Adjudicator’s decision held unenforceable for apparent bias

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Authored by: Justin Yuen

In AZ v BY [2023] EWHC 2388 (TCC), England’s Technology and Construction Court held that an adjudicator’s decision was unenforceable for apparent bias because in the adjudication, he had considered materials relating to negotiations between the parties, which were protected by without prejudice privilege.

Background

The underlying dispute between the parties related to works to replace the stair core pressurisation systems to a building. An issue in the adjudication was whether the contract between the parties in relation to the works was finalised, which the adjudicator ruled it was.  AZ brought proceedings to enforce the adjudicator’s decision in his favour.  BY opposed enforcement on the basis that during the adjudication, AZ had deployed material which was protected by without prejudice privilege. The materials in question, consisted of contractual negotiations between the parties and communications in relation to the contract, including an email and note of a meeting between them, in which it was said that BY had conceded at the meeting that AZ’s contractual position was justified.  

Without Prejudice Privilege

The Court referred to the law relating to without prejudice privilege, namely:

• The without prejudice rule governs the admissibility of evidence and is partly founded upon the public policy of encouraging litigants to settle their differences, rather than litigate them to the finish and also on the express or implied agreement of the parties that such communications should be treated as confidential.

• The rule applies toexcludeall negotiations genuinely aimed at settlement whether oral or in writing from being given in evidence.

• Application of the rule is not dependent upon the use of the phrase “without prejudice” (although it is a strong pointer) and if it is clear from the surrounding circumstances that the parties were seeking to compromise the action, evidence of the content of those negotiations will, as a general rule, not be admissible at the trial and cannot be used to establish an admission or partial admission.

• As a general rule, a document marked “without prejudice” is privileged unless it was not written as part of the process of negotiation or with the intention of promoting compromise.

• The test for determining whether privilege applies is an objective one.

• Whilst parties may be communicating both openly and on a without prejudice basis concurrently, the court must exercise extreme caution in embarking upon a dissection of the communications, or discussions in meetings, so as not to undermine the public policy objective

• The court has to determine whether or not a communication is genuinely intended to be part of or to promote negotiations, by working out what, on a reasonable basis, the intention of the author was and how it would be understood by a reasonable recipient.

• Once a communication is covered by without prejudice privilege, the court is slow to lift the cloak of that privilege unless the case for doing so is absolutely plain.

• There are certain exceptional circumstances where it may be permissible to admit into evidence without prejudice communications which are privileged, namely where the issue is whether without prejudice communications have resulted in a concluded compromise agreement, in which case, they are admissible.  In this situation, the correspondence is admissible, because it contains the offer and acceptance forming a contract which has replaced the cause of action previously in dispute.  However, where the without prejudice communications have not in fact resulted in an agreed settlement which has replaced the original dispute about which the parties were negotiating, the decision-maker, having seen the without prejudice material, must then assess their own ability to go on to decide the remaining dispute fairly, in accordance with the principles which govern apparent bias and the rules of natural justice.

Were the materials in question privileged?

The court concluded that the nature of the communications taking place in the documents in question were without prejudice and it followed that the particular documents submitted to the adjudicator about which complaint was made were subject to without prejudice privilege.  The court noted that the email in question was not being relied on as collateral, and prejudicial, material seeking to undermine the contractual position which BY had adopted. In essence, it was being said that BY had conceded i.e. agreed in the meeting that AZ’s contractual position was justified.  Use of without prejudice material, the court said, is not admissible for these purposes.  The exception to the without prejudice rule is generally not invoked unless the agreement said to have come into existence is one which has replaced the underlying dispute which was the subject of without prejudice negotiations.

Without Prejudice Communications and Apparent Bias

The court referred to the test as to whether there is apparent bias present, namely 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.

The court said that it is the existence of the “question mark” which is being addressed by the objective apparent bias test. Thus, concluding that such a question mark exists does not depend on establishing that the decision was “primarily decided” on the basis of the without prejudice material.

The question of admissibility, the court said, is a question of law and generally, adjudicator’s decisions will be enforced notwithstanding that they contain an error of law. However, an error as to the admissibility of without prejudice material is an error of law that could potentially impact the fairness of the decision-making process in accordance with the rules of natural justice and which can affect the enforceability of the decision. If, therefore, a court concludes (contrary to the determination of the adjudicator) that material was in fact without prejudice and that the test of apparent bias is made out, the decision should not be enforced. This, the court said, accords with the important public policy behind without prejudice communications, and, is consistent with the court’s strong discouragement to parties from deploying “without prejudice” communications in adjudication.

The court concluded that there was apparent bias in this case because the fair-minded and informed observer considering all of the circumstances of this case would conclude that there was a real possibility that, having seen the without prejudice material, the adjudicator was unconsciously biased, since:

• The without prejudice material was placed front and centre within the Adjudication by AZ, and played a significant role in AZ’s case.

• That material contained implicit admissions by BY that were plainly inconsistent with its open position and the contractual position it was arguing for in the adjudication.

• As such, the material was not just prejudicial and adverse to its interests but also related to central issues in dispute.

• Regardless of the manner in which the decision was expressed, there was in the circumstances of this case an inevitable question mark about whether the result of the adjudication, however inadvertently or sub-consciously, was shaped by the adjudicator’s knowledge of the concessions/admissions in relation to key aspects of the open dispute made by BY in negotiations.

• The inevitable question mark was even more acute when the adjudicator had formed the view, also in error, that these matters had in fact been agreed.

Comments

This judgment provides a useful summary of the court’s approach in dealing with privileged materials. It also highlights the risks which the party who relies on privileged materials has to take in adjudication (or other arbitration/legal proceedings). If apparent bias is established, any decision of the adjudicator or the arbitrator/court may be unenforceable.

Key Contacts

Justin Yuen

Partner | Litigation and Dispute Resolution

Email or call +852 2825 9734