A decade ago, anyone who had a construction dispute with someone could usually ask his solicitor to threaten the other party with High Court proceedings, and then follow up with a claim form (writ) seven days later. For some years, this aggressive approach has not been permitted.

The Pre-Action Protocol for Construction and Engineering Disputes (the latest edition was published in April 2007) requires a claimant to send a letter of claim, setting out the basis of his claim, and any breakdown of damages or other sums claimed, before starting any proceedings. The other party then has 28 days to respond. After that, the parties must meet in order to discuss their disagreement. Both should be represented by someone who has authority to recommend settlement. Only after this can the claimant issue court proceedings.

Two decisions in the Technology and Construction Court show the firm line that the judges are taking with parties who do not treat the protocol seriously.

Limitation no defence

The first case was Charles Church Developments Limited v Stent Foundations Limited and Peter Dann Limited (March 2007). The claimant CCD alleged that Stent and Peter Dann were liable for losses caused by various incidents in connection with piling works. Although there was some limited correspondence between the parties from 2000 up to 2006, Stent had received no proper particulars of the claim when on 8 June 2006 a claim form landed on its desk. No attempt had been made to conduct any pre-action protocol procedure before the issue of the proceedings.

CCD accepted what Mr Justice Ramsey described it as a “serious breach” of the protocol and apologised for their conduct. CCD’s explanation was that they had had to issue proceedings in order to avoid potential limitation problems (i.e. their claim might have become statute-barred six years after the incidents in question). However, although the protocol does contain a get-out for a party with a limitation problem, this is not intended to encourage a party to delay matters until there is a limitation problem – as the judge pointed out.

The judge was particularly swayed by evidence from Stent that its general policy to avoid litigation meant that it had, in the past, resolved most disputes without the need for legal proceedings. CCD’s peremptory issue of proceedings had deprived Stent of the ability to resolve the dispute at an early stage.

CCD tried to avoid any penalty in costs by arguing that such issues should be resolved later. The judge however was keen to deal with such issues immediately and thought it would help at a mediation if the parties knew at that point how such costs were to be dealt with. The costs of Stent were put at £354,000 up to the date of the hearing. He ordered CCD to pay 50 per cent of Stent’s costs incurred from June 2006 until April 2007, and to bear, in any event (i.e. irrespective of the final outcome of the proceedings) 50 per cent of its own costs from February 2006 to April 2007.

Putting proceedings on hold

The second case was Cundall Johnson & Partners LLP v Whipps Cross University Hospital NHS Trust (September 2007).

In March 2006, the claimant, a firm of consulting engineers, sent a letter to the trust requesting payment of five invoices totalling just over £300,000. The trust responded, saying that it was having difficulty locating the necessary paperwork to verify the fees, and asking for copies of various documents, including a fee schedule. Despite further correspondence, no proper details were provided. The claimant went ahead with issuing proceedings in August 2007. The trust applied for an order that the action be stayed in order to enable the parties to attempt a settlement.

The judge said that a disputed claim for professional fees made by a firm of consultant engineers fell within the term “engineering disputes” under the protocol. He also held that the fact that the claim could be characterised as “debt collection” did not take it outside the scope of the protocol. The claimant had not complied with the requirements of the protocol in that it had not sent a proper letter of claim. The defendant was quite within its rights to decline to attend any meeting until it had received such a letter.

The judge exercised his discretion to grant a stay. There was, in his view, a real possibility of settlement if the parties went through the protocol processes, and a stay would potentially save costs. It was unfair on the defendant to have to proceed immediately with litigation, when the claim had only been notified fully in the claim form. The judgment does not deal with costs, but plainly the trust, having made a successful application, would expect to receive an order for them.

Another example of a cost penalty

It is also worth noting an earlier decision in the TCC, Daejan Investments Limited v The Park West Club Limited (2003), which was a professional negligence action against a firm of engineers. The claim was begun without the claimant being clear what its claim was, or complying with the protocol. After it had started, it applied to amend the claim to a material degree. The judge took the view that, had the claimant complied properly with the protocol, the engineers might have been able to avoid the litigation altogether. The claimant was ordered to pay all of the costs of the engineer to date, and to bear its own costs - a tough penalty, but surely justified in the circumstances.

Comment

The message from the courts is clear. The protocol is there to stop parties ever getting to court - or at least to ensure that if they do go there, they both understand what their differences are. Anyone who tries to bounce another party into litigation will have to explain himself to the court, and may be penalised in costs.

If a limitation period is looming, do not assume that all will be well so long as you issue proceedings before it expires. You must start to take action in accordance with the protocol at least four months before the limitation deadline if you are to have sufficient time to comply with it before commencing proceedings.