumably already have been accomplished. On the other hand, it might be of use to a supplier who had made supplies in the not too distant past. Receivers are not known to show excessive compassion in recognising retention of title claims and they will make a supplier show that a claim is valid. You might be able to bluff the company but this will not work with a receiver. This is fair enough and you must be able to show that you are right, but having done so do not be put off. You should assert your claim early and forcefully, and you should threaten the receiver with legal action if necessary. This does work as the writer knows from personal experience. Prompt action is important because, in these circumstances, goods have a bad habit of going missing.

2

Future deliveries

An administrative receiver has many powers but he does not have the power to make suppliers enter into fresh contracts. They will only do this if they want to do so. The receiver may wish to carry on trading, at least for a short time, and he may badly need further supplies. He will not order with personal liability but he will be very unlikely to place new orders for which payment will not be made. This may give key suppliers a bargaining position and they may be in a position to refuse unless some progress is made with the old debts. Circumstances vary and the possibilities should not be overstated, but it is worth consideration for a few suppliers. Unfortunately it is unlikely to help most suppliers and the receiver may see things differently.


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Administration and its consequences The signing of an administration order is not usually good news for creditors. However, a main objective is to serve the interests of the creditors in general and there may be a happy outcome, though a significant number do end in the insolvent winding up of the company. Imminent legislation should ensure that in future there will be more administration orders and less receiverships and this was explained earlier in the chapter. An application for an administration order may be made by the directors, one or more of the creditors, or by a combination of the directors and the creditors. In practice most applications are made by the directors. The court may only grant an administration order if it is satisfied that both the following apply: •

the making of an administration order would have a real chance of achieving one or more of five stated objectives; and

•

the company is unable to pay its debts or is likely to be unable to pay its debts.

A company is ‘unable to pay its debts’ if any of the following four conditions apply: •

it has received a demand in the prescribed form for a debt of at least £750, and it has not made payment for a period of at least three weeks;

•

execution or other processes issued on a judgment decree or order of any court in favour of a creditor of the company is unsatisfied in whole or in part;

•

the company is unable to pay its debts as they fall due;

•

the amount of the company’s assets is less than the amount of its liabilities.

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The court must be satisfied that the granting of an administration order would be likely to achieve one or more of the following five purposes: •

to enable the whole company to survive as a going concern;

•

to enable part of the company to survive as a going concern;

•

to sanction a compromise or arrangement;

•

to approve a voluntary arrangement;

•

to enable a favourable realisation of the company’s assets to take place, more favourable than would be the case with winding-up procedures.

The phrase ‘likely to achieve’ does not mean that achievement is certain or even that it is probable. It means that the court must believe that there is a definite, realistic prospect and that the chance is more than a negligible one. An administration order will specify for which, or for which combination of, purposes it is granted. The administrator will be limited to trying to achieve these specific purposes. He will not be permitted to try and achieve any of the other purposes. When a petition is presented, and in the period until it is heard, creditors are bound by the following restrictions: •

no liquidation proceedings may be commenced;

•

no debt recovery or enforcement proceedings may be commenced and such proceedings that are in existence are frozen;

•

property subject to hire purchase or lease agreements may not be repossessed;

•

no security may be enforced;

•

no goods subject to retention of title clauses may be repossessed.

The court may give special permission that overrides all but the first of these restrictions. If it does not grant an order then, of course, the restrictions cease. If the court does grant an administration order the administrator runs the company whilst the order is in force.


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Whilst an administration order is in force the restrictions continue to apply. The administrator may not, without leave of the court, sell or dispose of goods subject to hire purchase, lease or retention of title. In practice the court may give permission, but order the administrator to account for the proceeds to the creditor concerned. The administrator must, within three months of the date of the order, call a meeting of creditors and present his detailed proposals to it. The meeting of creditors may accept the proposals, reject the proposals, or (with the consent of the administrator) amend the proposals. An administration order gives the company a period of protection from its creditors. It is for their benefit which may or may not make it easier to bear. The fact that retention of title clauses may not be enforced can in some cases be very important.

Wrongful trading Directors may be guilty of wrongful trading if they carry on trading when they know, or ought to know, that there is no reasonable prospect of avoiding insolvent liquidation. The courts have the job of interpreting the word ‘reasonable’ and it can be a matter of fine judgment. The liquidator must, in the case of an insolvent liquidation, make a report to the Department of Trade and Industry. It is usual for him to write to all creditors to ask if there is anything concerning the directors’ conduct that should be drawn to his attention. If a court decides that a director has been guilty of wrongful trading, it may disqualify him from being a director for between two and fifteen years. In fact these powers are used sparingly and the required level of proof is high. The courts are sometimes criticised for not taking a tougher line, and there have been scandals concerning directors who have been involved with many failed companies.

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If wrongful trading is proved, you may be able to set aside limited liability and make directors personally liable for debts. This is a separate matter from disqualification, and one does not necessarily follow from the other. Again, the burden of proof is high, and it does not happen very often.


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ELEVEN Progress of the civil justice reforms

Introduction There was for many years a wide recognition that the civil justice system badly needed reform. The whole subject was examined by Lord Woolf and his final report entitled Access to Justice was published in 1996. Following consultation a series of changes were implemented on 26th April 1999. The following is a summary of the main ones:

The main civil justice reforms Unified code of procedural rules A completely new set of rules has been implemented and they apply to both the High Court and the county courts. They replaced separate rules for the two systems. The changes were considerable and the rules are written in plain English. They are in parts and contain less detail than the rules that they replaced. They set out the principles and the detail is given in practice directions. Old precedents and case law are generally not relevant to the application of the new rules.

Practice directions Nearly all the parts of the procedural rules are accompanied by practice directions. These are frequently much longer than the rules and provide detail in support of the principles set out in the rules. They should be read in conjunction with the rules.

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Service of documents The deemed date of service was reduced from seven days after posting by first class post to two days after posting by first class post. It would be nice to think that this change resulted from a well-founded belief that the reliability of Royal Mail’s services had improved and that the improvement would be maintained, but perhaps this reasoning is too credulous. County court bailiffs are no longer available to serve documents.

Responsibility of the courts for case management This is arguably the most fundamental and important of the changes. Unlike the system prior to April 1999, the courts now take a proactive role in the management of cases before they reach trial. They do not manage every detail of cases, but concentrate on key events leading up to the hearing. The level and detail of case management is proportionate to the amount of money involved and the complexity of the case. A judge has very considerable discretion to direct the conduct of a case.

Plain English Plain English is used throughout the rules and practice directions, the court forms and throughout the system. Centuries-old terms were replaced by modern ones.

Choice of High Court or county court Less cases than formerly may be heard in the High Court rather than a county court. Full details are given in Chapter 2.

The three track system All cases are allocated to one of three tracks and the way that cases are managed and heard differs in each of the tracks. Details are given in Chapters 6 and 7.

ELEVEN PROGRESS OF THE CIVIL JUSTICE REFORMS

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Protocols and pre-action behaviour Protocols have been issued for various types of claim, medical negligence being an example. There is no protocol for debt collection cases but the parties are expected to behave responsibly in the spirit of the protocols. This includes not normally issuing a claim without giving a warning first and making reasonable efforts to know and understand the other side’s case and point of view. Of course in debt collection cases there often is no other point of view – it is just that the defendant has an unethical wish to hold on to the money for as long as possible. A party that does not behave within the spirit of the protocols may be penalised on costs.

Statements of truth The claim form and other key forms now contain a statement of truth. A statement of truth should only be signed if the person signing has an honest belief that the facts or allegations contained in it are true. If a person signs without this honest belief, he may be committing a contempt of court for which he may be punished.

Encouragement of the parties to reach a settlement The system is intended to encourage the parties to reach a settlement without coming to trial. Active case management means that facts and issues are exposed at an earlier stage and this increases the likelihood of a pre-trial settlement. Furthermore, the court’s discretion over the awarding of costs may exert pressure on the parties to settle. Either or both of the parties may request a one month stay in the proceedings at the time that the allocation questionnaire is filed. This is so that negotiation, mediation or arbitration can be pursued. The court is very likely to grant such a request.

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Part 36 Offers and Payments This is closely related to the encouragement of the parties to reach a settlement. It is a new formal way for the parties to make offers to settle. Refusal can have expensive consequences concerning costs if the outcome is less favourable than the rejected offer. Details are in Chapter 7.

Summary judgment Defendants can now apply for summary judgment as well as claimants. Prior to the changes only claimants could do so. The standard required is now ‘no real prospect of success’ which is a relaxation of the previous standard.

Transfer of a case to the defendant’s local court This now normally only happens when the defendant is an individual not in business. Some changes concerning enforcement were introduced on 25th March 2002. These were in three areas as follows:

Order to obtain information from judgment debtor This has replaced the request for oral examination, although it means the same thing. An applicant must use one of two forms instead of the single form used before. The additional form is for use when the person required is an officer of a debtor company. The content of the forms has been improved and the requirements reformed. Details are given in Chapter 8.

Third party debt order This replaces the centuries-old term ‘garnishee order’ although its purpose is the same. There is a completely new form which replaces the old procedure incorporating a sworn affidavit. Details are given in Chapter 9.

ELEVEN PROGRESS OF THE CIVIL JUSTICE REFORMS

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Charging order It was formerly necessary to apply by swearing an affidavit. This has changed and one of two forms must be used. One of them relates to land or property and the other relates to securities. Details are given in Chapter 9. Further reforms are likely to be implemented piecemeal over a number of years, rather than in just one package. Some reforms will require legislation and some can be implemented as administrative decisions. Many of the reforms will concern the seizing of the judgment debtor’s goods. There will be many detailed changes relating to the powers of bailiffs and Sheriffs.

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TWELVE Frequently asked questions

Questions about the claim form The intended defendant is a partnership called Smith and Jones. How do I name it on the claim form? Smith and Jones (a firm). The intended defendant is a limited company and I do not have an address. What should I do? All limited companies have a registered office and you can use that. A limited company must show the address of its registered office on its notepaper and you can also find it from Companies House records. Should I fill in the issue date on the claim form? No, because you do not know what it will be. The court will do it when (and if) the claim is issued. The particulars of claim are too long to go on the claim form. What shall I do? They should continue on a separate sheet of paper and reference to this should be made on the form. Can I send the particulars of claim after everything else? Yes, you can do so up to 14 days later. The separate document should be correctly headed as shown in Chapter 4. The time limit for the defendant’s response will run from the date that the particulars of claim are served.

TWELVE FREQUENTLY ASKED QUESTIONS

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My managing director has told me to sign the statement of truth on a claim form. I am worried because I believe that some of the details are not correct. What could happen if I sign? The responsibility is personal to the person signing, who must have a sincere belief in the truth of everything stated. So you should not sign, or you may be in trouble. I signed a statement of truth believing that everything on the form was true. I have now found that something was not true. Could I be punished? No, so long as you had a sincere belief at the time that you signed.

Questions about the issue and service of a claim I thought that it was called a summons or writ. Am I out of date? Yes you are. Writs and summonses were both replaced by a claim form in April 1999. How can I get hold of a claim form? They are provided free of charge from any court in which you can issue a claim. They can also be downloaded from the court service website: www.courtservice.gov.uk. Must I use the county court nearest to my home or office? No. There are approximately 200 county courts and you can use any one for any reason. My claim will be for £12,000. Can I have it issued in the High Court? No. Only claims for amounts over £15,000 can be issued in the High Court. Will court staff be willing to give me advice about my claim? They are usually very helpful with questions about procedure and how to complete the form. They are not allowed to give an opinion about the strength of a case and the chances of success.

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How long will the court take to issue my claim? It will usually be issued on the day that it is received. It may sometimes be issued the following day. How do I get the claim number? This is allocated by the court when the claim is issued. Is the county court bailiff available to serve my claim? No. This service was withdrawn in April 1999. What is the normal method of serving a claim? It is posted by the court. First class post is used and the claim is not sent recorded delivery or by registered post. Unless there is evidence to the contrary, service is deemed to take place 48 hours after posting. The defendant is a known liar and I fear that he may deny receipt of the claim form. Can I serve the claim personally? You can ask. It is the court’s decision but your request is very likely to be granted. Why is service so important anyway? It can be frustrating, but imagine that you are in the defendant’s position. You return from a long holiday to find that judgment has been given against you, for a claim that you did not know existed and which you would have defended. Furthermore, enforcement measures are in progress and the county court bailiff is parked outside.


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Questions about interest Is it possible for two types of interest to run simultaneously? No. My conditions of sale allow me to charge interest at the rate of 2% per month and they are printed on the back of my invoices. Can I be certain that I can charge interest? No you cannot be certain. Conditions of sale are usually only enforceable if they are included in a contract, and an invoice is issued after the contract has been made. You should have got the customer to agree to them (perhaps you did). When did the law on statutory interest take effect? •

Contracts made from 1st November 1998: small businesses against large businesses and the public sector

•

Contracts made from 1st November 2000: small businesses against all businesses and the public sector

•

Contracts made from 7th August 2002: all businesses and the public sector against all businesses and the public sector.

Has the law about statutory interest been a success? It is a matter of opinion, but most people’s opinion is that it has not. This is probably because businesses are reluctant to upset powerful customers. I run a shop. Does statutory interest apply to my customers who have credit accounts? It depends who your customers are. Statutory interest only applies when both buyer and seller are acting in a business capacity. What is the rate of statutory interest? It is 8% over the base rate, and base rates at 31st December and 30th June apply for the following six months. It is simple interest only.

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What rate of interest can I add to my claim? It is 8% simple interest. The rate can be changed but it has been this since 1st April 1993. And from what date can I claim this interest? It can be claimed from the date that payment was contractually due. What wording should I use to claim interest on the claim form? An example is given in Chapter 3. I have just obtained judgment in the amount of £2,000. Will interest continue to run until I am paid? No. Interest does not run after judgment on judgments up to £5,000.

Questions about what happens after the service of a claim How long has the defendant got to respond to a claim? 14 days, or 28 days if Acknowledgement of Service is filed. The periods run from the deemed date of service. What are the defendant’s five basic options on service of a claim? •

Pay the amount claimed

•

Do nothing

•

Defend the claim

•

Admit the claim and ask for time to pay

•

Defend the claim.

There are variations and some things can be done in combination. The defendant can also file a counterclaim. Full details are in Chapter 5.


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The 14 days (or 28 days) have elapsed and the defendant has done nothing. What should I do? You should apply for default judgment. The defendant has agreed to pay. Should he pay the defendant directly or should he pay to the court? He should pay the defendant directly. The defendant has admitted the claim and proposes to pay instalments of £100 a month. I think that £600 a month is reasonable. What will happen? The court will make a binding decision and it may do so with or without a hearing. The defendant has filed a defence and a counterclaim. I want to just abandon my claim and close the whole episode. Can I do that? No you cannot. You are now a defendant as well and you cannot just walk away. Can the defendant use a defence in court that he has not previously disclosed? Only with the leave of the court and the court’s permission is only likely to be given in unusual circumstances. An outline of the intended defence should be given on the defence form and the defendant can expand on this later. For example the defendant could put ‘The goods were not delivered’. My claim is for £10,000 and the defendant has made a Part 36 Offer of £9,700. Can I safely ignore it? Only if you are very confident. If the judge ultimately awards you £9,700 or less, you will suffer on the payment of costs. Also you would be turning down money paid into court and consequently a guarantee of no enforcement problems. What are the three tracks to which a case can be allocated?

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•

Small claims track

•

Fast track

•

Multi-track.


It will be difficult to complete the allocation questionnaire and return it to the court within the permitted time. Will it matter if I am late? Yes it will. The court may give you a very short extension, then it is likely to strike out your claim (or defence). This will mean that you have lost. My claim is for £5,200 but I would like it allocated to the small claims track. Is this possible? Yes it is, but only if both the defendant and the court agree. Either can veto the proposal. The defendant has asked me for some information to help in filling in the allocation questionnaire. I feel more inclined to punch him than provide information, but is this an unwise attitude to take? Yes it is. The court expects the parties to cooperate as necessary in completing the allocation questionnaires. You may be penalised if you ignore a reasonable request. How will I know to which track my case has been allocated? You will receive a form from the court and this will notify you of the decision. It will also give you directions for pursuing the case. My case has been allocated to the small claims track. Will the witnesses be required to give evidence under oath? Very probably not, though the judge could require it. The judge has a lot of discretion about procedure and the hearing is usually relatively informal. My case will be heard in the small claims track and I have engaged a solicitor to present it. If I win, will I be awarded legal costs? No. Legal costs are not awarded in the small claims track. Reasonable out of pocket expenses may be awarded at the judge’s discretion. How long will my case take to come to court? This is answered in detail in Chapter 7.


113

I have got an overwhelmingly strong case. Is there a way I can get a quick decision in my favour? Yes. You can apply for summary judgment. This is only available for cases in the fast track and the multi-track. What is the test for success in an application for summary judgment? The claimant must show that the defendant has no reasonable prospect of defending the claim. The defendant must show that the claimant has no reasonable prospect of success. My application for summary judgment failed. Does that mean that I have lost? No. It means that you have not been granted summary judgment, but the case will still be heard later in the normal way. You might win then. I have lost a case in the small claims track. Can I appeal? Only if you can show that there has been a mistake in law or a serious procedural irregularity.

Questions about enforcement The defendant is slightly behind in paying the instalments ordered. Can I apply for one of the enforcement measures? Yes. I have obtained judgment against one of my customers. They have not paid and I do not think that they are taking it seriously. They are still trading and are even advertising for extra staff. I am feeling vindictive. What can I do? If your customer is a company, you could make a nominated director come to court and answer questions under oath. You can do this by applying for an order to obtain information. You could also apply for a third party debt order, naming a customer of your customer.

114


Can the court fees for the enforcement measures be added to the judgment debt so that they are ultimately recoverable from the defendant? Yes. I am confused by the term ‘judgment debtor’. What does it mean? The defendant becomes the judgment debtor after judgment has been issued and until payment is made. I obtained an order to obtain information some time ago but I believe that the defendant’s circumstances have changed. Can I apply a second time? Yes. The defendant is going to be asked questions under oath. I want a particular question asked. Can I have this done? Probably yes. It should be submitted with the application form. I had a county court judgment issued against me but I paid in full six days after it was issued. Details are on the Register of County Court Judgments and it is stopping me getting credit. What can I do? If payment in full is made within one month of the date of the judgment, details can be removed from the register. You should get a certificate of satisfaction from the court and send it to Registry Trust Ltd. The entry should then be removed. To get the certificate you will have to give the court evidence that payment in full was made within a month. I have just obtained a judgment in a county court and I do not think that the defendant knows about the Register of County Court Judgments. Shall I tell him? What a good idea. It might persuade him to pay within a month so that he can avoid a continuing entry in the register. I have heard that High Court Sheriffs get better results than county court bailiffs. Is this true? A lot of people think that it is, though it is a matter of opinion and some bailiffs have a better record than others.


115

Can all county court cases be transferred to a High Court Sheriff? No. Judgements up to £600 cannot be transferred and neither can judgments regulated by the Consumer Credit Act. How do I transfer my judgment to a Sheriff for enforcement? Contact the Sheriffs Lodgment Centre on 020 7025 2555. Further details are in Chapter 8. Can I tell a Sheriff or bailiff about assets that may be worth taking? Yes you can, and it is a good idea to do so. Sheriffs and bailiffs are likely to get better results if armed with useful information. My judgment debtor has a string of judgment debts outstanding. If I apply for a warrant of execution, will the bailiff pay me pro rata with all the others? No he will not. The warrants will rank in the order that the applications are received. Yours will rank behind all others already received but ahead of any received afterwards. I have successfully applied for an attachment of earnings order but the judgment debtor keeps changing his employer. Can I do anything to stop him doing this? No you cannot. You can only take out a new order with a different employer each time that it happens. The court fees are added to the judgment debt and are recoverable. The defendant is a partner. Can I obtain an attachment of earnings order? No. An attachment of earnings order can only apply to an employed person. This definition does not include a partner. I have an attachment of earnings order and the defendant has just received a large annual bonus. Can I get more than usual this month? No.

116


I believe that the defendant has an account at Barclays Bank but I do not know the branch or the account number. Can I still apply for a third party debt order? Yes you can. Although it is best if you can supply full details, it is not essential. The bank must search its records. I know that the defendant is owed money and I have all the details, but it does not involve a bank or building society. Can I still get a third party debt order? Yes. The bailiff has seized the defendant’s car and is holding it. I have heard that a leasing company claims that it owns it. Will this stop me getting my money? Yes it will, if it is true. The bailiff must return any property not owned by the defendant. The defendant owns a valuable picture jointly with his cousin. Can the bailiff take it and sell it? No he cannot, unless the joint owners are joint defendants. That’s a pity. Can the bailiff take the picture, sell it and give half the proceeds to the cousin? No. The defendant owns commercial property and receives rent of £1,000 a month. Which enforcement measure would you recommend? Appointment of a receiver. I have obtained a charging order on the defendant’s house but I do not have an order to have it sold. Will interest still run? Yes.


117

Miscellaneous questions I am about to have a claim issued. Will I win? You should know better than anyone but if statistics are a guide, your chances are good. This is because in most cases no defence is ever entered. So you should get payment or judgment easily. Enforcing the judgment may be a problem. What is the minimum amount of a debt that can be the basis of a winding up petition or a bankruptcy petition? £750. What is the difference between winding up and bankruptcy? Winding up relates to a company. Bankruptcy relates to a person or general partnership. If I succeed with a winding up petition, will my debt rank ahead of other outstanding debts? No, though your court fees will get priority. What personal risks do the directors run if a company carries on trading after the point when they knew, or should have known, that there was no reasonable prospect of avoiding insolvent liquidation? They may be personally liable for the debts incurred after this point. They run the risk of prosecution and they could be disqualified from acting as a director. If you win, can you always recover your court fees? Yes, so long as they are properly claimed and so long as you succeed, if necessary, in enforcing the judgment. When must court fees be paid? Always in advance.

118


Must a valid contract be in writing? No, though it helps avoid arguments. A contract can be made verbally, or even by implication. Is there a law that gives a customer a minimum of 30 days to pay? No. Payment is usually due at once unless there is an agreement to the contrary, though custom and practice can be a factor. Statutory interest starts after 30 days unless there is an agreement to the contrary, but that is a separate matter. What is the phrase that I should put on a letter when attempting to negotiate a settlement? Without Prejudice. I have made a without prejudice offer to settle but I have changed my mind. Can I withdraw the offer? The offer can be withdrawn at any point before it has been accepted. After it has been accepted it cannot be withdrawn. Give two good reasons why a final warning letter should be sent? •

It often works

•

The courts expect it.

I have got a valid retention of title clause but my customer will not let me take my goods back. Am I allowed to use ‘minimum force’ to get them? No. You can only recover the goods with a court order or with the customer’s agreement. Have the Civil Justice Reforms been a success? The government thinks that they have and, though some people have reservations in certain areas, this view is widely shared. It is the writer’s opinion too.


119

APPENDIX ONE Court fees

These fees are correct at the time of publication but they are subject to revision from time to time.

The County Court To issue a claim where the claim is for money only up to £200

£27

up to £300

£38

up to £400

£50

up to £500

£60

up to £1,000

£80

up to £5,000

£115

up to £15,000

£230

up to £50,000

£350

over £50,000

£500

To make a counterclaim The above fees apply.

120


Allocation to track claim up to £1,000

NIL

claim over £1,000

£80

The fee is payable by the claimant only, except where the case is proceeding on a counterclaim alone. In this case it is payable by the defendant only. If an allocation questionnaire is not required by the court, the fee must still be paid.

Trial fee multi-track cases

£300

fast track cases

£200

small claims track cases

NIL

The trial fee is payable by the claimant only, except where the case is proceeding on a counterclaim alone. In this case it is payable by the defendant only.

Appeals To file an appellant’s or a respondent’s notice if permission to appeal or an extension of time to appeal (or both) is applied for, when the appeal is made against a decision made in: the multi-track

£150

the fast track

£150

the small claims track

£100

To file an appellant’s or a respondent’s notice if permission to appeal is not required or permission has already been given by the lower court, when the appeal is against a decision made in: the multi-track

£100

the fast track

£100

the small claims track

£50

APPENDIX ONE COURT FEES

121

Applications To apply for judgment to be set aside

£50

To apply to vary a judgment or suspend enforcement

£25

To make an application on notice

£50

To apply for a summons or order for a witness to attend

£30

Request for judgment on admission or in default

NIL

Assessment of costs To request a detailed assessment hearing: Community Legal Service Fund only (no order for payment by another party)

£80

Other

£150

To appeal against detailed assessment

£50

To issue a default costs certificate

£40

To apply to set aside a default costs certificate

£50

To apply for approval of Community Legal Service Assessment Certificate

£20

Enforcement To issue a warrant of execution to recover a sum of money: up to £125

£25

over £125

£45

To issue a warrant for recovery of land or property (possession)

£80

To issue a warrant of delivery

£80

To issue a warrant of execution at a new address, except a further attempt at enforcement following suspension

£20

To issue an application for an attachment of earnings order

£50

To issue an application for a charging order

£50

122


To issue an application for a third party debt order

£50

To issue an application for a judgment summons

£80

To issue an application for an order that debtor (or officer of debtor company) attend court for questioning

£40

Bankruptcy and winding up To issue a bankruptcy petition for your own affairs (debtor’s petition)

£120

To issue a bankruptcy petition against someone who owes you money (creditor’s petition)

£150

To issue a petition to wind up a company which owes you money

£150

The High Court To issue a claim where the claim is for money only up to £50,000

£350

over £50,000

£500

Filing of an allocation questionnaire

£80

The fee is payable by the claimant only, except where the case is proceeding on a counterclaim alone. In this case it is payable by the defendant only. If an allocation questionnaire is not required by the court, the fee must still be paid. Filing of a listing questionnaire

£400

The fee is payable by the claimant only, except where the case is proceeding on a counterclaim alone. In this case it is payable by the defendant only. If a listing questionnaire is not required by the court, the fee must still be paid.

APPENDIX ONE COURT FEES

123

Enforcement On sealing a writ of execution/possession/delivery

£20

On an application for an order to obtain information from a judgment debtor

£40

On an application for a third party debt order

£50

On an application for a charging order on land or property or for a charging order on securities

£50

On an application for appointment of a receiver by way of equitable execution

£50

Bankruptcy and winding up On entering a bankruptcy petition if entered by a creditor

£150

On entering a petition to wind up a company if presented by a creditor

124


£150

APPENDIX TWO Important court forms

Form number

Page

Form title

N1 (2 pages)

127

Claim form (completed with sample details)

N1A (2 pages)

129

Notes for claimant on completing a claim form

N205A (2 pages) 131

Notice of issue (specified amount)

N9

133

Response pack

NIC (2 pages)

135

Notes for defendant on replying to the claim form

N9B (2 pages)

137

Defence and Counterclaim (specified amount)

N9A (2 pages)

139

Admission (specified amount)

N152

141


N150 (4 pages)

143

Allocation questionnaire

147

Notes for completing an allocation questionnaire (1 page)

N157

149

Notice of Allocation to the Small Claims Track

N170 (3 pages)

151

Listing questionnaire

N316A (2 pages) 155

Application for order that officer of debtor company attend court for questioning (completed with sample details)

N323

157

Request for warrant of execution (completed with sample details)

N337

159

Request for Attachment of Earnings Order (completed with sample details)

APPENDIX TWO IMPORTANT COURT FORMS

125

Form number

Page

Form title

N349 (2 pages)

161

Application for third party debt order (completed with sample details)

N379 (2 pages)

163

Application for charging order on land or property (completed with sample details)

126



127

128



129

130



131

132



133

Blank page


135

136



137

138



139

140



141

Blank page


143

144



145

146



147

Blank page


149

Blank page


151

152



153

Blank page


155

156



157

Blank page


159

Blank page


161

162



163

164


Blank page

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