Iain Drummond, Partner and Hayley Russell, Solicitor, in our Construction, Engineering and Infrastructure Disputes team, examine the recent Technology and Construction (“TCC”) decision in AZ v BY  EWHC 2388 (TCC). This case highlights that an adjudicator’s decision may be unenforceable if the adjudicator considers ‘without prejudice’ material, which gives rise to a legitimate concern of bias.
An adjudication took place between parties AZ and BY. A decision was reached by an adjudicator on 7 June 2023. AZ brought a Part 7 Claim to the Technology and Construction Court (TCC) to enforce the decision.
The key issue addressed in the adjudication was whether or not the parties had entered into a contract. During the adjudication, AZ presented communications that demonstrated BY had admitted in a meeting, at some stage prior to the adjudication, that AZ’s contractual position was justified. These alleged admissions were inconsistent with the contractual position BY were presenting at the adjudication. The adjudicator, having had the opportunity to review the material presented by AZ, concluded that the parties had entered into a contract.
At the adjudication, BY contended that the material used by AZ was protected by ‘without prejudice’ privilege. BY brought Part 8 proceedings against AZ’s Part 7 claim seeking a declaration relating to the status of the ‘without prejudice’ material. BY also sought a declaration that the adjudicator’s decision was unenforceable due to the material relied upon being inadmissible.
Mr Justice Constable granted BY’s declaration that the communications referred to were ‘without prejudice’. It was further held that the disclosure of the without prejudice material created an ‘inevitable question mark’ over whether the adjudicator was inadvertently or unconsciously biased. In the circumstances, Mr Justice Constable considered that the apparent bias and resulting decision were a breach of the rules of natural justice. Accordingly, Mr Justice Constable granted BY’s declaration that the adjudicator’s decision was unenforceable.
The judge found that if the material was ‘without prejudice’, and if the test for apparent bias could be met, then the court’s view would be that the adjudicator’s decision would not be enforced.
The judge considered the admissibility of ‘without prejudice’ material to be a question of law. One of the few exceptions to the ‘without prejudice’ principle is where the communications were necessary to establish that a settlement was in fact reached; however, this was not the case here, given the material was used to highlight an inconsistency in BY’s position in the adjudication. The material was, therefore, ‘without prejudice’ and not admissible during the adjudication.
The test for apparent bias is whether a fair-minded and informed observer would conclude that, having regard to the without prejudice material, there was a real possibility that the adjudicator was biased; it is unnecessary (and is rarely possible) to show actual bias. Mr Justice Constable decided that the adjudicator was unconsciously biased for the following reasons:
- The ‘without prejudice’ material was placed front and centre within the adjudication by AZ and played a significant role in AZ's case. It was put in terms that the material demonstrated that BY were taking a position materially inconsistent with its previously expressed views. The very purpose of ‘without prejudice’ privilege is to prevent this from happening.
- The material contained implicit admissions by BY that were plainly inconsistent with its open position and the contractual position it was arguing for in the adjudication.
- The material was not only prejudicial and adverse to its interests, but also related to the central issues in dispute.
- Regardless of the manner in which the decision was expressed, there is an inevitable question mark about whether the result of the adjudication, however inadvertently or sub-consciously, was shaped by the adjudicator's knowledge of the concessions/admissions in relation to key aspects of the dispute.
- The inevitable question mark is even more acute when the adjudicator had formed the view, also in error, that these matters had, in fact been agreed (and not just put forward in a commercial offer).
The admissibility of the ‘without prejudice' material was argued before and, in the judge’s view, wrongly decided by the adjudicator. Although errors in law contained in adjudicator decisions are not normally a ground for challenge, in this case it was because it had the potential to impact the fairness of the decision-making process and was, therefore, a breach of natural justice.
Take Home Points
- An error regarding the admissibility of without prejudice material is an error of law that could potentially impact on the fairness of the decision-making process and breach the rules of natural justice.
- Given the without prejudice material did not demonstrate an agreement between the parties and contained admissions that contrasted with a party’s position at the adjudication, the adjudicator ought to have reflected on his ability to decide the dispute impartially, having seen that material.
- The key issue regarding the enforceability of the adjudicator’s decision was whether there was a real risk of a lack of impartiality on the part of the adjudicator having seen the without prejudice material.
- The adjudicator’s decision did not need to be primarily founded upon the without prejudice material for the decision to be rendered unenforceable, as long as the material related to relate to a key issue in dispute.
If you have any questions regarding any of the above, please do not hesitate to contact Iain Drummond.