In the recent anonymised and redacted case of AZ v BY [2023] EWHC 2388 (TCC), the Technology and Construction Court confirmed the effect of the use of without prejudice materials on the enforceability of an Adjudicator's Decision.
Factual background
The facts of this case are necessarily limited due to the redacted and anonymised nature of the Judgment, however the following is a summary:
- AZ was the anonymised name for the claimant and BY was the anonymised name for the defendant.
- The underlying dispute concerned whether the parties had formed an agreement for the replacement of a stair core pressurisation system in a building. The dispute was referred to Adjudication and a Decision was provided in June 2023 by Derek Pye.
- AZ commenced Part 7 enforcement proceedings to enforce the Adjudicator's Decision.
- However, BY commenced its own Part 8 proceedings in which it sought declarations that the Adjudicator had considered without prejudice materials which affected the Decision (giving rise to apparent bias and therefore a breach of natural justice) – the effect of which should be that the Decision was unenforceable.
The Part 7 proceedings and part 8 proceedings were heard together and came before Justice Constable.
Without prejudice
This is a form of privilege that attaches to exclude all negotiations that are genuinely aimed at settling a dispute, whether orally or in writing.
It is both a public interest policy to encourage settlement and is either an express or implied form of contractual agreement between the parties to keep the communications confidential.
To determine whether a document is protected by without prejudice privilege an objective test is utilised which means that simply marking the document as such will not, in and of itself, be sufficient for the privilege to apply.
If without prejudice privilege is determined to attach to a particular communication, it will be inadmissible to the Courts and there are very limited circumstances where the Courts will lift the veil of that privilege.
Moreover, where an Adjudicator has been referred to, and has been influenced by without prejudice material, their Decision will most likely be unenforceable.
Issues
The issue here was whether the Adjudicator's knowledge of certain without prejudice privilege material caused any bias in the mind of the Adjudicator and by extension whether the Decision was enforceable or not.
The Court confirmed that the test for bias was whether a fair-minded and informed observer would conclude the real-possibility of bias. The Court also confirmed that the without prejudice document need not be material to the Adjudicator's Decision – it just needs to give rise a real risk of partiality.
In considering the allegedly without prejudice material and in applying the objective test to those materials, the Court confirmed that without prejudice privilege applied. The Court also considered that, as the without prejudice material had been placed front and centre before the Adjudicator and that they had considered the same ahead of issuing their Decision, there was a real risk of partiality.
Consequently, the Adjudicator's Decision was not enforced.
Interestingly, the Court referred to the case of Ellis Building Contractors Limited v Vincent Goldstein [2011] EWHC 269 (TCC) which confirmed, among other things, that:
- The deployment of without prejudice material is potentially more harmful in Adjudications in circumstances where the Adjudicator is not legally qualified and may therefore be at risk of being influenced by them; and
- Lawyers that put without prejudice material before an Adjudicator could face professional disciplinary action.
Take away
This case is of particular interest to construction parties and practitioners alike as it serves as a cautionary reminder to avoid deploying without prejudice materials, unless both parties have consented to waive the mutually shared without prejudice privilege that may apply to the document in question.
It will be a question of fact whether ostensibly without prejudice material really is subject to without prejudice privilege. In light of this cautionary reminder, construction parties need to be very careful when considering whether to refer to the same in the context of an ongoing dispute / adjudication.
