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Recovering debts from individual clients

Recovering debts from individual clients

13 December 2018

Any architectural practice that counts individuals among their clients – which is the vast majority – now needs to understand the Pre-Action Protocol for Debt. Though it came into force in October 2017, many professionals are unaware of it and failure to comply with it could delay or even defeat the architect's attempt to recover its fees.

The Pre-Action Protocol can be used by any business claiming a payment of debt from an individual (including a sole trader), but not another business. So homeowners and any individual engaging an architect for a home extension, conversion, new home or planning consultancy falls within its remit.

Courts will expect the pre-action protocol to have been followed before any legal proceedings are started.

The Debt PAP has been introduced to encourage early engagement and communication between creditors and their debtors, particularly the exchange of information needed to clarify any charges that are being disputed, or simply ignored.

The aim is to reduce the burden on the courts by making court proceedings the last resort. In order to comply with the new protocol, architects will need to make sure that their appointment terms are clear as to the basis of the professional fees charged; that they have invoiced in accordance with these clear terms; and that they can readily show that, say, a particular stage which triggers a fee entitlement, has been reached.

While it may delay the process, it could also act as a good discipline for architects, firstly to have a straightforward and transparent billing regime in place from the outset – as part of the overall discipline of ensuring clear appointment terms have been finalized before commencement of the project.

Secondly, when a fee dispute is looming, it is a good idea for architects to review the project generally in order to be prepared for counter-arguments that a client may wish to raise.

Being subject to the discipline of collating all of the relevant invoices and correspondence and exchanging this with the debtor client is a useful part of the process and may determine how the dispute is handled generally.

Use of the Debt PAP is not mandatory, but the court will expect creditors to have complied with the protocol before going to court and will take non-compliance into account when giving directions for the management of proceedings.

If there is non-compliance, the court could order proceedings to be stayed (put on hold) pending compliance, or award reduced or even zero costs to the party seeking to recover its debt.

"The protocol can be seen as common sense," suggests David Scottow, National Head of Recoveries at DWF, "but it can create a paper trail and it can have the effect of drawing the debt recovery process out over several months."

"The courts will see it as good case management, and we are now advising businesses to use the pre-action protocol if they do not want to get stung for costs further down the line," advises Scottow.

The protocol requires specific documents to be provided to the debtor: the ‘Letter of Claim’, the ‘Statement of Account’, various other mandatory items such as the standard Information Sheet provided in the Debt Protocol, a standard Reply Form, and a standard Financial Statement form.

Architects should note that separate protocols apply in cases of construction (disputes with building contractors) and engineering projects, rather than the general Debt PAP which applies to all other services.

Scottow suggests that the PAP reforms do have the merit of creating a clear evidential line of communications between creditor and debtor, which the court will be able to look at if the dispute ever goes that far.

The protocol may end up saving architects from unanticipated problems. If there are gaps in the architect's evidence for the particular dispute then having to produce all relevant information and engage with the debtor is likely to reveal them. But this will be a time that will enable the architect to react without falling victim to a counterclaim or a referral by the debtor to the architect's professional body.

These are common tactics adopted by recalcitrant payers and both can cause an architect any measure of distress, aggravation and expense. The short-term inconvenience of having to follow a codified approach should actually, by degrees, close down the refuges that a debtor might otherwise seek. In that way could, result ultimately in a saving of cost and time in the process.

Architects can download the Debt Protocol and the Pre-Action Conduct directions that form part of Civil Procedure Rules.

Some legal firms have provided their own guides to the Debt PAP, such as this webinar from DWF. Practices that prefer to pay for debt recovery services instead will find that legal firms are now sending out instruction forms to their clients that comply with the Debt PAP.

Thanks to David Scottow, Senior Director, National Head of Recoveries, DWF; Jeff Gledhill, Legal and Operations Recovery Manager, DWF.

Tex by Neal Morris. This is a Professional Feature edited by the RIBA Practice team. Send us your feedback and ideas

RIBA Core Curriculum Topic: Legal, regulatory and statutory compliance.
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