Woolf’s teeth

Much has been written about the Civil Procedure Rules, and it has been suggested that these may not overly affect the construction industry because many of the concepts were invented by the Technology and Construction Court, where most construction industry litigation takes place, and have been applied for some years. However, this view does not allow for what is probably the most significant change: the steps that parties are expected to take before litigation starts.

The rules aim to prevent parties going to trial or even getting involved in litigation.

They push them towards settling their disputes through pre-action protocols.

These protocols describe best practice for different types of dispute; they tell the parties how to behave before proceedings start. At present, there are only two – one for personal injury and the other for clinical negligence cases – but the fact that these do not directly relate to construction does not mean that they can be ignored. The rules say: “The court will expect to see the spirit of reasonable pre-action behaviour applied in all cases, regardless of the existence of a specific protocol.”

What the protocols require

The following points appear essential:

• the claimant must write a detailed claim letter and provide supporting documents
• the defendant must have a reasonable time to respond, but must answer the claimant’s letter in detail with supporting documents
• if an expert is to be instructed, a list of experts in that discipline should be provided and an attempt made to appoint a single expert. If one is appointed, no other expert evidence on that issue is allowed without the court’s permission
• disclosure of relevant documents should be made. This is not a requirement for full disclosure of all documents, but significant documents, or documents on which reliance is placed, should be produced
• the parties should take reasonable steps to settle the dispute including, if appropriate, the appointment of a mediator or the use of alternative dispute resolution methods.

  These provisions could require a substantial amount of work before litigation starts. Future protocols may require even more work, such as full disclosure of documents, the obtaining and exchange of experts’ reports, and meetings of experts.

Punitive measures

The court has express power to take into account the conduct of the parties before litigation, and will look at the effect of non-compliance with protocols when deciding on costs. It can disallow part or all of either party’s costs or award costs of any part of the case against either party.

For example, if a defendant fails to disclose documents before proceedings start, and the claimant realises that it has a hopeless case after these documents are disclosed in the litigation, then the claimant may be able to argue that the defendant should pay all his costs. After all, had the documents been disclosed initially, the proceedings would never have been started.

• Pre-action protocols could require a very substantial amount of work before litigation starts
• Failing to observe the spirit of the protocols is likely to result in a penalty in costs

The court can also award interest on costs at a penal rate and/or from a date earlier than judgment. These powers should not be underestimated: an order for payment of interest on costs at several per cent over base from the commencement of proceedings could result in a huge bill if the case lasts a year or two.

Two potential pitfalls

Two of the most important aspects of the protocols are Part 36 offering and production of documents. With a Part 36 offer, either party can make an offer to settle the dispute before litigation starts and, provided the offer complies with the rules, it will be taken into account when costs are considered.

If the offer includes an offer to pay money, that money must be paid into court once litigation starts. The party to which the offer is made has 21 days to accept it; thereafter the offer can only be accepted with the permission of the court, unless the parties agree on how costs are to be allocated. The two novelties are:

• the claimant can now make an offer to the defendant to settle his claim
• the penalty imposed on a defendant, if the claimant beats the defendant’s offer, is interest up to 10% above base rate on the claimant’s costs.

The effect of a defendant’s Part 36 offer before proceedings is the same as with the old rules for payments into court and Calderbank offers [a sealed offer of payment]. If the claimant fails to beat the defendant’s offer, the claimant will have to pay the defendant’s costs from the date when the offer expired. If this offer was made before the action started, it could include the entire costs of the action.

The rules also require that any offer, made under Part 36 or not, and before or after litigation starts, should be “taken into account” when considering costs.

Part 36 production of documents means it is now possible, in any case, to ask the court to order that your opponent produces the relevant documents. Courts will make this order if it is satisfied that you and your opponent are likely to be parties to litigation and the requested documents would have to be disclosed anyway, and that to disclose beforehand is desirable to dispose of the dispute fairly, to help in settlement or to save costs.

This rule should not have to be used often because the parties should now be producing these documents anyway under the protocols. However, if one party is uncooperative, the rule enables the documents to be obtained and the party applying for the documents is likely to be awarded their costs.

All these changes mean that when parties get into an argument, they must try very hard to sort it out without going to court; if they don’t, they may end up paying huge bills. Legal costs are painful enough as it is, but the courts can now make them really hurt if you don’t behave properly.