Pre-Action Protocol Consultation - What it means for costs
Posted on 17th November 2021 at 10:21
By Sean Linley, Costs Draftsman
An interim report for consultation on the issue of pre-action protocols has been published by the Civil Justice Council. The consultation deals with a wide-range of issues and the consultation will be open until 10am on Friday 24 December 2021.
This article seeks to have a specific look at the proposals around costs and what it might mean for practitioners. The full consultation is available online by the judiciary website.
Costs are central to the report. The theory goes that PAPs, if implemented successfully, would lead to less cases becoming litigated, cases resolving sooner and consequently a reduction in the costs of litigation for everyone. The 164 page report contains around 179 references to costs, so more than one reference to costs for each page!
Part 8 to be replaced by Summary Costs Procedure
So what does the report tell us about costs? The first thing of note is the proposal for a summary costs procedure. This would be independent of Part 8 and will be for costs disputes for claims which are resolved at the Pre-Action Protocol stage. The procedure would see Courts make determinations without a hearing and written submissions would be restricted in length.
The actual procedure has not yet been determined and the questions for the consultation include an invitation for paries to give any suggestions they may have for how such a costs procedure should operate. It is envisaged that the procedure will not only address quantum but also any liabilility disputes as to costs. The CJC are looking at the procedure adopted by the Administrative Court where claims which settle prior to permission being granted sees the Court determine costs on the basis of written submissions.
The issue of liability for costs and a summary procedure could have some unitnended consequences and may even encourage parties to try their chances at arguing either a reduced or increased liability. Examples given by the CJC include resolving disputes as to what the relevant order for costs should be, whether a settlement was inclusive of costs and whether costs are fixed.
The working group are keen to get feedback on the proposed procedure and how it will operate. They are also considering whether such a process should have a mechanism for appeal with the initial view that any appeals process should be severely restricted and even that given "the fact that it will cover many claims of modest value, it may be justifable to have no rights of appeal at all." A considered possibility is to follow the existing Provisional Assessment procedure whereby a parties position must be improved by 20% or more where an oral review is requested with costs sanctions where such an outcome is not achieved, though it is acknowledged this process is only suitable for quantum and not liability disputes.
A summary procedure to resolve the issue of liability for costs is, in theory, a good idea if it avoids parties needing to issue proceedings because the liability of costs cannot be agreed.
Of the initial respondents less than 15% of them felt that PAPs help to resolve disputes at proportionate cost. It is no surprise then that the CJC are looking at ways of embedding proportionality further into the Protocols. Interestingly opinion was equally divided at 50% on the issue of whether PAPs have the impact of parties 'frontloading' costs.
A potentially significant change is an inclusion in the Pre-Action guidance of a proportionality statement. This would include a warning that disproportionate costs incurred in complying with any Pre-Action Protocol may not be recoverable. This is not necessarily ground-breaking as the Court is at liberty to reduce or disallow any costs it sees as disproportionate, though by making it front and centre, it should focus practitioners mind and will also set the tone for asessing judges.
It is made clear that proportionality statement "should also make clear that where a party has acted dishonestly, or asserted a claim or defence that discloses no reasonable grounds for bringing or defending a claim, they may be ordered to pay the other party's reasonable costs whether or not they are proportionate to the claim".
The judiciary are also pushing Part 36, a powerful tool for all litigators. The CJC have recommended that a link to form N242A be included in every Pre-Action Protocol and are clear that "parties should be reminded of their ability to make a formal offer of compromise as means of limiting the amount of costs they mahve to pay, or increasing the amount of costs they can recover."
ADR, Good Faith, Stocktake and Costs Sanctions
The CJC have intimated a desire to introduce a 'good faith obligation' which entails parties seeking to resolve or narrow issues before proceedings are issued. The CJC have been clear that they see a huge benefit to ADR and that in appropriate cases "consensual dispute resolution dwarf the costs of foregoing court adjudication." Even where ADR does not lead to settle it is seen as a tool which can "facilitate more proportionate litigation, by narrowing the issues in dispute."
The judiciary are not recommending that the 'good faith obligation' be prescriptive at this stage and indeed state it should be non-prescriptive and include "such elementary processes as confidential discussions" until the civil justice system is able to "offer regulated, free or near free and timely, ADR processes to all prospective litigants."
The 'good faith obligation' will even have costs embedded in it. The judiciary make clear that parties who adopt the proposed obligation "must, in good faith, try to resolve or narrow the dispute in a timely manner and at proportionate cost."
The judiciary are also looking at the implementation of a Stocktake procedure which will see parties who have been unable to resolve a dispute review their positions before Court proceedings are started. The expectation is that parties will prepare a join-preaction report or list of issues and a template Stocktake report will be made available.
The CJC have recognised an inconsitency in where a refusal to engage in ADR will be deemed sufficiently unreasonable to lead to costs sanctions. The judiciary's hope is that the 'good faith obligation' will give greater clarity as to the nature of any obligations to engage and presumably greater consistency in how costs sanctions are then imposed.
Protocol Non-Compliance and Costs Sanctions
The consultation questions also highlight that the judicary are actively considering changes that should be introducted which clarify the powers of the Court to impose costs sanctions for parties not complying with the Pre-Action Protocol. Notably over 80% of the initial respondents stated they believed Courts do not consistently impose costs sanctions where there is non-compliance with PAPs. Many made the point that the Courts were reluctant to deal with such issues until the end of the proceedings, by which point non-compliance was either forgotten or overlooked. Overhwelmingly parties support more robust and consistent approaches to all sanctions (and not just costs ones). The CJC want views as to whether clarification should be given allowing the Court to impose costs sanction before even the outcome of proceedings are know.
The proposed draft text includes the following proposed wording as to sanctions for non-compliance with a PAP.
When deciding whether to impose any sanctions, the court will consider whether the breach was serious or significant, whether there was a good reason for it, and all the circumstances of the case. The court may impose one or more of the following sanctions:
a) an order that the party at fault pays the costs of the proceedings, or part of the costs of the other party or parties;
b) an order that the party at fault pay those costs on the indemnity basis (i.e. at a higher rate than would otherwise be the case).
c) if the party at fault is a claimant who has been awarded a sum of money, an order depriving that party of interest on that sum for a specified period, and/or awarding interest at a lower rate than would otherwise have been awarded;
d) if the party at fault is a defendant, and the claimant has been awarded a sum of money, an order awarding interest on that sum for a specified period at a higher rate (not exceeding 10% above base rate) than the rate which would otherwise have been awarded;
e) strike out a claim or defence (as the case may be).
The proposed sanctions have varying degress of severity but what can be said is that they are all serious and this should be a warning to all practitioners of how non-compliance will not be tolerated in future by the Court.
The CJC state that any costs sanctions should be "proportionate to the additional costs and time wasted by the other side occassioned by the non-compliance."
On the issue of pre-action disclosure, the CJC considered that "rules about such applications could be strengthened to direct judges towards more punitive costs assessment [...]".
Unsurprisingly the consensus in the initial responses was that legal aid was too low to cover the costs of work in the relevant PAPs. Whether this will lead to any over-reaching change remains to be seen and is not dealt with in the interim report.
The consultation runs until 24 December whereupon the responses provided will be considered with a view to a final report been produced next year. What is certain is that costs are going to be a central theme to any changes and judging the comments thus so far the Courts will be looking at ways to more consistently impose costs sanctions where there is non-compliance with the PAPs and where there is an unreasonable lack of engagement with ADR.
Proportionality remains a central theme and is something all practitioners need to have at the forefront of their minds. As it states in the report "costs incurred in complying with [any] protocol [...] should be proportionate to the dispute."
It should also go without saying that the interim reports are initial proposals and thoughts at this stage. Indeed, even if everything makes it to the final report there is no guarantee as to what will make the cut or when. It is, however, useful to have an insight to how the judicary are thinking as this can feed now just into litigation in future but litigation right now.
Should you want to discuss this or any other issues, please call our friendly team on 01482 534 567 or email firstname.lastname@example.org.
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