The Technology and Construction Court has reiterated the consequences of parties including 'without prejudice' letters in adjudication proceedings - which may even lead to unenforceable decisions.
The use and effect of without prejudice materials and discussions is well known in court proceedings.
In brief terms, provided such documents are intended to be part of a genuine attempt to settle a dispute, without prejudice documents are privileged and may not be referred to in court proceedings except with the agreement of the parties.
The rule in court proceedings is strict, to the extent that even the judge's awareness of the existence of such documents may be problematic, in extreme cases resulting in the trial judge having to stand down from hearing a particular case.
Mr Justice Coulson had previously considered the issue of without prejudice material in adjudication proceedings in Volker Stevin Ltd v Holystone Contracts Ltd , ruling that the adjudicator's knowledge of a without prejudice offer did not affect his decision, and as a result there was no bias. The adjudicator's decision was therefore enforceable.
In Ellis Building Contractors Limited v Vincent Goldstein , the contractor, Ellis, brought adjudication proceedings against the employer, Goldstein. The dispute initially concerned Goldstein's liability to pay for construction works Ellis had undertaken.
In response to the adjudication referral, Goldstein sent a without prejudice letter to Ellis. Ellis referred to and included the letter with the actual sum offered deleted in its Reply. Goldstein did not object to the letter's inclusion immediately.
Instead, after the adjudicator had found in favour of Ellis, Goldstein refused to pay on the basis that there was an apparent bias on the part of the adjudicator in not raising the without prejudice letter with the parties. Needless to say, Ellis brought enforcement proceedings.
As summarised by Mr Justice Akenhead, the test of bias includes consideration of 'whether, on an objective appraisal, the material facts give rise to a legitimate fear that the adjudicator might not have been impartial'.
The court ruled there had been no apparent bias on the part of the adjudicator in allowing the without prejudice letter to be referred to in the adjudication proceedings. Although it was referred to, it was held that its use did not give rise to a legitimate fear that the adjudicator might not have been impartial.
In addition, the delay by Goldstein in challenging Ellis' reference to the without prejudice letter was considered to be relevant. In view of the delay, the court held that Goldstein considered the letter did not materially influence the adjudicator in any event.
The judgment goes much further than any other judgment in discouraging the parties from using without prejudice material in adjudication proceedings. Mr Justice Akenhead suggested that adding such material may lead to the adjudicator's decision being unenforceable.
The judge went on to suggest the possibility of professional disciplinary action for lawyers who submit such material.
The case is a reminder of the need to object to the submission of without prejudice material at the earliest opportunity in order to avoid losing the ability to object at a later date.
Adam Hiscox recently acted in a successful adjudication in which a challenge to the reference to without prejudice material was made.
For more information on the adjudication process or any other construction law issue, please contact Adam on 03700 864074 or email [email protected]