Without prejudice communications render Adjudicator's decision unenforceable

AZ v BY [2023] EWHC 2388 (TCC)

A TCC decision that decides an Adjudicator's decision is unenforceable always sparks our interest, particularly when the reason for such decision is a breach of natural justice. On this occasion, the TCC deciding that an adjudicator had breached the rules of natural justice, by reason of apparent bias, for having been presented with without prejudice material by one of the parties to the dispute.

We summarise the case below, but the key take-away from this decision is that the adjudicator's decision need not to be based primarily on the without prejudice communications in order for a court to decline to enforce it. The communications need only give rise, objectively, to a legitimate fear of bias.

This decision is notable as it is contrary to how some may interpret the conclusions of Justice Akenhead in Ellis Building Contractors Limited v Vincent Goldstein [2011] EWHC 269 (TCC), an earlier decision of the TCC which considered the enforceability of a decision of an adjudicator where without prejudice communications were placed before him. In that case, Justice Akenhead referred to an adjudicator deciding a case 'primarily' on the wrongly received without prejudice communications as part of the analysis of apparent bias.

One of the claimant's primary arguments in the AZ v BY case was that the adjudicator's decision must be shown to be primarily based on the without prejudice communications, an argument which Justice Constable rejected.  

Facts

The parties and the details of the contract they entered into are confidential in this case and thus the pseudonyms AZ (claimant) and BY (defendant) were adopted by the TCC.

As part of its submissions, AZ submitted certain communications which showed that BY had conceded in a meeting that AZ's contractual position was justified (which was contrary to its position in the adjudication). AZ relied on these communications to corroborate its version that certain obligations lay with BY and that AZ was entitled to additional sums in respect thereof. BY objected to the use of the communications on the basis that they were subject to without prejudice privilege and its response was served under protest.

On 7 June 2023, Mr Derek Pye (the Adjudicator) issued a decision. AZ issued a Part 7 claim in the TCC to enforce the decision of the Adjudicator. BY issued Part 8 proceedings seeking declarations relating to the status of the allegedly without prejudice communications and a declaration that as a result of the inadmissible communications, the decision is unenforceable.

Law

Justice Constable considered the law on without prejudice communications and apparent bias. In particular, he referred to the case of Ellis Building Contractors Limited v Vincent Goldstein [2011] EWHC 269 (TCC) where Justice Akenhead summarised his conclusions on the subject as follows:

"(a)  Obviously, such material should not be put before an adjudicator. Lawyers who do so may face professional disciplinary action.
(b)   Where an adjudicator decides a case primarily upon the basis of wrongly received "without prejudice" material, his/her decision may well not be enforced.
(c)   The test as to whether there is apparent bias present is whether, on an objective appraisal, the material facts give rise to a legitimate fear that the adjudicator might not have been impartial. The Court on any enforcement proceedings should look at all the facts which may support or undermine a charge of bias, whether such facts were known to the adjudicator or not."

AZ placed particular emphasis on paragraph (b), arguing the need for a determination that the decision must be shown to be based primarily on the without prejudice material in order for a court to decline to enforce it. Justice Constable did not consider that Justice Akenhead had intended to set such a threshold test which must be passed in order for the decision not to be enforced. The apparent bias test looks at the objective perception of the influence the exposure to the material may have had on the mind of the decision-maker. Apparent bias does not depend, however, on actual influence. A court may properly conclude that the objective observer would consider knowledge of one party's admissions as to the weakness of their case made under the cloak of without prejudice discussions as giving rise to a legitimate fear that an adjudicator took that knowledge into account, possibly even sub-consciously. The communications do not have to be material in the sense that they can be shown to have been the basis of a particular conclusion. They do have to be material in the sense that they give rise, objectively, to a legitimate fear of partiality.

Justice Constable also referred to the reviews expressed in Coulson on Adjudication (4th ed) in which the editor stated:

"It is thought that, if the adjudicator was told of the amount of a without prejudice offer, it might be very difficult for him to continue with the adjudication, because there would be an inevitable question mark about whether the result of the adjudication, however inadvertently, was shaped by the amount of the offer."

In such a case, it would not be possible to demonstrate that the decision was primarily based upon without prejudice material. However, such a situation may nevertheless give rise to apparent bias. It is the existence of the question-mark which is addressed by the objective apparent bias test. Concluding that such a question-mark exists does not depend on establishing that the decision was primarily decided on the basis of the material. It is equally the case that where no such question-mark exists (particularly in circumstances where the decision-maker knows only of the fact of the offers made rather than the amount of any offer) that the decision will be enforced notwithstanding the disclosure of without prejudice material.

Justice Constable concluded that the relevant test is more or less as set out in Re Medicaments and Related Classes of Goods (No. 2) [2001] 1 WLR 700, where Lord Phillips stated:

"The Court must first ascertain all the circumstances which have a bearing on the suggestion that the Judge was biased. It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility, or a real danger, the two being the same, that the tribunal was biased."

Analysis

Justice Constable decided that the communications in question submitted to the Adjudicator were subject to without prejudice privilege.

He considered that the question of admissibility of without prejudice material is a question of law and that it is trite that generally, adjudicator's decisions will be enforced notwithstanding the fact that they contain an error of law. But an error as to the admissibility of without prejudice material is an error of law that could potentially impact the fairness of the decision-making process in accordance with the rules of natural justice. It is similar, in this sense, to an error of law by an adjudicator in assessing the extent of their own jurisdiction. It is an error which can affect the enforceability of the decision. If, therefore, a court concludes (contrary to the determination of the adjudicator) that material was in fact without prejudice and that the test of apparent bias is made out, the decision should not be enforced.

Turning to the question of apparent bias, Justice Constable had to consider whether, in all the circumstances, a fair-minded and informed observer would conclude that there was a real possibility that, having seen the without prejudice communications, the Adjudicator was biased.

Both parties made submissions founded on the Adjudicator's decision. The Adjudicator's decision stated that one of the issues he had to decide was the 'Privilege Sub-Issue'. He concluded that there was no evidence to support the view that the purpose of the meeting was to reach a commercial settlement and that it was more of a technical / commercial meeting to discuss specific issues. However, the Adjudicator then decided that several matters were unequivocally agreed between the parties. The Adjudicator was wrong in this decision, perhaps not having had sight of the full run of without prejudice communications.

Justice Constable decided that the fair-minded and informed observer, considering all of the circumstances of this case, would conclude that there was a real possibility that, having seen the without prejudice material, the Adjudicator was unconsciously biased for the following reasons:

1. The without prejudice communications were placed front and centre within the adjudication by AZ, and played a significant role in AZ's case. It was put to the Adjudicator that the communications demonstrated that BY were taking a position materially inconsistent to its previously expressed views. The very purpose of without prejudice privilege is to prevent this from happening.
2. The Communications contained implicit admissions by BY that were inconsistent with its open position and the contractual position it was arguing for in the Adjudication.
3. As such, the communications were not just prejudicial and adverse to BY's interests but also related to central issues in dispute. The substance of the communications cannot be likened in any way to an adjudicator knowing of the fact of an offer, or the fact of the existence of negotiations, which as the authorities make clear is something that a decision-maker would readily anticipate. It is much more akin to, and indeed potentially more prejudicial than, an adjudicator knowing the amount of an offer.
4. 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 admissions in relation to key aspects of the open dispute made by BY in negotiations.
5. The inevitable question mark is even more severe when the Adjudicator had formed the erroneous view that these matters had in fact been agreed (and not just put forward in a commercial offer which might be easier to put out of one's mind).

Conclusion

Justice Constable concluded that this is one of the few cases in which a breach of the rules of natural justice, by reason of apparent bias, dictates that the Decision should not be enforced. He therefore dismissed AZ's application for summary judgment and granted BY's request for a declaration that the decision is unenforceable.