The new Pre-Action Protocol for Construction and Engineering Disputes (the Protocol) came into force on 9 November 2016. The original Protocol was introduced more than 16 years ago to encourage the early settlement of disputes and help parties avoid embarking on time consuming and costly Court proceedings. It required parties to set out the basis of their case and normally meet, rather than simply sending a cursory letter demanding payment, before suing in Courts. The Protocol has been very successful in promoting settlement but following a consultation led by the Technology and Construction Solicitors Association (TeCSA) and the Technology and Construction Bar Association (TECBAR) a updated version of the Protocol has been launched. It introduces several significant changes including permitting parties to agree to bypass the Protocol and establishing a regime for a Protocol Referee to provide oversight on the Protocol process.
There has been a perception that the existing Protocol could be unnecessarily onerous and costly to comply with. The new Protocol has sought to address those criticisms and has been revised so that the parties no longer need to provide full information about their prospective legal claims and defences. Instead, the obligation now is to provide “sufficient information” about the proposed proceedings – the emphasis is on allowing parties to understand each other’s broad position and make attempts to resolve the matter without litigation. The objective is still to avoid litigation but there is a greater focus on proportionality in the early stages of the dispute to minimise the front loading of costs. This shift is illustrated in the changes to the objectives of the Protocol. Now only the “outline” of the parties’ respective cases must be made known to the other. The previous aim to “define and agree issues” and explore possible methods of resolving the dispute at the meeting have been removed or modified.
The requirements of the letter of claim have been amended so that it shall include a brief summary of the claim, including the principal contractual or statutory provisions relied upon, together with a summary of the relief claimed. This should include the monetary value of the claim broken down to a reasonable degree of detail for the circumstances. It is expressly stated that the brief summary should be proportionate to the claim and it is not expected or required that expert reports should be provided. The previous requirement for the Claimant to explain that a claim has previously been made and detail the reasons why it was rejected by the Defendant has been removed.
Together, these amendments reduce expectations for the level of detail required in the letter of claim.
The requirements of the Defendant’s response have also been amended to bring them in line with the theme of proportionality. The response shall now contain a “brief and proportionate summary” of the Defendant’s position and, if appropriate, any counterclaim. The requirements to detail which facts in the letter of claim are accepted or rejected have been removed along with the requirement to state any contributory negligence allegations.
Under the new Protocol, the parties may agree extensions of time for the Defendant’s response up to a maximum of 28 days rather than the 3 months previously permitted. The parties are still expected to normally meet and now that meeting should take place within 21 days (rather than 28 days) of the later of the response to either the claim or counterclaim. The Protocol process shall be concluded at the completion of the pre-action meeting or, if no meeting takes place, 14 days after the period in which the meeting should have taken place.
The most innovative element of the new Protocol introduces the role of a Protocol Referee – characterised by TECSA a “lion tamer” – to oversee compliance with and give directions under the Protocol where required. This means that the letter of claim must now also state whether or not the Claimant wishes for the Protocol Referee Procedure to apply; the Defendant must also confirm whether or not it consents to this oversight by the Referee. Once agreed in principle, any party may apply to the Chairman of TeCSA for the appointment of a Protocol Referee. There is flat fee of £3,500.00 (excluding VAT) for the Referee who will be a senior member of TECBAR or TeCSA.
Where required, the Protocol Referee’s role is to give directions to the parties in how to comply with the Protocol and to assess whether there has been a failure to observe the Protocol. The Referee will reach a decision within 10 working days after receipt of the appointment and that decision is binding and must be complied with until the dispute is determined by legal proceedings or amended by agreement.
It appears now that the Court is only likely to impose costs sanctions for non-compliance with the Protocol “in exceptional circumstances” resulting from a flagrant or very significant disregard for the terms of the Protocol. Consequently, the risks of minor non-compliance with the Protocol are significantly reduced and arguments around prescriptive observance may well be avoided, which in itself may save time and cost.
Whilst the updated Protocol may encourage parties to overlook elements of the Protocol and take their chances on costs in proceedings, the less demanding requirements of the new procedure are likely to save pre-action time and costs in many cases. The trade-off is that with less information likely to be available to each party, the prospects of early settlement may be reduced. Taken as a whole, there is cause for optimism that the greater flexibility and the hazard of the Protocol Referee will result in a smoother more efficient Pre-action Protocol process.