A serious breach of protocol

A recent High Court decision is causing lawyers to consider advising their clients not to try too hard at pre-action stage.

In a recent article Tim Elliott discussed the decision in McGlinn vs Waltham Contracts Ltd and Others (12 August). He concluded that the decision was right, but that the law needed to change. I agree, and here’s why.

Let me begin by quickly summarising the decision. Mr McGlinn was unhappy with the works carried out at his property. He blamed the contractor, his architect and his engineer. His lawyers advised him that before he could start legal proceedings, he had to comply with the pre-action protocol. This requires parties to exchange information relating to the claim and meet to try to settle the claim before proceedings may be issued.

McGlinn sent out letters of claim. The claim against his architect comprised two distinct issues: overpayment of the contractor and defects in the works. The architect spent time constructing a reasoned response, which was so convincing that McGlinn dropped the overpayment claim entirely. Eventually McGlinn began legal proceedings.

At the first case management hearing, the architect asked for the costs it had incurred in successfully defending the overpayment claim at pre-action stage. The issue that Judge Coulson had to decide was this: were the costs incurred by the architect in defending that part of McGlinn’s case costs incidental to the proceedings? He decided they were not and the architect’s application was denied. The overpayment claim was not connected in any way to the defects claim ultimately referred to the courts.

Now, imagine you are the managing director of an engineering contractor. Your company has recently completed the design and construction of a process plant. The project did not go smoothly, and the employer alleges that there are a number of significant standalone defects in the plant, and has threatened to take you to court. The relationship with the employer has deteriorated so badly, and the financial value of the claim is so great, that you consider legal proceedings to be inevitable.

One morning you arrive at your desk to find two large boxes full of files. In one of the boxes you find a letter from the employer entitled “Pre-Action Protocol – Letter of Claim”. The other files in the boxes contain supporting information referred to in the letter. You are familiar with the protocol, having been involved in court proceedings before, and know that you are obliged to provide a response. You call your lawyers. They carry out an urgent review of the letter of claim and supporting documentation.

You then sit down and discuss the strategy for preparing your response. Your lawyers explain that there are a range of responses you could provide, all of which would comply with the requirements of the protocol. Some are expensive, requiring, for example, independent opinions from a number of external experts. Some are not so expensive, utilising in-house knowledge and expertise. They then tell you about McGlinn and the fact that if you successfully knock out any of the defects claims at pre-action stage, you will not be entitled to any of the costs incurred in doing so. What do you do?

Well, I know what you could do. If there is likely to be a fight in any event, there is no point in trying too hard to knock out some of the defects claims at pre-action stage if you will not be entitled to recover the costs.

Far better to engage in a little light sparring until proceedings are formally issued in relation to all defects, and then land the heavy bombs. That way, if you are successful, you will recover your costs.

This example – oversimplified, I know – serves to illustrate how one of the main objectives of the protocol, to place the parties in a position where they may be able to settle cases early and fairly without recourse to litigation, may be frustrated. The law needs to change so as to encourage parties to focus on achieving that objective, not on devious ways of maximising their costs recovery.

The only way that can be done is by making all protocol costs recoverable.