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Compliance with the pre-action protocol for construction and engineering disputes

Out-Law Guide | 21 Oct 2016 | 9:50 am | 6 min. read

Pre-action protocols govern the actions and conduct of parties to disputes in England and Wales before court proceedings begin.

This guide was last updated in October 2016

A specific pre-action protocol applies to construction and engineering disputes. These claims are typically heard by the Technology and Construction Court (TCC) division of the High Court,

Compliance with the protocol formalises a party's claim. It encourages the reciprocal exchange of information between parties at an early stage, which promotes the chances of agreeing a settlement and avoiding litigation. In addition, it facilitates the efficient management of proceedings when litigation is unavoidable.

Parties that fail to comply with a pre-action protocol may be penalised by the courts.

Which disputes does the protocol apply to?

Broadly, the protocol applies to all construction and engineering disputes. This includes:

  • building or construction disputes;
  • claims by or against engineers, surveyors and architects, including professional negligence claims;
  • claims relating to the quality of materials used or work undertaken.

If one of the parties does not believe that the protocol should apply, it is still advisable to comply with the general practice direction on pre-action conduct. This will enhance your position in the dispute once proceedings have begun.

Consequences of non-compliance

The court has a number of options if one of the parties fails to comply with the protocol:

  • make an adverse costs order against the party that fails to comply;
  • order a stay of proceedings until the steps required by the protocol have been satisfied; and/or
  • be persuaded to handle an application about a failure to comply with the protocol without the other party having to issue a claim form.

The courts view non-compliance in a pragmatic and commercially realistic way. They will look at the effect of non-compliance on the other party when deciding whether to impose sanctions. They will always apply the protocol in a way that is consistent with the court's overriding objective to deal with cases justly and at proportionate cost.

Any concerns regarding a party's non-compliance with the protocol should be referred to in correspondence between the parties at the earliest possible stage.

Main stages of the protocol

Letter of claim

The party bringing the claim must first prepare a detailed letter of claim, and must exchange early and full information regarding the claim with the defending party.

Information that must be included in the letter of claim is set out in paragraph 3 of the protocol. This includes the parties' full names and addresses, a summary of the facts of the claim, the basis on which each claim is made and the 'relief' that is being claimed.

The letter of claim is not confidential and can be referred to in any subsequent litigation.

Defendant's response

The defending party should acknowledge a letter of claim in writing within 14 calendar days of receipt.

Jurisdictional challenges should be raised within 28 days of receipt of the letter of claim.

The defending party should also provide its full written response to the claim within 28 days. In its response, it should state whether the claim is accepted in full or in part, or indicate that it is not accepted.

If the claim is not accepted, the defending party should include a number of points in its response. For instance, it must provide reasons, state whether it intends to make a counterclaim, list any documents on which it wishes to rely and request any other documents it wishes to see.

The response period can be extended to up to three months if both parties agree, and in some cases an extension is appropriate given the complexity of the issues or other special circumstances.

It is not uncommon for the defending party to use the provisions of the protocol to delay the time frame for response, for example by arguing for an extension or making disproportionate requests for early disclosure of documents. Unreasonable conduct of this sort should be resisted on the grounds that it is non-compliant with the spirit of the protocol. The court may take account of such conduct if it forces the claiming party to begin proceedings without completing the protocol process, or if it has caused the parties additional expense.

If the defending party fails to acknowledge receipt of a letter of claim, and/or to provide a response within the relevant time frame, then the claiming party may begin court proceedings without further reference to the protocol.

Counterclaim

If the defending party wishes to raise a counterclaim, the protocol requires it to include details of this in its response. Any counterclaim must comply with the protocol by including a clear summary of the facts, the main contractual terms and statutory provisions relied upon and the nature of the relief claimed.

The protocol requires the claiming party to consider the counterclaim, and to respond to it within the same period as the defending party was given to respond to the letter of claim. Although there is no required content for the response to the counterclaim, it is viewed as good practice to satisfy the same requirements as for the defending party's response to the letter of claim.

Pre-action meeting

A particular aim of the protocol is for the parties to meet without prejudice at least once before formal proceedings begin. The TCC Guide notes that this meeting is not compulsory, and may be dispensed with if there would be disproportionate time or cost involved or it would not serve a useful purpose.

Failure to attend the meeting when required may result in significant costs sanctions from the court.

The aim of the meeting is to agree on the main issues of the case, determine the areas of disagreement regarding each issue and seek a resolution to the dispute without the need for litigation. The meeting should be scheduled for within 28 days of the claiming party receiving the defending party's letter of response, or following the defending party receiving the claiming party's response to the counterclaim. Parties can use their discretion to decide on the agenda and how the meeting is to be conducted.

If the parties fail to settle their overall dispute at the meeting, attempts should be made to agree on certain matters in order to facilitate a smooth dispute resolution process. Most notably, this will involve minimising costs and delays by agreeing the extent of disclosure of documents and the conduct of the litigation. In addition, the parties should seek to agree on the areas which require expert evidence, how the expert evidence will be managed and whether a joint expert should be appointed. Although the court recognises that parties cannot be compelled to undertake mediation or alternative dispute resolution (ADR), the parties do have to consider whether any ADR procedure would be appropriate to settle the dispute.

Once the parties have exchanged the necessary correspondence and attended a pre-action meeting, they have generally completed the requirements of the protocol and are not required to continue interacting until court proceedings are formally issued. However, in practice the pre-action process may be significantly longer than the protocol suggests. Parties may attend a number of such meetings, and exchange various letters with the aim of reaching a settlement before formal proceedings begin.

Compliance costs

A party that succeeds with its court claim after complying with the pre-action protocol can in principle recover the costs it has reasonably incurred in satisfying protocol procedure. Exceptions to this principle include if the claiming party removes certain allegations made in the letter of claim from the formal claim issued at court, in which case any costs incurred by either side whether pursuing or defending the allegations not eventually pursued in court are generally not recoverable. Of course, in all cases, costs awards are at the discretion of the court and other factors may impact on recovery.

If the claiming party decides against formal proceedings after complying with the protocol, the costs incurred by the other side in complying with the protocol process will not usually be recoverable. If the parties reach a settlement after complying with the protocol, the costs incurred will not be recoverable unless the parties expressly agree.

Other pre-action issues

Pre-action disclosure

Separately from the pre-action protocol process, a party may be ordered by the court to disclose documents before formal proceedings begin following a successful application by the opposing party.

Although such action is not tied to the protocol, it will in some instances be justified by the protocol's stated objective of encouraging the exchange of early and full information about the prospective legal claim.

Pre-action 'Part 36' offers

A Part 36 offer to settle can be made by either party before formal court proceedings begin, as long as it meets all of the other Part 36 requirements.

Although not part of the pre-action protocol procedure, making a Part 36 offer at this early stage can encourage settlement and protect a party's position on costs incurred in complying with the protocol as well as in subsequent proceedings.

Instructing experts at pre-action stage

If the dispute concerns technical or complex issues of fact, it may be advisable to consult an expert in each relevant field at the pre-action stage.

This expert need not be specifically instructed as an expert witness for the court proceedings at the pre-action stage. Indeed, doing so may in some circumstances create obligations in future proceedings for the expert to disclose any preliminary report - for example, if that expert is replaced.

For similar reasons, it is necessary to consider whether it is appropriate to disclose the identity of such experts to the opposing party at this stage. However, in all cases, it is important that expert instructions are carefully prepared with the involvement of solicitors in order to ensure that those instructions, and any preliminary report the expert produces, are protected by privilege.