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Alternative dispute resolution and pre-action conduct in professional negligence claims

Business meeting 16 Print publication

07/06/2018

Walker Morris’ litigation/dispute resolution experts and specialists in the law of professional negligence explain an amendment to the Professional Negligence Pre-Action Protocol and alternative dispute resolution (ADR) options.

The general rule

In recent years, whenever any dispute has arisen and court proceedings have seemed likely, the best advice that a legal advisor could give to a party or potential party has, almost invariably, been to explore all ADR options before issuing proceedings and to respond promptly and constructively to any ADR or settlement approaches made by the opponent.  Apart from the fact that the general Practice Direction on Pre-Action Conduct states that litigation should be a last resort, case law consistently made very clear that any failure to do so may lead to costs sanctions:

“[Parties who] turn down out of hand the chance of alternative dispute resolution … may have to face uncomfortable costs consequences [even where that party goes on to win the case]” (Dunnett v Railtrack, Court of Appeal, 2002)

“All members of the legal profession who conduct litigation should now routinely consider with their clients whether their disputes are suitable for ADR” (Halsey v Milton Keynes NHS Trust, Court of Appeal, 2004)

[Costs sanctions should be imposed] “where there are real obstacles to mediation which might reasonably be overcome but are not addressed because that party does not raise them at the time.”; and “…silence in the face of an invitation to participate in ADR is, as a general rule, of itself unreasonable, regardless whether an outright refusal, or a refusal to engage in the type of ADR requested, or to do so at the time requested, might have been justified by the identification of reasonable grounds.” (PGF II SA v OMFS Company, Court of Appeal, 2013)

Professional negligence disputes

Specifically in relation to professional negligence disputes – which can be particularly sensitive because they often centre on the consequences of a breakdown in a business or financial arrangement and/or a fiduciary (or ‘trust’) relationship; because the reputation and livelihood of a professional person may be at stake; and because the legal and technical issues involved can be complex – it can be even more important to resolve complaints effectively, efficiently and privately where possible. As a result, the Civil Procedure Rules require that potential parties should, before commencing any court proceedings, consult the Professional Negligence Pre-Action Protocol (the PAP), which sets out the steps with which parties should comply with a view to resolving their dispute by alternative means.

Adjudication amendment

There are various different ADR options which can (non-exhaustively) range from informal settlement negotiations to, say, formal mediations, arbitrations or expert determinations and more. All have different characteristics, advantages and disadvantages which should be assessed against the circumstances of each individual case so as to determine suitability.

As of 30 April 2018, however, one ADR option – namely, adjudication – has been specifically highlighted in the context of professional negligence claims, as a result of a new amendment to the PAP.

The amendment [1] requires potential claimants to indicate in the letter of claim whether they wish to refer the dispute to adjudication, and, if they do not, to give reasons.

It is important to note that the scheme of adjudication with which the PAP is concerned is not the statutory scheme which applies to construction disputes [2]. Rather, it is the Professional Negligence Adjudication Scheme, the rules for which are set out in the pack which accompanied the pre-implementation pilot (the Pilot Pack).  Guidance notes for the scheme are also included in the Pilot Pack, which can be accessed here.

In summary, adjudication is a streamlined dispute resolution process which is temporarily binding (unless the parties opt for finality). That means that the adjudicator’s decision, which is generally given following only limited disclosure of documents, and no lengthy hearings or cross-examination of witnesses, stands unless and until a court or arbitral tribunal gives a different ruling on the dispute in any subsequent proceedings initiated by an unhappy ‘losing’ party. If the adjudicator decides that the claimant is entitled to compensation, compensation has to be paid by the defendant/respondent within 21 days of the decision. If payment is not made the sum payable is a debt which can be enforced summarily in the courts.

Despite the amendment and its clear steer that parties should seriously consider adopting adjudication as their dispute resolution method, the scheme nevertheless remains optional. It is not mandated by legislation in professional negligence disputes in the way that the statutory scheme is mandated in construction disputes.

We therefore anticipate (and are seeking clarification from the Civil Procedure Rules Committee) that the new obligation to consider adjudication is just another facet of the general obligation to consider ADR with which practitioners and parties involved in dispute resolution are already familiar, and that it will be ‘enforced’ in the same way – that is, that a party who unreasonably fails to consider adjudication and to comply with the PAP will be at risk of costs sanctions.

Practical advice

When it comes to considering whether or not adjudication (or indeed any other ADR option, or the traditional litigation process) will be suitable for a dispute, parties should seek specialist advice. This is always a nuanced issue and the best option will differ according to the particular facts and circumstances of every individual case.

The best advice is for parties to disputes/potential disputes to properly assess all ADR options and offers, taking into account both legal and commercial concerns and PAP requirements.  In the cases where it is genuinely felt that adjudication, mediation or any other ADR option will not assist, parties and their advisors should keep contemporaneous records of their consideration and assessment of ADR options and proposals, and should confirm in correspondence why they believe that that form of [or any] ADR is inappropriate.  Being able to evidence their deliberation and to explain their decision should reduce the risk of a court imposing a costs sanction upon a party for unreasonable conduct later down the line.

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[1] at new paragraph 6.2(i) of the PAP.  As at the date of writing, no additional amendments, guidance or information have been formally published as to exactly how this amendment should work in practice.  However we understand that the intention is that the particular scheme of adjudication; the guidance; the adjudicator panel; and adjudicator appointment standard terms that were trialled as part of the pre-implementation pilot now apply. This briefing has been prepared on that basis.
[2] That is, the construction dispute adjudication scheme introduced by the Housing Grants, Construction and Regeneration Act 1996.

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