A new Pre-Action Protocol for Construction and Engineering Disputes will come into force on 9 November 2016. At the launch event on 2 November Mr Justice Coulson, along with Alexander Nissan QC of The Technology and Construction Bar Association (TECBAR), and Simon Toulson of The Technology and Construction Solicitors Association (TeCSA) set out the key changes to the existing Protocol, and the reasons behind them. Tom Handley and Dale Hilton discuss how the changes will affect experts, insurers, brokers and professionals involved in construction disputes.
The Pre-Action Protocol for Construction and Engineering Disputes was introduced in October 2000 to encourage parties to exchange information to avoid litigation where possible. However, it was criticised for encouraging parties to front load costs. In 2015 Mr Justice Ramsey carried out a review of the Protocol which, along with a perception survey carried out by TeCSA and TECBAR, revealed that the majority of practitioners felt that the Protocol was a valuable pre-action mechanism but almost half felt that it required amendment.
The new Protocol seeks to address the amount of costs incurred at the pre-action stage by reducing the amount of information that must be provided in the letters of claim and response. It also gives parties the option to mutually agree to contract out of the procedure, and relaxes the rules surrounding Protocol meetings and sets out a new optional referee procedure.
What are the main changes?
Parties may now agree in writing not to follow the Protocol procedure.
Parties no longer need to provide sufficient information to know the nature of the other’s case. Instead, parties only need to provide sufficient information ‘broadly’ to allow the parties to understand each other’s positions and make informed decisions about how to proceed.
The current Protocol is silent on the issues of adverse costs orders, although guidance from the Technology and Construction Court (TCC) makes it clear that minor infringements will not give rise to costs sanctions. The new Protocol confirms the current position, and makes it clear that the court will only impose costs consequences in exceptional circumstances, such as ‘flagrant’ or ‘very significant’ disregard for the terms of the Protocol.
Letter of claim
The new Protocol now clarifies that in most cases, the letter of claim shall contain a ‘brief’ and ‘proportionate’ summary of claims and relief. Expert reports are neither expected nor required, and a claimant should stipulate whether they wish the protocol referee procedure to apply.
Letter of response
The defendant should confirm in their acknowledgment whether it wishes the protocol referee procedure to apply. The defendant should serve a brief and proportionate letter of response within 28 days from the date of receipt of the letter of claim. Parties may agree an extension up to a maximum of 28 days, which is significantly shorter than the three month extension currently available.
The new Protocol relaxes the rules regarding Protocol meetings. Parties should ‘usually’ meet and should do so within 21 days of receipt of the letter of response (rather than the current 28 days). The new Protocol specifically provides that the Protocol meeting can itself take the form of mediation. Further, if the claim cannot be settled there is no longer a requirement for the parties to define and agree the issues in dispute.
The new Protocol introduces an optional protocol referee procedure which the parties may agree to engage in to assist compliance with the Protocol. Both parties must agree for the Procedure to apply and the applicant must pay a fee (currently £3,500 plus VAT). Each party will have time to respond, and the referee will reach a decision within 10 working days. The referee can set out appropriate directions for future conduct of the Protocol process, and make directions on non-compliance with the Protocol and extent thereof. The referee can also order the respondent to reimburse the applicant with the application fee which, in subsequent proceedings, will be costs in the case. The referee’s decision is binding and the parties are expected to comply with it until the dispute is determined. The court shall give weight to the referee’s decision but will not be bound by it.
There is currently no information about transitional arrangements, which will be needed when the new Protocol comes into force next week. The TCC Guide will also need to be revised to reflect the changes.
The Protocol remains an extremely valuable pre-action mechanism for dealing with construction disputes and should continue to facilitate early consideration of issues, exchange of information and promote resolution and settlement.
However, whilst the changes to the Protocol may meet the principal objective of discouraging parties from front loading costs, that will not necessarily translate to a reduction of costs overall. With less emphasis on providing detailed information in the letter of claim, tighter timescales and the new rule that a Protocol meeting can take the form of mediation, we may actually see an increase in costs.
In our view, the changes to the Protocol, coupled with the fact that there is still no clear guidance relating to pre-action disclosure, may result in more instances where defendants are railroaded into attending premature meetings or mediations without sufficient information to fully understand or assess the claim. Those meetings or mediations will inevitably be less meaningful, with the upshot being that there will be fewer pre-action settlements, potentially more litigation, and increased costs.
The protocol referee procedure is an interesting introduction. However, in light of the high application fee and ‘adjudication’ style process, we think that it is only likely to be utilised in high value, and/or complex cases where the costs associated with the process are proportionate to the value of the claim and where there is a significant procedural or non-compliance issue to be determined.