Without Prejudice Material in Adjudication

Construction solicitor, Lawrence Pearce, takes a look at some recent case law surrounding the use of “without prejudice” material.

What is without prejudice material?

When a document is entitled ‘Without Prejudice’, the general rule is that any statements made between the parties in a genuine attempt to settle a dispute cannot be relied upon as evidence by the courts. Without prejudice material is encouraged in disputes, as it pushes litigants to settle the dispute themselves, as opposed to concluding them by way of formal litigation. This was confirmed in Rush v Tompkins [1898] AC 1280.

In an adjudication, where without prejudice communication is submitted, Adjudicators – just as the court would – will have to consider whether this content is admissible. However, what constitutes as admissible and the implication of getting this assessment wrong, is now being further examined.

Admitting without prejudice material before an Adjudicator has been strongly discouraged by the Judge in the case of Ellis Building Contractors Ltd v Vincent Goldstein [2011] EWHC 269 (TCC), as it relies upon the Adjudicator being able to disregard any knowledge from that material when reaching their decision so as to avoid any possibility of bias.

Case of AZ v BY [2023] EWHC 2388 (TCC)

Although the case of AZ v BY remains heavily redacted and anonymised because the underlying dispute between the parties is still ongoing, it is the decision surrounding the without prejudice material which is of significance.

The dispute itself is in relation to whether the parties entered into a contract. Upon reviewing the documentation (including without prejudice material), the Adjudicator held that the parties had entered into contract.

AZ v BY appears to be the first case where an Adjudicator’s decision has been rendered unenforceable due to the improper submission of without prejudice material by one party throughout the adjudication. A question mark was raised over the deployment of the without prejudice material, as it gave rise to a level of apparent bias in the adjudicator’s decision.

The following issues were to be decided by the judge:

1. What was the nature of the communications taking place during 2022?
2. Were the particular documents submitted to the Adjudicator about which complaint is made subject to without prejudice privilege?
3. Were the documents, as a result, inadmissible?
4. Is the Decision, as a result, unenforceable?
5. Should I make, as a matter of principle, any determination about the other documents about which complaint is made, but which are not relevant to issues (3) and (4) above?
6. If so, what is that determination?

In answering the above questions throughout the judgement, the case of AZ v BY is crucial, as it summarises the principles behind why without prejudice material being deployed in an adjudication (illegitimately) breaches the rules of natural justice by way of apparent bias. Ultimately, if an Adjudicator’s decision is reached in reliance upon without prejudice material, it puts into question whether an Adjudicator has been able to reach a fair and honest decision or if this correspondence would influence their decision.

The Judge further considered Rush v Tompkins and Specialist Ceiling Services Norther Limited v ZVI Construction (UK) Limited [2004], BLR 403 and reiterated the implications of an adjudicator’s decision being swayed by inadmissible without prejudice material (paying close attention to paragraph (b)):

1. "Obviously, such material should not be put before an adjudicator. Lawyers who do so may face professional disciplinary action.
2. 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.
3. 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."

It was held that because the without prejudice material in AZ v BY played such a significant role in the Adjudicator’s decision, the Adjudicator was unconsciously biased and could not, therefore, reach an informed and impartial decision.

Albeit there is nothing ‘new’ as to without prejudice material being discouraged in adjudications, AZ v BY offers clarification on the underlying principles which apply to the concept. It serves as a strong reminder to pay attention to what is labelled as ‘without prejudice’ and that that label does not automatically mean it is deemed as such.