Resolving UK Construction Disputes – Our Round-Up Of Practice And Procedure For In-House Lawyers

Our Resolving Construction Disputes Briefing highlights litigation, international dispute resolution and alternative dispute resolution (ADR) developments and is aimed at in-house lawyers in the construction industry.

Litigation procedure update (construction focus)

Changes to the CPR

The 83rd update of the Civil Procedure Rules (CPR) came into force on 6 April 2016 and includes revisions to the costs management rules (CPR 3, section II). Only the first page of Precedent H will now need to be exchanged and filed for claims valued under £50,000 (or where the costs are under £25,000). In addition, parties must now serve the costs budget 21 days before the case management conference (CMC) (except for lower value claims, where the budget must now be filed with the Directions Questionnaire); and agreed "budget discussion reports" (a new "Precedent R") must be served seven days before the CMC. Practice Direction 3E has been updated accordingly and the changes will only apply to those proceedings started after 6 April 2016. The reasoning behind the changes is to give parties an extra tool (in the form of Precedent R) and more time for discussion, negotiation and agreement on their budgets before going to the court hearing. In turn, this should reduce the amount of court time needed to resolve budget issues. Given the extra time, parties should expect to be given short shrift by courts if they ignore opportunities for agreement. The new bill of costs

In his Review on Civil Litigation Costs: Final Report, published long ago in 2010, Jackson LJ suggested that a new bill of costs should be created because the current format can be expensive and difficult to prepare, is not easy to digest and does not make enough use of available technology. Work has since been done on creating the J-Codes: a set of universal time-recording codes for litigation cases in England and Wales as well as a new bill of costs format for detailed assessment. A pilot of the new bill of costs was launched in October 2015 under Practice Direction 51L (PD51L) but controversy followed when it was announced the bill would become mandatory in April 2016. Jackson LJ summarised the position in his keynote address to the Law Society's Civil Litigation Conference on 21 April 2016 and suggested some ways to break the deadlock. In the meantime, the PD51L pilot scheme for a new bill of costs has been extended to 30 September 2016. The extra time should allow further opportunity for the Hutton Committee (charged with developing the new bill of costs) to consider the effects of its compulsory introduction. As part of the process, the Law Society launched a survey to learn more about how members record their time and discover which members are already using J-Codes to time-record and to gauge opinion on the new format bill of costs and the voluntary pilot scheme under PD51L. The survey closed on 3 June 2016. Costs management: beware the effect of agreeing estimated and incurred costs

While on the topic of costs, a recent Court of Appeal decision on costs budgeting came as something of a surprise to litigators. In SARPD Oil International Ltd v. Addax Energy SA and another [2016] EWCA Civ 120, the court held there was "little if any difference between the practical effect of the court's order in relation to incurred costs and its order in relation to estimated costs" (paragraph 47 of the judgment). While paragraph 7.4 of Practice Direction 3E provides that the court may not approve costs incurred before the date of any budget, in practice a court's indication that the incurred costs are reasonable and proportionate will mean that parties at assessment hearings will need strong grounds to persuade the court to allow a different sum. The court also found that parties agreeing a costs budget that is recorded in a costs management order will be taken to have agreed both incurred costs and estimated costs (unless they have specifically stated otherwise). Parties should therefore be aware that their agreement to a costs budget includes agreement on the already incurred as well as the estimated costs. In addition, if costs budgets are not agreed, parties should attend the first costs hearing prepared to contest both the incurred costs and the estimated costs. To do otherwise risks the court indicating the incurred costs are reasonable - thus making it very difficult to argue against the court's view on assessment. For those interested in the detail, paragraphs 41 to 44 of the judgment are worth a read. Use of inappropriate litigation tactics in security for costs applications

The SARPD decision (above) arose out of an application for security for costs and the court's decision on the security issue is also worth noting. Addax had applied to court for an order that SARPD give a substantial sum by way of security for its costs of the proceedings on the basis that SARPD was a company and "there is reason to believe that it will be unable to pay [Addax]'s costs if ordered to do so". (See CPR 25.13(2)(c).) The judge at first instance found there was no reason to believe SARPD would not be able to pay the costs and declined to order security for costs. In doing so, he refused to follow what has arguably become the normal commercial court practice of awarding security where a foreign company has not (as here) filed publicly available accounts, has no discernible assets and has declined to reveal its financial position. However, the judge gave leave to appeal on the point because he suspected SARPD was being reticent "about its financial position [because] it would benefit in settlement negotiations from Addax's doubt about whether it would recover its costs even if it defeated the claim". On appeal, the court held that it was unacceptable "for SARPD to give Addax reason to believe it will be unable to recover its costs but at the same time assert that there is no reason for the court so to believe" for the purposes of the security application (paragraph 17 of the judgment). SARPD's argument that it was keeping its financial position confidential for business reasons did not withstand court scrutiny either: the court pointed out that SARPD could have asked the court to sit in private or to avoid referring in public to relevant financial amounts. Where a company is given the chance to prove its ability to pay - but does not - there is every reason to believe it will not be able to do so. New research on the Construction & Engineering Pre-Action Protocol (PAP)

The Pre-Action Protocol for Construction & Engineering Disputes (PAP) sets out a procedure for parties in construction and engineering disputes to follow before proceedings are started. The aim is to encourage the exchange of information and to promote settlement. The Technology and Construction Solicitors' Association (TeCSA) has undertaken research into the perceptions of the PAP and conducted a survey in conjunction with Acuigen on the PAP. The consequent report evaluates the PAP's perceived value. TeCSA's review of the report can be accessed here. In summary, overall: "95% of respondents thought that the PAP was a valuable pre-action mechanism and 87% believe that it is creating access to justice. 49% of respondents suggested amendments to make the PAP more effective." TeCSA has concluded that "there should be no doubt that the PAP ought to remain and that it should continue to be a compulsory step for those...

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