The Pre-Action Protocol for Construction and Engineering Disputes (and possible pitfalls)
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1 The Newsletter of Greenwoods Construction and Engineering Group Issue 18 Spring 2013 The Pre-Action Protocol for Construction and Engineering Disputes (and possible pitfalls), Contact us T E rejones@greenwoods.co.uk T E krbaker@greenwoods.co.uk T E pdvickers@greenwoods.co.uk T E odjworth@greenwoods.co.uk Monica Seccombe T E mjseccombe@greenwoods.co.uk May 2013 The civil courts find their resources stretched, fighting a battle between increasing demands placed on resources by parties to litigation and the resources made available to the court. One means employed by the court in an attempt to reduce the burden on its resources has been to create a process by which parties who intend to commence certain specialist claims are required to comply with a pre-action protocol before commencing the claim, failing which the claim may be stayed for a period of time to enable the parties to do so and/or the party failing to comply with the relevant preaction protocol may face adverse costs consequences. Pre-Action Protocols have been prepared for claims involving issues such as professional negligence, defamation, clinical negligence and many other specialist claims. This article will focus on the Pre-Action Protocol for Construction and Engineering Disputes. Each pre-action protocol is tailored to deal specifically with issues that would be likely to arise during the course of proceedings so that parties both have a better understanding of their respective cases before proceedings commence and also to enable the parties to agree (if possible) how best to proceed with certain issues that may arise during the litigation, for example (but not limited to), whether the claim will require expert evidence, a particular disclosure exercise or a particular interim application. The pre-action protocol process can also assist parties to engage in early and meaningful settlement discussions so that (if possible) settlement can be agreed before the parties incur substantial costs. A brief overview The Pre-Action Protocol for Construction and Engineering Disputes ( the Protocol ) applies to all construction and engineering disputes (including professional negligence claims against architects, engineers and quantity surveyors). There are some exceptional circumstances in which parties will not be expected to comply with the Protocol before commencing proceedings, for example, where there may be an issue with regard to limitation, where the claim is in respect of enforcement of an adjudicator s decision, or arises out of matters that have recently been the subject of an adjudication. In the absence of an exceptional circumstance parties are expected to comply with the Protocol. ONE
2 The Protocol s stated objectives are: i. to encourage the exchange of early and full information about the prospective legal claim; ii. iii. to enable parties to avoid litigation by agreeing a settlement of the claim before commencement of proceedings; and to support the efficient management of proceedings where litigation cannot be avoided. The Protocol process requires the claimant party to serve a detailed letter of claim that the defendant(s) must acknowledge within 14 days. The defendant(s) must provide a detailed response (and details of any counterclaim) within 28 days (or such other period as may be agreed but not more than 3 months). If there is any counterclaim the claimant must respond to that counterclaim within 28 days (or such other period as may be agreed but not more than 3 months). A Pre-Action Meeting should then take place within 28 days after receipt by the claimant of the defendant s letter of response, or (if the claimant intends to respond to the counterclaim) after receipt by the defendant of the claimant s letter of response to the counterclaim. Possible Pitfalls The Protocol is a useful process to undertake in advance of certain proceedings, particularly where issues involved in the claim may be complex and/or there is a good chance that the dispute can be resolved before court proceedings are necessary. The court is keen to ensure that parties comply with relevant pre-action protocols before embarking on proceedings and adverse costs consequences may flow from a failure to implement the Protocol. Compliance with the Protocol is not however without possible pitfalls. Not to be used as a weapon In Higginson Securities (Developments) Ltd & Anor v Hodson [2012] EWHC 1052 (TCC) (26 April 2012) an argument as to whether or not the Protocol required parties to hold a pre-action protocol meeting resulted in substantial wasted costs for both parties. Mr Justice Akenhead concluded: the default option is that a meeting should take place unless there is a reasonably good reason for such a meeting not to take place. The wording does not impose specifically on a particular party an obligation to arrange the meeting and so it must be incumbent on both parties to seek to set up a meeting. Usually, if one party expresses the view that it wants a meeting, that will be a good reason for a meeting to take place. Moreover, the parties were criticised for their approach to the implementation of the Protocol. Mr Justice Akenhead said of the Protocol and the parties conduct: It [the Protocol] must not be used as a weapon or tactic. Both parties must seek to co-operate during its implementation. In relation to low value claims, such as this one, it is important that the parties proceed reasonably expeditiously, do not drag the process out and keep the costs of the exercise to a reasonable minimum. The process in this case was not conducted with appropriate expedition. Limitation In UK Highways A55 Ltd & Ors v Hyder Consulting (UK) Ltd & Ors [2012] EWHC 3505 (TCC) (06 December 2012) the Claimant issued its claim before complying with the Protocol due to possible limitation issues (the claim may have been time barred if not issued before complying with the Protocol). The claimant did not however issue its Particulars of Claim within 14 days of issuing the claim (as required by the Civil Procedure Rules 1998) but instead proposed a stay in the proceedings so that the parties might belatedly implement the Protocol process. The defendants agreed to stay the proceedings for certain periods and engaged in Protocol discussions, however, the stays lapsed and still the claimant did not serve its Particulars of Claim. The defendants sought to have the claim struck out, the claimant sought permission to serve its Particulars of Claim late. TWO
3 The court held that the claimant s failure to serve its Particulars of Claim caused the defendants to suffer prejudice and limited the claimant s claim to issues that were less likely to exacerbate that prejudice by limiting the claim to issues about which expert evidence would be relied on. This case is an example of how issues can become clouded and more difficult due to implementation of the Protocol process. Costs Compliance with any relevant pre-action protocol may involve the expenditure of significant time and money dealing with issues that might better be dealt with (and overseen) by the court. The value of the claim may make substantial compliance with the Protocol uneconomic. In cases where litigation is inevitable (and possibly necessary) the Protocol can give the impression that it is an additional obstacle to be overcome. There is also an issue as to whether or not the costs of the Protocol process can be recovered. The general rule has been that the costs of any separate stand-alone ADR process, particularly if it takes place before the proceedings are commenced, will not usually form part of the costs of or incidental to the litigation and therefore do not fall to be recovered as part of the litigation. Recent caselaw suggests that these costs may however be recoverable in certain instances. In Roundstone Nurseries Ltd v Stephenson Holdings Ltd [2009] EWHC 1431 (TCC) (10 June 2009) Mr Justice Coulson commented: as a matter of principle, it seems to me that costs incurred during the Pre-Action Protocol process may, in principle, be recoverable as costs incidental to the litigation Effect of a previous Adjudicator s decision, Senior In Arcadis UK Ltd v May and Baker Ltd (t/a Sanofi) [2013] EWHC 87 (TCC) (29 January 2013) the Technology and Construction Court (TCC) was recently asked to consider the extent to which the decision of a previous Adjudicator in respect of a dispute between the same parties and in similar circumstances is binding on a subsequent Adjudicator. Background The parties entered into a contract pursuant to which Arcadis agreed to carry out "remediation" works for May & Baker Ltd (trading as Sanofi-Aventis) at a site in Dagenham, London. It became apparent during those works that some further additional work would be required at the Northern and Southern boundaries of the site. Arcadis considered that the works constituted a Compensation Event under the contract and submitted quotations for the additional works (including requests for extensions of time). Arcadis proceeded to carry out the additional works in 2011 and A dispute arose as to whether the additional works were a Compensation Event under the contract and the amount payable in respect of the additional works. Adjudications Two Adjudications took place, the first in respect of the Northern boundary works and the second in respect of the Southern boundary works. Arcadis was successful in the first Adjudication, the Adjudicator finding that the Northern boundary works were indeed a Compensation Event resulting in a change in the contract price of 412, and an extension of the contract completion date by 12 working days. Not unsurprisingly, Arcadis sent a copy of the first Adjudicator s decision to the second (and a different) Adjudicator, in respect of the Southern boundary works. THREE
4 Arcadis explained to the second Adjudicator that, in its view, the second Adjudicator was bound by the findings in the first Adjudication as the first Adjudicator s decision had not been set aside by the court. Arcadis was also successful in the second Adjudication, resulting in a change in the contract price of 480, and an extension of the contract completion date by 29 days. The second Adjudicator confirmed in his decision: I am bound by a previous adjudicator's decision and whilst I am not empowered to decide my own jurisdiction, I do have a duty to consider the matters raised regarding whether, and to what extent, I should be bound by the previous adjudication." Enforcement of Adjudicator s decisions Given these apparently nonsensical comments of the second Adjudicator, not unsurprisingly May and Baker challenged the enforceability of the decision. They argued that the second Adjudicator "took an erroneously restrictive view of his own jurisdiction, with the result that he decided that he was bound by Adjudication Decision 1 and by the first adjudicator's reasoning in Adjudication Decision 1" and that Arcadis "brought about the adjudicator's error by a misguided attempt to seek a tactical advantage or otherwise influence" him. Somewhat sidestepping the difficulties the second Adjudicator had made for himself, the Court concluded that it was neither improper nor contrary to the rules of natural justice for the decision in the first Adjudication to be put before the second Adjudicator or for the second Adjudicator to have regard to the first decision. The Judge, Mr Justice Akenhead stated: It must be a rare case in which either party to an Adjudication cannot refer a previous Adjudicator's decision between the same parties and on the same contract to a later Adjudicator on the basis that the earlier decision either is binding or at the very least is persuasive. There might well be circumstances in which it would be positively wrong for a party not to refer the later Adjudicator to a decision of an earlier Adjudicator; the reason is that arguably the later Adjudicator may be bound by the earlier decision and as a consequence may have no jurisdiction to decide the same dispute as has already been resolved in the earlier Adjudication. Adjudicators must be trusted, generally at least, to be able to reach honest and intelligible views as to the extent to which such earlier decisions are relevant or helpful or not. Comment The case is a further illustration of the lengths the Courts will go to enforce (albeit for sensible policy reasons) Adjudicator s decisions that, on the face of it, are simply wrong or make no sense. From a responding party s perspective, if you are on the receiving end of a hostile Adjudication and a further Adjudication is commenced on similar facts, experience dictates that it is usually very difficult to successfully recover the position in either further Adjudications or indeed enforcement proceedings. Summary Judgment- think before pressing the go nuclear button, In the recent case of Mears Ltd v Shoreline Housing Partnership Ltd [2013] EWHC 27 (TCC) (17 January 2013) the Defendant, Shoreline Housing Partnership Ltd ("SHP"), sought Summary Judgment against the Claimant, Mears Limited ("Mears"), on the basis that Mears claim disclosed no reasonable grounds for bringing the claim. Summary Judgment Summary Judgment is a Court procedure (CPR 24) by which any of the parties (or indeed the Court of its own motion) can apply to dispose of all or any part of a claim without proceeding to trial. FOUR
5 The aim is to promote the quick determination of cases and to avoid long-running and costly litigation. Courts do not readily grant Summary Judgment and it has to be very clear indeed that there are no reasonable grounds for brining or defending any given claim. Put another way, the Court must determine whether a party s case is realistic as opposed to fanciful. Further, this test must be determined without conducting a mini-trial. Background The Judge in the case, Mr Justice Akenhead, succinctly set out the background to the claim as follows: SHP has a substantial amount of properties for which it needs a facility to repair and maintain. It wanted to retain contractors to carry out what is called responsive maintenance for these properties. Responsive maintenance can vary from changing a washer on a leaking tap to more complex repair or maintenance work. Over the last 20 or 30 years in this country, responsive maintenance for large organisations, for instance supermarket chains, has become very popular. The basis is often that the client and the contractor are linked by computer and when some urgent or less urgent work is required, a request or instruction is issued to the contractor which then goes to the relevant site and does the work Typically, the contracts list all the typical types of work, usually separately costed, so that there is a standard charge for the standard types of work and the contractor will charge accordingly. To subscribe to Foundations please info@greenwoods.co.uk The dispute between the parties concerned whether or not works undertaken pursuant to separately negotiated rates which did not form part of the tender documents (which in turn subsequently formed the contract between the parties) could be charged for. On the face of it, the contract was clear and the separately negotiated rates did not form part of the contract and therefore Mears were not entitled to payment for the works they undertook at these higher rates for SHP. SHP therefore applied for Summary Judgement. Result The Court recognised that there was a significant chance that Mears would not ultimately succeed with its argument that the parties had agreed the separate rates that did not appear in the written contract. However, the Court still declined to grant Summary Judgment. When dismissing SHP s application for Summary Judgement the Judge confirmed: This is a case which will ultimately turn on the factual findings which will be made, the nuances of the evidence and the inferences which can be drawn from what the more reliable witnesses say and the contemporaneous documents record. Comment This case highlights the inherent risk in applications for Summary Judgment. SHP s application will have cost a considerable sum to pursue and the issues addressed by the Judge in this application may well be addressed again in a full trial. There is also now the likelihood that Mears will take the time to address the weaker elements of its claim before the matter proceeds to trial. The case also serves as a reminder of the difficulties that can arise (a) where parties conduct negotiations after tender and reach agreements that are not properly documented and (b) where parties begin to carry out work without first agreeing the full basis on which that work is actually to be carried out. Contact us T E rejones@greenwoods.co.uk T E krbaker@greenwoods.co.uk T E pdvickers@greenwoods.co.uk T E odjworth@greenwoods.co.uk Monica Seccombe T E mjseccombe@greenwoods.co.uk Greenwoods s LLP W E mail@greenwoods.co.uk Monkstone House City Road Peterborough PE1 1JE T Trinity House Cambridge Business Park Cambridge CB4 0WZ T FIVE
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