It's good to talk, says Rhys Griffiths, as he highlights new rules that send out a clear message to litigants that genuine pre-action dialogue is required before proceedings are issued

On 1 April 2003, amendments to the pre-action protocol practice direction crept into force with the kind of stealth more usually associated with a military operation.

Despite this low-key introduction, the amendments are likely to have the same deadly effect if ignored, and would-be-litigants are well advised to watch this latest development.

The Lord Chancellor recognised the need for clear guidance on pre-action behaviour in cases where a specific protocol did not apply and issued a consultation paper in October 2001 inviting comments on whether a general pre-action protocol ought to be issued.

The response, published in July 2002, concluded that such a protocol would not work in practice.

That view was formed amid concerns that it would have to be drafted in terms too broad to be effective, would not be suitable for all types of cases (that is, simple debt cases), and would be likely to raise costs and cause unnecessary delays.

Nevertheless, the desire to influence pre-action behaviour in non-protocol cases remained, and an indication of what was to come was given in the final paragraph on the response paper.

'It has, therefore, been decided to explore how to build on the existing provisions within the Civil Procedure Rules to devise a mechanism that will not only provide a uniform process but will also underline the courts' powers and offer sanctions for non-compliance.'

Amendments

Prior to the amendments, paragraph 4 of the practice direction stated that: 'The court will expect the parties...to act reasonably in exchanging information and documents relevant to the claim and generally in trying to avoid the necessity for the start of proceedings.' This rather vague provision has now been fleshed out by the procedure introduced by paragraphs 4.2 to 4.10.

Essentially, parties should follow a reasonable procedure, suitable to their particular circumstances, which is genuinely intended to avoid litigation.

This procedure should normally include the following steps:

- The claimant writing to the defendant with sufficient and concise details of the claim, enclosing copies of essential documents, requesting a prompt acknowledgement followed by a full written response within a reasonably stated period (usually one month), and stating whether proceedings will be issued if a full response is not given;

- The letter should also request copies of any essential documents, state whether the claimant wishes to enter into a form of alternative dispute resolution (ADR), state that the court may impose sanctions for non-compliance with the practice direction, and enclose a copy of the practice direction if the defendant is unrepresented;

- The defendant should then acknowledge the claimant's letter in writing within 21 days, stating when a full response will follow;

- The full response ought to accept the claim in whole or part and make proposals for settlement, or reject the claim with detailed reasons, identifying which of the claimant's contentions are accepted and rejected;

- The response must also enclose documents relied on and required by the claimant, and also request any essential documents.

And the defendant must state whether he is prepared to enter into ADR;

- If the claim remains in dispute, the parties should then enter into negotiations to try and settle the dispute and avoid litigation.

Although not part of the protocol, it is clear from cases such as Dunnett v Railtrack [2002], Hurst v Leeming [2002], and Socit Internationale de Tlcommunications Aronautiques SC v Wyatt Co (UK) Ltd & others (2002) that a refusal to enter into ADR without sufficient reasons will result in the court making cost orders against the party in default.

Non-compliance

No guidance is given in the protocol as to sanctions for non-compliance with the new procedure.

However, an indication is given by the sanctions given for non-compliance with a specific protocol.

Essentially, if non-compliance has led to the commencement of proceedings, or costs being incurred that might not otherwise have been, the court may order:

- The party at fault to pay all or part of the costs of the proceedings;

- That these costs are paid on an indemnity basis;

- Where the claimant is at fault, he may be deprived of interest on any sum recovered;

- Where the defendant is at fault, he may be ordered to pay interest of up to 10% above base rate on any amount ordered to pay.

There is now a general pre-action procedure that applies to all types of dispute not already subject to a specific protocol.

There will be no excuse for claimants in complex matters sending token pre-action letters followed by proceedings within seven to 14 days, or defendants that ignore or provide a limited response to pre-action letters.

Such behaviour is likely to be treated harshly, and the defaulting party can expect a stiff costs order for that type of behaviour.

An indication of the court's likely approach to non-compliance can be found in Paul Thomas Construction Ltd v Hyland [2000].

The claimant adopted a 'heavy-handed' approach in a claim for non-payment of building works.

It ignored requests for further information about the final account, refused to enter into ADR unless the defendants undertook to bear the costs of doing so, and issued a claim knowing that the defendants had appointed a valuation surveyor in order to negotiate a settlement.

Although the pre-action protocol for construction and engineering disputes was not yet in force, the judge made several references to paragraph 4 of the practice direction in his reasoning behind ordering the claimant to pay the defendants' costs on an indemnity basis.

A similar example is given by Phoenix Finance Ltd v Federation International de l'Automobile [2002], whereby the claimant was ordered to pay costs on an indemnity basis having failed to send a letter before action prior to issuing proceedings.

However, despite the courts' increasingly bullish approach, uncertainties remain.

The primary obligation is for the parties to follow a reasonable procedure, suitable to their particular circumstances, which is genuinely intended to avoid litigation.

While this procedure should normally follow the steps detailed above, it is clear from the wording used that this procedure does not have to be followed in all cases, presumably as in some cases it would be disproportionate, and in others it would be impracticable.

Interim injunctions are an obvious example.

Further examples can be found in the Lord Chancellor's response paper, which suggested that the procedure would not be appropriate in small claims involving litigants in person, or in debt cases where it would lead to increased expense and delay to bulk issuers of debt claims.

It is suggested that a 'common-sense' approach will eventually prevail, and the courts will examine pre-action conduct on a case-by-case basis, having taken into account all relevant factors.

However, a benchmark has now been set, and potential litigants are well advised to take advantage of the new procedure to increase their chances of obtaining a favourable cost order.

Rhys Griffiths is a solicitor in the commercial litigation department at City law firm Field Fisher Waterhouse