Bryan Johnston looks at alternative dispute resolution and the procedural and administrative hurdles in the way of pursuing dilapidations claims in the courts.
The Property Litigation Association and the RICS have worked closely together over many years on making dilapidations dispute resolution better for both landlords and tenants.
In this article, the genesis of which arose from a speech delivered at the annual RICS dilapidations conference, I will look at key developments in legal process that are pertinent to dilapidations and claims generally, and will consider the extent to which the court system is discouraging litigation.
Early neutral evaluation
The only dilapidated thing in the Court of Appeal case Lomax v Lomax  EWCA Civ 1467 (see below) was the state of the family relationship between the claimant, the wife whose husband had died, and her defendant stepson. The facts are far removed from dilapidations and reinstatement, but the principle arising is very relevant and the consequences are likely to be felt as litigation evolves.
The case concerns early neutral evaluation (ENE), where an experienced independent evaluator considers the respective cases in the context of legal, factual and technical issues and provides an evaluation. ENE is not binding, but it can help to inform settlement discussions in order to resolve disputes and keep them out of court.
As well as assisting settlement, ENE can: 1) progress a dispute more quickly than the court; 2) clarify issues in dispute; and 3) help to expose limitations on arguments and manage parties’ expectations in respect of their cases.
The flipside is that the winner of ENE may become more entrenched and the loser may feel its settlement position is undermined. If ENE does not lead to settlement, it can be an additional significant expense of cost and time. It may also not be appropriate for particularly complicated matters or issues.
The court held that it was at liberty to order ENE, regardless of whether any party did not want to engage with the ENE process. The case demonstrates the court’s willingness to impress on parties the need to resolve matters via alternative dispute resolution (ADR). The element of compulsion here evidences the teeth the court has and that it is prepared to use them.
Civil Justice Council and ADR
The Lomax decision is a small element of an evolving picture concerning ADR, which has gained traction over the years – indeed both the RICS and the PLA have been strong advocates for it. The current framework for ADR should be viewed in the context of the Civil Justice Council’s Working Group on ADR and their final report of November 2018.
The working group was tasked with reviewing the way in which ADR is encouraged and positioned within the civil justice system in England and Wales. It concluded that the courts have been too generous to those who ignore or underestimate the benefits of ADR. In short, the group said it is unacceptable for a party to refuse to engage in ADR on the grounds of:
- the case being too complex;
- an existing bad relationship between parties;
- complex issues of law being involved;
- the cost of ADR being too high; or
- one party believing they have a strong case.
It further concluded that opting out of ADR may only be acceptable where:
- the parties are already engaged in ADR;
- the parties are already committed to ADR in the near future;
- the court is satisfied there is a need to wait until after disclosure but there is a commitment to ADR after that point;
- there is unreasonable or obsessive conduct by a party; or
- there is a genuine test case on an issue of principle where a court’s view is required.
The group recommended:
- professional training should embrace and emphasise the role of ADR;
- professional disciplinary codes should emphasise a duty to ensure clients understand all available alternatives to litigation;
- court forms, pre-action protocols and guidance documents should effectively presume that ADR will be attempted in any case not otherwise settled;
- greater court intervention in case management – ADR must be tried before a trial is permitted;
- review of cost sanctions for failing to engage in ADR; existing sanctions to be applied more vigorously;
- narrowing the circumstances where refusing to participate in ADR is acceptable; and
- “default mediation” via a notice to mediate system, such as that used in British Columbia.
The recommendations stop short of making ADR compulsory, but they go far in embedding ADR into the dispute resolution process and are squarely aimed at behavioural change.
ADR reflects a growing mood within government and the judiciary to resolve disputes outside of the traditional judicial determination method. It is therefore incumbent on a party’s professional advisers to consider at all junctures not whether they should use ADR, but whether there is any good reason not to.
In March this year, the Ministry of Justice launched a consultation on the extension of fixed recoverable costs in civil litigation. The consultation closed in June and the outcome is awaited.
While the current fixed recoverable costs regime is unlikely to touch most dilapidations matters, there is a strong government appetite to curb litigation costs in order to make justice more accessible.
The principle argument in respect of fixed recoverable costs is that a party knows what it is likely to have to pay out if unsuccessful and, conversely, what it can expect to achieve if successful. This creates certainty around the decision of whether to litigate or not.
However, such a scheme also risks undermining confidence in the justice system and among the legal and surveying professionals operating within it. A low or indeterminate value matter may still be very complex and time-intensive, and a successful client may well incur costs over and above the fixed amount.
Nevertheless, the ministerial and judicial enthusiasm for fixed recoverable costs is evident and there will likely be more pressure to extend the regime beyond its already expanded borders.
A disclosure pilot is well under way in the Business and Property Courts. It will require greater surveyor and principal input at the outset of a matter as regards disclosure of documentation, including adverse documents. Further details are below.
Access to justice is a key priority for the Ministry of Justice. Yet the relatively recent increase in court fees does not sit easily with this. The issue fee alone for claims between £10,000 and £200,000 is in many cases 5% of the claim value and, where the amount claimed is over £200,000, the issue fee is £10,000.
This is an exceptional amount of money simply to issue a claim. Yes, the court service requires funding and the courts need administration but having such a high fee can be a disincentive for a party seeking to litigate. Perversely, such high fees can also lead to further incurred costs as parties dispute their matters in protracted correspondence to avoid the fee.
A more palatable issue fee would be preferable, with higher fees then being payable pre-trial or on application, when significant court cost is incurred. While the size of the fee is such that a party will need to think long and hard before litigation, changing the front-loading of the fee would be fairer and more proportionate. However, I do not expect this to happen, given that the higher fee results in greater revenue to the court service, reducing taxpayer subsidies.
In summary, the state of traditional dispute resolution is showing its age. It is not clear how some of the court system’s changes have improved the process. Patch-repairing is aimed at discouraging judicial determination as opposed to embracing swift determination. Making good can stem costs, but it can lead to additional cost being incurred.
It is therefore incumbent on landlords and tenants – and their advisers – to fully consider the alternatives available to settle dilapidations disputes at the outset and potentially even before lease end in order to best facilitate resolution of claims. If court process and administration is not necessarily in substantial repair and condition, we should continue to find alternatives to obviate the need to go to trial. We are strongly encouraged to do so. How long will it be before we are compelled to?
Lomax v Lomax
The wife applied for provision from the husband’s estate. The stepson challenged this on the basis that his stepmother had been provided with enough. The wife sought early neutral evaluation (ENE). The stepson resisted on the basis that he considered it to lack merit. The question was whether an order for ENE could be made by the court against the wishes of the stepson.
It was unclear to the first instance judge if the court’s role was to encourage or compel ENE or if consent of the parties was necessary. The judge felt that the rules were inconclusive and therefore made no order.
The Court of Appeal, however, made the order. Consent of the parties is not necessary for the court to order ENE. The court may compel the parties to attend ENE, even if one or both objects. The consequence of this extends beyond the family court. We should assume that it is now open to the court to order ENE and this thinking should be adopted by parties to disputes.
A two-year disclosure pilot is well under way in the Business and Property Courts. It has the laudable aim of making disclosure more proportional and less unwieldy.
One of the key changes is the requirement to provide disclosure of key documents at the initial stage of litigation, thus front-loading cost and management.
Subsequent to this, there is a detailed disclosure management process that identifies issues, applies an appropriate disclosure model to them and prepares further paperwork in anticipation of an order in respect of onward disclosure management. This will require significant engagement, though the court’s aim would be that the initial excess cost would be offset by a more streamlined and structured disclosure process as the dispute progresses.
Whether this will be the case in practice remains to be seen. In any event, surveyors and their principals should be alive to the need for initial disclosure as well as their obligations in respect of disclosure of adverse documents.
Bryan Johnston is a past chair of the Property Litigation Association and head of real estate litigation at Dentons