High Court ruling on ‘without prejudice’ privilege renders adjudication unenforceable

The case concerned a complex legal question of whether certain communications and documents were subject to ‘without prejudice’ privilege – a legal principle that allows parties engaged in a dispute or negotiation to communicate openly without the risk of their discussions being used against them in future legal proceedings.

One party, referred to throughout the case as ‘AZ’, launched a ‘Part 7’ claim in the High Court to enforce a decision made by an adjudicator concerning a disputed contract for construction work that was supposed to be awarded to AZ. During an earlier adjudication process, however, AZ presented certain materials as evidence that the opposing party, referred to as ‘BY’, argued – both during the adjudication and later on in court – were protected by privilege.

BY therefore initiated ‘Part 8’ proceedings to seek declarations regarding the status of the allegedly "without prejudice" materials. BY also sought a declaration from the court that, due to the use of these inadmissible materials, the adjudicator's decision should not be enforced.

Mr Justice Constable, who considered both AZ and BY’s claims together, concluded that the communications in question were indeed without prejudice, and the documents submitted to the adjudicator were subject to without prejudice privilege. However, he declined to make a general declaration regarding the admissibility of the communications in proceedings, stating that this would depend on the nature of each case.

He also noted that the ‘without prejudice’ material had been prominently featured in the adjudication and concluded that, given the adjudicator's exposure to the material, there was a real possibility of unconscious bias. The judge said this error in assessing the admissibility of ‘without prejudice’ material could impact the fairness of the decision-making process.

He ruled that the adjudicator’s decision had breached the rules of natural justice due to apparent bias, and granted BY’s declaration that the decision was unenforceable. At the same time, AZ's application for summary judgment was dismissed.

Construction disputes expert Katrina Preston McDermott of Pinsent Masons said: “This judgment is significant because, as the judge points out, it is one of the few cases where there was a breach of the rules of natural justice by reason of apparent bias which has resulted in an unenforceable adjudicator's decision. It is particularly interesting because it considers, in the context of adjudication, the applicable principles on ‘without prejudice’ privilege and the test for apparent bias.”

Handing down his judgment, Mr Justice Constable held that the ‘without prejudice’ rule is based on both public policy and the agreement of the parties involved, although merely labelling a document as ‘without prejudice’ is not conclusive proof of its status. Instead, he held, courts must ascertain whether a communication was genuinely intended to be part of negotiations, taking into account the intention of the author and how it would be perceived by a reasonable recipient.

The judge added that when negotiations initially begin without prejudice, the party wishing to change this basis must do so explicitly and clearly. He said courts should be cautious in dissecting communications to avoid undermining the public policy objective behind ‘without prejudice’ privilege – which is generally discouraged unless there is a compelling reason.

Preston McDermott added: “In reaching this conclusion, the court considered previous authorities which address the deployment of ‘without prejudice’ materials in adjudications, and confirms that the test to be applied is that which was set out in the 2001 case of Re Medicaments and Related Classes of Goods. This is the tame test that was applied in the dispute between Ellis Building Contractors Limited and Vincent Goldstein in 2011.”