Recent Civil Justice Council proposals for reforms to the civil pre-action protocols (PAPs) have sparked some concern that, if they are intended to apply to commercial disputes via a default general protocol, they would represent a departure from current practice and a significantly more prescriptive approach.
Amongst the more controversial suggestions is the introduction of a “good faith obligation to try to resolve or narrow the dispute at the pre-action stage”.
This would go significantly further than the current PAP requirement to consider ADR at the pre-action stage, and would arguably amount to a mandatory ADR gateway – requiring the parties to take a “concrete step” toward settling the dispute, as a distinct stage in a series of successive preconditions to commencing proceedings.
In the context of the ongoing separate review into the issue of mandatory ADR, we and many other users of the commercial courts have reiterated a view that substantial commercial litigation is an area of civil justice where compelling ADR would be not only unnecessary but counterproductive to efforts to encourage out-of-court resolution.
The Law Society’s recently published response to the PAP proposals also confirms that it does not support the notion of PAPs being a default mechanism for the delivery of mandatory ADR.
In November 2021, the Civil Justice Council (CJC) published an Interim Report considering what role pre-action protocols (PAPs) should play in the civil justice system and inviting views on a range of possible reforms to the existing pre-action regime.
The interim report describes the proposed changes as “evolutionary rather than revolutionary”. However, if the proposed new general protocol is applied to substantial commercial claims, it would represent a major departure from current practice, with a significantly more prescriptive approach to pre-action steps (as outlined below). This has sparked some concern amongst commercial dispute practitioners.
The consultation has recently closed and the CJC has not indicated the likely timing of its final report. As the CJC’s role in this area is limited to policy review, and responsibility for drafting of PAPs lies with the Civil Procedure Rules Committee, the CJC’s final report will be limited to making recommendations. It will be a matter for the CPRC as to whether to implement any of the recommendations and as to the drafting of any changes.
The reform proposals
The reform options canvassed include replacing the existing general Practice Direction-Pre-Action Conduct (PD-PAC) with a new general protocol, amendments to the existing area-specific PAPs, and the creation of new PAPs in certain areas.
The broad objective of the suggested reforms is to increase the level of pre-action exchange and engagement between parties, to encourage pre-action settlement and potentially reduce litigation costs by narrowing the issues in dispute. In principle, those objectives are of course worthwhile and there are almost certainly areas within the civil justice system where at least some of the proposals could be beneficial. However, as has always been the case with pre-action protocols, the difficulty lies in attempts to impose obligations in the abstract across a wide range of dispute types without accommodating their differing features.
The Interim Report acknowledges that civil litigation covers an extremely broad range of disputes and that a “one size fits all” approach is not practicable. However, this appears to be reflected only in the discussion of whether the proposed changes to the general protocol should be replicated in the area-specific protocols. Surprisingly, the report does not include any substantive discussion of whether the changes proposed to the general/default protocol are necessary and appropriate to all of the categories of cases to which it would apply, including commercial disputes.
Amongst the suggested changes that would be problematic and arguably unworkable in commercial litigation are:
Truncating the existing time limits for pre-action correspondence
Requiring statements of truth for letters of claim and responses, and applying formal disclosure standards (taken from Part 31 or the Disclosure Pilot) to pre-action document exchange
A “good faith obligation to try to resolve or narrow the dispute at the pre-action stage” with each party taking a “concrete step” toward settling the dispute, as one step in a series of preconditions to commencing proceedings. Although the report states that this would be “non-prescriptive” as to the action required, it appears to contemplate that, in the absence of a formal settlement offer, the minimum required would be a meeting or discussions between the parties.
A joint “stocktake” report as a final pre-condition to commencing proceedings. This goes much further than the current provision in the PD-PAC that, following pre-action exchanges, each party should undertake a stocktake of its position to assess any potential for ADR or narrowing of issues. The “stocktake” proposed in the interim report is a jointly-prepared document which identifies: (i) issues on which there is agreement and disagreement; (ii) the parties’ respective positions on each issue; (iii) what disclosure of documents has been provided; and (iv) what further disclosure is sought by each party.
Various measures to strengthen the mandatory status of PAPs (except in “urgent” cases) – with expanded sanctions for non-compliance (including potential strikeout of claims/defences) and encouraging compliance issues to be determined at the commencement of proceedings.
The complexity of the issues in most commercial cases means that these proposals would be likely to bring forward to the pre-action stage a very significant proportion of the case preparation work currently undertaken over many months. The shifting of formal disclosure obligations to the pre-action stage also seems inconsistent with, and would be likely to cut across, the aims of the ongoing Disclosure Pilot in the Business and Property Courts.
The ADR proposal
The suggestion of a new mandatory pre-action obligation to engage in a process to attempt to settle disputes is somewhat surprising given that the issue of whether and when civil litigants should be compelled to engage in ADR is currently the subject of an ongoing separate review, following the CJC’s “Mandatory ADR” report last summer and the Ministry of Justice’s subsequent Call for Evidence to inform policy in this regard.
In that context, we and many other users of the commercial courts have reiterated a view that substantial commercial litigation is an area of civil justice where imposing mandatory ADR would be not only unnecessary but counterproductive to efforts to encourage out-of-court resolution. By far the majority of commercial cases are already mediated at least once during the course of the proceedings. However, there are numerous factors and contingencies that influence the important question of when it is appropriate to do so. Those factors differ in each case, and the parties and their representatives are often best placed to assess this, prompted where necessary by active judicial engagement. Compelling settlement discussions prematurely in such cases risks wasting time and costs, as well as driving the parties further apart and jeopardising the overall prospects of settlement.
That applies particularly to suggestions of a pre-action “gateway” obligation. In most commercial cases, the parties and their legal representatives will have carefully considered the potential for an out-of-court resolution (via a formal ADR process or otherwise) before proceedings are commenced. However, given the complexity of the factual and legal issues typical of such cases, and the interests at stake, it is rare that both parties will have sufficient information to feel comfortable in settling at that stage.
It was for this reason that the Commercial Court Long Trials Working Party in 2007 decided not to introduce a specific pre-action protocol for Commercial Court cases, and instead recommended that it should be sufficient for parties to comply with the minimum expectations of the pre-action protocol regime – with only key documents exchanged, no expectation of lay or expert evidence being assembled by that stage, and recognising the possibility of commencing proceedings without following pre-action procedures in appropriate cases. That recommendation was widely accepted and has since been reflected in the Commercial Court Guide, which emphasises that the parties “are not required, or generally expected, to engage in elaborate or expensive pre-action procedures, and restraint is encouraged”.
For further information, please contact:
Jan O’Neill, Herbert Smith Freehills
Jan.ONeill@hsf.com
