The 2023 case of AZ v BY, which was heard in the Technology and Construction Court, explored how consideration of ‘without prejudice’ material can be held as having biased the decision maker and breached the rules of natural justice. Mr Justice Constable delivered a judgment that has far-reaching implications for without prejudice material in the context of adjudication, which can result in an adjudicator’s decision being unenforceable for apparent bias.
In this article, we consider the risks of using without prejudice material in adjudications and look at what those involved in adjudication proceedings can learn from the AZ v BY case.
The without prejudice rule prevents statements made by a party in a genuine attempt to settle a dispute from being used against that party in court.
There are many reasons a party may make concessions and try to reach settlement even if there is no admission of liability. Without prejudice, communication (whether oral or written) is therefore not admissible and this rule gives parties the comfort that such concessions will not later be used against them if the matter proceeds to court.
The identity of the parties and the detail of the without prejudice discussions in this case are confidential, with the parties assigned pseudonyms AZ and BY. The central issue in the adjudication revolved around whether the parties had entered into a binding contract.
After reviewing certain without prejudice material, the adjudicator reached the conclusion that they had. AZ went to the Technology and Construction Court to enforce the decision. In response, BY sought a declaration that the without prejudice communications were inadmissible and that the adjudicator’s decision was unenforceable.
Mr Justice Constable held that the communications examined by the adjudicator fell under the without prejudice rule and were not legitimately admissible in the adjudication process.
The judge considered the law on without prejudice material and its admissibility in adjudications. Generally an error in law by the adjudicator will not prevent the decision being enforced. However, the error in law as to whether to admit without prejudice material can result in a breach of natural justice, specifically, the potential influence it has on decisions and whether an adjudicator’s judgment could be tainted with apparent bias, albeit unintentionally.
In this case, the without prejudice material in question played a pivotal role in AZ's argument and was brought ‘front and centre’ during the adjudication. It contained implicit admissions that were inconsistent with BY's openly stated position and, consequently, prejudiced and harmed BY's interests. The adjudicator's decision was erroneous in light of this without prejudice material. As a result, there was a genuine possibility that the adjudicator, after having reviewed this material, might have exhibited unconscious bias, thereby rendering his decision unenforceable.
The case is an important reminder of the without prejudice rule and its application in adjudication. The ruling serves as a clear and comprehensive exposition of the principles governing without prejudice material and the test for apparent bias, all within the unique context of adjudication.
As the judge noted, this case stands out as one of the rare instances where a breach of the rules of natural justice occurred due to apparent bias, leading to the unenforceability of an adjudicator's decision. The judgment reinforces a long-standing practice of discouraging parties from deploying without prejudice material in adjudication proceedings. This decision underscores the importance of maintaining the integrity of adjudication and ensuring that adjudicators make unbiased decisions based on the merits of the dispute rather than being influenced by confidential, privileged communications.
In light of this judgment, parties involved in adjudication proceedings should exercise utmost caution when contemplating the use of without prejudice material as part of their case. It’s imperative to fully understand the implications of presenting such material before an adjudicator, as it may jeopardize the enforceability of the decision.
A key point to take away from this judgment is that the adjudicator’s decision doesn’t need to be primarily based on the without prejudice material, a point argued by AZ, for the court to decline to enforce it. The test is whether objectively, sight of the without prejudice material prevents the adjudicator from reaching a fair impartial decision.
If you have any questions or require further information, please get in touch with the construction and infrastructure team.