Disputes are often an inevitable consequence of being in business. This is certainly true of the construction industry which has a reputation for being particularly litigious, primarily because of the high level of risk involved in many construction projects and constant requirement for cash flow, given prevalent low margins. As a result, parties to a construction dispute often require an outcome that resolves the issues as quickly and cost effectively as possible.
There are a number of tools in the effective dispute resolution lawyer’s armoury to help clients achieve that outcome, including Adjudication and the Pre-Action Protocol for Construction and Engineering Disputes (PAPCED).
Adjudication, an extremely streamlined method of obtaining determination of a dispute from a qualified “adjudicator” within just 28 days, has proved to be extremely popular. However, it is often not an appropriate dispute resolution method to use, particularly in circumstances in which one party to the dispute is a homeowner or if it is particularly complicated either legally or factually, or involves allegations of professional negligence.
This is where the PAPCED is extremely useful because it aims to and allows parties an opportunity to attempt to resolve their disputes in a structured and proportionate way, before resorting to litigation, which can be expensive, time-consuming, can produce unpredictable outcomes and certainly reduces the level of control that the parties have over their case.
The PAPCED was first introduced in October 2000. Prior to its introduction, if one party wanted to commence court proceedings against another, all it had to do was write a letter before action that simply stated: “if you don’t pay up within 7 days I am going to sue you”.
This meant that Claimants’ first port of call was to issue Court proceedings and a Defendant had to respond very quickly to defend them, setting in motion the whole process towards trial. In other words the parties had to embark upon the timetable towards a final hearing (and incur the costs of that process) and, before doing so, had little time to investigate cases fully, reflect upon the issues and consider whether the dispute was capable of an early settlement.
However, the introduction of the PAPCED (and similar Pre-Action Protocols for other types of dispute) forced Claimants to set out the basis of their case in correspondence, Defendants to say why they were wrong and, uniquely among other Pre-Action Protocols, insisted that the parties meet before Court proceedings were commenced on a “without prejudice” basis, to try and settle the dispute, or at least narrow the issues in dispute.
The PAPCED enables the parties to obtain the information they reasonably need in order to consider entering into an appropriate settlement, provides the time and space parties need to have settlement discussions and if a pre-action settlement is not achievable, lays the ground for expeditious conduct of proceedings. Once litigation starts, costs escalate, settlements become more difficult to achieve and valuable management time is used up.
There is little doubt that the introduction of the PAPCED has been a success for the construction industry and it is almost universally accepted that it causes a very significant proportion of disputes to settle before formal court proceedings have to be started, thereby saving the parties time and money.
However, concerns in relation to its abuse by unscrupulous defendants seeking to delay matters through abuse of the PAPCED, amongst other matters, have led to its review and the recent introduction of a Second Edition in November 2016. The reforms aspire to streamline the procedure with a view to saving on costs, but it is arguable that they may water down the process slightly too far, leading some claimants only to pay mere lip service to its requirements.
Whilst the reforms aim to improve flexibility, to prevent the PAPCED process becoming disproportionate, the level of detail required in the crucial pre-action exchanges of correspondence has been reduced, parties may agree to opt out of it altogether, and the meeting is no longer mandatory. However, it is expected that the court will remain highly critical of a party who unreasonably curtails the process against the wishes of the other, although the adverse costs orders that follow from non compliance are similarly subject to a wider discretion of the court.
However, where there is a willingness by the parties and their advisers to meaningfully engage to pro-actively manage and resolve the dispute, the PAPCED remains an extremely valuable tool to enable the early resolution of construction disputes, and one with an excellent track record since it was first introduced at the turn of the millennium.