Should I Stay or Should I Go?

Disclosure of without prejudice material – should the adjudicator resign?

Readers of our blog will be aware that the without prejudice rule prevents certain statements made in a genuine attempt to settle a dispute being put before the court as evidence, or being used against the party that made them.

However, without prejudice material still regularly finds its way before the courts and adjudicators, and whilst the courts have an established procedure in place dealing with this in litigation proceedings, adjudication is a radically different process.

Where without prejudice material is disclosed to an adjudicator, it is up to the adjudicator to decide whether the material is admissible. If either party to the adjudication disagrees with the adjudicator’s decision, they may challenge it in the courts on grounds of a breach of natural justice due to bias or a real risk of bias in the adjudication.

If the adjudicator’s decision is challenged, the test applied by the courts is that set out in Re Medicaments.[1] This requires the court to ascertain all the circumstances suggesting that the adjudicator is biased and then to ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility that the adjudication was biased. The nature of this test directs the court to consider the facts of the case in determining whether the adjudicator has been unfairly prejudiced so as to resign.

There are however some factors that may indicate whether or not the adjudicator has been unfairly prejudiced. Where a without prejudice offer to settle is disclosed to an adjudicator, but no financial details of the settlement are provided, the courts have often upheld the adjudicator’s decision. This was the case in Specialist Ceiling Services Northern Ltd v ZVI Construction,[2] where the referral notice contained a reference to, and a copy of, a without prejudice offer to settle but no details of the offer sum. The adjudicator declined to resign stating that "it is well established that parties to a dispute often discuss matters on a without prejudice basis” and so his impartiality was not affected by knowledge of the offer. This was a significant factor in the court upholding the adjudicator’s decision. Without prejudice discussions are commonplace in construction disputes. Therefore the fact a settlement offer has been made is not enough in itself to unfairly prejudice the adjudicator.[3]

A similar decision was made in Ellis Building Contractors Ltd v Goldstein[4] where the without prejudice offer letter had been included in the reply with the offer amount redacted. Though the inclusion of the letter was held improper and the contents inadmissible, the court upheld the adjudicator’s decision, and placed emphasis on the fact that the adjudicator did not refer to the without prejudice offer in his decision or base his decision upon it.

More recently, the Scottish courts in Transform Schools v Balfour Beatty[5] have gone even further in holding that an adjudicator has the same duty as the courts to consider whether without prejudice material is admissible. The court upheld the adjudicator’s decision where the adjudicator had received and viewed letters marked "without prejudice". Recognising the potential nature of this material, the adjudicator had invited representations from the parties, concluded the letters were admissible and took these into account when making his decision.

In each of these cases, the settlement amount was not disclosed and each adjudicator’s decision showed they had not been influenced by any without prejudice material. It is perhaps unsurprising then that the Technology and Construction court (TCC) robustly supported the adjudicator’s decision in each case.

But should an adjudicator resign if they become aware of the settlement amount? Lord Justice Coulson has suggested that it would certainly be more difficult for the adjudicator to continue the adjudication in these circumstances, as there would be questions over the influence the offer had on their decision.[6] However, he makes clear this is not a hard and fast rule and that other facts of the case, such as how the adjudicator became aware of the offer, may also be determinative of whether the adjudicator should resign.

Therefore, whilst it is likely that an adjudicator who becomes aware of the amount of a settlement offer should resign, this is not definitive. Whether the adjudicator should continue to act will depend on the facts of the case including what is disclosed, at what point in the adjudication, and under what circumstances.