Before issuing Court Proceedings to recover your money, there are a number of things to consider. The first thing should be:
Why am I going to Court with this?
This sounds like a daft question but it should be taken seriously. If the reason is to recover money then you should consider the ability of the debtor to pay. If the debt is owed by a private individual the Court may make an order that he/she pays by instalments and these instalments can be ridiculously low if the debtor can demonstrate that they are on a very low income and orders to pay £5 per month are not unusual.
If the debtor is a limited company, then you should consider whether the company has the cash or any assets that can cover your debt. Don’t forget that in the case of a limited company, it is the company itself who owes you the money and not the directors. The directors of a company are merely employees and have no personal liability to pay the debt.
Some people consider Court action to be a matter of principle and are not concerned with the costs as long as the debtor does not get away with it. However, principles have costs where Court action is concerned and sometimes we have to make a commercial decision on whether it is worth possibly throwing good money after bad – only you will be able to make that decision.
So what happens when I start Court action?
Initially, a Claim Form is prepared in triplicate (one copy kept as a file copy) and the other two sent to Court together with the Court fee. Upon receipt of your claim, the Court will process it, give it a claim number and then send it to the debtor by first class post. The Court considers the document to be served after two working days (the date of service).
Upon receipt of your claim form, the debtor has a number of options, they can admit the debt and pay it, or ask to pay by instalments or they can decide to defend your claim. The debtor has 14 days from the date of service to enter a defence, but if they lodge an acknowledgement of the claim with the Court, they would be given an additional 14 days (28 days in all from the date of service) to enter a defence. If the debtor does not enter a defence within the 14/28 day period, then you can ask the Court to enter Judgment in your favour, by default.
What happens if the debtor enters a defence?
If the debtor enters a defence to your claim, it will be sent to you and you will be required to do a reply to the defence and send it back to the Court.
What happens if the debtor enters a counterclaim?
In some cases, the debtor may consider that they have a defence and they also have a counterclaim. In this case, the debtor would have to notify the Court of the counterclaim and this will be considered in the same proceedings if the matter comes to a hearing. If you are informed of a counterclaim, you will have to enter a reply to the defence and if you disagree with the counterclaim, you will need to do a defence to the counterclaim.
What happens next?
The Court will send an allocation questionnaire to both parties and they have to be returned by a set date. The allocation questionnaire is a simple document that enables the Court to allocate the claim to a specific track. There are 3 tracks, small claims which deals with claims under £10,000, fast track with deals with claims over £10,000 and under £25,000 and multi track which deals with all other claims. If the claim is over £1,500 the claimant will have to pay an allocation questionnaire fee. If there is a counterclaim in excess of £1,500 then the defendant will also have to pay the fee.
Once the allocation questionnaires are returned to the Court, the Court will allocate the claim to the appropriate track and will then send out directions for both parties to comply with. However in some circumstances, usually in small claims matters, the Court may consider that the matter is suitable for mediation. Mediation is a free service provided by the Court and it is intended so that parties might be able to agree a compromise and do away with the need for a hearing. Mediation is not binding and if neither party agrees, then the matter will proceed to a hearing in front of a Judge. If a Hearing is deemed necessary then the Court will ask for a Hearing fee from the Claimant or from both parties if there is a counterclaim.
What happens at the hearing?
We are only going to deal with small claims hearings in this report, as the details of fast track and multi track are far too complex to deal with within the scope of a single document like this.
At the appointed date and time, both parties should attend the Court and they should have all the originals of the documents upon which they intend to rely on in support of their claim. The matter will be presided over by a District Judge in Chambers (the Judge’s office) it is not open Court as seen on TV and the only people who will be there will be the Judge, the Claimant and the Defendant.
The Judge will introduce him/herself and will instruct both parties on how the hearing will take place. Usually, the claimant is asked to present their case first and once the claimant has stated their claim, the defendant will be given the opportunity of asking questions. The defendant then states their case and then, the claimant is given the chance to ask any questions that they have. At the end of this, the Judge will weigh up all the evidence and consider the statements of each party and will then make a Judgement. The Judge’s rule is final and there is no appeal process (unless the Judge makes an error in Law – highly unusual). If your claim is successful then the Judge will usually award you the fees that it has cost you to bring the matter to Court, in addition to the money claimed,
Is that the end of it?
Well usually it is, but if the debtor does not pay then you may have to consider enforcement action and this will involve more costs. If the debtor pays you within 30 days of the date of the Judgement, then it will not appear on the public record. If the debtor pays you after 30 days of the date of Judgement, a CCJ will appear against them on the public record for a period of six years and it will seriously affect their ability to obtain credit in the future. Not only that, but it will make it nearly impossible for them to do other things that are related to finance, such as obtain a mortgage or even open up a bank account and this is another reason why creditors take Court action.
Don’t forget that in England and Wales there is a statute of limitations, which means that if you do nothing about your debt for a period of 6 years, the debt will become time barred, whereas if you take legal action and obtain a Judgement, the Judgement can be enforced at any time.