The 'without prejudice' rule will generally prevent statements made in a genuine attempt to settle a dispute from being relied upon as evidence of admissions against the interest of the party that made them.
However, the 'without prejudice' rule is not absolute and does not extend to all documents that are marked 'without prejudice'. In the event of a dispute, a court is entitled to look at the document - even if it bears the words 'without prejudice'. This enables it to make a decision whether the 'without prejudice' rule applies and accordingly, whether or not it is admissible.
So, what happens when 'without prejudice' correspondence is submitted during an adjudication?
This was discussed in the recent case of Transform Schools (North Lanarkshire) Limited (Transform) v (First) Balfour Beatty Construction Limited and (Second) Balfour Beatty Kilpatrick Limited (BBCL).
The dispute related to construction work being carried out at various schools in North Lanarkshire. Following completion of the works, an issue arose between the parties in relation to latent defects. The dispute was submitted to adjudication and the adjudicator decided in favour of Transform, who then raised a commercial action for enforcement of the adjudicator's decision and payment of other various sums.
BBCL challenged this on the basis of the use made by the adjudicator of certain documents identified as 'without prejudice'.
In considering whether the adjudicator's decision should be enforced, the court noted that the adjudicator, a legally qualified English barrister, identified the issue of 'without prejudice' material being included in Transform's submissions on his own accord, before inviting submissions by both parties as to whether he may read the correspondence. Having considered the parties' submissions and the case law to which he was referred, the adjudicator decided that the correspondence was admissible.
The court was of the view that the adjudicator was entitled to consider the submissions which the parties had made to him in that regard, just as a court would be entitled to look at 'without prejudice' documents and decide whether they were admissible.
The court did confirm that it would be justified in refusing to enforce a decision if there had been a serious breach of natural justice. However, in this case the adjudicator was required to decide on the admissibility of the 'without prejudice' letters as they concerned one of the central issues in the adjudication. Both parties were given an opportunity to make submissions on the question, which were then considered prior to the adjudicator giving a reasoned decision on the question.
The court held that the submission of the letters to the adjudicator, and the way in which he dealt with them, was in fact reasonable and did not involve any breach of natural justice or apparent bias.
Lessons to be learned
Whilst it is common practice to refrain from relying on 'without prejudice' correspondence in disputes, parties must be aware that simply branding correspondence 'without prejudice' will not automatically render that material inadmissible in court or at adjudication. Care should then be taken when attempts are made at settling disputes.
Where 'without prejudice' correspondence is submitted in an adjudication, the adjudicator will be entitled to consider such material and decide whether it is admissible, just as a court would. Should the adjudicator make an error in law and decide such correspondence is admissible, it still may not be a sufficient basis for the courts to refuse enforcement of the adjudicator's decision.