Privy Council rules on admissibility of without prejudice letter in construction dispute

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Authored by: Joseph Chung

In A&A Mechanical Contractors and Company Ltd v Petroleum Company of Trinidad & Tobago [2022] UKPC 39, the issue before the UK Privy Council was whether the Court of Appeal had erred in allowing the appeal of Petroleum Company of Trinidad & Tobago (PCTT) including (i) finding that a letter was without prejudice or inadmissible, (ii) in its approach to other evidence, and / or (iii) in failing to make an award with respect to interest

Background

High Court decision

A&A, a construction company, provided steelworks to PCTT.  Disputes arose in relation to the value of variations carried out by A&A at PCTT’s request.  The parties’ representatives met in May 2008 (May 2008 Meeting) in an attempt to settle the matter and during that meeting an agreement was reached in relation to the variations and their values.  PCTT sent a letter to A&A (June 2008 Letter) which included a record of what had been agreed at the May 2008 Meeting.  The letter was not marked “without prejudice”. 

At the trial before the High Court, PCTT objected to the June 2008 Letter being admitted in evidence on the basis that it was part of without prejudice negotiations between the parties.  The High Court held that the June 2008 Letter was not written on a without prejudice basis and therefore could be admitted as evidence.  Based on that letter, the High Court awarded A&A TT$7,291,961.81 and a further TT$2,680,300.93 in relation to  variations numbered 27A, 27B1, 27B2, 28 and 29 which were not addressed in the June 2008 Letter. Accordingly, the total award in favour of A&A was TT$9,972,262.74.

Court of Appeal decision

On PCTT’s appeal, the Court of Appeal held that the June 2008 Letter was a “without prejudice” communication and was therefore inadmissible.  Consequently, the Court of Appeal set aside the award of TT$7,291,961.81 and remitted the question of the variations addressed in the June 2008 Letter for retrial.  The Court of Appeal unanimously set aside the further award of TT$2,680,300.93 in respect of variations 27A, 27B1, 27B2, 28 and 29 on the basis that the judge had been wrong to conclude that there was no evidence given by PCTT concerning those variations.  A&A’s claims in relation to those variations were also remitted for retrial.

Appeal to Privy Council

A&A now appealed to the Privy Council.  On this appeal, A&A  accepted that the total amount of the valuations agreed in the June 2008 Letter was TT$5,180,175.31 rather than TT$7,291,961.81 and that by its pleadings it had excluded variation numbered 10c so as to further reduce its claim based on the June 2008 Letter by TT$290,000.00 to TT$4,890,175.31.

The issues on appeal were:

(a) whether the Court of Appeal was correct to find that the June 2008 Letter was without prejudice and inadmissible (first issue);

(b) Whether the Court of Appeal was correct to interfere with the judge’s approach with respect to variations 27A, 27B1, 27B2, 28 and 29 (second issue); and

(c) Whether the judge erred in failing to make an award with respect to interest (third issue)

First Issue: Was the June 2008 Letter without prejudice and inadmissible?

The Privy Council held that the June 2008 Letter was admissible because the agreements reached at the May 2008 Meeting, as recorded in the June 2008 Letter, were part of the process under clause 7 of the relevant contract between the parties for arriving at a value for the work, which process was intended to be open.  Clause 7 of the contract made provision for adjustment of the contract price, stating that: “[PCTT] may at any time during the progress of the Work make alterations in or additions to or omissions from the Work or any alterations in the kind or quality of the materials to be used therein and if [PCTT] shall give notice thereof in writing to the [A&A] and the [A&A] shall alter, add to or omit as the case may require and the value of such extras, alterations, additions or omissions shall in all cases be agreed between [PCTT] and the [A&A] the amount thereof shall be added to or deducted from the Contract price as appropriate.  No variation shall be made to the Work stipulated without prior written approval of [PCTT’s] authorized representative.  Failure to observe this condition may at the sole discretion of [PCTT] result in non-payment for the unauthorized Work.”

The Privy Council said that, even if contrary to its conclusion that the June 2008 Letter was part of without prejudice negotiations, then in accordance with the contractual obligation to individually agree each variation, the letter recorded concluded agreements that certain individual items were variations and as to the value of those individual items.  Accordingly, the letter fell within the well-established exception that without prejudice correspondence can be admitted to determine whether an agreement has been concluded.  In any event, the Privy Council said, there had been a waiver of the without prejudice qualification, since PCTT in its defence  had pleaded that the parties had engaged in efforts to amicably resolve the dispute via a series of meetings and correspondence and that PCTT would rely on such correspondence for its full terms and true meaning and effect.  Accordingly, by this pleading, PCTT had expressly taken the voluntary decision to put all this correspondence before the court and expressly intended to rely on it for its full terms, true meaning, and effect.  This, the Privy Council said, amounted to an unequivocal waiver of any without prejudice qualification attached to all the correspondence, including the June 2008 Letter.

Second Issue: Was the Court of Appeal correct to interfere with the judge’s approach with respect to variations 27A, 27B1, 27b2, 28 and 29?

The Privy Council held that the award made in relation to these variations was on the erroneous basis that there was no PCTT evidence and that these variations should be remitted to the High Court for rehearing.  In such circumstances where a rehearing is ordered it would not be appropriate, the Privy Council said, for it to analyse all the evidence in relation to these variations, as questions as to the strength or the effect of the evidence must now be decided at a rehearing.

Third issue: did the judge err in failing to make an award with respect to interest?

The Privy Council held that the High Court judge had erred in failing to consider his discretion under s.25 of the Supreme Court of Judicature Act to award interest on the amounts awarded to A&A.  Consequently, the question as to whether interest should be awarded on the amount of TT$4,890,175.31 should be remitted to the High Court.  Further, the Privy Council held that if the High Court makes any award in favour of A&A in relation to variations numbered 27A, 27B1, 27b2, 28 and 29 then in respect of that award the High Court should also consider its discretion to award interest.

Comments

Parties are always free to agree final accounts of their construction projects between themselves. It is trite law that without prejudice correspondence can be admitted to determine whether an agreement has been concluded. It is also common for the employer’s consultants to discuss final accounts with the contractor. Such discussions are usually not “without prejudice” and are admissible evidence in arbitration or legal proceedings, since the employer’s consultants are carrying out their duties under the construction contract, not trying to reach a settlement agreement with the contractor. Prudent consultants would make it clear to the contractor about the purpose of the discussions and that their discussions are not binding on the employer or the consultants.

Key Contacts

Joseph Chung

Partner | Litigation and Dispute Resolution

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