Over the past 12 months there has been much debate in the dilapidations world surrounding procedural aspects of making or defending dilapidations claims. While, to some followers of this debate, it might be unfortunate that discussions have centred around procedural rather than substantive issues, a knowledge of appropriate procedures for dilapidations is important nonetheless. Not following the correct procedures, or not understanding what they entail, can elongate the claim and be, at best, the source of professional embarrassment and, at worst, a cause for an extra costs liability for the defaulting party in question (see Business Environment Bow Lane Ltd v Deanwater Estates Ltd ).
Much of this debate centred around the introduction, in April 2009, of the Practice Direction: Pre-Action Conduct (the Practice Direction) and the extent to which it overrode the existing industry dilapidations protocol publicised by the Property Litigation Association (PLA).
Pre-action protocols generally arose out of the wholesale reform of the civil justice system by Lord Woolf in the 1990s. One of Lord Woolf’s concerns was to ensure that issuing court proceedings was a last resort for parties, through use of the pre-action protocol – a set of steps the parties should take prior to the issue of proceedings.
Since the introduction of the Civil Procedure Rules (CPR) in 1999, a total of ten different protocols for various types of claims have been worked up and formally incorporated into the CPR. As part of the launch of the CPR, Lord Irvine commented that:
‘Pre-action protocols are, in many ways, the key to success of the Civil Justice Reform. If they do not work, our major procedural reforms will be weakened.’
The formally adopted CPR pre-action protocols deal, with dispute areas such as personal injury, professional negligence and housing disrepair. Against this background, the PLA, after wide consultation, launched its own Dilapidations Protocol (PLA protocol) in spring 2002. Since then, it has been widely adopted by the industry, including endorsement by the Royal Institution of Chartered Surveyors as best practice and annexed to their Guidance Note on Dilapidations. Other specialist areas (eg probate litigation) have also formulated their own industry procedures.
The PLA has long attempted to have the PLA protocol added to the list of formally adopted CPR pre-action protocols. Up until very recently, those attempts have been unsuccessful and although the position may soon change (as will appear later) the PLA protocol remains an unadopted procedure outside the CPR.
As there are only ten formally adopted pre-action protocols, there are clearly a large number of disputes for which there are no formally adopted CPR protocols. In view of this, the Practice Direction was introduced in April 2009 as part of the CPR. It is wide-ranging in its application and thus applies to dilapidations disputes, as well as many others. It has, however, remained relatively unknown in the industry, which has continued to use the PLA protocol. This has raised the question among some commentators as to whether the Practice Direction effectively renders the PLA protocol obsolete.
Happily, for several reasons, this seems not to be the case.
Effect of the Practice Direction
The Practice Direction is split into three essential sections:
- The approach of the courts.
- The conduct of the parties in cases not subject to a formal pre-action protocol.
- Requirements that apply in all cases.
(Section i is merely an introduction).
The essential points in these sections are as follows:
Approach of the courts
- ‘The court will expect the parties to have complied with this Practice Direction or any relevant formal pre-action protocol. Where there has been a failure of compliance by a party, the court may ask that party to provide an explanation.’
- The court will only ‘be concerned about whether the parties have complied in substance with the relevant principles and requirements, and it is not likely to be concerned with minor or technical shortcomings’.
- The court can impose sanctions for failure to follow the Practice Direction including:
- a stay in proceedings until steps that ought to have been taken have been taken;
- ordering the party at fault to pay costs, perhaps on an indemnity basis;
- depriving a party of interest; and
- imposing a penalty interest.
Conduct of parties in cases notsubject to a formal pre-action protocol
As, currently, dilapidation disputes are not subject to a formal pre-action protocol (the PLA protocol being merely a non-adopted protocol), this section is relevant. The main points are:
- Parties should exchange sufficient information to allow them to understand each other’s position, to make informed decisions about settlement and how to proceed.
- Parties should make appropriate attempts to resolve the matter without proceedings and in particular consider ADR.
- Parties should act in a reasonable and proportionate manner, bearing in mind the complexity and money at stake, and should not use the Practice Direction as a tactical device to secure an unfair advantage or generate unnecessary costs.
- Before starting proceedings:
- the claimant (landlord in a dilapidations claim) should write a letter of claim, and
- the defendant (tenant in a dilapidations claim) should give a full response within a reasonable period.
- What is a reasonable period will vary, but longer than 30 days may be appropriate if specialist advice is required (as would be the case usually in a dilapidations claim). However, longer than 90 days would only be reasonable in exceptional circumstances.
- Annex A to the Practice Direction expands on these guide principles, but Annex A only applies ‘where the claimant does not follow any formal pre-action procedure’. As the PLA protocol, albeit not a formally adopted pre-action protocol, is none the less a formal pre-action procedure, Annex A would not appear to apply to dilapidations claims.
Requirements that apply in all cases
Clearly this section, like the previous section, applies to dilapidations disputes and provides:
- Disclosure: documents disclosed by one party to another should only be used in connection with the dispute in hand rather than generally, unless otherwise agreed.
- Funding arrangements: a party entering into a funding arrangement (eg a Conditional Fee Agreement) is required to disclose this arrangement to the other party as soon as possible.
- If experts are involved, the parties should consider how best to minimise expense.
Reference is made to Annex C (Guidance on Instructing Experts), which tells parties who require expert evidence (almost inevitable in a dilapidations dispute) that:
- Part 35 CPR Guidance on Experts applies ‘both before and after proceedings are started’;
- the parties should consider a single joint expert (which would be unusual in a dilapidations claim);
- if no single joint expert, the claimant (landlord) should give the defendant (tenant) a list of experts for instruction;
- the defendant (tenant) has 14 days to object to any of those experts, leaving the claimant (landlord) free to instruct any that are acceptable; and
- if none is acceptable, the claimant (landlord) can instruct any expert of their choosing but the court will scrutinise the reasonableness of that choice.
It will readily be seen that this method of appointing experts prescribed by Annex C to the Practice Direction does not equate at all with standard practice in dilapidations claims nor is replicated in the PLA protocol.
Inter-relationship between the PLA Protocol and the Practice Direction
As the PLA protocol is not currently adopted within the CPR, all sections of the Practice Direction apply to dilapidations disputes, together with Annex C (expert evidence), although arguably not Annex A. What role, therefore, does the PLA protocol now have to play?
On a day-to-day basis, the PLA protocol has a large advantage over the Practice Direction because it is widely known and used, whereas the Practice Direction remains relatively obscure and unknown to dilapidations practitioners. In practice, therefore, the Practice Direction is regularly overlooked.
A comparison between section iii of the Practice Direction and the PLA protocol, however, shows a large degree of compatibility:
- The whole point of the PLA protocol is for the parties to exchange sufficient and appropriate information prior to the issue of any proceedings so that each party can understand the other’s position.
- The PLA protocol actively encourages the use of ADR.
- The PLA protocol stresses that it is not intended to be an exhaustive or mandatory list of steps (paragraph 1.4). It expressly yields the CPR’s over-riding objective, part of which is ‘dealing with the case in ways which are proportionate’ to the amount of money involved and the complexity (CPR 1.1(ii) (c)). It would clearly be inappropriate to attempt to use the PLA protocol to require a party to act disproportionately in terms of cost and complexity.
- The PLA protocol provides the tenant with a 56-day response period as being a reasonable time, which squares with the 30 to 90-day period of the Practice Direction.
- The reference in the Practice Direction to parties following ‘any other formal pre-action procedure’ must be a tacit recognition of the various unadopted (but widely used) industry pre-action procedures, of which the PLA protocol is a notable example.
By contrast the Practice Direction’s approach to expert evidence does diverge from that of the PLA protocol. However, it would be unusual in practice for any party to a dilapidations dispute actually to comply with Annex C (despite its mandatory nature).
We currently have a position where the PLA protocol and the Practice Direction largely satisfactorily inter-relate, but an evident clash on how expert surveyors are to be appointed and used is, currently, resolved practically by the Practice Direction being overlooked in favour of the PLA protocol.
Recommendations of Jackson LJ
Some ten years after Lord Woolf carried out his review of the civil justice system, a further review (concentrating on costs) has recently been completed by Jackson LJ. The Review of Civil Litigation Costs (the Jackson Review) was published on 14 January 2010. The report is extremely detailed and covers a wide range of issues relating to dispute resolution costs.
Although the Jackson Review does not focus on dilapidations specifically, there are several points that have direct relevance to dilapidations claims including:
- ‘Informal’ (ie not officially adopted) protocols. Jackson LJ recognises that ‘focused protocols prepared by practitioner associations for specialised areas of Chancery litigation can be helpful’. He therefore recommends (in the case of Chancery litigation) that ‘practitioners will serve the best interests of their client if, in appropriate cases, they follow the informal protocols developed by professional associations’. This is clearly encouragement for those involved in dilapidations disputes to follow the PLA protocol.
- The Practice Direction is, however, heavily criticised. Jackson LJ says that it ‘serves no useful purpose, because one size does not fit all. Furthermore, in many instances the [Practice Direction] is productive of substantial delay and extra costs. I therefore recommend that the [Practice Direction] (sections iii and iv) be repealed’.
- Jackson LJ also recommends repeal of Annex C to the Practice Direction, which contains the ‘unnecessarily formulaic’ (in the words of Guy Fetherstonhaugh QC) procedures for appointing experts in disputes (including dilapidations disputes).
- In the Technology and Construction Court (TCC) (where many dilapidations disputes are pursued) Jackson LJ recommends:
- The TCC should be free to disallow one party from claiming the cost of excessive work in complying with any pre-action protocol. Thus, parties in the future may be penalised in costs if they take any pre-action protocol (including, possibly, the PLA protocol) too literally.
- By contrast, Jackson LJ recommends that if one party is totally failing to comply with a pre-action protocol, it should be possible to apply to court before any other proceedings have been issued for an order compelling a party to comply with the relevant protocol. Thus, although Jackson LJ does not wish for practitioners to slavishly follow protocols, he nonetheless recommends the court has teeth to deal with parties who may wholesalely ignore them.
Jackson LJ’s recommendations are not, currently, the law and it remains to be seen when, and the extent to which, his recommendations may be adopted.
Formal Adoption of the PLA Protocol
The PLA has, for some years, sought to persuade the Department for Constitutional Affairs to formally adopt the PLA protocol under the CPR.
Following further representations made by the PLA earlier this year, the Civil Justice Council has finally recommended to the Master of the Rolls that the PLA protocol should indeed now be adopted as part of the CPR. It is possible that such adoption could take place as early as autumn this year.
There has been, and there currently remains, scope for much discussion on the status of the PLA protocol following the introduction of the Practice Direction in 2009.
As, however, in general, the PLA protocol (in its detail) reflects the general principles set out in the Practice Direction, the demise of the PLA protocol (in the eyes of some commentators) appears to have been greatly exaggerated. In practice, those involved in dilapidations disputes are far more likely to follow the PLA protocol than the Practice Direction in any event.
It is, however, clear that at least in respect of the appointment of expert dilapidation surveyors, the PLA protocol and the Practice Direction clash. In this respect, the Practice Direction has been heavily criticised, culminating in Jackson LJ’s recommendation that its provisions relating to expert evidence be entirely repealed.
Overall, the prospective adoption of the PLA protocol as a formal CPR pre-action protocol should put to rest these debates, especially if the Practice Direction (particularly Annex C) is repealed.
The PLA protocol looks likely to win this battle of procedures, and because it is an impressively practical and flexible document, its extensive use on the ground proves its effectiveness. It should therefore continue to be used by those involved in dilapidations disputes.