The new pre-action protocol: will it change construction litigation?

The beginning of October saw the coming into force of a new pre-action protocol for construction and engineering disputes, one of a number of codes designed to regulate pre-litigation practice in different legal fields and to develop the new principles in this area introduced by the Civil Procedures Rules ("CPR") which embody Lord Woolf's reforms.

The intended scope for the protocol is very wide. As noted it applies to all construction and engineering disputes which are expressly defined to include professional negligence claims against consultants. There had been a fear that, for this reason, the protocol would conflict with the rather different rules which were being developed in relation to professional negligence claims but it has now been agreed that where such claims relate to the construction or engineering industry, this protocol will prevail. An important area of uncertainty has therefore been removed.

Key features of the protocol include the following:

• It applies to all disputes falling within the above definition. Proceedings in any court, including the county court, are therefore covered by the protocol. While compliance with its procedures is intended as a pre-condition to litigation, certain types of action are excluded from this requirement. For example the enforcement of an adjudicator's decision or other summary judgement, an application for an injunction or a claim which covers similar ground to a recent adjudication will not be subject to the protocol.
• Claims which do fall within its scope should only proceed to litigation if a number of detailed steps have been taken. These include the preparation of a detailed letter of claim to each proposed defendant. This letter must include a clear summary of the facts, the basis for each claim identifying principal contract terms and statutory provisions and quantification of any damages claim. The defendant is required to acknowledge this letter within 14 days and to respond within 28 days (or longer if agreed) and any counterclaim should be responded to within the same timescale.
• According to the protocol, this stage should normally be followed by a meeting or in some cases more than one meeting between the parties, to be attended by parties or their representatives and legal advisers if instructed. The aim of the meeting is to explore whether the issues can be resolved without recourse to proceedings and the rules provide for certain other steps, such as the appointment of a joint expert, to be discussed.

As will be seen, this pre-action process could take many weeks to complete and there is therefore a provision enabling a claimant to begin proceedings if he would otherwise lose his rights through the operation of the rules of limitation.

Penalties

Failure to adhere to the rules of the protocol could expose the parties to a range of court sanctions, notably cost penalties. Experience so far suggests that the courts will need little encouragement to apply them.

Against, that background, what effect will this protocol have on construction disputes? Critics argue that they represent an additional burden which will make the courts a less attractive forum. The effect of the Woolf reforms has been to advance the stage at which significant costs have to be incurred by the parties and the operation of the protocol will bring forward this date yet further. Despite the useful exceptions to its operation, there is a risk that cynical potential defendants will use the process to generate delay in circumstances where all aspects of the claim are entirely familiar to both sides. On the other hand those in favour of the protocol will argue that the opportunities for delaying a valid claim are in fact far fewer than under the old more laissez-faire rules and unreasonably stonewalling a justified claim can now under the CPR trigger some very significant penalties in terms of costs and punitive rates of interest. By the same token, those mounting speculative or spurious claims will not be able to get away with nuisance litigation as easily as they did in the past and will themselves risk swingeing court penalties if they try to do so.

It is of course early days and a lot will depend on how robustly the courts apply the requirements of the protocol in individual cases. It is likely that they will respond with gusto. More generally, the message of the protocol, as of the new rules as a whole, is that in the modern world litigation has to be seen as a last resort and there is a growing recognition in the construction industry of the correctness of that approach. In any case, if the demands of the protocol are unpalatable, you can always try your luck with adjudication!

For further information, please contact Henry Sherman on henry.sherman@cms-cmck.com or on +44 (0)20 7367 2526.