Without Prejudice

Different jurisdictions apply different meanings to the words “without prejudice”. A recent Scottish case, Transform Schools (North Lanarkshire) Limited v Balfour Beatty Construction Limited and Balfour Beatty Kilpatrick Limited,1 provides a useful reminder of some key issues that often arise in the course of construction disputes, in particular in the context of enforcement of adjudicator’s decisions arising from breach of natural justice. In this case, the focus was the admissibility or otherwise of without prejudice documents.

What was the case about?

Transform Schools (North Lanarkshire) Limited (“Transform”) had engaged Balfour Beatty Construction Limited and Balfour Beatty Kilpatrick Limited (“Balfour Beatty”) to perform construction work at various schools in North Lanarkshire, Scotland.

A dispute arose between the parties in relation to latent defects at one of the schools. The dispute was submitted for adjudication and found in favour of Transform. In the adjudication, Balfour Beatty’s argument that the claim had prescribed (or that it was time barred under the principle equivalent to limitation, for those unfamiliar with the Scottish jargon) was rejected. The adjudicator concluded, with reference to a chain of letters between Balfour Beatty and Transform’s solicitors, that the prescriptive period had been extended. Transform subsequently raised an action for enforcement of the adjudicator’s decision, after Balfour Beatty refused to pay the award of approximately £4,000,000.

What were the parties’ arguments?

Balfour Beatty opposed enforcement on the basis that the adjudicator had referred to certain letters which had been marked “without prejudice”. Their argument was, broadly, that: (1) without prejudice correspondence was protected against use in the adjudication; (2) the adjudicator had relied upon the protected correspondence to a material extent in determining prescription; (3) the adjudicator’s approach “offended against the public policy” underpinning without prejudice privilege (they argued that if parties could not enter into without prejudice settlement discussions without the risk of these being relied on in an adjudication, the process of adjudication would be “damaged”); (4) the adjudicator was guilty of a material error in admitting, considering and relying on the correspondence; and (5) the adjudicator’s error amounted to a material breach of natural justice and/or the adjudicator’s reliance on the without prejudice correspondence gave rise to apparent bias.

Transform submitted, with reference to the accepted principles that are applied in adjudication enforcement proceedings, that only in the plainest of cases would a challenge on the basis of breach of natural justice be successful, and even if the adjudicator had erred on law, there was no breach of natural justice in this case (as both parties had been given the opportunity to make representations in relation to the without prejudice material).

What was decided?

The court emphasised that it was only concerned with whether the adjudicator’s decision should be enforced. The question of whether the without prejudice letters were actually admissible was a matter for the court to decide on final determination of the dispute.

The fact that the admissibility of the correspondence had been a central issue, and the way in which the adjudicator had dealt with it, led Lord Ericht to conclude that there had been no breach of natural justice by the adjudicator in considering and relying on the correspondence. The court enforced the adjudicator’s decision.

The reasoning behind this was that the adjudicator had to decide whether or not Transform’s claim had prescribed and, in order to do that, he had to decide whether or not the without prejudice letters were admissible. Only as a consequence of his decision that they were admissible, did he take them into account in deciding that the prescriptive period had been extended. The adjudicator’s approach had been to look at the correspondence as a whole, and greater weight had been given to letters which were not marked “without prejudice”. Accordingly, the court confirmed that the adjudicator had been entitled to decide on the admissibility of the without prejudice correspondence.

Although the court did not consider whether the adjudicator had been right to conclude that the correspondence was admissible, it did confirm that if the adjudicator had been wrong, that would have been an error of law, and an error of law on the part of the adjudicator would not be grounds to refuse to enforce the decision. The court would be justified in refusing to enforce the decision if there had been a serious breach of natural justice. However, this was not the case. The question of admissibility was one which had to be decided as a central issue in the adjudication. The adjudicator had given both parties an opportunity to make submissions, on which he had made a reasoned decision. Lord Ericht concluded: “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.”

What can we learn from this case?

Well this will vary according to the jurisdiction. Scottish judgements are referred to in the English courts, so they have a persuasive authority:

  • An adjudicator can rule on admissibility where the material is alleged to be without prejudice.
  • The court will consider factors such as whether the admissibility of without prejudice documents was a central issue in the adjudication and the manner in which the adjudicator handled the issue when determining whether or not there has been a breach of natural justice or bias.
  • The case also helpfully summarises the following established case law –
  • Carillion Construction Limited v Devonport Royal Dockyard Limited2 on the principles to be applied in considering whether to enforce an adjudicator’s decision;
  • Rush and Tompkins Limited v GLC3 on the without prejudice rule governing the admissibility of evidence;
  • Costain Limited v Strathclyde Builders Limited4 on the application of the principles of natural justice in the context of an adjudication;
  • Ellis Building Contractors Limited v Goldstein5 on the relationship between without prejudice documents and the rules of natural justice.

England: what does the English case law say?

There have been various cases in the courts of England and Wales where it has similarly been argued that an adjudicator was biased because they were provided with without prejudice material and/or that their decision should not be enforced due to breach of natural justice (requiring that every party has the right to a fair hearing by an impartial tribunal). However, an adjudicator’s decision will not necessarily be biased or in breach of natural justice just because they saw or were made aware of without prejudice material.

In Specialist Ceiling Services Northern Ltd v ZVI Construction (UK) Ltd6 the judge noted that the adjudicator was “unfazed by the knowledge that there had been without prejudice negotiations, because he not only expected them to occur, but in his experience offers were often made on a purely commercial basis in an effort to obviate the need for an adjudication”. It follows that adjudicators will generally know that offers may be made for sound commercial reasons and do not necessarily indicate liability. Provided the adjudicator can remain uninfluenced and in effect put the without prejudice material out of his mind when reaching a decision, he should be able to proceed with the adjudication unbiased.

All the same, it is clear from Ellis Building Contractors Ltd v Goldstein7 that the improper submission of without prejudice material might give rise to apparent bias and/or could render the adjudicator’s decision unenforceable on the grounds of breach of natural justice. In this case, the TCC said bias must be assessed objectively and the test was whether “the material facts give rise to a legitimate fear that the adjudicator may not have been impartial”. The court also sought to discourage parties from using without prejudice material in adjudications – it was clear on the facts that it was improper for without prejudice evidence to be put before the adjudicator, and, in the words of Akenhead J, “it is a practice that should be discouraged”.

So whilst parties should not disclose without prejudice material to an adjudicator, they need not assume that doing so will automatically result in the decision being biased. The test is as set out in Ellis – there will be an objective appraisal of the material facts to assess whether there is a legitimate fear of adjudicator bias. It is also highly probable that the other party will simply ask the adjudicator to ignore the material if inadvertently submitted. The fact that adjudicators are commercially minded should mean that they are able to remain impartial. Transform Schools is persuasive authority (like many before it) that courts will look to see how the adjudicator handled the matter in determining whether there has been a breach of natural justice or bias.

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