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Letter before action
7
Sep
Solicitors' Letter Before Action: Everything You Need To Know
News

It can be extremely frustrating to be in the position of having to chase unpaid invoices. Outstanding payments can consume valuable time that could be better spent on acquiring and working with new customers, cause cash flow issues, and in some cases can lead to major breakdowns in professional relationships.

A letter before action (also known as a 'letter of claim' or 'letter before claim') is the first step in a formal debt recovery process. It is a notice sent out by a creditor's solicitor to let the debtor know that the creditor is planning to take legal action against them.

In this article, we will look at how a letter before action is created, its purpose, and discuss what to do if you are on the receiving end of one.

What is a letter before action?

When the creditor has exhausted all of their standard, in-house debt recovery options - such as calling up, sending email reminders or overdue notices by post - they may be forced to take the debtor to court to recover the money owed.

In the first instance, the creditor's debt recovery solicitor will draft a letter before action to send to the debtor. This letter restates the amount owed and informs them of the creditor's intent to start court proceedings against them if the debt remains unpaid.

In many cases, the letter before action is enough to spur the debtor into action and motivate them to pay the money owed. A seriously-worded letter from a solicitor's office is sometimes enough of a shock to the recipient that the matter goes no further.

However, it is important to realise that this letter is more than an idle threat.

Pre-action protocols

In situations where a business is owed money by an individual person, the letter before action is a key part of the process known as the pre-action protocols.

The pre-action protocols do not apply to business-to-business debts - only to situations where a business is recovering money owed by an individual. However, it is nonetheless also commonplace to issue a letter before action for business-to-business debts.

The protocols stipulate which steps should be taken before a court claim is issued - and the court will very likely take into account the creditor’s compliance with the rules (or lack thereof) when considering the claim.

The debtor is obligated by the pre-action protocols to respond to the letter of claim within a reasonable window. If they choose to ignore it, the creditor's solicitor will be able to apply for a court order to force their hand.

Creating a letter before action

When seeking to create a letter before action, it is very important to instruct an experienced solicitor to do this. While the letter is not a formal court pleading as such, it is still a crucial document and mistakes made at this stage can cause major issues.

For example, care must be taken over the wording to ensure there are no inconsistencies between what has been stated in your letter and what is later claimed in court - a discrepancy here can cast significant doubt on your position.

There are also many common pitfalls into which an inexpertly worded letter might fall (such as including statements that may be interpreted as threats or blackmail). A correctly worded letter before action should lay out your claim and the actions you will take without accidentally giving the debtor ammunition to use against you.

For these reasons, it is highly recommended that you instruct a professional debt recovery solicitor to draft your letter before action. This is generally not an expensive matter (most reputable solicitors will charge less than £10 for this service) so there is little reason to take on the task single-handedly.

Responding to a letter before action

If you are an individual in receipt of a letter before action, you definitely should not ignore it - the matter will not go away. Your window of time to respond can vary but usually 14 days is thought to be reasonable.

In your response, you will need to clearly state whether you accept or reject the claim made against you.

If you agree that you do owe the money (or at least that you agree with some aspects of their claim) you will need to make a proposal explaining how and when you intend to repay it. This might be a lump sum payment or perhaps a regular schedule of smaller repayments.

If you reject the claim and intend to dispute that you owe the money, you will need to explain your position and back it up with any evidence you can provide. (For example, you may have been withholding payment due to reasons of incomplete or low-quality work - you will need to prove this if so.) If you are planning to make a counterclaim, this should be stated also.

The court will expect both parties to consider the use of alternative dispute resolution strategies, and to conclude the case in court only as a last resort.

This means that if an ADR solution such as mediation or arbitration is suggested by one party, the other cannot refuse unreasonably - or they may be ordered to pay additional court costs down the line.

Knowing that litigation can be extremely expensive and time-consuming - and that they are not guaranteed to win the case - many debtors when faced with a potential court case will want to simply 'pay to make the problem go away' however they can. They will usually also be keen to avoid the negative effect to their reputation that might follow from a public court case. It is therefore usually in the best interests of both parties to settle the matter via an alternative method without taking it to the courtroom.

Expert advice on debt recovery

In conclusion, the letter before action is a key part of the debt recovery process. In many cases, the letter alone is sufficient to inspire compliance and payment - and in those situations where it does not, it is an important document that sets the stage for the ensuing litigation.

No business wants to be caught in the inconvenient and frustrating position of being owed money - the recovery of which is likely to consume increasingly more time, resources, and energy. It is therefore important that the matter be resolved quickly, effectively, and with a minimum of animosity between the parties.

For advice on sending a letter before action/letter of claim or any other debt recovery issue, please contact David Stoneman in the Debt Recovery team.

Before relying on this commentary please read the Reliance on information posted section in our Terms of Website Use in our Legal section. Please note that specialist advice should be taken in relation to any specific queries and the information above is provided for general information purposes only.

Authors

David Stoneman

Debt Recovery Manager
Debt Recovery
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