UK: Paying The Price Of Failing To Comply With The Pre Action Protocol

Last Updated: 10 May 2007
Article by Jeremy Glover

In our article dated 15 March 2007, headed "Are You Ready for the New Construction Pre-Action Protocol?" we set out the recent changes to the Pre Action Protocol for Construction and Engineering disputes and highlighted why it was important that the protocol was complied with. The recent case of Charles Church Developments Ltd v Stent Foundations Ltd & Peter Dann Ltd, [2007] EWHC 855 (TCC), which came before Mr Justice Ramsey confirms that importance.

The case concerned a development project in London. During the course of the piling, there were a number of incidents. In August 2000 and February 2001, CCD wrote to Stent about these, but thereafter Stent received nothing further from CCD making any formal claim or anything else until March 2003 when CCD informed Stent that they were investigating claims against Stent and others. CCD asked Stent to provide information and documentation in connection with that investigation. There was some correspondence between those advising Stent and CCD, but this ceased in about September 2004.

Then some 20 months later in June 2006, CCD served a formal claim on Stent. The claim form had been issued in February 2006. No attempts had been made to conduct any pre-action protocol procedure before the issue or service of the proceedings. CCD accepted this and indeed apologised to the court for that conduct. In early 2007, Stent made an application to the court seeking an order that:

  1. CCD shall pay Stent’s costs of the claim to the 13 April, 2007, to be subject to detailed assessment if not agreed.
  2. CCD shall, in any event, bear its own costs of the claim against the first defendant to the 13 April, 2007.

Stent, referring to CCD’s failure to comply with the pre-action protocol, relied on paragraph 2.3 of the Protocol Practice Direction which provides that:

"If, in the opinion of the court, non-compliance has led to the commencement of proceedings which might otherwise not have been needed to be commenced, or has led to costs being incurred in the proceedings that might otherwise not have been incurred, the orders the court may make include: (1) An order that the party at fault pay the cost of the proceedings, or part of those costs, of the other party or parties."

CCD’s Defence

CCD said two things by way of defence:

  1. This was a case where there were potential limitation difficulties. In those circumstances, CCD said that their failure was a failure to seek directions under paragraph 6 of the TCC pre-action protocol;
  2. The question of costs should not be determined now, but at the end of the action, or after settlement, when the position on costs would be clearer, and the court would have more information on which to base its decision.

The Judge noted that CCC had not taken any steps to implement the TCC pre-action protocol nor to alert Stent to the contents of the claim or the fact that proceedings were imminent. Indeed he questioned whether there was an immediate limitation problem. Rather, in the period from 14 February 2006 to 8 June 2006, when these proceedings were finally served on Stent without advance notice, CCD spent much time and cost in preparing the particulars of claim for service in the proceedings, ignoring the pre-action obligations.

What was the effect of the breach of the pre-action protocol?

A key objective of the pre-action protocol is to enable parties to avoid litigation by agreeing a settlement of a claim before the commencement of proceedings. Judge Ramsey said that:

"in this case, as in many similar cases, experience has shown that it is likely that the pre-action protocol would have led to a settlement without a need for court proceedings."

Stent had included evidence from an in-house solicitor which made the same point:

"It is Stent's policy to avoid litigation wherever possible. Had we received a proper letter of claim, we would have responded in detail to the technical matters, using our in-house technical team. I would have provided any legal input which might have been required…. Stent has not had many claims made against it in the past, but such experience as it has leads it to believe that most, if not all, disputes can and should be resolved without the need for legal proceedings. In the last six years, we have had a number of contractual disputes, which we have dealt with via our commercial team. In this case, we were deprived of the ability to resolve this dispute at an early stage, because CCD failed to comply with the pre-action protocol. My experience of acting on behalf of Stent enables me to say that, if CCD had complied with the pre-action protocol, and Stent had had the opportunity to consider CCD's complaint in detail, then I think there is a good chance that this matter would have settled pre-action."

Therefore the Judge proceeded on the basis that the likelihood was that the matter would have been resolved without recourse to court proceedings, had the protocol been observed.

Timing of an order for costs

CCD said that no order should be made at this stage because the decision as to the consequences of the failure to comply with the pre-action protocol would be easier to make at a later stage when, for instance, the court knew the outcome of a mediation which was due to take place in May 2007. CCD also submitted that Stent's application sought to gain a tactical advantage in relation to one issue – the costs up to the date of the mediation – whereas that could be dealt with in the context of the mediation.

Stent submitted that non-compliance with the protocol had been established and the court was in as good a position now as it will be in the future to decide on the question of costs. If the mediation were to fail, then the court would not know why it had failed, because such matters would be, and remain, confidential. Stent also suggested that the mediation was more likely to fail if the question of those costs was not resolved now.

The Judge agreed the failure to comply with the pre-action protocol meant that the parties were entering the mediation with an additional issue: the increased costs that have been incurred in the context of the proceedings, instead of under the pre-action protocol procedure. He thought there were good reasons why that issue should be resolved now rather than later. In particular it would remove an extra or additional issue which would allow the parties to deal with the mediation in a way which more closely mirrored a mediation at the end of a pre-action protocol procedure.

Stent's costs

The costs position as disclosed at the first case management conference showed that as at October 2006, CCD estimated its costs to date as £800,000 including solicitors’ costs and experts. Stent had incurred costs of £90,895 and Peter Dann some £80,000.

In relation to Stent's costs, any order should place them, in no worse a position than Stent would have been in, had the protocol been complied with. The evidence indicated that they would have responded using their in-house technical team initially but that they would have required an element of engineering input from outside experts, and also in relation to delay and quantum issues. The Judge held that Stent were entitled to recover costs to reflect the increased work carried out because of the exchange of information taking place, not in the lower-cost atmosphere of pre-action protocol procedure, but in the higher-cost atmosphere of court proceedings. In relation to solicitors' costs, this should reflect, to some extent, the use of in-house solicitors, rather than external solicitors.

The Judge was conscious that there were now two possible outcomes to the mediation. If there was a settlement, the additional element of the costs expended in that period will have been spent unnecessarily. If there was no settlement, then there will be benefit to Stent in not having to expend certain elements of cost in the proceedings. However, given the Judge’s view that it was likely that proceedings could have been resolved by the pre-action protocol process, he considered that my costs order should also reflect that fact.

In all the circumstances, the Judge decided that Stent should be entitled to recover from CCD 50% of its costs incurred from 9 June 2006 (the date the claim was served) until 13 April 2007.

CCD's costs

In relation to CCD's costs, had the pre-action protocol procedure been followed, then the costs from 14 February 2006 to 13 April 2007 would have been incurred in the lower cost regime of the pre-action protocol, rather than the higher cost regime of High Court proceedings. Such costs will only generally become relevant if, at any stage, a costs order is made in CCD's favour. Because, in principle, in that event, CCD could seek payment of costs of and incidental to the proceedings, which might include the costs of complying with the pre-action protocol, the Judge decided he should only be concerned, again, with the additional cost incurred by dealing with High Court proceedings, rather than the pre-action protocol procedure in the period from 14 February 2006 to the 13 April 2007. In assessing the position, the Judge held in mind:

"(1) My conclusion that these proceedings would have been likely to be resolved had a pre-action protocol procedure been followed.

(2) The fact that the proceedings from 14 February 2006 to 13 April 2007 should have been carried out in the lower-cost atmosphere of the pre-action protocol process.

(3) The fact that if the proceedings are not settled, the proceedings will continue, and if CCD succeeds, it would otherwise be entitled to its costs in the period from 14 February 2006 to 13 April 2007."

The Judge therefore considered that the proper way of dealing with the position on CCD's costs was, like the costs recoverable by Stent, to provide that CCD shall, in any event, bear 50% of its costs of the proceedings from 14 February 2006 to 13 April 2007. That might have been a significant sum, bearing in mind the £800k, CCD said it had incurred by October 2006.

This article is based on an article from a forthcoming issue of the Fenwick Elliott Dispatch, a monthly newsletter which summarises recent key developments relating to contentious and non-contentious construction law issues. To see the current issue please visit www.fenwickelliott.co.uk.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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