10 March 2003
The Pre-Action Protocol for Construction and Engineering Disputes is more than two years old. It began as part of Lord Woolf's vision of the litigation world being a place where parties meet to have civilised discussions and resolve their disputes without bothering the courts.
When it was created, the objectives of the protocol were: to encourage the exchange of early information; to encourage pre-action settlement; and to support the efficient management of proceedings where litigation could not be avoided.
The methods by which these objectives were to be fulfilled sounded relatively simple: service of a letter of claim by the claimant setting out the details of its claim; service of a letter of response by the defendant setting out its defence; without prejudice meetings between the parties to discuss the issues, hopefully settle the claim and, if not, agree a sensible way forward for resolving the dispute.
But the reality has been somewhat different. Construction disputes by their nature are technical and complex. Although the letters of claim/response have to follow certain guidelines, they tend to be quite basic in comparison to statements of case. Sometimes the letter of claim/response gives insufficient information about a party's claim/defence. Then the flurry of correspondence between the parties begins, with each party requesting further information from the other and arguing about whether the parties have complied with their obligations under the protocol. In construction disputes, expert evidence is often needed before the issues can be determined and experts' reports may need to be disclosed on a without prejudice basis before any resolution can be achieved.
All of this work has a costs implication and often the parties spend substantial sums on lawyers' and experts' fees prior to reaching settlement. One major problem is that the parties have no mechanism for recouping their costs. This means that a claimant can use its letter of claim to test a defendant's reaction to a potentially weak or hopeless claim. The claimant can do so knowing that it has the option of walking away at any stage during the protocol process. The defendant will no doubt have incurred costs in convincing the claimant that its case was hopeless and must bear those costs itself. In a complex or technical case - as is usual in construction disputes - the costs may run into thousands of pounds.
The process can also be slow, as the timetable for the protocol is fairly relaxed. For example, the parties may agree that the letter of response can be served up to four months after service of the letter of claim. Then, the without prejudice meeting takes place. The idea behind the protocol is that the parties have enough time to consider all of the issues. However, with no specific deadlines to meet, the whole process often takes up to a year or longer, depending on the complexity of the issues.
Sometimes a party is brought into the protocol process, particularly in multiparty disputes, because the claimant hopes that the party or its insurers may contribute to the settlement pot. The claims may perhaps be without any real substance, yet the prospective defendant appears to have little option but to incur costs by participating in the protocol process.
Also, compliance with the protocol sometimes leaves a defendant in a state of limbo. What happens if it is served with a letter of claim under the protocol, to which it responds and it hears nothing further? Perhaps it was the letter of response which has resulted in the other side realising that it has no claim. However, it has no way of knowing this. The protocol provides no mechanism requiring a claimant to state whether it intends to proceed with the claim in such circumstances. As such, the prospective defendant is left with the Sword of Damocles hanging over its head.
It can be slow, expensive and uncertain, so why comply with the protocol? This question can only be answered by understanding the implications of non-compliance with the protocol.
The court has the power to take non-compliance or compliance with the protocol into account when giving directions for the management of proceedings. For example, the court can order that proceedings be stayed to allow the protocol to be observed or order that, if a party has not complied with the protocol without good reason, it pays money to the court.
There may also be costs implications. The protocol requires the parties to consider whether alternative dispute resolution (ADR) might be a suitable alternative. If a claimant ignores this and misses the opportunity to use ADR, it is likely to be penalised in costs. Under the Civil Procedure Rules, the court has the power to take non-compliance with the protocol into account when making orders for costs.
The court's approach can be seen in the Dunnett
Railtrack decision. In that case, the Court of Appeal did not allow the successful defendant its costs as it had dismissed Dunnett's suggestion to use ADR. This decision encapsulates the almost evangelical approach of the courts to ADR. Any claimant would be treading on very thin ice if it overlooked any opportunity to go down the ADR route.
So does the protocol work? There is little doubt that Woolf's vision of driving the parties to an early consideration of the merits of a case has worked. Statistics show that the amount of cases coming to trial has dropped substantially since the reforms came into force. The protocol is a cornerstone of this process, but it is the almost inevitable exploration of ADR at the end of the process which leads the parties to resolve their disputes.
However, is it really equitable that a party with an undoubtedly strong case should be penalised by the courts for exercising its legal right to pursue its claim through the courts? After all, the option was always available to the defendant to pay up in the first instance. Prospective litigants should be resolving their disputes because they want to do so rather than being fearful of a hostile reception from a judge at a later stage. n
Rachel Mockler is an assistant solicitor in Mayer Brown Rowe & Maw's construction and engineering group