The “Without Prejudice” Rule
The principle that statements made in the course of without prejudice negotiations are not admissible in evidence is a long-standing one. The rule is founded upon the public policy of encouraging litigants to settle rather than litigate them to a finish. Despite this, the use of without prejudice material has made its way into adjudication proceedings.
Volker Stevin Ltd v Holystone Contracts Ltd1
The issue for the court here was whether the adjudicator’s knowledge of the fact that Holystone had made a without prejudice offer meant that it was arguable that the adjudicator was biased towards Volker. During the adjudication, Holystone had complained that Volker’s reference to Holystone’s offer was improper. Following this complaint, but before he communicated his decision, the adjudicator sent a letter to the parties which stated that his task “had not been informed in any way either by Holystone’s information in its Response or Volker’s disclosure”. Mr Justice Coulson held that the adjudicator’s knowledge of the fact that a without prejudice offer had been made did not mean that he was biased towards Volker. The Judge was in no doubt that a fair-minded and informed observer would not reach any such conclusion in the circumstances of this case and any suggestion to the contrary was entirely unrealistic. On the face of the adjudicator’s decision and his correspondence with the parties, he had made it clear that he was wholly unconcerned with the fact that an offer had been made.
Ellis Building Contractors Ltd v Vincent Goldstein2
Following the issue of the Adjudication Notice, Mr Goldstein’s solicitor wrote a without prejudice letter which stated that although it was Mr Goldstein’s view that no further sum was payable, his “commercial view of the matter” was such that he was prepared to offer a further sum to Ellis. Ellis referred to the letter in its Reply, albeit that the sum itself was redacted. No objection was made, by Mr Goldstein. In his Decision, the adjudicator said he had taken into account all submissions made whether or not they were mentioned in the decision. Sixteen days later, Mr Goldstein’s solicitors raised the without prejudice issue. Following a review of the law, including Volker, Mr Justice Akenhead concluded that:
“(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 or 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.”
Here, the complaint was made late and it was clear that the adjudicator did not base his decision at least openly on the contents of the without prejudice letter.
Comment
In Ellis, the Judge commented that unfortunately it is now not wholly uncommon for without prejudice material to be put before an adjudicator but stressed that it is a practice to be strongly discouraged. It is clear that when such material is used the adjudicator must be able to disregard the knowledge gained from it when making his decision and should inform the parties that he has done so. The nature of any disclosure may have a bearing on the question of bias as it is more likely that a fair-minded observer would conclude that there was a real possibility of bias if the actual terms of the offer were brought to his attention rather than the mere fact that an offer had been made.