Oral Answer by Senior Minister of State for Law, Mr Edwin Tong, to Parliamentary Question on New Pre-Court Action Protocol for Business-to-Business Debt Claims
03 Feb 2020 Posted in Parliamentary speeches and responses
Mr Lim Biow Chuan (Member of Parliament for Mountbatten SMC)
To ask the Minister for Law what is the rationale for the new pre-court action protocol for business-to-business debt claims and whether the Government has consulted businesses prior to introducing the new court protocol.
Pre-Court Action Protocol for Business-to-Business Debt Claims (“the new Protocol”) is an initiative by the State Courts. It was implemented in August 2019 by an amendment to the State Courts Practice Directions. These PDs are issued by the Court to regulate its practice and its procedure, and are updated from time to time. The new Protocol applies to all business-to-business debt claims that are commenced in the State Courts from 1 October 2019 onwards.
The new Protocol seeks to encourage businesses to resolve their debt claims early, before the commencement of proceedings in Court. The State Courts see about 1,000 business-to-business debt claims each year. Approximately 75% of those claims however are eventually withdrawn, discontinued or have judgments entered in default. Based on the State Courts’ experience, this is because these claims are frequently brought even though the debt is not disputed. Rather, the claims may be brought because there is, for example, poor documentation, the wrong calculation of interest, or the debtor was simply seeking a breakdown of the debt or wanting a repayment plan. As a result, costs incurred for the legal proceedings are often very disproportionate to the claimed sums, and the Court resources are also being utilised.
The new Protocol was therefore introduced with the objective of: -
(a) Helping parties to identify the quantum of the claim (including interest), the relevant documentation which may support the substantiation of the claim, and identifying the issues in dispute;
(b) Encouraging early communications between parties, active exploration of Alternative Dispute Resolution options, and the upfront exchange of documents and information; and finally,
(c) Where legal proceedings cannot be avoided, the new Protocol will facilitate the drafting of proper pleadings and ensure that the documentation is in order, as well as help to narrow the issues in dispute. This will focus the parties and also reduce the length of court proceedings.
Under the new Protocol, a Letter of Claim is sent prior to commencing legal proceedings. The Letter must contain details of the claim such as the amount of the debt and also the applicable interest, and also details of the underlying agreement giving rise to the claim. The debtor is then required to send a Response to the Letter of Claim within 28 days, or such shorter timeframe as may be appropriate depending on the circumstances of each case.
The Court has the discretion to impose cost sanctions on a party who does not comply with the new Protocol (whether it is the creditor or debtor) if the defaulting party is unable to show good reasons for the non-compliance.
The new Protocol does not bar any creditor from bringing legal proceedings on an outstanding debt claim at any point of time.
The State Courts hold regular engagements and dialogues with Law Society and the members of the Bar on a variety of civil matters, including proposed changes to the civil procedure. The State Courts previously discussed the new Protocol with the Law Society’s Civil Practice Committee, whose members represent both creditors and debtors, the business to business aspect to which the Protocol applies. Since implementation, the State Courts have further engaged the Law Society early this year, on 14 January and solicited their written feedback on the Protocol as well. The Law Society provided its feedback in writing to the State Courts on 28 January 2020 and the State Courts will be studying this feedback with a view to fine-tuning the Protocol, as may be appropriate.