To which Court am I going?
Many people will colloquially use the phrase: “The Small Claims Court” when talking about issuing a claim to recover a debt.
Unfortunately, this misnomer can often lead people down the wrong path, particularly where they are not familiar with the County Court, and result in them either issuing the wrong claim in the first instance or being allocated to a ‘track’ which they did not expect to be on.
With a ‘money claim’ for a debt in the County Court, the procedure, level of Judge and which rules apply to that claim will be determined by which ‘track’ it is allocated to. The three tracks are:
- The Small Claims Track;
- The Fast Track; and
- The Multi-track.
Up to the stage of ‘direction questionnaires’ (when track allocation is proposed) a money claim for £2 is treated the same as a claim for £200,000.
As a rule of thumb you can anticipate that a claim of a certain value may be allocated to a particular track however:
- where the trial is expected to last longer than the track would generally allow for;
- where there may be a need for expert evidence; or
- where, amongst other things, there is a particularly complex point of law to be considered or there is importance in any finding of fact / decision to non-parties,
this may lead to a claim being allocated to a different track than expected.
This is not an exhaustive list as there may also be other issues such as injunctive or declaratory relief which may require allocation to a different track, so you cannot categorically state that a claim will be allocated to the small claims track based solely on the value of the claim itself.
People may be unaware that the upper limit for “Small Claims” is £10,000, meaning that for claims valued at less than £10,000 legal costs are subject to very limited recoverability, save for in exceptional circumstances, or where there is a contractual / statutory right to recover legal costs.
A creditor has generally two options when considering a debt:
- Seek to recover it; or
- Walk away from it.
A creditor may find that a debtor, aware of the limited options for recoverability of costs in claims allocated to the small claims track, will be less inclined to engage / pay at a pre-action stage, preferring to gamble that a creditor will unlikely want to incur legal costs in pursuing a debt which could be the equivalent of 50%, 75%, 100% or even greater than the value of the debt itself.
Whilst claims allocated to the small claims track are subject to a more streamlined procedure, which in theory will reduce a party’s potential cost exposure, unfortunately the value does not dictate the degree of complexity of a particular dispute, either on the facts or the law.
Are Insolvency Proceedings an alternative option?
The level at which a person can be made bankrupt is £5,000 (a much greater threshold than against corporate entities being wound up which is £750). Whilst insolvency proceedings are not, strictly speaking, a debt recovery method, the risk of them being commenced will often force debtors to address their financial situation which could result in a more expedient payment and without the costs associated with a County Court claim. Payment will of course be preferable over any actual bankruptcy / liquidation which may unfortunately result in a much lower amount being recovered by a creditor than was initially claimed.
Before commencing any insolvency proceedings, particularly in the current climate, a creditor will need to consider whether the alleged debt is clear and unequivocal (if it could be challenged then you may need to go to the County Court / High Court for a determination on the facts) and also whether COVID-19 has had an impact on the debtor’s ability to pay.
What can be done?
As a first step, a creditor should speak with a debtor to see whether they are able to pay the debt, or whether there is some form of compromise to be reached. If not, then it is up to the creditor, if inclined to try to recover the debt, whether they seek advice or simply proceed on their own.
Before issuing a claim, a potential claimant should always check that they have complied with the relevant Pre-Action Protocol which applies to that particular type of claim. They may also want to consider the Handbook for Litigants in Person. While this was published some time ago it nonetheless remains a very useful compendium for parties looking to navigate the court without formal support.
A prospective claimant should also consider whether they require ad hoc assistance from a legal professional for specific tasks, where they do not want a solicitor ‘on record’, such as the drafting of any Letter of Claim, the Particulars of Claim or Witness Statement, or instructing a Barrister on a Direct Access Basis for the trial.
It should always be remembered that whilst a track may have a specific cost regime, if a party has failed to comply with a rule or direction, or wants to amend a document later, they could still be liable for costs incurred by their opponent arising from that failure or amendment (even if they later go on to win the trial). As such, it is very important before a party undertakes any step or course of action, they fully understand the situation in front of them.
It should be remembered that litigation is not always about going to court – it is about resolving dispute. The courts prefer for parties to avoid formal litigation (the pre-action protocols are there for that reason) and the push toward Alternative Dispute Resolution (such as mediation, which the Court may even provide as a free service) is evidence of the same.
Taking advice on debt recovery at the outset, which if pursued in the wrong fashion could result in a creditor being put to further unrecoverable costs, will provide a party the opportunity to understand what risks they face (either on the merits of their case or potential cost exposure) and provide them a better platform from which to make decisions as to process and options for settlement.
It may also ultimately avoid the bankruptcy of an individual, or liquidation of a company who may have otherwise have wanted to satisfy any debt, but did not know how to enter those form of discussions.
Of course, every situation is different, and there may be other factors to consider such as what contractual terms exist (where invoices giving rise to debt may have specific conditions, there are specific dispute resolution clauses, or leases which may govern service charges), whether these are written or the terms were part of an oral agreement, or whether there is any security in place such as a charge over property or a guarantee.
Whilst unfortunately the majority of readers will be considering this article in light of either needing to recover a debt, or being pursued for one, any reader may be prudent to consider not only what they should doing in this instance, but also what they can do to avoid a similar situation arising in future.
If you are concerned about a debt or wish to review debt recovery processes then please do not hesitate to contact me direct on 0207 7079 2410.
Should you require any further advice or assistance, you can also email our Litigation team at: firstname.lastname@example.org.
The above is accurate as at 08 January 2021. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.