Default County Court Judgments: A consultation on ensuring the process works fairly for both creditors and debtors

• United Kingdom

• Litigation and dispute management

22-01-2018

Ministry of Justice (“MoJ”) consults on proposed changes to the current court process in order to make it fairer to those who owe money

Following concern about the potential adverse impact of a County Court judgment on individuals who were unaware that a default judgment had been entered again them, the Government published a consultation on 27 December 2017 on changes to the process for obtaining default judgments. Momentum for the consultation can be traced back to a Daily Mail campaign and subsequent indications by the MOJ that the impact of the changes to the service provisions of the Civil Procedure Rules introduced in 2008 would be reviewed. However, it remains to be seen whether the proposals will lead to concrete reforms with real teeth. If it does, that will cause concern particularly amongst regulated financial institutions and utilities who will feel their processes are fair and that they are being penalised for the perceived less “TCF” behaviour of unregulated institutional claimants.

Background

Following issue of a claim form to a defendant, the defendant has 14 days to reply to the claim (or 28 days if they return an acknowledgement of service and request further time to file a defence). Provided the correct procedure has been followed, the claimant can obtain a judgment in default if the defendant has not responded or filed a defence within the 14 or 28 day period.

In 2016/17, there were over 1.1 million County Court judgments, of which the majority (85%) resulted from default judgment. The data on specified money claims (i.e. those where a claimant seeks to recover a specific sum of money) suggests that there is a significant proportion of defendants who choose not to defend the claim for a variety of reasons including the fact that they did not receive the claim form because an out of date or otherwise incorrect address had been used on the claim form by the claimant. Failure to defend a claim inevitably results in judgment in default being entered which damages the defendant’s credit rating. In some circumstances defendants do not know that a judgment in default has been entered against them until they apply for credit and encounter difficulties due to their credit rating.

Proposed changes under the consultation

Improving public information:

• Society is more mobile nowadays and consequently, consumers do not always update their address with creditors when they move, or they place greater reliance on email addresses rather than postal addresses (particularly in an increasingly digital world).
• The Government has therefore committed to improving public awareness of how to avoid a default judgment and the potential consequences of one which includes the importance of notifying of a change of address and engaging with creditors.

• A well-constructed and impartial source of information is likely to be welcomed by all sides of the industry.

Removing an entry from the Register of Fines, Orders and Judgment

• Default judgments remain on the statutory Register of Fines, Orders and Judgments for six years – but if a defendant pays the full amount owed within 28 days the entry is removed from the Register. Payment of the judgment after 28 days means that the entry remains in the Register but is marked “satisfied” once the claimant informs the court. The Register is used by banks and lenders to assess creditworthiness and by other business or individuals to assess the risks of persons they may do business with.
• The consultation proposes that a judgment be removed from the register where the court is satisfied that: (i) the defendant was unaware of the claim/judgment when originally issued/entered; (ii) the defendant has only just become aware of the claim/judgment; and (iii) the defendant immediately pays in full. The defendant would then be placed in the same position as a defendant who received the judgment and paid within 28 days of receiving it. The proposal does not fix a time limit in which the defendant must come forward.
• Whilst the credit sector is always concerned to ensure that credit files are accurate, if there are adequate safeguards there is likely to be support for a process which not only allows credit files to be legitimately repaired but also rewards payment of unpaid judgments.

The problem of County Court judgments being served to an old address

• A claim is served on the defendant by the court using the address provided by the claimant. In many circumstances, the defendant has not kept the claimant up to date in respect of any new addresses.
• The Ministry of Justice has not yet put forward any proposals as to how to deal with this issue (save for acknowledging that better public information is needed) and has invited views on the current process for service of claims to an address.

• The view of most institutional creditor claimants (who represent the vast majority of the default judgments) will be that the current provisions of the Civil Procedure Rules provide a fair balance between creditors and debtors. The service provisions reflect the underlying principle that where a debtor contracts with a firm for services or credit they have a responsibility to keep the firm informed of their address. There will be resistance to that principle being eroded. Perhaps unsurprising criticism has often centred on sectors where there is not an ongoing relationship of this type between claimant and defendant – such as the recovery of parking fines where the debtor has never provided an address to the claimant. However, even here claimants might legitimately point to the fact that they rely on DVLA registered keeper data which it is an offence for the registered keeper not to update.

Next steps

Final responses to the consultation are due by 21 February 2018 and of particular interest to the MoJ are views from respondents on limiting the circumstances in which an individual may have a judgment made in default against them without their knowledge.