Why would you send a letter before action?
A letter before action gives the recipient a final chance to settle the matter before the sender applies for a court hearing.
The Civil Procedure Rules ('CPR'), which govern court proceedings in England and Wales, require sending a letter before action as part of the pre-action conduct and protocols ('PACP'). The CPR generally aims to promote early settlement to reduce court caseloads, and encourage alternative dispute resolution methods such as mediation or negotiation.
So, if you want to issue a claim in court, the law requires you to notify the defendant, and give them an opportunity to resolve the dispute without going to court, which can be expensive (both for the parties and for the state) and take a long time.
For instance, if send a letter before claim regarding an outstanding debt, the debtor might respond with proof of payment or propose a repayment plan. This could resolve the dispute without the need for legal action.
When to send a letter before action
After informal attempts to resolve a dispute (such as recovery of an outstanding debt or a claim for damages) have not succeeded, the claimant will be left with the options of using an alternative dispute resolution method or litigation.
The pre-litigation protocols under the CPR require you to send a letter before action, but otherwise don't specify any time period. But, if you want to take someone to court, you might be time limited by terms you agreed in your contract or by legislation. Generally, send a letter once all other avenues have been exhausted, but while the matter is fresh in the minds of both parties.
Who sends a letter before action?
Generally, a solicitor will draft and send a letter of action on behalf of their client.
While individuals, businesses, and organisations can send the letter, because the steps that follow the letter are technical, clients usually engage a solicitor.
But it also depends on the importance of the claim, the likelihood of resolving the dispute simply by sending a letter and the experience of the sender.
Because of the cost of hiring a solicitor, people tend to assume that if a solicitor is involved, the claimant believes that they would succeed in court. It is also widely misunderstood that a solicitor will only accept to take on work that has a legal basis.
Solicitors can choose to take on any work they choose, even if they expect that their client will not win. They are likely to advise their client on the strength of the case, but if the client insists that the solicitor writes a letter, the solicitor is simply following instructions.
As such, solicitors are often hired to write letters before action, even when they know that the chances of success in court would be low. The client hopes that the letter will scare the defendant into believing that their claim is stronger than it really is.
Contents of a letter before action
The Civil Procedure Rules state that a letter before action has to be written clearly and that it must contain certain information if the dispute proceeds to court.
If you receive a letter that lacks any of this information, you may be able to claim that the correct procedure was not followed, and therefore you cannot be taken to court until it is.
A letter before action should include:
The claimant's full name and address
The recipient's full name and address
A clear statement of the legal issue
The grounds for the dispute (e.g., breach of contract, negligence)
A summary of the facts
What the claimant wants from the recipient (e.g., payment, specific action)
Any supporting documents or evidence
A reasonable deadline for response (usually 14 days)
What action the claimant intends to take if the recipient doesn't respond (usually initiating legal proceedings)
The level of detail you include depends on the nature of your claim.
In a contract breach case, set out which specific terms were breached, when the breach happened, and how it occurred. Include precise dates, amounts, and relevant clause numbers from the contract.
For negligence cases, outline the duty of care, how it was breached, and the resulting damages.
In property disputes, give exact locations and dates of any incidents or changes.
Write your letter thoroughly yet briefly, balancing detail with conciseness. Use active language throughout to ensure your claim is clear.
Remember that this formal communication functions as a pre-court negotiation tool and helps both parties make decisions about their respective positions. A high level of detail allows the other party to see the full extent of your legal claim and respond appropriately, potentially leading to a cost-effective resolution without the need for formal legal action.
Responding to a letter before action
If you receive an LBA, you have several options, and you need to answer quickly and correctly to avoid extra legal costs.
Acknowledging receipt
First, you need to confirm you've received the letter. The CPR gives you 14 days for most types of claim for this initial acknowledgement, with the full response timeframe potentially extending up to 3 months for complex cases.
When you confirm receipt, you should also say you'll look into the matter and tell them when you'll give your full answer. For example: 'I've received your letter dated [date]. I'm looking into the issue and will get back to you by [date].'
Response options
Then you have several ways to reply.
You can accept the allegation and offer settle the claim (pay the outstanding amount or comply with their request).
Alternatively, you might dispute it entirely, providing documentation to support your position.
You can also propose other methods to resolve the issue, such as mediation or direct negotiation. The PACP recommend these approaches. In mediation, a neutral third party assists you and the claimant in reaching an agreement. In direct negotiation, you and the other party attempt to settle the dispute yourselves.
Whichever option you choose, write back and address all points raised in their letter. If you contest the allegation, explain your reasons and provide evidence to help the other party understand your perspective clearly.
If you address the letter comprehensively, you may resolve the issue without initiating legal action, saving time and money. If you disregard the letter or reply inadequately, the claimant might start court proceedings. The judiciary may order you to pay additional costs if you fail to comply with the pre-action conduct rules in respect of timing.
Because there are deadlines in law for responding, people who have weak claims and who issue letters might hope that you miss the deadline. While they might not later win in court, they might hope that a judge orders that you pay some costs, causing you financial harm even if you're innocent. So keep an eye on the deadline dates.
Timeframes for responding
There are specific timeframes for responding to an LBA, which range from 14 days to 3 months based on the case complexity.
Pre-action protocols, which are practice directions issued by the court, outline specific steps you must take before starting court proceedings, including detailed timelines for responding to letters before action.
For straightforward debt claims, the Pre-Action Protocol for Debt Claims allows 14 days to reply, providing time to gather relevant documents and seek legal advice if necessary.
In complex situations, such as professional negligence claims or construction disputes, the relevant PACP may allow up to 3 months for you to investigate and respond to the claim.
Case complexity affects these deadlines in several ways. For example, situations involving multiple parties, intricate legal issues, or extensive documentary evidence often require longer response times to allow for thorough investigation and preparation of a comprehensive response.
If you need time to reply
If you require more time to respond to a formal letter, promptly write to the claimant to explain the reason for the delay and propose a new, reasonable deadline for your response. Most senders will agree to a short extension if you have a valid reason, as it benefits all parties to avoid unnecessary legal action.
Consequences of ignoring a letter before action
If you ignore a formal notice, the sender might start formal litigation against you. They may see your lack of response as a sign you don't want to settle the dispute and go straight to court.
Commencement of legal action
The sender would start legal proceedings by sending a claim form through the county court or the Civil National Business Centre ('CNBC'). This form will show the case against you. For example, if you owe a former business partner £5,000 and don't reply to their letter before claim, they might file a debt claim with the court, starting the formal debt recovery process.
Cost implications
If you do not respond to a letter before action, you may incur higher legal expenses if the case proceeds to court. The court could order you to pay the other party's legal expenses on an indemnity basis, which typically exceeds standard costs. This could result in significantly higher expenses compared to participating in the pre-action conduct process earlier.
Courts view unfavourably parties who do not attempt to resolve disputes before starting proceedings. They expect adherence to PACP, which are practice directions outlining appropriate behaviour before starting court proceedings. Failure to follow these protocols may result in penalties, including:
Paying the other side's costs, even if you win the case
Not receiving costs you would have otherwise been awarded
The court considering your non-compliance when providing directions for case management, which could affect the overall costs of the proceedings
Alternative dispute resolution options
The CPR require you to consider alternative dispute resolution ('ADR') methods before initiating court proceedings.
These methods, such as mediation, can often resolve disputes more quickly than court proceedings, typically in a matter of weeks for straightforward cases, though complex disputes may take longer. They often cost less than going to court and preserve business relationships more effectively.
The three main ADR methods are negotiation, mediation, and arbitration. Your choice will depend on factors such as the complexity of your disagreement, your relationship with the other party, and the level of control you desire over the outcome.
Negotiation and mediation
Negotiation happens when those involved talk directly, often through solicitors, to find a solution that works for everyone. You can settle simple cases in days or weeks, usually paying less than £1,000 in legal fees.
Mediation uses a neutral person, often a qualified mediator, who helps parties talk and agree. It usually takes a single day and costs between £500 and £5,000 for a typical session, depending on how intricate the case is and how experienced the mediator is.
For example, if you and an old business partner can't agree on how to share profits, mediation might help you see a way to split the money based on what each of you did for the business. The mediator could help you look at things from each other's point of view, leading to an answer that is acceptable for both of you without going to court and spending a lot of money.
Seeking legal advice
When you receive a letter before action, we would advise you to contact a solicitor immediately. Legal experts can explain the juridical basis of the case, assess the claim's validity, and compose strategic responses. They can evaluate the strength of your position and potential outcomes, assist you in deciding whether to settle or defend the legal matter. Solicitors also communicate with the other party on your behalf, frequently securing favourable settlements without initiating court proceedings.
Although taking legal advice incurs costs, it often reduces overall expenses by resolving disagreements quickly and preventing expensive litigation.
Protecting assets during legal disputes
As a business owner or individual, you can take specific steps to protect your assets when you receive a letter before action. Review your insurance policies, especially professional indemnity and public liability coverage, to check they cover potential legal disputes.
Keep your personal and business finances separate by establishing your business as a company and using different bank accounts. This can protect your personal assets if your business faces legal proceedings.
You might also consider establishing asset protection trusts. These are legal entities that hold and manage assets. These trusts could protect assets from creditors if you face a claim or debt recovery processes. They do this by transferring ownership to the trust while allowing you to retain some control over the assets.
While asset protection measures are best implemented early, be cautious about making changes once you're aware of potential legal proceedings. Courts might view last-minute transfers with suspicion and could overturn them.
If you transfer assets to avoid possible judgements, this could be interpreted as fraud. It might result in severe penalties, possibly leading to additional court costs and more involved court action.
Always consult a solicitor who specialises in safeguarding assets and civil litigation. They can ensure your strategies comply with Civil Procedure Rules and relevant practice directions, helping you avoid accusations of fraudulent transfers. However, legitimate asset protection strategies, when implemented properly and well in advance of any legal issues, can be effective and legal.
Financial considerations
Legal disputes incur costs for both the sender and recipient of a letter before action. These expenses include legal fees, court fees if proceedings begin, and potentially the other party's expenses if you lose the dispute.
However, be aware that often a letter before action can be sent to harass and worry the recipient. While it can be expensive to reply through a solicitor, doing so can nip spurious claims in the bud early on, before costs escalate.
Estimating legal costs
The costs of legal action vary considerably based on the complexity of the case and its progression through the civil litigation process.
Solicitors usually charge by the hour with prices ranging from £150 to £300 per hour, though rates can vary significantly based on experience and location. You might find a firm that offers fixed fees for certain tasks, such as preparation of a letter before action, or response to one.
You might pay a few hundred pounds for initial advice on a letter before claim. If the case proceeds to court, costs can increase to thousands or tens of thousands of pounds. Expert witness fees, if required, can add thousands to your expenses.
You should also consider indirect costs such as time away from your business and potential stress.
Consider this example: You receive a pre-action letter from a supplier regarding an undisputed debt. You don't believe that you owe the full amount claimed. Initially, you might pay £500 for a solicitor to review it and respond within the time limit set by the practice direction. If negotiations fail you could spend £2,000 to £5,000 preparing for court. This includes collecting key documents and drafting the claim form. Court fees might add another £1,000. If the case proceeds to trial, legal costs might rise to £20,000 or more, before any damages if you lose.