The misuse of “without prejudice” material in adjudication proceedings

A recent TCC decision appears to be the first time enforcement of an adjudication decision has been refused due to the misuse of “without prejudice” material. Given the informal and fast-paced nature of adjudication, the wrongful introduction of "without prejudice" material is not uncommon. This case provides a helpful warning for parties to think twice before deploying such material, lest their opponents be given a potentially decisive reason to for resisting enforcement.

AZ v BY

This case arose from works to replace stair core pressurisation systems to a building. AZ brought TCC proceedings to enforce the decision of an adjudicator issued in its favour. BY commenced its own proceedings seeking declarations relating to the status of allegedly “without prejudice” material shown to the adjudicator and a declaration that the decision of the adjudicator was unenforceable as a result.

Due to the confidential nature of the allegedly “without prejudice” material, the parties’ names were anonymised and much of the detail of the dispute and underlying project are redacted in the public version of the Court’s judgment.

The “without prejudice” rule

The “without prejudice” rule is founded upon the public policy of encouraging litigants to settle their differences without resort to litigation. The rule applies to make all communications genuinely aimed at settlement privileged, which means they cannot be given in evidence or otherwise disclosed to a court, adjudicator or other tribunal. The test for determining whether privilege applies is an objective one. The fact that a document is marked “without prejudice” is not conclusive as to its status as privileged, but it will often be a strong pointer.

The water can be muddied where parties are having both open and “without prejudice” communications simultaneously, as is common where a project is ongoing notwithstanding the dispute between the parties. A party who seeks to change the basis of “without prejudice” communications to open must do so explicitly and with clarity.

Once a communication is determined to be “without prejudice”, the court will be slow to lift the cloak of privilege unless certain exceptional circumstances apply. One such exception, which arose in the present case, is where “without prejudice” communications are relied on to demonstrate that a concluded compromise agreement has been reached. Difficulties can arise where a court, adjudicator or other tribunal concludes that the “without prejudice” material relied upon did not result in an agreed settlement. They must then assess their own ability to determine the remaining underlying dispute fairly, having had sight of the “without prejudice” material.

Wrongful disclosure

The effect of a wrongful disclosure of “without prejudice” material in adjudication proceedings depends on the rules as to apparent bias. The adjudicator will have seen material which may be prejudicial to a party’s case when that material ought to have been privileged. The disclosure of such material therefore poses a risk that the adjudicator’s decision may be inappropriately influenced.

In the present case, the TCC affirmed the approach taken by Akenhead J in Ellis Building Contractors v Goldstein, who concluded that the test for apparent bias in such cases is whether, on an objective appraisal, the material facts gave rise to a legitimate fear that the adjudicator might not have been impartial. The Court clarified that it need not be demonstrated that the “without prejudice” communications were material to or formed part of the decision, if, viewed objectively, they nonetheless gave rise to a legitimate fear of partiality.

The Court concluded that the nature of the communications relied upon by AZ in the adjudication were subject to “without prejudice” privilege and that, as no concluded agreement had been reached by virtue of these communications, no exception to the privilege applied.

The Court also concluded that the fair-minded and informed observer considering all of the circumstances would consider that the adjudicator was unconsciously biased due to: (i) the central role that the “without prejudice” material played in the adjudication; and (ii) the inconsistencies between position of BY in the “without prejudice” material and their arguments advanced in the adjudication, thereby giving rise to a question in the mind of the adjudicator as to the strength of the parties’ respective positions.

Enforcement was therefore refused.

Conclusions and implications

Parties should exercise caution when seeking to rely upon “without prejudice” communications before an adjudicator. Many adjudicators are not legally qualified and parties are commonly represented in adjudications by non-legally qualified consultants or staff. Adjudications are also fast-paced and proceed with less formality than court proceedings. All of this increases the risk of “without prejudice” material being used improperly.

Previous TCC decisions have warned that lawyers who put “without prejudice” material before an adjudicator may face professional disciplinary action and that decisions in such cases “may well not be enforced” (Ellis Building Contractors v Goldstein). The present case adds weight to these warnings and will hopefully lead to a greater adherence to “without prejudice” privilege in the future.

References:

AZ v BY [2023] EWHC 2388 (TCC)

Ellis Building Contractors Ltd v Goldstein [2011] EWHC 269 (TCC)