Chapter 10 Pre-action Protocols
1. This chapter sets out my proposals for the development of pre-action protocols. These are intended to build on and increase the benefits of early but well-informed settlements which genuinely satisfy both parties to a dispute. The purposes of such protocols are:
(a) to focus the attention of litigants on the desirability of resolving disputes without litigation;
(b) to enable them to obtain the information they reasonably need in order to enter into an appropriate settlement; or
(c) to make an appropriate offer (of a kind which can have costs consequences if litigation ensues); and
(d) if a pre-action settlement is not achievable, to lay the ground for expeditious conduct of proceedings.
2. It is a characteristic of our civil justice system that the vast majority of cases are settled without trial, by negotiation between the parties or their legal advisers. There are many more potential claimants who settle their disputes without starting legal proceedings at all. It is my intention to build on this. My approach to civil justice is that disputes should, wherever possible, be resolved without litigation. Where litigation is unavoidable, it should be conducted with a view to encouraging settlement at the earliest appropriate stage.
3. However, settlement is not an end in itself. Settlement must be appropriate to the needs of both parties, and be achieved without excessive cost or delay. At present too many cases settle at the door of the court. This is the least appropriate stage to settle because maximum cost and delay have been incurred. Other cases settle for no better reason than that the claimant is tired of waiting, or does not have the energy or resources to pursue the claim any further. This may arise because of the deliberate tactics adopted by the parties.
4. Delay before the start of proceedings is just as undesirable (and can be just as expensive) as delay in the course of litigation. There would be no point in offering a fast track timetable of 20 or 30 weeks to a claimant who had spent two or three years in fruitless negotiations before bringing the case to court at all. What is needed is a system which enables the parties to a dispute to embark on meaningful negotiation as soon as the possibility of litigation is identified, and ensures that as early as possible they have the relevant information to define their claims and make realistic offers to settle.
5. In my view, this can only be achieved if the court itself takes more account of pre-litigation activity than has traditionally been the case. Once a protocol has been adopted, the parties' compliance (or failure to comply) with it will be taken into account when the court is dealing with the future conduct of the case. In particular, if one party has unreasonably refused to accept a pre-action offer to settle, that will have consequences in costs once litigation has started.
6. Pre-action protocols will be an important part of the new system. They are not intended to provide a comprehensive code for all pre-litigation behaviour, but will deal with specific problems in specific areas. They will set out codes of sensible practice which parties are expected to follow when they are faced with the prospect of litigation in an area to which a protocol applies. Protocols will make it easier for parties to obtain the information they need, by the use of standard forms and questionnaires wherever possible. This will be assisted by wider powers for the courts to order pre-action disclosure. (See chapter 12 of this report.) Protocols will also be an important means of promoting economy in the use of expert evidence, in particular by encouraging the parties to use a single expert wherever possible. Unless this happens before the commencement of proceedings, it will frequently be too late because the parties will already have established an entrenched relationship with their own expert. In addition, protocols will encourage the use of any appropriate alternative mechanisms for the resolution of disputes. If litigation proves necessary, observance of the protocols should put the parties in a good position to meet the timetable imposed by the court. This will be particularly important on the fast track, with its tight standard timetable.
7. Work is already well advanced on the development of protocols for some areas of litigation which particularly concern the Inquiry. The Law Society has played a particularly important role in work on pre-litigation procedures, both by helping the Inquiry directly and through independent initiatives such as its protocol for the disclosure of medical records. Elsewhere in this report I mention the progress made on a disrepair protocol by the Housing Law Practitioners' Association and the associations representing local authority landlords (the Association of District Councils, the Association of London Government and the Association of Metropolitan Authorities). Chapter 15 refers to the new 'umbrella' group for medical negligence litigation, which will also be taking forward work on a protocol. I also understand that a group of construction industry professionals is working to produce guidelines which would encourage the resolution of disputes through arbitration rather than litigation.
8. Another group, involving members of the Association of Personal Injury Lawyers (APIL) and the Association of British Insurers (ABI), is working on a pre-action protocol for personal injury cases. This started in the context of the Inquiry's work on the fast track, but the approach is relevant to all personal injury work. The main points on which agreement has been reached so far are as follows.
(a) The content and broad format of a notification of claim have been agreed. The letter will be sent to the defendant (and, where known, the defendant's insurer) as soon as the claimant is aware of sufficient facts to show that there is a possible claim. It will contain enough information to enable the defendant to investigate and broadly value the claim.
(b) Where the claimant does not know the identity of the defendant's insurer, the defendant would be requested to forward a copy of the letter to his insurers and notify the claimant of their identity and his policy number within 28 days of receiving the notification.
(c) Within three months of receiving notification of a claim, the defendant must reply saying whether or not liability is accepted. If it is not, the defendant must give factual reasons for disputing liability and send copies of relevant documents.
(d) A list of the documents which should be automatically disclosed by the prospective parties in common types of personal injury cases has been drawn up. It is intended that, as recommended by the group, the exchange of these documents will be prescribed by practice direction. In most cases, this will obviate the need for any further disclosure after proceedings have begun. The group has also identified the documents that should be provided on request in particular circumstances.
9. The group has also been able to agree a protocol for instructing experts which provides that the claimant's solicitor may, in the first instance, put forward more than one expert's name. The defendant may indicate that one or more of these is unacceptable. The group considered that this would have advantages for both claimants and defendants. Provided at least two names are acceptable to both parties, the claimant may reject a report by the expert of his first choice without letting the defendant know that he has done so. The advantage for defendants is that they can identify at an early stage if the claimant is intending to use an expert whom they regard as partisan and whose report they are unlikely to accept.
10. If the other party does not object to the claimant's expert he will not be able to rely on any other expert in that speciality unless the claimant agrees or the court so directs, or unless the report commissioned by the claimant has been amended and the claimant is not prepared to disclose the original report.
11. Instructions to experts will follow a standard format and they should refer to any protocol that may be agreed between the Law Society and the British Medical Association (BMA) or other medical organisation as to the format of the report. Either party may deliver written questions on the report relevant to the issues to the solicitor instructing the expert. Answers to the questions will be sent separately to each solicitor.
12. The group has also suggested that there should be a central register of insurance policies to enable a claimant to identify the potential defendant's insurer. This is a particular difficulty in employer's liability cases where the company or firm has gone out of business. I endorse this proposal.
13. Protocols will be most effective if they are agreed, broadly speaking, on behalf of those likely to be frequent users of the procedures, whether as litigants or as professional advisers. All the groups whose work I have mentioned have made commendable progress, but there are some detailed points on which the claimants' and defendants' representatives have not yet reached agreement. I hope that discussions will continue after this report is published, and will lead to agreed protocols.
14. It is important that protocols are devised within a general structure of court approval. The Civil Justice Council will have a significant role to play here in advising and assisting the Head of Civil Justice. When a protocol is established for an area of litigation, I recommend that it is incorporated in the relevant practice guide. Unreasonable failure by either party to comply with the relevant protocol will be taken into account by the court, for example in the allocation of costs or in considering any application for
an extension of the timetable.
15. I am aware that there is some scepticism as to whether insurance companies will comply with the protocols. My discussions with insurers, and their co-operation (led by the ABI) in the development of protocols, do not support this. I have no reason to think that the industry leaders will not honour the protocols. It will, in any event, be in their interest to do so if they wish to avoid the sanctions that will be imposed, if necessary, by the courts.
16. There are also practitioners who fear that the use of pre-issue protocols will lead to the unnecessary front-loading of costs. While the protocols will certainly bring work forward by comparison with usual present practice, this is to be welcomed. The work has to be done to enable cases to be resolved, and bringing the work forward will enable some cases to settle earlier. Where this is not possible the work will not have been wasted. The insurers have pointed out that cases cannot settle until sufficient information is available for a realistic commercial assessment of the value of the claim. This has been accepted by the Association of Personal Injury Lawyers.
17. If the procedure laid down in protocols proves to be over-elaborate in more straightforward cases, it will be a simple matter to allow for this. The courts should initially be flexible in their enforcement of compliance with the protocols. The operation of the protocols will have to be monitored and their detailed provisions modified so far as is necessary in the light of practical experience.
Recommendations
My recommendations on protocols are as follows.
(1) Pre-action protocols should set out codes of sensible practice which parties are expected to follow when faced with the prospect of litigation. They should not cover all areas of litigation, but should deal with specific problems in specific areas, including personal injury, medical negligence and housing.
(2) When a protocol is established for a particular area of litigation, it should be incorporated into the relevant practice guide.
(3) Unreasonable failure by either party to comply with the relevant protocol should be taken into account by the court, for example in the allocation of costs or in considering any application for an extension of the timetable.
(4) The operation of the protocols should be monitored and their detailed provisions modified so far as is necessary in the light of practical experience.
Chapter 11 Offers to Settle
1. In chapter 24 of the interim report, I explained that a greater role for offers to settle was an important part of my general approach of promoting early settlement of cases. My main recommendations on offers can be summarised as follows.
(1) The system of payments into court should be replaced by a system of offers.
(2) Any party, the claimant as well as the defendant, should be able to make an offer to settle.
(3) Offers could be in respect of the whole case or of individual issues (including liability) or claims.
(4) Offers could be made before the start of proceedings.
(5) There should be financial incentives to encourage claimants, in particular, to make offers.
(6) Where an offer has been made, the court should exercise a wider discretion in respect of costs and interest than it habitually does at present.
2. My proposals for offers remain essentially the same as those set out in the interim report. This chapter therefore deals mainly with matters where I have modified or extended my original ideas. I would stress, however, that the importance which I attach to offers to settle has, if anything, increased since I wrote the interim report. I believe they are capable of making an important contribution to the change of culture which is fundamental to the reform of civil justice.
Basic system
3. In the interim report, I did not attach importance to the retention of payments into court as a means of achieving the kind of benefits which I believe will flow from my proposed system of offers. However, the Law Society and others who made representations in response to the interim report, while generally supporting my proposals on offers, argued that a payment into court was a useful way of assuring claimants of the substance of an offer. The fact that the money was actually available made it more likely that the offer would be accepted. Up to a point, I accept this reasoning and therefore do not now recommend the abolition of payments into court.
4. Allowing for the fact that my proposals would enable claimants as well as defendants to make offers, it is of course important that rules of court relating to offers and to payments into court respectively should diverge as little as possible. I therefore recommend, in respect of defendants' offers, that the making of the offer itself should be the critical step, while the backing of a payment in will be secondary and optional. This means that Cutts v Head [1984] Ch 290, which prevents the making of a Calderbank offer where a payment into court can be made, will no longer apply under the new rules. When considering the exercise of its discretion as to costs at the end of a case, the court will therefore have to give primary consideration to the terms of the defendant's offer regardless of whether there was also a payment into court. In practice, it should only be in an unusual case that the absence of a payment in should be taken to undermine the reasonableness of an offer.
Withdrawal of offers
5. A matter not mentioned in the interim report was the withdrawal of offers. I recommended there that, as with payments into court now, an offer should normally remain open for acceptance for 21 days or more. In theory, a party could make an offer stipulated to be open for a shorter period, but I would recommend that rules of court should direct the courts to disregard any such offer in exercising the costs discretion. There needs to be a minimum period for the 'offeree' to consider the offer and, if necessary, to ask for more information about it. Subject to the 21 day provision, it should be open to the offeror at any time to withdraw or vary an offer subsequently, by notice in writing to all the other parties. This differs from the existing position for payments into court, where the circumstances in which a payment in can be withdrawn are extremely narrow. Obviously the court would not take account of a withdrawn offer when considering costs except when considering the reasonableness of the parties' conduct generally.
Incentives to make offers
6. I consider that the defendant's potential entitlement to all his costs from the date of his offer is a sufficient incentive to defendants to make offers. Imposing any more rigorous sanction on a claimant for not accepting an offer would constitute undue pressure to settle. I therefore do not recommend any change here.
7. However, the claimant clearly needs a significant incentive to balance up the risk to which the defendant can subject him by making an offer. In the interim report, I suggested that this should take the form of additional interest above that which would ordinarily be payable on damages. Since writing the interim report, I have come to the conclusion that significantly higher incentives than I had originally suggested are needed. I therefore recommend that the figures should be 25 per cent above the rate which would otherwise be payable on awards up to £10,000, 15 per cent from £10,000 to £50,000 and then an additional 5 per cent. Thus if, for example, the conventional rate was 5 per cent, then the rate on an award up to £10,000 would be 30 per cent, and so on. The rate would be tapering, ie, 25 per cent on the first £10,000, 15 per cent on the next £40,000 and 5 per cent on the rest. This is necessary because otherwise a claimant who is awarded £49,950 would be better off than a claimant who was awarded £50,000. The extra rate of interest is higher on lower value claims because otherwise the incentive to make an offer in such cases would be insufficient.
8. The normal date from which interest would be payable would be the date 21 days after the offer was made. The court could, however, order that interest should run from a different date. This might be appropriate where, for example, the defendant could not reasonably have been expected to accept the offer until certain information had become available to him.
9. These incentives for claimants and defendants are in addition to the court's power to award indemnity costs and interest on costs where the court considers a party has acted unreasonably.
Recovery of the whole sum claimed
10. If a claimant has specified the exact amount which he is claiming and recovers that amount at trial, he will be in the same position as a claimant whose offer to settle was the same as the court's award. Like such a claimant, he too should be entitled to additional interest.
Recommendations
I make the following, further recommendations in respect of offers.
(1) A defendant's ability to make a payment into court should be retained, but the making of an offer, in accordance with rules of court, should be the primary requirement, with payments in being a secondary and optional means of backing an offer. The absence of a payment in should not normally influence the court's view of whether an offer was reasonable.
(2) A party may withdraw an offer, but an offer which is open for less than 21 days should be disregarded by the court for costs purposes.
(3) The rates of additional interest which I now recommend should be payable to a claimant who makes an offer which is not accepted and which the claimant matches or exceeds at trial are:
