The construction and engineering pre-action protocol

In his Report "Access to Justice" Lord Woolf put forward his proposals for the development of pre-action protocols. He stated that they were "intended to build and increase the benefits of early but well informed settlements which genuinely satisfy both parties to a dispute". He continued:

"The purpose of such protocols are:

• to focus the attention of litigants on the desirability of resolving disputes without litigation;
• to enable them to obtain the information they reasonably need in order to enter into an appropriate settlement; or
• to make an appropriate offer (of a kind which can have cost consequences if litigation ensues); and
• if a pre-action settlement is not achievable, to lay the ground for expeditious conduct of proceedings."

Lord Woolf believed that litigation should be avoided wherever possible – it should be viewed as a last resort. Thus rules in relation to pre-action conduct with sanctions against parties who did not comply with them were a crucial part of Lord Woolf's plan to encourage parties to settle their disagreements without the need to commence actions in the Court. These rules concentrated on obliging the parties to inform each other in reasonable detail of their respective positions – the "cards on the table" approach – before issuing proceedings so that litigation was not commenced with one or more of the parties acting in ignorance of the considered position of another. Lord Woolf was also keen to ensure that, if litigation was inevitable, the parties put their minds to how the litigation might be conducted expeditiously in particular by defining

and narrowing the issues in the dispute before the proceedings were issued. This included the consideration of whether a joint expert might be appointed by the parties rather than each party employing his own expert.

In October 2000 the Construction and Engineering Pre-Action Protocol ("the Protocol") came into force. The Protocol applies to all construction and engineering disputes (including professional negligence claims against architects, engineers and quantity surveyors). Thus, although many of these types of disputes are dealt with in the Technology and Construction Court (the TCC), the Protocol also applies to other construction and engineering disputes if they are dealt with elsewhere.

Specialist pre-action protocols have also been issued for defamation, personal injury, clinical, professional negligence and judicial review cases. It is noticeable that the Construction and Engineering Pre-Action Protocol is the only protocol that provides for a pre-action meeting to be held prior to the commencement of proceedings.

It being nearly three years since the Protocol came into force, it is appropriate to consider how the Protocol is working in practice and how it affects the treatment and conduct of cases in Court. In order to find out as much as possible about different practitioners' experiences of the Protocol, a questionnaire on the Protocol was sent to the Technology and Construction Court Solicitors' Association (TeCSA) membership who were asked to circulate it amongst other practitioners within their firm or organisation. 33 completed questionnaires were returned. In addition, a different questionnaire was sent to the TCC Judges and those Judges dealing with TCC business outside of London. The Judges' questionnaire was sent to them on the basis that, should they return a response, individual responses would be treated as non-

attributable and confidential. Four responses were received.

Given the somewhat disappointing response to the questionnaires, it cannot be said that a representative view of practitioners' and judges' experience of the Protocol has been obtained. However, certain themes and issues do come out of the responses that have been received which are of interest and worth recording.

Letter of claim and response

The Protocol states, in relation to the letter of claim, that prior to commencing proceedings, the claimant or his solicitor shall send to each proposed defendant a copy of a letter of claim which should contain certain prescribed information, including the basis of the claim and the nature of the relief sought.

Within 14 days of receipt of the letter of claim, the defendant must acknowledge its receipt in writing. The defendant should send a letter of response to the claimant within 28 days from the date of receipt of the letter of claim, or such other period as the parties reasonably agree (up to a maximum of 4 months) which should contain certain information including the basis on which the defendant rejects the claim.

Thus, the Protocol is prescriptive about the information that is required to be given by the claimant and defendant. Although there was a lot of negative comment, it appears that the majority of practitioners believed that the letter of claim and response had, if only in part, enabled their clients to know (to an acceptable level) the nature of the other side's case. This was said despite the serious concerns that were also expressed.

Those who represented claimants complained that they had experienced defendants asking an unreasonable amount of questions regarding the claimant's case in a manner thought, by the claimant, to be more a fishing expedition than a genuine attempt to understand the case against it. One practitioner commented that defendants seemed to be going through the motions only or that questions were asked for their nuisance value rather than because there was a genuine requirement to know an answer. Another said that some defendants are asking for so much information that the claimant was forced in effect to produce a full pleading including Scott Schedules – this commentator said that in his view "this was not what the Protocol was all about" and defendants behaving in this way were abusing the system. Some commented upon an occasional unwillingness on the part of the defendant to engage in providing a full or any response to the claim made against it and instead providing a bare denial. These experiences were frustrating.

Those acting for defendants were, if anything, more vociferous about the failures in the system. There were many references to the claimant failing to provide sufficient information to enable the defendant to know the nature of its case. One commentator said that in one case in which he had been involved, the claimant provided insufficient information about its claim to allow the defendants to deal with it properly. The information had to be extracted from the claimant piece by piece, which had been an expensive and frustrating exercise. Occasionally letters of claim are unnecessarily long; one practitioner commented that he had received a letter of claim that amounted to eleven lever arch files. A number of practitioners said that, in their experience, more and more claimants are issuing letters of claim prematurely and speculatively to elicit a response and maybe a chance of ADR/settlement without giving sufficient information on the claim in accordance with the Protocol. This commentator said that the result of this approach is that defendants are put to a lot of unnecessary work investigating a claim that can all too often fall by the wayside when no claim form is ever issued. This is a waste of time and costs for the defendant who has no choice but to respond to a claim however ill thought out. This practice was considered the major problem arising from the introduction of the Protocol. One practitioner said that he had heard that some clients were being advised by lawyers not to respond to vague or possibly speculative letters of claim – this seemed a risky policy but it was one way of avoiding expending unnecessary costs or assisting a claimant in formulating its claim against you. It is not known how widespread this practice is or is becoming.

Nevertheless, good things were said of the letter of claim and response. In some cases, the response provided was detailed and caused the prospective claimant to reconsider its position and pursue the matter no further. Another practitioner commented that "there is nothing so frustrating to a defendant than a claimant who has no understanding of the issues". However, this respondent said that he thought that the Protocol had assisted in this respect because it forced claimants to understand their cases at an early stage. Perhaps the most honest comment was provided by this practitioner who said that solicitors tend to "duck and weave" or "gloss over" any difficult aspects of their client's case in the Protocol correspondence – something of which she acknowledged she was probably guilty as well.

A number of practitioners commented that the Protocol did not require the claimant to provide copies of the key documents on which it relied with its letter of claim. This is in contrast to, for example, the Professional Negligence Pre-Action Protocol where key documents are required. Several users said that they thought this was a problem with the Protocol which should be corrected on the basis that Lord Woolf's intention that "early and full" information should be exchanged must logically include some disclosure of documents. Although experience suggests that parties are, in practice, doing this, the Protocol does not prevent unreasonable parties from refusing to disclose documents without an order from the Court.

It is likely that there will always be opportunities for debate or dispute about what constitutes sufficient information to enable a party to understand the nature of the other party's case – particularly where, as is often the case in construction and engineering claims, the claim is factually complex and causation is a major concern. A claimant who is forced to provide details about his claim to the extent required in a formal pleading, particularly if it is a complex claim that requires substantial pleading, is going to be less inclined to settle his claim without some compensation for the costs involved in preparing the letter of claim. On the other hand, a defendant will want to know enough about the details, particularly if it is an insurer or a public authority. Each case will be different, but it would be a shame if the practice, which is already evident, of attaching a fully pleaded case to a two line claim letter became commonly accepted.

The timetable

Almost all the responses to the questionnaire commented that the 28 days provided by the Protocol for the provision of the defendant's response was rarely sufficient and that extensions of time were required. However, with some notable exceptions, it appears that claimants have been prepared to allow defendants the additional time that they have required on the basis that, in particular in construction and engineering claims, there is often a genuine need for this additional time. Of course, some practitioners said that they had experienced defendants trying to drag out the Protocol to delay the commencement of proceedings; asking for additional, largely unnecessary extensions of time is one way of doing this. Other commentators, particularly in relation to professional negligence claims, said that the 28 days provided by the Protocol was completely insufficient and recommended that the 3 months provided by the Professional Negligence Pre-Action Protocol was much more appropriate. They commentated that although the Protocol provides for extensions to be agreed between the parties, it was open to the unreasonable claimant to deny an extension of time or for unnecessary time to be spent negotiating or arguing over extensions of time.

Although the Protocol says at paragraph 1.4 that the Court will be concerned with "substantial" compliance with the Protocol rather than "minor departures", one practitioner noted that he believed that this was incompatible with the later provision at paragraphs 4.1 and 4.3.2 which says that if no response is received within the stated time limit, the claimant will be entitled to commence proceedings without further compliance with the Protocol. However, on any view, in this respect the Protocol must be treated with a certain amount of common sense. It makes sense for a claimant to make contact with a defendant to find out whether a response is imminent or whether that defendant has no intention of complying with the Protocol, before commencing proceedings. Unreasonable behaviour (for example commencing proceedings having refused a defendant an extension of time to respond to a complex claim) is not likely to commend itself to the Court.

The pre-action meeting

Alone amongst all the specialist protocols, the Protocol provides that as soon as possible after receipt by the claimant of the defendant's letter of response, or the claimant's letter of response to the counterclaim, the parties should normally meet. The aim of the pre action meeting is for the parties to agree the main issues in the case, to identify the root cause of disagreement in respect of each issue, and consider (i) whether, and if so how, the issues might be resolved without recourse to litigation, and (ii) if litigation is unavoidable, what steps should be taken to ensure that it is conducted in accordance with the overriding objective (to deal with cases justly). The Protocol gives guidance on how the meeting should be conducted and which individuals should attend. Everything said at a pre-action meeting is to be treated as "without prejudice".

From some of the responses to the questionnaire that were received, it appears that in the majority of cases but by no means all, a pre-action meeting had been held between the parties prior to litigation being commenced. There was a broad range of comments as regards the success or otherwise of these meetings. Numerous comments were made about meetings being "a bit of a bun fight" and "not very structured". Often the meeting was used as an opportunity to debate the merits of the claim or the defence rather than the conduct of the litigation to follow. One commentator said that in one case which had followed the Protocol in full the meeting was convened but proved abortive as the other side refused to discuss the most significant issue between them. This commentator also referred to a case where he had turned up to a meeting with the Managing Director of his client but the defendant had sent along a relatively junior assistant solicitor and a non main board director who had no authority to settle. This again had caused the meeting to be abortive and had led to much ill-feeling on the side of the claimant who had entered into the Protocol in good faith hoping that constructive discussions would take place.

Generally, the responses indicated that the provision in the Protocol for a pre-action meeting is very helpful. Without the Protocol, it would have been difficult to persuade some of the other parties to meet to discuss the claims. A face-to-face meeting, particularly between clients, is very helpful and encourages constructive discussion. Alternatively it allows clients to let off a bit of steam so that later discussions become a little less emotionally charged. It also requires clients to address issues and focus upon the possible costs of proceeding to litigation at a very early stage. Even if the meeting is a "bun fight" useful information can follow from it. It is helpful because it enables parties to ensure that good claims or good defences to claims are made loud and clear to the people they most affect – the clients. It means that important information does not rest with intermediaries – the solicitors. However, in order for this to work, it is essential that a representative of the client who has some knowledge of the dispute and authority to settle attends the meeting along with an experienced solicitor charged with the conduct of the case. These meetings cannot or should not be delegated to junior staff – they are too important.

A number of practitioners responding to the questionnaire said that the pre-action meeting can and is better used as an opportunity for mediation. One commentator said that in his experience if a mediator was present much better use of the meeting could be made. Another commentator said that the procedural matters to be discussed at the meeting can and should be dealt with over the telephone rather than at the meeting. The real use of the meeting is to enable the parties to identify the issues and the potential for settlement.

Some people in their response commented that ADR was discussed at the pre-action meeting and subsequently adopted. Nevertheless, the same commentator said that pre-action meetings can lack structure and focus. The parties can get stuck re-hashing grievances rather than looking for solutions and/or practicable ways of resolving the dispute and avoiding the costs. Another practitioner said that in his view the Protocol should do more to encourage parties to attempt ADR. But clearly parties are developing practices to suit individual cases. One person described a case in which two pre-action meetings were held. The first was on liability and the second on quantum. The representatives of the parties, the solicitors and liability experts attended the first but the experts did not attend the second. The parties had a "break-out room" at the pre-action meetings as well as a central room for main sessions so that, in effect, there was a mediation format without a mediator. This approach appeared to work well and led eventually to a settlement being agreed.

The costs of the pre-action protocol

The question of liability for the costs arising from compliance with the Protocol has been an issue that has concerned clients and professionals alike since its introduction. The question "was money spent on the Protocol money well spent" elicited a number of differing responses. Often if a settlement had ensued following the Protocol, both client and solicitors thought the money had been well spent. Inevitably, if no settlement had ensued then it was thought that money had been wasted. Some responses indicated that the money was spent on work which would have been done anyway, so there were no wasted cost; others said that clients had been resentful of the Protocol, in particular in cases where they were successful but their costs had not been recoverable.

The amount of money spent on the Protocol varied, no doubt to reflect the complexity of the claim in question. It ranged from £2,000 - £300,000. Where people thought it was money well spent, they said that it was because a number of documents were disclosed by the other side which gave an entirely different complexion to the claim and led to settlement, or a better understanding of the other side's case was achieved. The contrary view was also expressed: it was said that the money spent was excessive and the front end loading of costs was a major disadvantage. One defendant's solicitor said that she did not consider that the costs of the Protocol represented money well spent. This was because, in her experience, claimants failed to provide full details which meant that the defendant had to pursue them for these details at its own expense. In these circumstances, defendant clients are massively frustrated by the process. Another person said that he did not consider the money well spent as it was not recoverable and much of what had already been done would need to be repeated in litigation. It was suggested that some provision should be made to recover costs (or a proportion of them) in circumstances, for example, where one party convinces the other to pay or to withdraw prior to proceedings being commenced. On the other hand, one respondent indicated that the costs of the claimant's pre-action work were recovered as part of the settlement terms so it appears that parties are finding ways to deal with this issue. It remains however a matter of some concern.

Sanctions for non-compliance

The overwhelming feedback from the questionnaire is that the Court is not very interested in the parties' conduct of the Protocol. Even where parties voice objections to another party's pre action conduct at the Case Management Conference, it is unusual for a judge to give directions that reflect the complaint or apply sanctions against the party who has failed to follow the Protocol. Responses to the questionnaire indicate that practitioners' experience is that judges are more interested in the future conduct of the litigation than what has gone before. Often the Protocol is not mentioned at the CMC at all.

There are exceptions to this. One commentator said that the judge asked whether a pre-action meeting had taken place and when the parties said that it had not, he insisted that it did take place and provided a stay of the proceedings for that purpose. One practitioner referred to a pre-action meeting at which the parties had agreed what directions they would seek at the CMC but when the CMC took place, the judge was keen to manage the case himself, and disregarded the timetable agreed by the parties. On the other hand, in another matter, the practitioner referred to a judge who was mindful of the fact that the parties had not followed the Protocol (perhaps because of limitation issues) and agreed to a number of stays whilst the Protocol was implemented. It appears that it has often been the case that when asked by the Judge at a CMC whether the Protocol has been complied with, the parties agree that it has been complied with even in circumstances where it has not. In these circumstances, the Judge, not unreasonably, does not dig beneath the surface to discover the true position. It may be that the judges are willing to allow the parties to proceed without complying fully with the Protocol if that is their collective wish and will not enquire too deeply into any non-compliance.

Is the pre-action protocol leading to early settlement of claims?

The overwhelming response to the questionnaire is that claims are settling earlier and that the Protocol is assisting with this because it provides parties with a framework within which they can understand the nature of claims and defences better and explore settlements earlier than was hitherto the case. The claimant's Part 36 offer was also mentioned as a very helpful tool in achieving early settlement. Some commentators said that settlements were being achieved without recourse to litigation, but that this was not necessarily happening because of the Protocol. It was happening because of a change in culture brought about by the introduction of CPR generally and also, of course, because of the alternative provided by adjudication.

Comments from the judges

Only four substantive responses to the questionnaire were received from TCC Judges. Other Judges preferred not to respond to the questionnaire but indicated that they would be interested in the feedback received from the User's questionnaire. In the circumstances it is difficult to draw any themes or conclusions from the responses received.

If anything can be said, it may be that thus far Judges tend not to refer to the Protocol unless there is some contentious point between the parties that is raised by one of them. If no complaint is made, it is unlikely that action will be taken.

Conclusion

From the relatively small number of responses received to the questionnaire, it is clear that the Protocol is, in general, working well in practice and has played a part in encouraging parties to settle their disputes before commencing proceedings.

The questionnaire did highlight some areas where the Protocol is open to abuse or where dissatisfaction has been expressed. These areas are mentioned in more detail above but the questions arising may be summarised as follows:

• there is disagreement between practitioners over the amount of detail required in the letter of claim and response which leads to unnecessary conflict and tactical positioning. Should more guidance be given to practitioners about this (although the answer may come down to a question of what the particular case involves and the nature of the issues)?
• There is evidence of claimants initiating a speculative claim in the hope that the Protocol will lead to ADR or settlement without the need for them to prove their case. This is causing defendants to expend costs without any right of objection or recovery. Should defendants have some protection where claims are withdrawn before litigation commences?
• Should key documents be issued automatically with the letter of claim and response?
• Should the Protocol be more proactive about providing for mediation?
• Should the costs of complying with the Protocol be recoverable?
• Users comment that Judges seldom enquire about compliance with the Protocol at CMCs. Should Judges make full enquiries and apply sanctions for non compliance? Or should parties be entitled to dispense with the Protocol if that is their joint preference?

The debate goes on.

For further information contact Caroline Cummins at [email protected]