Alex Howells, Associate in the Insurance and Corporate Risk team discusses the importance of the Practice Direction on Pre-action Conduct and Protocols (“the Pre-action PD”).
In this blog, we look at the Practice Direction on Pre-action Conduct and Protocols (“the Pre-action PD”), which may be helpful to insurers either pursuing or defending subrogated recovery claims for property damage. We consider the objectives of the Pre-action PD, the pre-action conduct and steps required of parties dealing with subrogated recovery claims and the sanctions the court could impose for failure to comply with the Pre-action PD.
What is the pre-action PD?
The Civil Procedure Rules (“CPR”) are the rules used by the courts dealing with civil cases in England and Wales. Within the CPR, there are currently 15 “pre-action protocols” which apply to various types of dispute, examples of which include:
- Package Travel Claims
- Construction and Engineering Disputes
- Personal Injury Claims
- Disease and Illness Claims
The protocols govern how the parties to a civil dispute should behave and the steps they should take before court proceedings are issued.
In disputes which do not fall within one of the specific pre-action protocols, parties should comply with the Pre-action PD before commencing court proceedings. Parties to subrogated recovery claims for property damage should typically comply with the Pre-action PD but, in some cases, it may be more appropriate to comply with the Pre-Action Protocol for Construction and Engineering Disputes, which we will cover in a later blog in this series.
The Pre-action PD applies equally to low and high value claims, albeit we comment on potential future changes below.
What are the objectives of the pre-action PD?
The objectives of the Pre-action PD are for the parties to have exchanged sufficient information to:
(a) understand each other’s position;
(b) make decisions about how to proceed;
(c) try to settle the issues without the need for proceedings;
(d) consider a form of Alternative Dispute Resolution (ADR) to assist with settlement;
(e) support the efficient management of proceedings; and
(f) reduce the costs of resolving the dispute.
(paragraph 3)
What steps should the parties take before issuing proceedings?
The Pre-action PD is less prescriptive than the other pre-action protocols and has at its heart the exchange of information to enable parties to understand each other’s position. There are however some steps which the Pre-action PD requires parties to take:
- The claimant should write to the defendant with concise details of the claim, including the basis on which the claim is made, a summary of the facts, what the claimant wants from the defendant and, if money, how the amount claimed is calculated (paragraph 6(a)). This information will usually be set out in a pre-action Letter of Claim.
- The defendant should respond to the claimant within a reasonable time. What is reasonable depends on the case, but the Pre-action PD suggests 14 days in a straightforward case and no more than 3 months in a very complex case. This reply should state whether the claim is accepted or, if it is not accepted, the reasons why, with an explanation as to which facts and parts of the claim are disputed and whether the defendant is making a counterclaim with details of any counterclaim (paragraph 6(b)).
- The parties should disclose key documents relevant to the issues in dispute (paragraph 6(c)).
- If the parties consider that expert evidence is necessary to prove their case (on, for example, the cause of a fire), they should consider using a single expert jointly instructed by the parties (with the expert’s fee shared between them), particularly in low value cases (paragraph 7).
- Parties should consider whether negotiation or ADR might enable them to settle the dispute without court proceedings (paragraph 8), and should continue considering the possibility of reaching settlement at all times, including after proceedings have been started (paragraph 9). Forms of ADR include negotiation, mediation, arbitration, early neutral evaluation and / or Ombudsmen schemes (paragraph 10). In some cases, the court may require the parties to provide evidence that ADR has been considered (paragraph 11).
- If the dispute has still not been resolved following the above steps, the parties should take stock of their respective positions to see if proceedings can be avoided. If that is not possible, the parties should at least try to narrow disputed issues before commencing proceedings (paragraph 12).
Compliance with the pre-action PD
Before looking at the consequences of failure to comply with the Pre-action PD, it is worthwhile noting that:
- the court expects the costs incurred by parties in complying with the Pre-action PD to be proportionate and, in cases where disproportionate costs are incurred, those costs may not be recoverable (paragraph 5);
- the court will consider whether parties have complied “in substance” with the terms of the Pre-action PD and is unlikely to be concerned with “minor or technical infringements” (e.g. a defendant not responding to the claim within 14 days in a very simple case) (paragraph 13).
The Pre-action PD includes some specific examples on conduct which might be considered a failure to comply, such as a party not providing sufficient information to enable the objectives of the Pre-action PD to be met, not acting within a reasonable period, unreasonably refusing to use ADR or failing to respond at all to an invitation to use ADR (paragraph 14). The latter point on failure to respond to an invitation to consider ADR is clearly important as it is also set out at paragraph 11 of the Pre-action PD.
Consequences of failure to comply
If the court finds there has been non-compliance with the Pre-action PD, it may relieve one or both of the parties of the obligation to comply with the Pre-action PD, apply sanctions to the party which has failed to comply or it may stay (i.e. pause) any litigation whilst the parties then take steps to comply with the Pre-action PD. This latter option is typically used if a claimant has had to issue proceedings because the limitation period for its claim will expire before it can comply fully with the Pre-action PD, giving the parties an opportunity to exchange information and understand each other’s position before the proceedings truly get underway.
Where the court finds that a party has failed to comply, it may impose sanctions on that party including:
- an order that the party at fault pays the costs of the proceedings, or part of the costs of the other party or parties;
- an order that the party at fault pays the above costs on the “indemnity basis” (which means the rules about what costs are recoverable are effectively relaxed in favour of the party receiving its costs);
- if the party at fault is a claimant, they may be deprived of interest on any monetary amount awarded to them, either for a specified period or at a lower rate than would otherwise apply;
- if the party at fault is a defendant, they may be required to pay the claimant interest for a specified period at a higher rate than they would otherwise have had to pay.
The future of the pre-action PD
On 21 August 2023, the Pre-Action Protocols Working Group of the Civil Justice Council published its final report on the Pre-Action Protocols. Among other things, the report recommended replacement of the Pre-action PD with a General Pre-Action Protocol (“the General PAP”) and introduction of a Protocol for Lower Value Small Claims Disputes (“the Lower Value Protocol”) for claims valued at less than £500.
We will cover changes under the General PAP and Lower Value Protocol in a separate blog post. For the time being, parties should continue to refer to the Pre-action PD.
Conclusion
For insurers involved in bringing or defending subrogated recovery claims, an understanding of the Pre-action PD is critical to ensuring that the correct steps are taken and conduct adhered to before proceedings are issued..
Properly complying with the Pre-action PD will typically result in the parties having a better understanding as to what issues are in dispute, which will focus any subsequent proceedings on those issues. This will promote more efficient proceedings and reduce the risk of unnecessary costs being incurred or the court imposing costs sanctions on parties which fail to comply.
