A recent case shows that a claimant who issues proceedings without following pre-action protocol procedure can be penalized on costs at an interim stage; even though proceedings are to be stayed to allow the parties to discuss settlement.
Charles Church Developments Limited issued a claim against Stent Foundations Limited without first following the relevant pre-action protocol. They served the proceedings at the last minute and waited until Stent filed a defence before suggesting a stay to enable a procedure "akin to that of the protocol".
Stent persuaded the court that, because proceedings were now well underway, documents and experts’ reports should be exchanged before a short stay to allow for mediation. After both sides had incurred the costs of disclosure and experts’ fees, and just before the mediation was to take place, Stent asked the court to order Charles Church to pay their costs to date. Stent argued that they had been forced unnecessarily into the court proceedings because of Charles Church’s failure to comply with the protocol. The court held that:
- Charles Church failed to comply with the relevant pre-action protocol. This was despite the fact that Charles Church believed limitation might be an issue. If Charles Church was concerned about limitation, it should have issued proceedings and then immediately applied to the court for directions, which is a specific requirement under the Protocol for Construction and Engineering Disputes.
- If the protocol had been followed, the claim would probably never have needed to enter formal litigation (that is, it would probably have been settled before service of proceedings). The court had little difficulty reaching this conclusion, apparently considering that compliance with the protocol resulted in settlement in most cases.
- It was appropriate for the court to make a costs order now rather than leave the issue to be debated at the impending mediation - by making an order now, the court saw it would be narrowing the issues in dispute at mediation, thus making settlement more likely.
- Although some costs would have been incurred in the protocol process anyway, these would have been less under the "lower-cost atmosphere" of the protocol as opposed to the "higher-cost atmosphere" of proceedings. It was, therefore, appropriate for the court to put Stent in the position it would have been in up to mediation had the protocol been followed.
- Accordingly, Charles Church should pay 50% of Stent's costs, and should bear 50% of its own costs, up to the start of the stay. Furthermore, Charles Church should pay half of that sum as an interim payment on account.
The question of payment of costs is normally an issue (sometimes a significant one) that forms part of negotiations at any mediation. Cost decisions penalizing claimants for failing to follow a pre-action protocol are common at the end of a final hearing. Here the court penalized the claimant at a much earlier stage. The result effectively being that the defendant defeated part of the claimant’s claim (as far as costs was concerned) before negotiations for settlement even started.
Also of interest is that the court expressly rejected Charles Church’s argument that, given complexities in the case, costs under the pre-action protocol would not have been materially different to the costs of full proceedings. In fact, the Judge said that, if Charles Church had incurred costs equivalent to those it incurred in the formal proceedings, it would again have failed to comply with the protocol – because one of the protocol’s objectives is to save costs.
The lesson for claimants is simple – always provide the potential defendant with reasonable information and time to investigate and answer a claim before serving proceedings; even if issuing proceedings is necessary for limitation reasons. The lesson for defendants is – do not let claimants get away with doing otherwise; even if you intend to try to settle the claim in any event.
Further reading: Charles Church Developments Limited -v- Stent Foundations Limited & Peter Dann Limited [2007] EWHC 855 (TCC)
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 30/05/2007.
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