AZ v BY

Without prejudice material deployed in an adjudication may make the adjudicator’s decision unenforceable where, viewed objectively, a fair-minded and informed observer would conclude that there was a real possibility of apparent bias. The court must assess the substance and context of the material, not whether it demonstrably formed the primary basis of the decision. The exception permitting without prejudice communications to prove a concluded settlement does not extend to using an alleged collateral agreement as an admission in the underlying dispute. Where the alleged settlement fails, the decision-maker must consider whether they can fairly determine the unresolved dispute after seeing prejudicial material.

AZ sought summary judgment to enforce an adjudicator’s decision concerning works to a building. BY brought related Part 8 proceedings seeking declarations that communications used in the adjudication were protected by without prejudice privilege and that the decision was unenforceable.

The court considered the nature of the parties’ communications, the application of the privilege, the admissibility of particular documents, and whether the adjudicator’s exposure to them gave rise to apparent bias. It also considered whether the negotiations produced any concluded agreement.

1. Privilege. The communications identified in the judgment were without prejudice. The applicable inquiry was objective: whether the communication was bona fide intended to form part of, or promote, negotiations, assessed by the author’s intention and the reasonable recipient’s understanding. The marking of a document was not conclusive. Where negotiations began without prejudice, a party seeking to change their basis had to do so explicitly and clearly. The court also cautioned against dissecting mixed communications in a way that undermined the policy of encouraging frank settlement negotiations.
2. Settlement exception. Communications may be admissible to establish that an agreement replaced the underlying dispute. That exception did not apply where the alleged agreement was collateral and was relied upon merely to demonstrate an admission or inconsistency in BY’s contractual position. The material was therefore inadmissible for that purpose.
3. Apparent bias and enforcement. The relevant question was whether a fair-minded and informed observer would conclude that there was a real possibility that the adjudicator was biased. It was unnecessary to prove that the material was the primary basis of the decision or that it actually influenced the adjudicator. The relevant concern was the objective question mark created by exposure to prejudicial admissions concerning central issues.
4. Here, the material had been placed at the centre of AZ’s case, contained implicit admissions inconsistent with BY’s open position, concerned central issues, and had been treated by the adjudicator as recording matters agreed between the parties. Those circumstances gave rise to a real possibility of unconscious bias and constituted a breach of natural justice. AZ’s Part 7 enforcement claim was dismissed and the decision was declared unenforceable.
5. The court declared that the identified negotiations were without prejudice and had not resulted in a concluded agreement. It declined to make general declarations about admissibility in future proceedings. The appropriate order was to be drawn up, and the full judgment was to remain confidential pending resolution of the continuing relevance of the privilege.