Reform proposals could pull down construction dispute costs

Lord Justice Jackson recently published his long-awaited supplemental report on fixed costs as part of his review of civil litigation costs in the UK. With the focus rightly on lower-value claims, much of the fanfare and comment has centred on the impact of Jackson LJ’s proposals on the traditional smaller-value matters, especially injury claims.

Construction disputes are different. Many would think: surely, there is no scope for any form of fixed costs regime in such matters. Indeed, that was the view expressed by the Technology and Construction Bar Association during the wide-ranging discussions, roadshows and submissions that fed into the report.

Of course, the insurers involved in the construction sector that are most affected by these fresh offerings from Jackson LJ will be employers’ liability/public liability insurers dealing with injury and disease claims. Professional indemnity insurers that provide design and construct cover or professional indemnity cover for construction professionals will also need to be aware of these changes.

The process that has led to Jackson LJ’s report, which was published on July 31, has been thorough and as inclusive as possible. It has involved the collection of written submissions and comment from stakeholders and those with interest in the civil justice system (including the Forum of Insurance Lawyers).

There have been five public seminars around the country hosted by Jackson LJ. There have been private meetings with various parties and organisations, several working groups and the submission of a lot of costs data from a lot of sources. Nobody could say the process was not exhaustive.

There are a number of proposals that have resulted, two of which are of particular interest to construction disputes: the creation of an intermediate track and the establishment of a capped costs pilot.

Adding to the trinity

The intermediate track is a new addition to the existing trinity of small claims, fast and multi-track. As things stand at present, generally a claim of more than £25,000 ($32,614) in value will be dealt with in the multi-track. It is intended by Jackson LJ a new intermediate track would usually deal with claims up to £100,000 in value. Value would not be the only factor deciding whether a matter would be allocated to this new track; it should also only require two expert witnesses (with limited expert report length)  and a trial of up to three days. Complex professional negligence matters will be excluded and most construction disputes would sit outside the new intermediate track.

However, one could imagine some more modest injury claims on construction sites falling in this track, as well as domestic claims by individuals against architects or engineers following home extension projects.

Intermediate track matters should have a limit of 10 pages to pleadings (which will also need to be accompanied by core documents). Conscious of tricks lawyers might play, Jackson LJ suggests parties cannot evade the track by stretching their statements of case beyond 10 pages – the court will simply order the offending party to redraft at its own expense. Dependent on which of the four bands of the track a matter sits within, the fixed costs could be up to a maximum of £68,450.

Possibly of more interest to insurers is the new capped costs pilot scheme. This is intended to run in London, Manchester and Leeds and it is anticipated it is likely to commence in October 2017 for a period of two years. Technology and Construction Court matters will be covered by this. It will concern claims with values between £100,000 and £250,000. Cases in the pilot would be subject to capped (not fixed) costs and a streamlined management procedure (some of which takes inspiration from the Intellectual Property Enterprise Court). The pilot is voluntary and is only intended for those that would require a two-day trial (after appropriate case management) and would not require detailed and extensive expert evidence.

At present therefore, most construction disputes would be excluded – but not all. A range of both domestic construction problems and relatively modestly-sized commercial construction disputes involving design and construct contractors or construction professionals would potentially be caught.

Changes in the pilot

What would happen if a matter were caught in the pilot? Statements of case would be limited in length, would have to be accompanied by core bundles of documents and would stand as evidence in chief. Generally, disclosure beyond that would not be ordered. Witness statements would be limited to agreed lists of issues. The default position would be that applications would not require hearings.

Trials, which would last no more than two days, would occur within eight months of the case management conference. Within three weeks of the end of a trial, schedules of costs have to be provided and the court will summarily assess the costs up to capped levels subject to an overall cap of £80,000. The position will generally be that a single judge manages a matter throughout to offer a consistent approach. Jackson LJ takes a fresh approach to Part 36 penalties in such matters. If such an offer is made by a claimant but is rejected, the defendant will run the risk the cap will increase 25%.

This whole approach sounds like litigation re-invented. At present only modest-valued and simple construction disputes would be covered. But where there is now a ceiling of £250,000, why can that not be £500,000; where a trial length of two days is the limit, why should that not be five? It is easy to see the pilot may be the shape of things to come. And, if it is, in years to come insurers may see construction disputes becoming more streamlined and less costly.

This article was first published by Insurance Day on 6 September 2017 and written in conjunction with Forum of Insurance Lawyers (FOIL).