The new Pre-Action Protocol for construction and engineering disputes


Author: Christian Charles


A version of this article was published in Construction News on 24 April 2017.

Background

Most construction and engineering disputes are settled by negotiation and without the need for formal dispute proceedings.  Where disputes cannot be resolved in this way, a claimant will usually have the option of pursuing its entitlements through statutory or contractual adjudication.  In some cases, however, litigation or arbitration will be necessary.

Before commencing court proceedings, a claimant must comply with the court rules which govern pre-action conduct.  These rules are set out in the “Pre-Action Protocols” which form part of the Civil Procedure Rules.

Broadly, the Pre-Action Protocols require the parties to exchange information about their respective cases and explore settlement and alternative forms of dispute resolution before coming to court.  If a party fails to comply with the Protocol, it faces the risk of costs sanctions at a later date.

The new Protocol

On 15 November 2016, a new Pre-Action Protocol for construction and engineering disputes was launched, replacing the first edition which had been in place for over 16 years.  The new Protocol applies to all construction and engineering disputes where a letter of claim was sent on or after 15 November 2016.

The old version of the Protocol had been criticised by many for being too onerous and time consuming.  It was not unusual for parties to exchange several rounds of lengthy and detailed correspondence, racking up substantial costs before proceedings had been commenced.  In addition, defendants would frequently request long extensions of time in order to investigate the claim and provide a substantive response.

The principal aims of the new Protocol are (i) to avoid protracted and expensive pre-action proceedings and (ii) to provide a more sensible and proportionate framework for pre-action discussion and negotiation.

So what’s new?

The basic framework of the protocol remains the same.

First, a claimant sends a letter of claim.  The defendant then sends a letter of response, by which it either admits the claim or confirms the basis on which it is defended.  If the defendant has intimated a counterclaim, the claimant has an opportunity to reply to it.  Finally, the parties should meet on a without prejudice basis to discuss the claim and explore opportunities for settlement.

However, within this basic framework, there are a number of important changes:

  1. The parties can now agree (in writing) to dispense with the Protocol, whereas the old Protocol was mandatory.
  2. The court will only impose cost sanctions for non-compliance if there has been a “flagrant” or “significant” disregard for the Protocol.  It will not be concerned by minor breaches, provided that the parties have complied with the spirit of the Protocol.
  3. The letter of claim and letter of response are now limited to a “brief” and “proportionate” summary of the claim and defence, whereas the old Protocol required the parties to provide “full information” about their case.  Indeed, in claims of modest value, the Protocol now provides that the letter of claim should be “simple”.
  4. Experts’ reports are not required unless they are “central to the claim”.
  5. The time period between the letter of response (or the reply to counterclaim, if applicable) and a pre-action meeting has been shortened from 28 days to 21.
  6. The parties can agree extensions of time for compliance with the Protocol, but only up to 28 days in the aggregate.

The Referee Procedure

The biggest change, however, is the introduction of a new “Protocol Referee Procedure”, by which the parties jointly appoint a third party to assist and give directions as regards compliance with the Protocol.

This is a consensual process, so both parties must agree in writing that the Referee Procedure will apply.  It is envisaged that the Referee will give directions in relation to the parties’ compliance with the Protocol.  For example, one of the parties may ask the Referee to decide whether the Protocol has been complied with, and/or whether further and better particulars or evidence should be provided by either party.

There is an appointment fee of £3,500 plus VAT, which is to be shared equally between the parties.

At this stage, it is unclear whether the Referee Procedure will be widely adopted, or how it will work in practice.  For example, it is difficult to see why a party that is unwilling to provide further information would agree to have its knuckles rapped by a third party, and to pay for the privilege.  It is also unclear how a party would enforce a Referee’s decision, and whether the court will simply accept a Referee’s decision at face value.

Conclusion

The new Protocol seeks to provide a more flexible and proportionate framework for pre-action discussion and negotiation.  Its introduction should mean that claims progress more quickly and cost-effectively through the Protocol process, which should of course be welcomed.  The benefits of the new Referee Procedure, however, are not immediately obvious.  It will be interesting to see whether this procedure is adopted and how it is used by parties going through the pre-action stages.

Christian Charles, Senior Associate, Fladgate LLP (ccharles@fladgate.com)

View by author:


Would you like to hear more?