Without Prejudice in Adjudication

Posted by CSB July 1st 2021

OPINION OF LORD ERICHT

In the causeTRANSFORM  SCHOOLS  ( NORTH   LANARKSHIRE)   LIMITED

against

(FIRST)  BALFOUR   BEATTY   CONSTRUCTION   LIMITED,

and (SECOND)  BALFOUR   BEATTY  KILPATRICK  LIMITED

Pursuers

Defenders

Pursuer: Walker QC, McKinlay; Anderson Strathern L.L.P.

Defenders: Borland QC, Manson; Pinsent Masons

February 18 2020

Introduction

[1]       The pursuers engaged the defenders in respect of  construction  work to be

undertaken at  various   schools  in  North   Lanarkshire,  including the Stepps Primary and

Stepps Cultural Centre Project (the “Stepps Project”). A dispute between the parties in

relation to latent defects was submitted for Adjudication. The Adjudicator found in favour of

the pursuers. The pursuers subsequently raised a commercial action for Enforcement of the

Adjudicator’s Decision and payment of various other sums. The matter came before me on a

motion by the pursuers for Enforcement of the Adjudicator’s Decision. This was opposed by

the defenders based on the use made by the Adjudicator of certain documents bearing

to be “without prejudice”.

The Adjudicator’s Decision

[2]       On or about May 24 2005, the pursuers entered into a Project Agreement with  North

Lanarkshire Council. By a building contract dated May 27 2005, the pursuers engaged the

defenders jointly and as an unincorporated joint  venture  to perform the pursuers’

obligations under that Project Agreement. This comprised, inter alia, the carrying out and

completion of the design,  construction,  fitting-out, equipping, testing and commissioning of

the whole works to be undertaken at  various   schools  in  North   Lanarkshire.  One of these

schools was the Stepps Project.

[3]       The Stepps Project was  constructed  between 2006 and 2007 by the defenders. In or

around August 2015, the pursuers’ management company gave notice to the defenders of

drain blockages. A survey of the drainage system found that there were  various  defects,

such as a collapsed pipe, displaced joints, a reformed sewer and quantities of debris in the

pipework. Subsequent investigation disclosed further defects. In about June 2019, a drain

collapsed requiring emergency repairs.

[4]       In around July 2019, a dispute between the pursuers and defenders in respect of the

drainage crystallised and a Notice of Adjudication was served and an adjudicator

appointed. On September 6 2019, the Adjudicator issued his Decision. The Adjudicator

found as follows:

“1. The latent defects, those concerning the foul drainage identified in the three

CCTV surveys conducted between 2015 and 2017 and summarised at

paragraph 50 of the Referral, are Latent Defects as defined in the Contract.

  1. [The defenders] liable to [the pursuers] in damages of £4,029,574.58, net of

V.A.T., in respect of Costs and Direct Losses incurred by [the pursuers] as a

consequence of these Latent Defects affecting the Works.

  1. [The defenders] shall pay the said sum of £4,029,574.58 to [the pursuers] within

14 days of the date of this Decision.

  1. [The pursuers’] claim for interest is dismissed.
  1. [The defenders’] claims are dismissed. [The pursuers’] claim in this

Adjudication under clause 36.1 has not prescribed and is not premature.

  1. As between the parties and without affecting their joint and several liability for

my fees, [the defenders] shall pay my invoiced fees, there are no expenses. If

[the pursuers] pays any amount towards my fees, [the defenders] shall

reimburse that amount to it within seven days of a written request to do so.”

The “without prejudice” correspondence

[5]       In his Decision, the Adjudicator referred to three documents which bore to be

“without prejudice”:

a A letter from the  first  defender to the pursuers’ solicitors (Fladgate L.L.P.) dated

October 12 2016. The letter stated “Based on the survey information provided

we would propose to carry out the following works on a without prejudice basis

or without admission of liability” and then went on to list specific work such as

survey, reconstructing manholes following investigations, repairs to reformed

sections of pipe and the remedying of  various  open joints.

b A letter of November 8 2016 from the  first  defender to the pursuers’ solicitors

setting out  various  proposed works. The letter concluded with the following

paragraph:

“We note that, although you claim in your correspondence that there have

been breaches of contract on the part of  Balfour   Beatty,  nothing has been

provided to evidence that assertion and accordingly our proposals above for

the carrying out of remedial works remains on an entirely without prejudice

basis without admission of liability.”

c A letter from the second defender to the pursuers’ agents dated January 16 2017.

That letter was headed:

“B7 Stepps Primary  School  – Drainage

Without Prejudice”

The letter stated:

“The ‘without prejudice’ offer of remedial works that we made in our letter of

November 8 2016 was based on the surveys that you have provided to us and

our own inspections of the alleged defects.”

The letter went on to disagree with the pursuers as to whether certain defects

existed and to maintain that the remedial work proposed by the defenders

would be adequate.

[6]       These “without prejudice” letters were part of a chain of letters between the  first

Defender and the pursuers’ solicitors were running from March 8 2016, to December 10 2018.

Submissions for the defenders

[7]       Senior Counsel for the defenders submitted that the Court should refuse to enforce

the Adjudicator’s award for five reasons:

  1. The “without prejudice” correspondence was completely protected against any

use in the Adjudication (Richardson v Quercus  Limited 1999 SC 278; Bradford &

Bingley v Rashid, [2006] 1 WLR 2066; and Ofulue v Bossert, [2009] 1 AC 990).

  1. The Adjudicator relied upon the protected items of correspondence to a material

the extent in determining an important issue critical to liability, namely prescription.

  1. The approach of the Adjudicator offended against the public policy which

underpinned the “without prejudice” privilege (Rush & Tomkins  Limited  v Greater

London Council, [1989] AC 1280; Richardson; Bradford & Bingley; and Ofulue). If

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parties could not enter into “without prejudice” settlement discussions without

the risk of these being relied on in Adjudication, the process of Adjudication

would be damaged.

  1. The Adjudicator was guilty of a material error in admitting, considering and

relying upon the “without prejudice” correspondence.

  1. The Adjudicator’s error amounted to a material breach of natural justice. The

defenders were denied a fair opportunity of presenting their case (Costain

Limited v Strathclyde Builders  Limited 2004 SLT 102). In appropriate circumstances

the Court could refuse to enforce an adjudicator’s Decision which relied on

without prejudice correspondence (Ellis Building Contractors  Limited  v Goldstein,

[2011] EWHC 269 (TCC)) and can give rise to apparent bias (Specialist Ceiling

Services  Northern   Limited v Z.V.I. Construction  (U.K.)  [2004] BLR 403;

Helow v Advocate General, [2007] SC 303; Coulson on  Construction  Adjudication

paragraphs 12.33 to 12.35).

Pursuer’s submissions

[8]       Senior Counsel for the pursuers submitted that the decisions of adjudicators were to

be enforced pending the final determination of disputes (Macob Civil Engineering Ltd v

Morrison  Construction  Ltd [1999] BLR 93 at para [14]). The policy of the courts was to take a

robust approach to Enforcement of Adjudicator’s decisions. The Court would only refrain

from enforcing in  limited  circumstances (Keating on  Construction  Contracts (10th edn.) at

paragraph 18-056; GT Equitix Inverness Ltd v Board of Management of Inverness College

[2019] SLT 957 at para [34]; Guidance by the Commercial Court Judges on the Enforcement of

Adjudication Awards January 2019). The courts are to treat Adjudicator’s decisions as binding

and enforceable until any challenge is finally determined, even if the Adjudicator errs on

facts or law or makes a procedural error (GT Equitix at para [34]; Macob at paras [12] to [14],

[19] , [20]; Keating at paragraph 18-065; Bouygues UK Ltd v Dahl-Jensen UK Ltd [2000] BLR 522 at paras [11] to [15] and [27] to [28]; Outwing  Construction  Ltd v H Randall & Son Ltd

[1999] BLR 156 at 160). Any breach of natural justice required to be material and only in the

plainest of cases would a challenge on the basis of breach of natural justice be successful

(Cantillon Ltd v Urvasco Ltd [2008] BLR 250; Balfour  Beatty   Construction  Ltd v Lambeth LBC

[2002] BLR 288; Carillion  Construction   Limited  v Devonport Royal Dockyard  Limited

[2006] BLR 15 at paras [53.3], [84] and [87]; Dickie & Moore  Limited  v McLeish & Ors [2019] SLT 1487at para [33]; Ardmore  Construction  Ltd v Taylor Woodrow  Construction  Ltd [2006] CSOH 3 at para [48]; GT Equitix at para [34]). The test for apparent bias was set out in AMEC Capital

Projects Ltd v Whitefriars City Estates Ltd [2005] B.L.R. 1 at para [16] and Porter v Magill

[2002] 2 AC 357 at para [103]. It was incumbent on the party resisting enforcement to plead and

establish a basis to justify a court refraining from Enforcement (GT Equitix at para [35]).

[9]       Counsel submitted that the Adjudicator had provided both parties with an

opportunity to make representations in relation to the “without prejudice” material. The

Adjudicator considered submissions by both parties on whether the “without prejudice”

material was admissible. He was correct in law to reach the  view  which he did. Even if he

was not correct as a matter of law, he was not plainly wrong and the finding was one which

was open to him to reach (Richardson v Quercus  Limited  Even if the Adjudicator erred on

law there was no breach of natural justice as parties had an opportunity to make

representations. The defender’s case does not fall within the examples of successful natural

justice challenges provided in Keating in paragraphs 18-094. There was no basis for the

defender’s assertion of bias. The existence of “without prejudice” wording was not

determinative of the issue of whether the correspondence was a relevant acknowledgement

to stop prescription (Richardson v Quercus Ltd and Bradford & Bingley v

Rashid).

Discussion and Decision

[10]       It is essential to emphasise at the outset that this action came before me on the

limited issue of whether the Court should enforce the Adjudicator’s Decision.

[11]       The principles to be applied in considering whether to enforce an adjudicator’s

Decisions are conveniently set out in Carillion  Construction  at paragraph 52 as follows:

“1. The adjudication procedure does not involve the final determination of

anybody’s rights (unless all the parties so wish).

2 The Court of Appeal has repeatedly emphasised that adjudicators’ decisions

must be enforced, even if they result from errors of procedure, fact or law…;

3 Where an adjudicator has acted in excess of his jurisdiction or in serious breach of

the rules of natural justice, the Court will not enforce his Decision….

  1. Judges must be astute to examine technical defences with a degree of scepticism

consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an

adjudicator must be examined critically before the Court accepts that such errors

constitute excess of jurisdiction or serious breaches of the rules of natural justice.”

[12]       The final determination of the questions considered by the Adjudicator (in particular

whether the claim has prescribed and whether the “without prejudice” letters are

admissible) is a matter for this Court in a later stage of this action. The facts and law as set

out in this opinion relate only to the question of Enforcement and are not intended to be

binding on the Court in its final determination. Any reference to the “without prejudice.”

letters is made under reservation of the defenders’ right to argue in due course that they are

not admissible concerning the final determination of this action. Nothing in this opinion is

to be taken as expressing a binding view as to whether the Adjudicator was correct in his

conclusions on prescription or the admissibility of the “without prejudice” letters.

[13]       The challenge to Enforcement in the current action proceeds under the third principle

set out in Carillion, namely natural justice. The defenders’ fourth plea-in-law is to the effect

that the Adjudicator having acted to a material degree in breach of natural justice.

The decision is unenforceable and the Decision should be reduced ope exceptions and the

defenders assoilzied from the conclusions which seek Enforcement of the Decision. The

defenders also challenge Enforcement on the grounds of apparent bias. Their fifth

plea-in-law is to the effect that the Adjudicator having acted in a manner such as to create a

situation of apparent bias, with the result that his Decision is unenforceable, the Decision

should be reduced ope exceptionis and the defenders assoilzied from these conclusions.

[14]       Both of these challenges turn on the use made by the Adjudicator of letters which

bore to be “without prejudice”.

[15]       The policy underlying the “without prejudice” rule was set out by Lord Griffiths in

Rush and Tompkins v G.L.C.:

“The ‘without prejudice’ rule is a rule governing the admissibility of evidence and is

founded upon the public policy of encouraging litigants to settle their differences

rather than litigate them to a finish. It is nowhere more clearly expressed than in the

judgment of Oliver L.J. in Cutts  v. Head [1984] Ch.290, 306:

‘That the rule rests, at least in part, upon public policy is clear from many

authorities, and the convenient starting point of the inquiry is the nature of

the underlying policy. It is that parties should be encouraged so far as

possible to settle their disputes without resort to litigation and should not be

discouraged by the knowledge that anything that is said in the course of such

negotiations (and that includes, of course, as much the failure to reply to an

offer as an actual reply) may be used to their prejudice in the course of the

proceedings. They should, as it was expressed by Clauson J. in Scott Paper

Co.  v.  Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully

and frankly to put their cards on the table. … The public policy justification, in

truth, essentially rests on the desirability of preventing statements or offers

made in the course of negotiations for settlement being brought before the

court of trial as admissions on the question of liability.'” (p1299 D)

[16]       However, the scope of the “without prejudice” rule does not extend to exclude all

consideration of documents which bear to be “without prejudice”. Where there is a dispute

as to whether the rule applies to a particular document, the Court is entitled to look at the

document, even if it bears the words “without prejudice”, in order to make a decision as to

whether the “without prejudice” rule applies to it and accordingly whether or not it is

admissible. Thus for example, in Rush and Tompkins, the House of Lords considered whether

“without prejudice” documentation between the plaintiffs and the  first  defendant was

admissible as between the plaintiffs and the second defendant. In Richardson v Quercus Ltd

an Extra Division considered whether the surrounding circumstances had obliterated the

effect of the words “without prejudice” in a letter so as to make a letter admissible (p283F

to 284C, 290 F-G).

[17]       In the context of the current case, the significance of the “without prejudice” letters

lies in relation to the question of whether the obligation to make payment has prescribed.

[18]       The Adjudicator found that the prescriptive period commenced in late autumn 2013

(paragraphs 142, 153, 175). The Adjudication commenced more than 5 years after late

autumn 2013. Accordingly, the obligation would have prescribed unless it had been

relevantly acknowledged during the prescriptive period under section 10(1)(b) of the

Prescription and  Limitation  (Scotland) Act 1973, or the prescriptive period fell to be extended

under section 6(4) of that Act.

[19]       The pursuers argued before the Adjudicator that both of these sections applied and

the obligation had not prescribed.

[20]       The Adjudicator rejected the pursuers’ section 10(1)(b) argument, finding that the

letters of October 14 and November 8 were not a relevant acknowledgement in terms of

section 10. He considered the terms of the “without prejudice” letters, and concluded that

their wording did not constitute a clear admission of liability as required by section 10(1)(b)

(paragraph 197.4).

[21]       However the Adjudicator accepted the pursuers’ section 6(4) argument. He

considered letters dated March 8 2016, October 12 2016, October 14 2016, November 8 2016,

January 16 2017, June 5 2017, February 1 2018, March 21 2018, June 14 2018, November 26

2018 and December 10 2018. These included the letters of October 12 2016, November 8 2016

and January 16 2017 which bore to be “without prejudice”. He concluded:

“198.

Considering this correspondence as a whole for the purposes of s. 6(4) of the

1973 Act, I am satisfied that by its correspondence in the period from the

March 8 2016 and prior to February 1 2018, [the defenders], by stating its

continuing commitment to remediate Latent Defects if they were

demonstrated to be such induced or contributed to [the pursuers] erroneously

believing that this would be done without the need for formal proceeding

and that, in consequence, it refrained from making a relevant claim against

[the defenders]. I am not persuaded, if such is alleged, that during this

period, [the pursuers] could, with reasonable diligence have discovered this

error.

  1. It follows that, by operation of s. 6(4), the period from the March 8 2016 to

the February 1 2018, a period of just less than 23 months, is not to be

reckoned as part of the prescriptive period that I have concluded under

Issue 2D commenced in the late Autumn of 2013. Thus, [the pursuers’] claim

in this Adjudication has not yet prescribed.”

[22]       Before coming to his conclusions on sections 10(1)(b) and 6(4), the Adjudicator gave

careful consideration to the prior question of whether the “without prejudice” letters were

admissible.

[23]       In their initial submissions to the Adjudicator (the pursuers’ Referral Notice of July 25

2019, the defenders’ Response of August 7 2019 and the pursuers’ Reply of August 15 2019)

neither the pursuers nor the defenders identified the use of “without prejudice” material as

being an issue in the Adjudication. The issue was identified and raised for the  first  time

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ex proprio motu by the Adjudicator in his List of Issues and Observations dated August 19

  1. The Adjudicator is legally qualified as an English barrister. He raised the following

observation, adding emphasis by his use of bold type:

“93 I note that the January 16 2017 letter referred to in paragraph 21 of the Reply

and in paragraph 44.3 of the Mr Weare’s W.S. [witness statement] accompanying the

Reply is headed ‘without prejudice’. I have not read that letter and propose to

ignore paragraph 44.3 of the witness statement and the reference to that letter in

paragraph 21 of the Reply pending submissions on whether I may read that letter”.

[24]       The pursuers responded to that observation (Response to the Adjudicator’s List of

Issues and Observations dated August 23 2019) stating:

“14. Paragraph 93.

14.1 [The pursuers] submits that the letter dated January 16 2017 is not without

prejudice and may be read.

14.2 The letter needs to be  viewed  in the context of the relevant chain of

correspondence and in particular its reference to an earlier open letter dated

November 8 2016. That earlier letter sets out [the defenders’] remediation proposals

and refers to another open letter dated October 12 2016 which once again sets out

[the defenders’] remediation proposals.”

[25]       The defenders also responded to the observation (Submissions dated August 23

2019) stating:

“2.3.8 Paragraph 26 of the List of Issues refers to the [pursuers’] position that it

requested the [defenders] to put forward a remediation proposal in 2016 for the

drainage and it did so by letters dated October 12 2016 and November 8 2016. This

is taken from paragraph 45 of the Referral.

2.3.9 The [pursuers] fails to note that the letters referred to and relied on were

written without prejudice. As a result, the Adjudicator cannot consider the content of

those letters. Indeed, the writer is somewhat surprised that the [pursuers’]

representatives consider it appropriate to make reference to these letters given that

they are both written without prejudice. For the avoidance of doubt, given the

without prejudice status of those letters, the content of the letters cannot be said on

any level to amount to a relevant acknowledgement on the part of the [defenders]

which the [pursuers] seeks to argue in the Reply”……

9.2 The Adjudicator has correctly noted that the letter dated January 16 2017

referred to in the Reply and Mr Weare’s statement is headed without prejudice. As

noted above, that is not the only correspondence issued on a without prejudice basis.

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Letters dated October 12 2016 and November 8 2016 are also without prejudice and

so should not be reviewed by the Adjudicator.”

The defenders went on to make specific submissions about the significance of these letters

being without prejudice, making reference to Richardson v Quercus.

[26]       In a Further Submission dated August 30 2019 the pursuers submitted under

reference to Richardson v Quercus that the “without prejudice” correspondence could amount

to a relevant acknowledgement for the purposes of section 10(1)(b). (Paragraph 32.)

[27]       In a further submissions document dated August 30 2019 the defenders made further

submissions to the effect that the “without prejudice” letters set out proposals made in a

genuine attempt to resolve matters on a without prejudice basis could not be referred to,

relied upon or reviewed by the Adjudicator. (Paragraph 2.17.)

[28]       The Adjudicator gave careful consideration to the arguments of both parties on the

admissibility of the “without prejudice” correspondence:

“34. [The pursuers] also referred to a January 16 2017 letter in this context, a

letter to which I referred in paragraph 93 of the [List of Inquiries]:

‘I note that the January 16 2017 letter referred to in paragraph 21 of the

Reply and in paragraph 44.3 of the Mr Weare’s W.S. accompanying the Reply

is headed ‘without prejudice’. I have not read that letter and propose to

ignore paragraph 44.3 of the witness statement and the reference to that letter

in paragraph 21 of the Reply pending submissions on whether I may read

that letter.’

  1. [The defenders] agrees with this statement but says that this was not the only

such letter. Its letters of the October 12 and November 8 2016 also being without

prejudice, thus should not be reviewed by the Adjudicator.

  1. [The pursuers] says that the January 16 2017 letter is not without prejudice

and may be read. It needs to be  viewed  in the context of the relevant chain of

correspondence, in particular its reference to the open latter of the November 8

2016 which sets out [defenders’] remediation proposals and, in turn, refers to another

open letter of the October 12 2016 which also sets out [defenders] remediation

proposals.

  1. Considering first the October 12 and November 8 2016 letters, these,

which both concern survey and remedial works which [the defenders] proposes to

carry out in connection with the drainage, are not headed ‘without prejudice’.

However both state that the works proposed are on a without prejudice basis

without admission of liability. Considered the context of the letters, specifically

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Messrs Fladgate’s [ie the pursuers’ solicitors] letters of the September 9 and

October 14 2016, I consider that the use of the words ‘without prejudice’ was

intended to convey that by offering to carry out the works proposed, [the defenders]

was not admitting liability, not that the correspondence was to be regarded as

without prejudice in the sense of not being referable to in subsequent proceedings.

  1. As for the 16th January 2017 letter, although this is headed ‘Without

Prejudice’, not only does it refer back to correspondence, [the defenders’] letter of the

November 8 2016 which, for reasons given above, I have concluded is not subject

to the without prejudice rule, it is part of a chain of correspondence and meetings

which continues into 2017 about whether, and if so, what defects in drainage are

identified in the surveys being carried, and what works are necessary to address

those defects; none of which was stated by [the defenders] at the time, or contended

by it in this Adjudication, to be subject to the without prejudice rule. Rather, as [the

defenders] accepts, during this period it was working with [the pursuers] to

investigate the matter and understand the extent, if any, of [the defenders’] liability.

  1. Thus, I conclude that, like in the earlier correspondence, the use of the words

‘without prejudice’ in the January 16 2017 letter were intended to make clear, by

proposing to carry out the works referred to, [the defenders] was not admitting

liability, not that the letter was not to be referred to in subsequent proceedings.”

[29]       In paragraph 93.9 the Adjudicator considers the question of whether what is stated in

“without prejudice” correspondence can amount to a relevant acknowledgment for the

purposes of section 10(1)(b), and discusses Richardson v Quercus in that context. That need

not concern us in considering Enforcement of his Decision, as he found in favour of the

defenders on that point.

[30]       In considering whether the Adjudicator’s Decision should be enforced the focus must

be on the section 6(4) case and the use made by the Adjudicator of the “without prejudice”

letters in concluding that prescription had not operated as the prescriptive period had been

extended. The Adjudicator’s approach was to look at the correspondence as a whole. He

looked at letters over a 23 month period, most of which were not marked “without

prejudice.” He took the  view,  based on Richardson v Quercus, that it was possible for a court,

and thus an adjudicator, to conclude that words in a letter such as “without prejudice to

liability” do not, when considered in the wider relevant context, necessarily mean what they

appear to say (paragraph 197.2). In looking at the correspondence as a whole, he placed

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particular significance on letters which were not marked “without prejudice” and both

pre-dated and post-dated the “without prejudice” letters:

“197.1 In its letter of the March 8 2016 [the defenders], after denying, for reasons

given in that letter by reference to  various  Latent Defects alleged by [the

pursuers], the suggestion that it was in breach of contract or negligent,

concludes: ‘we reaffirm our commitment to resolving Latent defects that are

demonstrated and agreed between us, in accordance with the building

contract’. These words ….. are a commitment from [the defenders] to resolve

Latent Defects, by which I accept is meant, remediate such defects, if they are

demonstrated to be such.

197.2

The letter of the October 12 2016 identifies certain works which [the

defenders] proposes to carry out ‘on a without prejudice basis and without

admission of liability’. I have considered Richardson  v.  Quercus under

Issue 2B above, concluding that it stands for the proposition that it is possible

for a court, thus an adjudicator, to conclude that words in a letter, such as

‘without prejudice to liability’ do not, when considered in the wider relevant

context, necessarily mean that they appear to say.

197.3

I have been provided with  very  little correspondence between the March 8

2016 and the date of this letter. However it appears in subsequent

correspondence, specifically Fladgate’s letter of the October 14, [defenders’]

letter of the November 8 and Fladgate’s letter of the December 15 2016,

that [the pursuers] did not consider [the defenders’] proposals adequate to

address what it considered were [defenders’] breaches and, this clearly being

stated in [the defenders’] letter of the November 8 2016, [the pursuers]

considered that nothing had been provided to evidence [the pursuers’]

assertion that it had been in breach of contract: ‘accordingly the proposals

above for the carrying out of the remedial works remain on entirely without

prejudice basis without admission of liability’.

….

197.5

However, despite the ‘without prejudice as to liability’ qualification, and the

parties disagreeing about what remedial work was required, this

correspondence is consistent with [the defenders’] letter of the March 8

2016, in that, as [the pursuers] says, it shows [the defenders’] continuing

commitment to remediate Latent Defects if they are demonstrated to be such.

A commitment that was reiterated in at a time when, by Fladgate’s letter of

the October 12 2016, [the pursuers] was stating that if [the defenders] did

not respond with proposals, [the pursuers] would ‘proceed with the required

remediation works without further reference to you, save in relation to the

cost of the works which it will pursue against the Joint  Venture  …’. Thus

indicating an intention to address Latent Defects without the need for such

proceedings.

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197.6

Other than to confirm that the proposals previously made were without

prejudice, [the defenders’] letter of the January 16 2017 does not take

matters further in respect of [the pursuers’] case under s. 10(1)(b). …, the

letter concludes ‘we are willing to work with your client and are prepared to

continue discussions in that respect and agree proposals where that is

appropriate but we can only do that based on the evidence that is available to

  1. Until such times you can explain the obvious inconsistencies between the

evidence that you have provided and the statements that you make on what

remedial works are required and provide substantiation for the assertion that

the J.V. is liable for all the of the defects you allege, our position remains in our

letter of November 8 2016 for the present time.’

197.7 …. that letter … it reiterates [the defenders’] previous commitment to resolve

Latent Defects if they are demonstrated to be such.

197.8

The letter of the June 27 2017 refers to a meeting of the May 30 2017;

matters discussed at that meeting being recorded in Fladgate’s letter of the

June 5 2017. There is nothing in Fladgate’s letter or in the June 27 2017

letter to suggest that the meeting, or the letter itself were intended to be

without prejudice. Rather it appears from the notes of the meeting and [the

defenders’] letter, that [the defenders] had accepted that, at least to some

extent, it had a liability for certain of the defects in the foul drainage

identified by [the pursuers]. Thus, I do not accept [the defenders’]

submission that the meeting and letter were without prejudice.

197.9

The June 27 2017 letter states in respect of foul drainage runs having sags

of 20% or greater that ‘we will now prepare detailed proposals to remedy out

of tolerance areas suspended under the piled concrete slab’. In respect of the

popups, the letter accepts that the Hamilton survey have highlighted that

some have open joints that will require repair but further surveys will require

to be undertaken to obtain a better understanding the scope this work before

any remedial works are proposed’. The letter concludes by requesting

confirmation ‘that we are able to agree access and methodology direct with

your client commence remedial work of two out of tolerance areas and

undertake further surveys’.

197.10 ….., by proposing to carry out such work [the defenders], is reinforcing the

impression given in its earlier correspondence that it is committed to

remediating Latent Defects, if they are demonstrated to be such without the

need for legal proceedings. This impression was, I am satisfied, also

reinforced by [the defenders] paying for the 2017 Hamilton Survey the

purpose of which was to establish the extent to which there were Latent

Defects in the pop-ups.

197.11 [the defenders’] letter of the February 1 2018 addresses a number of

different matters. In respect of the design of the drainage system and the

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hangers, it is clear that [the defenders] is not accepting liability and that any

proposals for work associated with the hangers are on a without prejudice

basis. Thus, in respect of those matters, this letter cannot be read as an

unequivocal, absolutely clear, admission of the obligations which [the

pursuers] seeks to enforce by its claim in this Adjudication of the type

required by s. 10 (1) (b).

197.12 The letter also addresses under a separate margin heading ‘October Surveys’

the content of the October 17 pop-up surveys. It states that [the defenders]

‘agree that it appears that the 11 areas of open/displaced joints identified as

open or displaced will require remedial detailed to be agreed … prior to work

being undertaken’. There is no suggestion that this section of the letter or the

remedial work to which it refers is also intended to be carried out without

prejudice. Indeed, it appears to refer back to the work to the pop-ups which

[the pursuers] accepted was required, subject to further surveys to establish

the extent of such work, in its letter of the June 27 2017. This is, I am

satisfied, and unequivocal, absolutely clear, admission of the obligations

which [the pursuers] seeks to enforce by its claim in this Adjudication of the

type required by s. 10 (1) (b), in so far as those obligations concern the 11

areas of open/displaced joints referred to.

197.13 However, the letter concludes by stating ‘We concur that we need to reach

agreement on what appropriate remedial solution needs to be put in place,

however we are not in a position to provide a remedial solution to the

drainage system as a whole because we fundamentally disagree that design

principles behind the drainage details are incorrect, that the design has failed

to accommodate the anticipated movement, or that the drains have not been

laid true to line between manholes. We consider that the solution that needs

to be agreed between our expert engineers is one to implement rectification

works to deal with any workmanship issues that may have led to areas of the

drainage being out-with standard industry tolerances. If we can agree to this,

our offer to assist the remedial works naturally still stand’.

197.14 Given these words, [the pursuers] cannot have been in any doubt that [the

defenders] did not consider that there were Latent Defects due to defects in

the design of the foul drainage, specifically the hanger system, or that, despite

the impression given by [the defenders] in its earlier correspondence that it

was committed to remediating Latent Defects, if they are demonstrated to be

such, that it would do so to the extent required by [the pursuers], that is

rectifying the whole of the foul drainage because of defects in the hanger

system, without the need for formal proceedings.

197.15 The letter of the March 21 2018, concerns a proposal to share on a 50/50

basis reasonable costs incurred in carrying out intrusive investigation work

between MH F2-F4, [the defenders] stating that its agreement to share these

cost ‘shall in no way be construed as any admission of liability on our part in

respect of these issues: rather we agree that this provides a positive

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opportunity to information gathering scope any remedial works that may be

required (if any). … Neither, read in the context of [the defenders’] letter of

the February 1 2018, does this letter suggest that [the defenders] is

committed to remediating Latent Defects to the extent required by [the

pursuers], that is rectifying the whole of the foul drainage because of defects

in the hanger system, without the need for formal proceedings.

197.16 [The defenders’] letter of June 14 2018, refers to ‘a slide deck which explains

the works to the external drainage which [the defenders] propose to carry out

on a without prejudice basis …’. I have not been provided with a copy of the

slide deck referred to, thus am unable to establish whether any of the external

drainage referred to concerns [the pursuers’] claims in this Adjudication. …..

Neither does this letter suggest that [the defenders] is committed to

remediating Latent Defects to the extent required by [the pursuers], that is

rectifying the whole of the foul drainage, without the need for formal

proceedings.

197.17 The letter of the November 26 2018 refers to the intrusive investigation

works which it was proposed in [the defenders’] letter of the March 21 2018

to share on a 50/50 basis which, it appears that letter, had now been carried

out. ….. Neither does this letter suggest that [the defenders] is committed to

remediating Latent Defects to the extent required by [the pursuers], that is

rectifying the whole of the foul drainage, without the need for formal

proceedings.

197.18 It is, in any case, clear from Fladgate’s letter of the December 10 2018, that

[the pursuers] realised that agreement would not be reached with [the

defenders] about what remedial works were required, stating that it intended

to proceed with a remedial scheme without reference to [the defenders].”

[31]       It is clear from the Adjudicator’s Decision and the submissions made to him by parties

that the task of the Adjudicator was to decide whether or not the pursuers’ claim had

prescribed. In order to do that he had to make a decision as to whether the “without

prejudice” letters were admissible. Having considered parties’ submissions and the case law

to which he was referred he decided that they were admissible. Then as a consequence of

his Decision that they were admissible he took them into account in deciding that the

prescriptive period had been extended under section 6(4). He considered them in the

context of the whole chain of correspondence since March 2016, giving greater weight to

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letters which were not marked “without prejudice”, such as the letter of March 16 2016 and

those subsequent to January 2017.

[32]       In my opinion the Adjudicator was entitled to consider the question of whether the

letters were admissible. He was entitled to consider the submissions which the parties had

made to him in that regard. A court would be entitled to look at the “without prejudice”

documents and make a decision as to whether they were admissible. There is no reason

why an adjudicator should not be entitled to do likewise. The Adjudicator in this case may

or may not have been right to decide they were admissible. But if he was wrong, then that

was an error of law, and errors of law on the part of the Adjudicator do not justify this Court

in refusing to enforce the Adjudicator’s Decision (Carillion, supra).

[33]       This Court will however be justified in refusing to enforce the Adjudicator’s Decision

if there has been a serious breach of natural justice (Carillion, supra). The application of the

principles of natural justice in the context of Adjudication was given careful analysis by

Lord Drummond Young in Costain Ltd v Strathclyde Builders Ltd:

“[10]….

I am of opinion that certain minimum standards of conduct

are required from adjudicators, and that those standards are found in the

well-established principles of natural justice. These are traditionally expressed in

the maxims nemo judex in causa sua, no one appointed to determine a dispute should

have any bias or personal interest in the outcome of that dispute, and audi alteram

partem, both sides must be given a fair opportunity to present their cases. In the

context of Adjudication, it is usually the second principle that will be relevant. I

mention this because in certain of the English decisions on the applicability of the

principles of natural justice to adjudicators there has been a tendency to run the two

principles together, and to treat a failure to give one side a fair opportunity to

present its case as a form of bias. In some relatively extreme cases, such as Discain

Project Services Ltd  v  Opecprime Development Ltd, [2001] BLR 285, that may be justified.

Nevertheless, the existence of bias is not essential to the principle that parties must

be given a fair opportunity to present their respective cases, and usually it will only

be necessary to consider the latter principle.”

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[34]       The relationship between “without prejudice” documents and the rules of natural

justice has been considered in two English  first  instance cases. In both cases the Court

enforced the Adjudicator’s Decision.

[35]       In Specialist Ceiling Services  Northern   Limited  v Z.V.I. Construction U.K. Limited  the

defendant opposed Enforcement of Adjudication by the Court on the ground that the

Adjudicator should have recused himself after the claimant had submitted without prejudice

material to him in the Referral, and that as a result the Adjudication was unfair and should

not be enforced. The Referral stated that a “without prejudice” offer to settle by the

defendant had been rejected by the claimant. A “without prejudice” covering letter bearing

to enclose the offer was submitted to the Adjudicator, but the breakdown of the offer was

not. The defendant’s solicitor objected to the Adjudicator continuing with the Adjudication.

The Adjudicator refused the objection on the basis that he had not had sight of the offer and

was not aware of its content. The Court held that the Adjudicator was entitled to do so: the

Adjudicator was entirely uninfluenced by the “without prejudice” material he had seen, and

had “in effect brushed aside the material and properly ignored it when reaching the  various

decisions on the issues before him” (para [26]).

[36]       In Ellis Building Contractors  Limited  v Vincent Goldstein, after the notice of Adjudication

had been issued the defendant’s solicitor sent to the claimant’s solicitor a “without

prejudice” letter offering to settle the Adjudication for a specified sum. The claimant referred

to the letter in its Reply. The defendant did not object to the reference nor rebut the Reply.

The defendant opposed Enforcement of the Adjudication by the Court on the basis that there

was apparent as opposed to deliberate bias on the part of the Adjudicator in allowing in and

not raising with the parties the “without prejudice” letter. The Court held that the

deployment of the “without prejudice” letter was improper and the material was not

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20

admissible, but the Adjudicator did not base his Decision on its contents and on the facts of

the case there was no legitimate fear that the Adjudicator might not have been impartial. In

his judgment Akenhead J considered the use of “without prejudice” material in

adjudications:

“25. The improper deployment of ‘without prejudice’ material in Adjudication is

something which happens in Adjudication as in Court although this Court has at least

anecdotally seen an increase in this behaviour in Adjudication. This often arises

because parties represent themselves or are represented by consultants who are not

legally qualified and, perhaps, they do not fully understand that truly ‘without

prejudice’ communications are privileged and should not be referred to in any legal

or quasi-legal proceedings, including Adjudication. Whilst if ‘without prejudice’

communications surface in a court, the judge being legally qualified and experienced

can usually put it out of his or her mind, it is a more pernicious practice in

adjudication because most adjudicators are not legally qualified and there will often

be a greater feeling of unease that the ‘without prejudice’ material may have really

influenced the Adjudicator. This Court can only strongly discourage parties from

deploying ‘without prejudice’ communications in adjudication.”

[37]       Akenhead J then went on to review the authorities and came to the following

conclusion:

“29. One can draw the following conclusions about the consequences and

ramifications of the improper submission of ‘without prejudice’ material before an

adjudicator:

(a) Obviously, such material should not be put before an adjudicator.

Lawyers who do so may face professional disciplinary action.

(b) Where an adjudicator decides a case primarily upon the basis of wrongly

received ‘without prejudice’ material, his or her Decision may well not be

enforced.

(c) The test as to whether there is apparent bias present is whether, on an

objective appraisal, the material facts give rise to a legitimate fear that the

Adjudicator might not have been impartial. The Court on any enforcement

proceedings should look at all the facts which may support or undermine a

charge of bias, whether such facts were known to the Adjudicator or not.”

[38]       The current case is far removed from the scenario deplored by Akenhead J. The

current case was not a situation where the Adjudicator was improperly made aware of an

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irrelevant and collateral “without prejudice” offer to settle which he ought to put out of his

mind. In the current case the question of the admissibility of the “without prejudice” letters

was one which the Adjudicator had to decide as one of the central issues in the Adjudication.

The Adjudicator was legally qualified. It was the Adjudicator himself who identified

admissibility as being a central issue. The Adjudicator gave both parties an opportunity to

make submissions on the question. He considered their submissions and the case law to

which he was referred and came to a reasoned decision on the question. It cannot be said

that the submission of the letters to the Adjudicator, or the way in which he dealt with them,

was in any way improper or involved any breach of natural justice or apparent bias.

Order

[39]       I shall sustain the pursuer’s fifth plea-in-law and repel the defenders’ fourth and fifth

pleas in law and grant decree in terms of the  first and second conclusions, and reserve all

questions of expenses in the meantime. I shall put the case out by order for discussion of

expenses and further procedure.

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