In 2005, Transform Schools (the pursuer) entered into a project agreement with North Lanarkshire Council to, amongst other things, design, construct and fit-out several schools in North Lanarkshire, including the Stepps Project. Transform Schools then entered into an agreement with two Balfour Beatty companies (the defenders) to fulfil their obligations under the project agreement with the Council. The Stepps Project was constructed between 2006 and 2007.
In August 2015, it became apparent that there were various defects in the drainage system, including a collapsed pipe, displaced joints and a reformed sewer. Further investigations highlighted additional defects, culminating in a drain collapse in June 2019, resulting in emergency repairs.
Transform Schools issued a Notice of Adjudication to Balfour Beatty in July 2019 and an adjudicator held in September 2019 that the defenders should pay to Transform Schools over £4 million in damages. As no payment was received, Transform Schools raised a commercial action in the Court of Session to enforce the adjudicator’s decision.
The “without prejudice” correspondence
In his decision, the adjudicator referred to three documents presented by the parties that appeared to be “without prejudice” – either titled as such or by making reference to remedial works being carried out by the defenders on a “without prejudice” basis.
The defenders maintained that the “without prejudice” correspondence was protected against any use in the adjudication process and that the adjudicator had wrongly relied upon the correspondence to a material extent in determining issues critical to liability (in this case, prescription). The defenders argued that the use of this correspondence offended the public policy principle that underpins “without prejudice” privilege and the adjudicator’s error amounted to a material breach of natural justice such that the decision was unenforceable.
The pursuer disagreed and highlighted that both parties had been afforded the opportunity to make representations on this correspondence in the adjudication, such that there could be no breach of natural justice. Further, they maintained that these considerations were not material to the adjudicator’s decision and so were insufficient to undermine the decision.
Lord Ericht held that the defenders’ “without prejudice” offer of remedial works could be considered, and taking into account other evidence and submissions by the parties, was sufficient to negate the time-bar period. He held that the tag of “without prejudice” alone was not enough to submit the letters to “without prejudice” privilege. Whether a piece of correspondence is, in its effect, “without prejudice” will depend on the contents of the letter and an analysis of that content, rather than a label of “without prejudice”.
In any event, Lord Ericht went on to say that even if the adjudicator had been incorrect to consider the “without prejudice” letters or had relied on them too much, this was an error of the type that would not render the adjudicator’s decision unenforceable.
This case serves as a cautionary tale for the use of the “without prejudice” label in correspondence. This will not always protect the contents of that correspondence from being relied upon. In particular, care should be taken to specify clearly that offers to do remedial works where liability is not admitted, are clearly stated as such and as not capable of being relied upon.
With additional reporting by Dan Traynor.