The general aim of the Pre-action Protocol for Construction and Engineering Disputes (Protocol) is to ensure that before court proceedings commence the parties have a mutual understanding of the nature of the other side’s case and explore ways that the claim may be resolved.
In this case the court had to consider whether the costs incurred in the process of complying with the Protocol should be awarded against the party who failed to raise during that stage of the proceedings its preference for the dispute to be referred to arbitration.
Bovis Homes Limited v Kendrick Construction Limited  EWCH (TCC)
The employer engaged the contractor to carry out and complete the design and construction of 48 sheltered housing apartments and three retail units at Pinner Court in Birmingham. The contact (dated 26 November 1996) incorporated the JCT Standard Form of Building Contract with Contractor’s Design (1981 edition). Article 5 of this standard form contained a valid and binding arbitration agreement.
The works were completed in October 1997. Nine years later, in June 2006, the employer put the contractor on notice of alleged defects in the works.
On 11 October 2007, the employer sent the contractor what was referred to as a ‘pre-action letter of claim’ pursuant to the Protocol setting out the details of the employer’s claim. There was no doubt that it was intended to be a letter of claim under the Protocol, and it was treated as such by the contractor.
The parties failed to comply with the timetable prescribed by the Protocol. The contractor did provide a letter of response on 18 December 2007, but no pre-action protocol meeting was ever arranged. Protective proceedings were issued by the employer on 4 November 2008 following a change in the employer’s solicitors. On 2 March 2009, the claim form and particulars of claim were served.
It was not until 17 March 2009, that the contractor raised for the first time its preference for arbitration due to the arbitration agreement in the JCT Standard Form of Building Contract and applied for a stay in accordance with section 9 of the Arbitration Act 1996.
The employer did not object to the stay but sought the costs ‘thrown away’ due to the late raising of the arbitration point. The employer relied on paragraph 4.2.1 of the Protocol which set out the detail required for the contractor’s response to the letter of claim.
Paragraph 4.2.1 of the Protocol
Paragraph 4.2.1 of the Protocol provides:
“if the defendant intends to take any objection to … the claimant’s claim on the grounds that (i) the court lacks jurisdiction, (ii) the matter should be referred to arbitration… that objection should be raised … within 28 days of after receipt of the letter of claim. … Any failure to take such objection shall not prejudice the defendants’ rights to do so in subsequent proceedings but the court may take such failure into account when considering the question of costs.”
No mention of arbitration was made in the contractor’s letter of response allegedly because the contractor did not have an executed copy of the contract (the court noted that the contractor had not requested a copy of the contract from the employer nor had it stated in its response letter that it did not have a copy of the standard form).
The Court’s decision
The judge held that in accordance with the spirit and letter of the Protocol and given the contractor’s knowledge of the probable arbitration clause in the JCT Standard Form of Building Contract, the contractor’s preference for arbitration should have been raised in its letter of response in December 2007.
The contractor was therefore liable for the costs incurred by the employer which would not have been incurred had the stay been referred to in the letter of response. The judge further decided that it was appropriate for any assessment exercise to await the outcome of the arbitration. Only then could a clear view be formed as to what costs were thrown away in the abortive Protocol process and what costs would have been incurred in any event.
It is important for parties embarking on legal proceedings to exchange their views fully not only concerning the nature of the underlying dispute but also as to how that dispute should be tried. That is why paragraph 4.2.1 of the Protocol requires a statement at an early stage of any jurisdictional or arbitration points. A failure by a party to make a jurisdictional objection as required by paragraph 4.2.1 of the Protocol is likely to result in that party being penalised in costs.
Parties contracting using old versions of the JCT standard form contract - here it was the 1981 version - should take particular note as the standard form contains a clear arbitration agreement. More recent editions, such as the JCT 2005 and subsequent editions provide for the courts to have jurisdiction unless the parties elect that disputes should be referred to arbitration.