A Mucky Situation for Debt Collectors

A common practice among debt collectors has been ruled to be unlawful. For years, debt collectors have appeared in the Petty Debts Court on the basis that they have been given a mandate as a credit control manager for the creditor party suing for the recovery of a debt. In this capacity they have issued summonses, participated in Court proceedings, and sought to enforce judgments.

This practice was accepted by judges in the Petty Debts Court. When the practice was challenged, the Magistrate maintained that the practice, which had existed for many years, “enabled the efficient and economic collection of debts” and that she was content to proceed on the basis of the established practice. This was a preliminary ruling, with full argument leftover for a later date should the parties wish to revisit it.

The matter did not return for argument before the Magistrate but, rather, there was an appeal to the Royal Court. Because of inter alia specific points of interest to the legal profession, namely the extent to which persons not qualified to practice in Jersey law possessed rights of audience in the Petty Debts Court, the Law Society of Jersey were allowed to be heard at the appeal.

In considering the Petty Debts Court position on appeal, the Royal Court also looked at its own position. From a statutory position, the two courts have similar provisions in that an individual may appear as a litigant in person (ie acting on his or her own behalf) or may be represented by an Advocate. In the case of the Petty Debts Court, the rights of audience were slightly wider, in that (Jersey) Solicitors were allowed to appear.

In relation to a body corporate, the Royal Court’s rules were specifically amended to allow directors of a company to appear on behalf of the company before the Royal Court. Although legislation governing the Petty Debts Court remains silent as to a director’s rights of audience on behalf of a company, the prevailing view is that directors can appear because the Petty Debts Court possesses some inherent jurisdiction to control its own process and it can, and has, allowed directors to appear. This follows the practice of the Royal Court and, importantly, the use of the Petty Debts Court’s inherent jurisdiction does not contravene any statutory provision by which it is governed.

No statute governing the Royal Court or the Petty Debts Court allows for wider rights of audience to allow a mandated ‘credit control manager’, or other, to appear. On appeal, the Royal Court’s view was that a mandated 'credit control manager’ did not possess rights of audience in the Petty Debts Court, and it was not permissible, nor a reasonable exercise of the Petty Debts Court’s inherent jurisdiction, to allow a mandated ‘credit control manager’ rights of audience.

During the appeal, the Royal Court considered the position of debt collection companies more generally. Reference was made to the important service they can provide in the aid of recovering debts for much less than it would cost to engage a law firm, however the position in Jersey appears to be that, subject to a voluntary code of conduct, they are not regulated. In England, debt collectors are regulated. Jersey law firms and practicing Advocates and (Jersey) Solicitors have a legal obligation to comply with the Law Society’s Code of Conduct as well as maintain professional indemnity insurance cover.

Accordingly, there are measures in place which protect the clients of a law firm which do not exist with debt collection companies and until there is a satisfactory level of industry protection it may be thought unlikely that law makers will seek to amend the current rules relating to the rights of audience in courts within Jersey or, if they do, such rules will themselves contain provisions amounting to some form of regulation.

Notwithstanding the above, the Royal Court acknowledged that there was an alternative workaround, which was a common practice of debts being assigned to a debt collection agency, wherein the director of the debt collection agency could appear on behalf of the debt collection agency itself to pursue the debt. This remains an available tool, and one by which debt collection agencies can continue to carry out cheap and affordable means of debt recovery.

The Royal Court’s full written judgment in Mucky Mutz Limited v Hightide Investments Limited [2024] JRC 268 can be found by clicking on the link below.

VIEW the written judgment in Mucky Mutz Limited v Hightide Investments Limited [2024] JRC 268

The outcome in Mucky Mutz was that the summons issued by the debt collector was not valid. However, this did not affect the ability of a director of the creditor, or an Advocate or (Jersey) Solicitor, to re-issue the summons and pursue the debt, or for the debt to be assigned and for the debt collector to try again.

On the basis that the summons in Mucky Mutz was invalid because it was issued by a debt collector on a purported mandate, this begs the question as to whether summonses (and/or judgments resulting from such summonses) in other cases would be invalid on the same grounds. Are there far-reaching consequences?

There appears to be scope for challenges to be made but that may not necessarily mean there is merit in doing so. Such a challenge is a technical point, and it does not bar a party from re-litigating where they are likely to, if not almost certain to, succeed in circumstances where they succeeded before. Accordingly, any challenge is likely to only delay the inevitable and involve more costs.

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