| Date | 12 May 2004 |
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| Judgment | Specialist Ceiling Services Northern Limited v ZVI Construction (UK) Limited, TCC 20 February 2004 |
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| The Issue | Disclosure of "without prejudice" communications in adjudication. |
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| Implication |
Unless an adjudicator can demonstrate his ability to proceed in an unbiased manner on all the matters put before him, it may be necessary to withdraw from the adjudication when "without prejudice" material is submitted to him. |
printThe English legal system requires, as a matter of general public policy, the application of certain rules requiring disclosure of documents in civil proceedings. These rules have been carried through to Rule 31 of the Civil Procedure Rules, which requires a party to disclose all documents upon which he relies or which may adversely affect his case. These requirements for disclosure are subject to certain exceptions. For example, communications between a party and its legal advisors, whether for the purpose of legal advice or in connection with continuing proceedings, are privileged from disclosure. A further exception concerns "without prejudice" communications. Documents exchanged between the parties during the course of negotiations in attempting to settle the disputed matters, whether or not labelled "without prejudice", may be privileged from disclosure during subsequent proceedings. The underlying policy is that parties should be encouraged, so far as possible, to settle their disputes without resort to litigation and should not be discouraged by the knowledge that anything that is said in the course of negotiations may be used to their prejudice in the course of subsequent legal proceedings. In consequence, the label "without prejudice" is generally attached to many documents exchanged between the parties whilst seeking to resolve disputed accounts. Unfortunately, the term is often applied too liberally, for example by being placed on letters which contain no material admissions against the writer's interests, but rather helpful statements which that party might benefit from later disclosure. The privilege from disclosure of a without prejudice document is jointly held, and thus it may require the consent of both parties to disclose such a document in later proceedings. Since the without prejudice rule is founded partly on public policy and partly upon implied agreement between the parties, it is generally correct to assume that the rule will apply to documents presented in adjudication proceedings. The recent case of Specialist Ceiling Services Northern v ZVI Construction (UK) examined a situation where without prejudice material had been disclosed to the adjudicator. Specialist Ceiling Services had been engaged by ZVI under a DOM/2 subcontract to install ceilings and partitions at the Holiday Inn Express in Bradford. Disputes arose over the entire ambit of the account for the subcontract works, including the valuation of variations, extensions of time, delay damages, loss and expense and contra charges. The parties were wide apart with ZVI claiming to have overpaid to the tune of some £140,000 and Specialist Ceilings services claiming to be owed at least £400,000. Meetings were held between the parties in an attempt to resolve the outstanding account and in due course solicitors acting for ZVI sent a without prejudice offer to settle the account. This was rejected and the dispute was taken to adjudication by Suspended Ceiling Services, who made reference to the without prejudice letter in the Referral document. Immediately upon receipt of the Referral, ZVI challenged the jurisdiction of the adjudicator. It argued that by including reference to without prejudice correspondence within the Referral, the referring party had made it impossible for the adjudicator to be seen to be impartial. Though ZVI recognised that the adjudicator had not had sight of the actual offer itself, it nevertheless argued that knowledge that ZVI had offered to settle the account was inconsistent with ZVI's position in the adjudication that it had overpaid. ZVI argued that the proper test was whether the information that the adjudicator had seen would lead a fair minded and informed observer to conclude that there was a real danger that the adjudication would be unfair, and invited the adjudicator to withdraw. The adjudicator concluded that he should proceed with the adjudication. He indicated that he recognised it to be a well established practice that parties to a dispute would discuss matters on a without prejudice basis with the objective of reaching a compromise. He acknowledged that in the course of such discussions, a party might deny liability but nevertheless agree to make a payment on commercial grounds to rid itself of the dispute. He proceeded with the adjudication and ordered that ZVI should pay Suspended Ceiling Services approximately £200,000. ZVI refused to pay and the matter came before His Honour Judge Grenfell for enforcement. Judge Grenfell was initially sympathetic to ZVI. He acknowledged that an adjudicator might have regarded ZVI's contention that it was owed money unrealistic in light of the fact that it had made an offer to settle. He also noted that the challenge to the adjudicator's jurisdiction had been made early enough to have made little impact on the costs of starting again. Nevertheless, he was satisfied that the adjudicator had approached the disputed final account in an entirely objective and even-handed manner and had in effect brushed aside the without prejudice material in reaching his various decisions on the issues before him. Accordingly, there was no objective indication of bias or unfairness and summary judgment was granted to Suspended Ceiling Services in the amount of the adjudicator's decision.
CJ-0419
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