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A risky business: using without prejudice material in adjudication

Introduction

The High Court’s recent decision in AZ v BY [2023] EWHC 2388 (TCC) concerns the use of material that is subject to without prejudice privilege in adjudications, and contains important lessons for parties and their advisors.

Background

Without prejudice privilege prevents anything said by parties that is genuinely aimed at settlement being relied on in formal dispute resolution proceedings (including adjudications). 

AZ succeeded in an adjudication against BY (the Adjudication Decision).

AZ applied to the court to enforce the Adjudication Decision. BY resisted enforcement. During the adjudication, AZ deployed material which BY said contained settlement discussions and was therefore subject to without prejudice privilege (the Material). As a result, argued BY, the Adjudication Decision should be declared unenforceable as a result of the adjudicator being unfairly influenced by the Material. 

The High Court’s judgment

The High Court judgment confirms the following points.

  1. Genuinely without prejudice material should not be submitted to an adjudicator.
  2. An exception to this rule applies where (a) the exchange of without prejudice correspondence results in an agreement to settle issues in dispute and (b) a party relies on the without prejudice correspondence to evidence the existence of the settlement. 
  3. If without prejudice material is put in front of an adjudicator, the relevant test as to whether or not this affects the adjudicator’s jurisdiction (and so the adjudicator’s ability to render an enforceable decision) is the test of “apparent bias” i.e. in all the circumstances, would a fair-minded and informed observer conclude that there was a real possibility that, having seen the without prejudice material, the adjudicator/judge was biased?
  4. If the answer to that question is “yes”, the adjudicator must withdraw from the adjudication on the basis that they lack jurisdiction to decide the dispute.  If the adjudicator instead proceeds to issue a decision, it will be unenforceable. That is even if it can be shown that the adjudicator’s decision was not “primarily” based on the without prejudice material. 

In this case, the High Court found that the Material (a) was subject to without prejudice privilege and (b) did not fall within the exception of evidencing a concluded settlement. The adjudicator had wrongly concluded that the Material was not privileged, and had relied on it in reaching their decision. As a result, the adjudicator acted with apparent bias, and so the Adjudication Decision was unenforceable. 

Key takeaways

The High Court’s judgment confirms that a party who – deliberately or otherwise – deploys without prejudice material in an adjudication risks the resulting adjudication decision being unenforceable. 

It is therefore vital that parties to an adjudication (and their advisers) ensure that no without prejudice material is placed before the adjudicator at any stage – unless it falls within the limited exception of evidencing a concluded settlement. 

Tags

litigation, construction, construction and engineering disputes, article