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The Protocol Referee Procedure

  • United Kingdom
  • Construction and engineering
  • Litigation and dispute management
  • Other

17-01-2017

The Red Card in the Pre-action Protocol for Construction and Engineering Disputes?

November 2016 not only brought with it a new President elect of the United States, it also marked the introduction of the new Pre-action Protocol for Construction and Engineering Disputes.

Admittedly one of these events may have overshadowed the other, however the new Protocol represents a key change in the world of construction disputes and has been introduced following a lengthy consultation within the industry.

We are advised that the new Protocol seeks to address “front loading” of costs at the pre-action stage, a problem commonly seen. However, what has really changed?

The “Small” Changes

At a glance, this edition of the Protocol looks broadly the same as the first. However, small changes seek to address the fact that the existing “one size fits all” Protocol didn’t always assist with the resolution of disputes and, in some instances, actually represented a waste of time and costs. A summary of the small changes is as follows:

(1) Parties may now agree in writing to “opt out” of the Protocol and proceed directly to proceedings (paragraph 2.2). Previously, a Claimant would only be exempt from the “requirement” to comply with the Protocol in specific circumstances i.e. enforcement proceedings, injunctions etc. Failure to comply (even by both parties) was therefore subject to the potential adverse cost consequences referred to in the old Protocol.

(2) One of the main objectives of the Protocol is to exchange information so that the parties “broadly” understand one another’s position (paragraph 3.1.1). This contrasts with the previous requirement to exchange “full information”. Similarly the Letter of Claim and Response need only provide a “brief summary” of the case (paragraphs 7.1.3 and 8.5.1) as opposed to the “clear summary of the facts” together with the “basis” of each claim and the relief sought, including breakdown.

(3) The guidelines for the Court in respect of cost consequences for a party’s failure to comply with the Protocol have changed. This is now a high threshold and only relevant in “exceptional circumstances such as flagrant or very significant disregard” for the Protocol’s terms (paragraph 4). Arguably this just clarifies the previous wording which referenced “substantial compliance and not minor departures”.

(4) The time frame envisaged by the Protocol is now shorter:

  • whilst the parties may still agree an extension of time for any of the steps under the Protocol this is to a maximum aggregate extension of 28 days only (paragraph 10.1);
  • the Claimant is to respond to any Counterclaim within 21 days, subject to any extension as above (paragraph 8.7);
  • the Pre-action Meeting is to take place within 21 days of receipt of the letter of response or response to the Counterclaim (paragraph 9.1).

(5) The Protocol also includes an end date, to avoid the process becoming protracted, which is 14 days after the Pre-action Meeting, regardless of whether or not it takes place (paragraph 10.2).

The Significant Change: The Protocol Referee Procedure

The Protocol Referee Procedure is an entirely new concept and by far the biggest change to the Protocol. As suggested by its title, it aims to deal with the circumstances in which one party accuses the other of foul play.

It allows the parties, where agreed, to refer the pre-action management of the dispute to a third party (“the Referee”) for what is essentially a “red card” in the form of a decision that a party has failed to comply the Protocol and/or directions for further management. All of this is available for an appointment fee of £3,500 net of VAT.

The initial referral to the Referee Procedure

The immediate hurdle to the Referee Procedure is the requirement for both parties to agree to refer a case to the Referee. Inevitably, a party who is not willing to engage with the Protocol is unlikely to agree to the appointment of a Referee, whose sole purpose is to ensure that the parties will engage with the Protocol. Therefore, the Protocol Referee poses no real threat to a misbehaving party.

The Referee Procedure

The Referee Procedure follows a quasi-adjudication process which relates only to case management issues. The Referee does not have any real regard to the substance of the dispute, which arguably should dictate the appropriate case management process. In summary, the various steps are:

  • the Applicant submits an application to TeCSA, which summarises (in less than 4 sides of A4) the directions sought and/or details of the Respondent’s non-compliance;
  • following the Referee’s appointment, the Respondent may submit a Response, followed by the Applicant’s Reply;
  • the Referee Procedure envisages all of this taking place and the Decision being given over a period of 10 working days from the appointment of the Referee (a short period of work, given the fee paid to the Referee).

The Decision

In terms of the Decision, there are only two possible outcomes set out in the Protocol, being:

  • confirmation that a party has or has not complied with the Protocol in accordance with the high threshold in the Protocol; and/or
  • directions for the management of the dispute going forwards.

Given that any extreme cases involving “flagrant disregard” of the Protocol are unlikely to ever gain the required agreement to go before a Referee, we therefore anticipate that most (if not all) of the decisions obtained under the Referee Procedure will be confirmation of compliance with the Protocol and/or directions for future case management.

The Referee Procedure expressly states that the decision is legally binding unless agreed or determined by legal proceedings. However, it is not binding on the Court in subsequent legal proceedings but will be given “due weight”.

The Referee Procedure is silent as to when the Court will consider the Decision and what likely effect it will have. Presumably, this is relevant to the issue of costs, where the Court is entitled to exercise its discretion, having regard to the various guidelines. Those guidelines will include the threshold for non-compliance set out in the Protocol, which as discussed above, is very high. Therefore it remains to be seen what impact, if any, a Decision will have on subsequent proceedings.

The costs

A further unusual feature of the Referee Procedure, is that despite the fact that the parties must agree to the appointment of the Referee, it is still envisaged that there will be an Applicant and a Respondent. The Applicant is responsible for the full £3,500 fee, unless otherwise directed by the Referee, who is able to order that the Respondent reimburses the fee in full, as opposed to apportioning the fee between the two. The fee will eventually be costs in the case in any subsequent proceedings, however an Applicant must be willing to bear the full costs of the hefty application fee initially, if he wishes to employ the Referee Procedure and accept that there is no guarantee that this will ever be recovered.

In addition to the application fee, there will of course be costs associated with preparing and responding to the application. The Referee has no jurisdiction in respect of these costs and it is presently unclear whether these will be recoverable as pre-action costs.

The overall benefit?

The benefit of the Referee Procedure remains to be seen, particularly when compared to the alternative option of issuing proceedings. However, despite the draw backs to the Referee Procedure highlighted above, the aim of the Referee Procedure (i.e. to encourage the parties to find a way to resolve disputes without the need for proceedings and without unnecessary costs being incurred) should be considered positively.

Conclusion

The wording of the Protocol was previously more prescriptive and therefore the substitution of the broader guidelines allow the parties to mould the process to fit the specific dispute or, where it is unlikely to assist at all, the parties can agree to go straight to court proceedings without the risk of potential costs consequences for failure to comply. It is therefore pitched as a more “user friendly” Protocol than the previous version. However, the downgrading of the cost consequences of failing to comply with the Protocol may also serve to remove any incentive for parties to fully engage with the new process.

The principle of the Protocol Referee appears to seek to address this issue. However, due to the requirement of the parties to agree to the appointment of the Referee, the effect of the Protocol Referee is potentially weakened (such that it may prove to be completely ineffective).

The lighter touch approach to the Protocol will hopefully improve costs proportionality at the pre-action stage. However, it is, at present, unclear how the Referee Protocol Procedure will compliment this, or indeed how widely it will be used within the industry. After all, a Referee is rarely a popular character in any discipline.

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