A claimant in a construction dispute has a particular advantage, however. If it is not sure of the strength of the claim, then it can test it by adjudication. Adjudication can be inexpensive and efficient. Alternatively, if the claim is likely to be complex and for a large amount, or if for some reason it cannot be adjudicated, then the claimant can put the defendant through the pre-action protocol that was introduced by Lord Woolf as part of his reform of the way civil law works. The advantage is that there no cost penalty if the claimant decides later not to pursue the claim.
In fact, a would-be claimant has most of the cards stacked in its favour these days. The proof is that construction claims are becoming more prevalent, lawyers are licking their lips again, claims consultants are popping up all over the place and insurers are increasingly aghast at the number of notifications by consultants and design-and-build contractors. Woolf and Sir Michael Latham – the father of adjudication – have unwittingly combined to breathe new life into a construction claims market that was as dead as a dodo. The timing is just right, too, as the economic downturn puts pressure on companies to pursue claims.
It is hardly surprising that this has happened – the Technology and Construction Court will penalise a defendant for not complying with the pre-action protocol (even if it ultimately wins the case) or if it fails to mediate. Further, if you miss serving a section 111 notice, or serve it a day late, a maverick adjudicator might tell you to pay a claimant a few million pounds even though it is not properly entitled to the money. Therefore, it is no wonder that when a claimant knocks on the door of its adviser these days, it is greeted with a big smile. However, it is a very different story for the would-be defendant.
Complying with the pre-action protocol itself has become a costly and time-consuming process. It usually starts with a claimant producing a detailed claim, often with expert evidence and witness statements, and sometimes against a number of potential defendants. The strategy is usually to force the parties to mediate and settle as quickly as possible. Nothing wrong with that, many would say, and there is no doubt that it often works.
Woolf and Latham have unwittingly combined to breathe new life into the construction claims market … Lawyers are licking their lips again and claims consultants are popping up all over the place
Herein lies the problem, however. What if the case has no merit? The defendant and its insurers are faced with a dilemma – they must convince the claimant that its case is futile, however, this will involve engaging an expert, perhaps a lawyer, too, and incurring costs that it will never recover, even if it persuades the claimant not to pursue the case. If it ignores the case, it risks the wrath of the court if the matter ever comes before a judge. Even if it wins, it may be penalised in costs for failing to comply with the protocol. And to put it in perspective, a defendant may have to find a six-figure sum to comply with the protocol in a complex case.
So what can the defendant do to protect itself? Name a decent adjudicator in the contract, put in a few clauses deterring the would-be claimant from adjudicating and provide for arbitration rather than litigation so as to avoid the protocol – and don't worry about being accused of exercising your commercial muscles. Oh, and serve those notices, too, and keep the claims consultants at bay. You might even give the Society of Construction Law's delay protocol a read – well, that might be going too far!
All those things might help, but until the courts redress the balance by at least making the costs of complying with the protocol recoverable, then would-be defendants should consider ignoring it. This will not always be appropriate but where the claim is clearly a try-on or, as often happens in multiparty disputes, a party is joined only because the claimant believes it may contribute something to the settlement pot, then you should consider ignoring the protocol.
Remember, complying with the protocol is not compulsory. In circumstances where you have a strong defence, then consider testing the mettle of the claimant – call its bluff and force it to start proceedings. Many claimants will be unwilling to do so without the luxury of first testing their case.
Nick Henchie is a solicitor in the construction department of Mayer, Brown, Rowe & Maw. He can be contacted at email@example.com.