AZ v BY [2023] EWCH 2388 (TCC)
The dispute before the court was whether an adjudicator's decision should be enforced because without prejudice communications had been disclosed by AZ that were front and central to its case as to whether a variation had been agreed by the parties.
Question for determination by the Court
Mr Justice Constable in the TCC had to consider three key questions that have potentially wide-ranging importance:
- whether the communications were 'without prejudice' and therefore subject to without prejudice privilege which should not have been disclosed or relied upon;
- whether, if the communications were without prejudice, they were nevertheless subject to one of the exceptions and could be properly disclosed and relied upon; and
- whether, if they were without prejudice communications and did not fall within one of the exceptions, the adjudicator's decision was tainted by unconscious bias and/or breached the rules of natural justice and should not be enforced.
Decision
Mr Justice Constable found that:
- the nature of the communications disclosed to the adjudicator were without prejudice and were therefore subject to without prejudice privilege. What constitutes without prejudice communication has been considered by the courts on multiple occasions and can be broadly summarised as including 'all negotiations that are genuinely aimed at settlement whether oral or in writing'.
- communications that fall within this category are not permitted to be disclosed or relied on in adjudications or court proceedings. The rationale for this is based partially on agreement of the parties and partially on public policy grounds that a party seeking to compromise a claim may make admissions that would otherwise harm their position. As Mr Justice Constable found that the communications were without prejudice, they should not have been disclosed to the adjudicator as part of the adjudication.
- there are a few exceptions to the without prejudice privilege rule mentioned above. The key one in this case was whether the without prejudice negotiations between the parties had resulted in a concluded agreement that settled the underlying dispute. In these circumstances the without prejudice communications can be relied on to prove the agreement was reached and the dispute had settled. Mr Justice Constable found that whilst an agreement may have been reached it did not go to settlement of the underlying dispute, but instead went to a small part of the wider dispute. Accordingly, this exception to the without prejudice rule did not apply and the without prejudice communications should not have been disclosed.
- having found that the communications fell within the without prejudice rule and no exception applied, it was necessary for Mr Justice Constable to consider whether, having seen and considered the without prejudice material, the adjudicator's decision was irretrievably affected by apparent bias which meant the decision should not be enforced.
- Mr Justice Constable concluded that a fair-minded and informed observer would have concluded that there was a real possibility that, having seen the without prejudice material, the adjudicator would be unconsciously biased in reaching his decision. The without prejudice material was placed "front and centre" within the adjudication by AZ and "contained implicit admissions by BY that were plainly inconsistent with its open position".
- accordingly, the adjudicator's decision was not enforced by the court.
Commentary
This judgment is a rare example of the court refusing to enforce an adjudicator's decision and it demonstrates the importance of not deliberately, or inadvertently, disclosing without prejudice communications as part of an adjudication.
The rules governing what are and what are not without prejudice communications are well-established and unless a clear binding agreement has been reached through these communications that resolves the underlying dispute (or perhaps another limited exception applies), it is vital not to disclose these communications as part of any formal dispute resolution process.
Read the judgement.
