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The Pre-Action Protocol for Construction and Engineering Disputes (the "Protocol"), which was introduced in 2000, governs the conduct of parties before proceedings are commenced. The Protocol aims to encourage the sharing of information to enable parties to understand each other's cases and to try and agree a settlement without recourse to court proceedings. The Court can impose cost sanctions on a party for failing to comply with the Protocol.
However, the Protocol has somewhat developed a life of its own over the past 15 years. Despite its initial good intentions, with various extensions of time permitted in relation to the key steps of the Protocol and the extent of information required, the Protocol process often becomes time consuming and expensive, with significant front-loading of legal costs for the parties involved.
On 02 November 2016 at the Technology and Construction Court ("TCC"), the details of the new edition of the Protocol were finally released.
The emphasis of the updated Protocol is on costs and proportionate compliance. Each party is only required to do what is necessary to allow the other party to understand its case and to assess whether the dispute is capable of settlement. The applicable time frames have been tightened, ensuring the pre-action stage is dealt with swiftly and seeking to avoid the risk of protracted correspondence throughout the Protocol process. Additionally, a Protocol Referee Procedure has been introduced.
The updated Protocol is a joint effort by the Technology and Construction Solicitors' Association ("TeCSA") and Technology and Construction Bar Association ("TECBAR") following various consultations and surveys with construction lawyers, contractors and other users of the TCC.
There is currently no firm date on which the updated Protocol will come into force: however this is widely expected to be imminent. So what do you need to know?
- Parties to a dispute may now consent not to use the Protocol.
- The requirements and expectations of the Protocol have been redrawn. It will no longer be a requirement that full information regarding the nature of the dispute must be given, merely that sufficient information is given such that the outlines of the parties' cases are known. The requirement that the parties meet on a without prejudice basis before the commencement of any proceedings has changed to an expectation that the parties' should usually meet on a without prejudice basis.
- When considering whether a party has complied with the Protocol, the Court would normally expect substantial compliance from a party. However it is now clear that it is only in exceptional circumstances (i.e. where there is a flagrant or very significant disregard for the Protocol) that the Court will impose cost consequences for non-compliance.
- Time frames have been tightened. The Letter of Response must be provided within 28 days of receipt the Letter of Claim. The Parties can only agree an extension of up to 28 days for the Response, not 3 months as currently permitted.
- The Protocol process is automatically concluded either at the completion of the pre-action meeting (which must take place within 21 days of receipt of the Letter of Response) or 14 days after the last date on which the meeting should have taken place.
Protocol Referee Procedure
The Protocol Referee Procedure provides access to an independent individual who shall give a view as to whether a party has failed to comply with the Protocol and issue directions that the defaulting party must follow to remedy its non-compliance.
If parties agree to adopt the Protocol Referee Procedure, either party may apply to the Chairman of the TeCSA for the nomination and appointment of a Protocol Referee and seek directions to assist the parties in complying with the Protocol. Once the Protocol Referee is appointed the other party will be given the opportunity to respond to the application, followed by a reply by the applicant. A written decision by the Protocol Referee will then be provided within 10 working days of receipt of the notice of appointment. The decision will not only give directions for compliance, but will comment on whether any non-compliance is a flagrant and significant disregard of the Protocol (such that a Court could impose cost sanctions pursuant to the new "exceptional" circumstances rule).
The appointment of a Protocol Referee incurs a fee of £3,500 plus VAT (payable by the applying party) which the Protocol Referee may order the non-complying party to reimburse. Whilst it is useful to have access to a third party to ensure compliance with the Protocol without having to wait until the issue of proceedings, the costs are not dissimilar to the costs that might be payable if the parties entered a mediation. Yet the parties are only given procedural directions: no active steps are made towards settlement. The Protocol Referee therefore seems only to be appropriate for higher value disputes (where the Court issue fee would be in excess of £3,500 plus VAT) where there is a cost benefit to resolving or narrowing the issues prior to the commencement of proceedings.
Further, although the decision of the Protocol Referee will be given due weight by the Court, the Court is not bound by the decision. Whilst it would seem useful that the Protocol Referee can comment on non-compliances, this does not necessarily mean the Court will take the same view and apply cost consequences. Whilst a Protocol Referee provides a useful independent authority on compliance, it remains to be seen how often this procedure will be used given the cost and time involved.
Currently no transitional provisions have been prepared and it remains uncertain how parties currently serving letters of claim will be affected by the new edition of the Protocol.
TeCSA are currently reporting that the updated Protocol came into force on 14 November 2016 following approval by the Master of the Rolls (the judge who oversees the Court of Appeal). However until such time as the Lord Chancellor (head of the Ministry of Justice) approves the updated Protocol and it is formally adopted into the Civil Procedure Rules, it remains uncertain as to when parties will be deemed to be required to have followed this updated Protocol. Please keep an eye out for a further update.