Sanctioning Non-Compliance?

Richard Harrison and Ashleigh Williamson

It might be expected that a significant body of case law demonstrating the Courts’ willingness to apply sanctions for noncompliance with Pre Action Protocols would have by now been built up. Surprisingly, the cases are few and far between. In 2002 the Law Society surveyed solicitors involved in all areas to which Protocols apply. 60% of the litigation solicitors who responded to their fourth "Woolf Network Questionnaire" survey had never applied to the Courts for sanctions following a breach of a Protocol. Perceived judicial inconsistency deterred many from embarking on what they saw to be costly and unpredictable applications. However, even in the field of professional negligence, where the costs and damages at stake tend to be higher (and a Protocol has been in force since July 2001), there is little indication that the Courts have been willing to flex their muscles in all but the most extreme cases.

Sanctions can be imposed either when considering directions or when making orders as to costs.

Sanctions at the directions stage are arguably of more practical benefit than adverse costs orders, particularly if the Court orders a stay for the Protocol to be followed or requires a party to give fuller disclosure. The standard Allocation Questionnaire requires each party to state whether or not the Pre-Action protocol has been followed and, if not, to explain why not. However, there is disappointingly little evidence of Masters and District Judges proving receptive to arguments based on non-compliance with a Protocol at the first CMC. In fact, in our experience, once proceedings are underway, the Courts are often reluctant to impose on the defaulting party the timetable which would have been followed under the Protocol, often requiring the parties to operate within a much shorter period.

CPR 3.1(5) gives the Courts the power to order a party to pay a sum of money into Court if it has failed to comply with a Protocol. However, Mealey Horgan plc v Horgan (1999) suggests that such orders should be confined to extreme cases where there has been a history of repeated breaches. We have never seen such an order made in a professional liability claim.

It is now taken as read that pre-action costs will be visited upon the losing party in subsequent proceedings and that the parties’ pre-action conduct will be taken into account. The Courts are encouraged to treat compliance with a Protocol as a benchmark for good conduct. CPR 3.1(4) and 44.1(3) give them wide discretion when making orders for costs. Suggested orders contained in the Protocols Practice Direction are that

• The party at fault pay all or part of the costs of the proceedings to date.
• The party at fault pay costs on an indemnity basis.
• A defaulting claimant be deprived of interest on any damages awarded.
• A defaulting defendant pay additional interest of up to 10% on any damages awarded against him.

The amendments to the Protocols Practice Direction in the 30th update to the CPR in April this year to some extent dissipated the deterrent effect of the Protocols. It has now been made clear that the Courts expect compliance "in substance" rather than to the letter. They are not concerned with "minor infringements" and will look first to the effect of non-compliance on the other party when deciding whether to impose sanctions. The object of sanctions is to put the innocent party "in no worse a position than he would have been in if the Protocol had been complied with."

Arguably, the premature issue of proceedings is the most fundamental breach of Protocol. Other examples of non-compliance given in the Practice Direction are failure to provide sufficient information (Claimants) or failure to disclose documents (Defendants), as well as failure to respond within the prescribed time limits. However, the Professional Negligence Pre-Action Protocol also highlights two key circumstances in which sanctions may be imposed: where the Letter of Claim and subsequent Particulars of Claim differ materially (B2.3) and where the Letter of Response and subsequent Defence differ materially (B5.3). These requirements go to the heart of the Protocol yet, surprisingly, we cannot find a single example of a party being criticised, much less punished, for their breach.

Jimaale v London Buses Limited (2000), a County Court decision, is a rare instance of a Court invoking the obligation on a Claimant to send a detailed Letter of Claim as soon as he decides that there are grounds for the claim. There, it was held that even though proceedings were commenced within the Limitation Period, the Claimant had failed to comply with the Personal Injury Pre-Action protocol by delaying three years between his first indication that there might be a claim and actually setting out the claim in detail. The claim was struck out. However, the Defendants were able to show that they had been severely prejudiced by the delay and the nonobservance of the Protocol was only one of a number of factors taken into account.

The threat of an application for indemnity costs is often brandished as a stick with which to beat errant parties into compliance with the Protocol. An order for indemnity costs can make a big difference to a party’s (and therefore potentially an insurer’s) costs bill, but it seems that Judges are setting very high thresholds for the extent to which they must disapprove of a party’s conduct before applying this particular sanction.

In SITA v Watson Wyatt (2002), the Claimants failed to respond to the Defendants’ lengthy Protocol Response and issued Part 20 proceedings against our solicitor clients more or less straight after receiving it. In finding that the solicitors had no liability to the Part 20 Claimant, the Judge remarked that his judgment closely reflected the Protocol Response. However, he declined to award indemnity costs to the solicitors because the Part 20 Claimants had conducted their claim "scrupulously, fairly and without any impropriety".

This case may not necessarily evidence a trend against awarding indemnity costs. Firstly, the claim was brought by way of Part 20 Proceedings. When a main claim is already on foot we have seen other instances of the Courts being less receptive to arguments that the Protocol should be followed. Secondly, there is no obligation on Claimants to respond to a Letter of Response which denies liability before issuing proceedings – while the Claimants did not act within the sprit of the Protocol, they did not actually breach it.

In Paul Thomas Construction Limited v Damian Hyland and Anr (2000, unreported), an order for the Claimant to pay indemnity costs was made, but his conduct was extreme – he disregarded the Defendant’s offers to negotiate, ignored requests for information and issued proceedings prematurely in what was described as "very modest litigation".

Finally, the Courts may be willing to consider other punitive costs orders. In Northern Electric plc v Stockton on Tees BC, judgment was ordered in the defendant's favour but there was no order as to costs or interest because both parties had failed to adopt suitable pre-action behaviour. The Claimant had issued proceedings without giving the Defendant sufficient time to consider a pre-action letter, but the Defendant had failed for six months to consider the dispute. Similar examples are however few and far between.

Pre-action Protocols are now widely observed and have proved very effective in achieving their aim of enabling parties to resolve disputes without recourse to litigation. However, if the Courts do not become more robust and more consistent in their approach to sanctions, there is a very real risk that the Protocols will be devalued.