One of the significant deterrents to resolving construction disputes through the courts is the cost of doing so, and this begins prior to the issue of proceedings thanks to the Pre-action Protocol on Construction and Engineering Disputes (‘PAP’), introduced in October 2000. The PAP has just been overhauled, which ought to be to the benefit of potential claimants.
The intention behind the PAP is to allow each party to understand each other’s case, explore settlement options and, if that fails, more closely define the issues and how they could be best resolved in any forthcoming court proceedings. The PAP applies regardless of the value of the claim, subject to a few exceptions including, thankfully, adjudication enforcement.
Complying with the PAP can be time consuming and costly, yet the costs of compliance are only recoverable in the event that the claimant actually issues proceedings and wins. Issuing proceedings prematurely, can result in proceedings being paused to allow compliance and/or incur costs sanctions. All of this gives defendants the opportunity to delay the claim. Complying with the PAP not only delays justice, this ‘front end loading’ of legal costs can prevent it altogether where the claimant has a limited budget. This sticks in the craw when it’s the ‘big guys’ with deep pockets who are wrongfully holding the ‘little guy’s’ money.
The new PAP seeks to remedy these problems. Firstly, the parties can agree to dispense with it entirely. In practice, the defendant is unlikely to agree; it will still seek to buy time and force the claimant to incur irrecoverable costs.
Secondly though, compliance will become easier. Letters of claim and response shall contain a ‘brief’ and ‘proportionate’ summary of claims, the relief sought, and the defences. The parties now only need to provide enough information to ‘broadly’ understand each other’s positions and make informed decisions about how to proceed (as opposed to providing sufficient information to know the nature of the other’s case).
Thirdly, whereas previously the time for a letter of response was 28 days from the letter of claim, this could be extended to 3 months, with defendants nearly always clamouring for the maximum allowable. Now, the parties may only agree an extension up to a maximum of 28 days, i.e. 56 days total.
Disclosure of experts’ reports and documents had never been explicitly required under the PAP. Certain defendants expected the claimant to disclose both as a precondition to a proper response to the claim, and would threaten costs sanctions if the claimant issued proceedings without this. Because the new PAP continues to omit any requirement for their disclosure, this should give claimants confidence to resist such demands and force their claims.
The new PAP still says that the parties should ‘usually’ meet, but that they should now do so within 21 days of receipt of the letter of response, rather than the current 28 days. The protocol sensibly suggests that holding the meeting as mediation would be a good way of ensuring it has the best chance of achieving a settlement. Too often, these meetings are talking shops which resolve nothing.
However, the ‘great leap forward’ from the claimant’s point of view, is the explicit provision that “The Protocol process will be concluded at the completion of the pre-action meeting or, if no meeting takes place, 14 days after the expiry of the period in which the meeting should otherwise have taken place.”
For the first time then, there is a long-stop of 91 days from service of the letter of claim; after that, the claimant which has done its best to comply with the PAP can issue proceedings and bring their exposure to irrecoverable costs to an end. This should reduce foot-dragging by defendants, make for more effective protocol meetings, and threats of costs sanctions for alleged non-compliance should be trotted out less readily.
On that note, the new PAP 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.
For the ‘big ticket’ cases, the parties can agree to be able to have recourse to an optional ‘protocol referee procedure’ to assist compliance with the PAP. However, the application fee to call in a solicitor or barrister referee is 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. The referee can also order the respondent to reimburse the application fee if appropriate, but not legal costs. Like adjudication, the referee’s decision, including about the fee, is binding and the parties are expected to comply with it until the dispute is determined. Although it will be influential, the court will not be bound by the referee’s decision.
It is currently unclear whether the new PAP will curtail the pain of those currently undergoing protocol compliance, but it should apply to matters in which a letter of claim was sent after 14 November 2016, the ‘in force’ date. The Technology & Construction Court Guide has not yet been revised to reflect the new PAP.
The PAP has been tweaked in the past, to little effect, but it does appear that this time the changes will allow claimants to maintain the initiative, while honouring the original aim of ensuring the parties at least understand each other’s positions early on.
What does this mean for you or your business?
The key to getting claims against a recalcitrant defendant resolved is involving an arbiter as soon as possible. Although the Technology & Construction Court is efficient, the cost of protocol compliance and the ‘front end loading’ of costs was a major deterrent to litigation. The new protocol now means that it should be possible to issue proceedings quickly after proportionate protocol compliance, and reduced pre-action costs.
What could you do now?
The new protocol specifically says ‘A Claimant shall not be required to comply with this Protocol before commencing proceedings if all the parties to the proposed proceedings expressly so agree in writing.’ It does not say when this agreement must be arrived at. Arguably, if so desired, the parties could contract out of PAP compliance altogether where litigation is the chosen method of final dispute resolution in their contracts. Alternatively, they could draft bespoke dispute resolution clauses in which they elect, for example, to dispense with those paragraphs which require the parties to meet.