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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> TRANSFORM SCHOOLS (NORTH LANARKSHIRE) LTD AGAINST (FIRST) BALFOUR BEATTY CONSTRUCTION LTD, AND (SECOND) BALFOUR BEATTY KILPATRICK LTD [2020] ScotCS CSOH_19 (18 February 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_19.html
Cite as: 2020 SCLR 707, [2020] CSOH 19, 2020 GWD 7-105, [2020] ScotCS CSOH_19
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OUTER HOUSE, COURT OF SESSION
[2020] CSOH 19
CA142/19
OPINION OF LORD ERICHT
In the cause
TRANSFORM SCHOOLS (NORTH LANARKSHIRE) LIMITED
against
(FIRST) BALFOUR BEATTY CONSTRUCTION LIMITED,
and (SECOND) BALFOUR BEATTY KILPATRICK LIMITED
Pursuers
Defenders
Pursuer: Walker QC, McKinlay; Anderson Strathern LLP
Defenders: Borland QC, Manson; Pinsent Masons
18 February 2020
Introduction
[1] The pursuers engaged the defenders in respect of construction work to be
undertaken at various schools in North Lanarkshire, including the Stepps Primary and
Stepps Cultural Centre Project (the “Stepps Project”). A dispute between the parties in
relation to latent defects was submitted for adjudication. The adjudicator found in favour of
the pursuers. The pursuers subsequently raised a commercial action for enforcement of the
adjudicator’s decision and payment of various other sums. The matter came before me on a
motion by the pursuers for enforcement of the adjudicator’s decision. This was opposed by
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the defenders on the basis of the use made by the adjudicator of certain documents bearing
to be “without prejudice”.
The adjudicator’s decision
[2] On or about 24 May 2005, the pursuers entered into a Project Agreement with North
Lanarkshire Council. By a building contract dated 27 May 2005, the pursuers engaged the
defenders jointly and as an unincorporated joint venture to perform the pursuers’
obligations under that Project Agreement. This comprised, inter alia, the carrying out and
completion of the design, construction, fitting-out, equipping, testing and commissioning of
the whole works to be undertaken at various schools in North Lanarkshire. One of these
schools was the Stepps Project.
[3] The Stepps Project was constructed between 2006 and 2007 by the defenders. In or
around August 2015, the pursuers’ management company gave notice to the defenders of
drain blockages. A survey of the drainage system found that there were various defects,
such as a collapsed pipe, displaced joints, a reformed sewer and quantities of debris in the
pipework. Subsequent investigation disclosed further defects. In about June 2019, a drain
collapsed requiring emergency repairs.
[4] In around July 2019, a dispute between the pursuers and defenders in respect of the
drainage crystallised and a Notice of Adjudication was served and an adjudicator
appointed. On 6 September 2019, the adjudicator issued his decision. The adjudicator
found as follows:
“1. The latent defects, those concerning the foul drainage identified in the three
CCTV surveys conducted between 2015 and 2017 and summarised at
paragraph 50 of the Referral, are Latent Defects as defined in the Contract.
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2. [The defenders] liable to [the pursuers] in damages of £4,029,574.58, net of
VAT, in respect of Costs and Direct Losses incurred by [the pursuers] as a
consequence of these Latent Defects affecting the Works.
3. [The defenders] shall pay the said sum of £4,029,574.58 to [the pursuers] within
14 days of the date of this Decision.
4. [The pursuers’] claim for interest is dismissed.
5. [The defenders’] claims are dismissed. [The pursuers’] claim in this
Adjudication under clause 36.1 has not prescribed and is not premature.
6. As between the parties and without affecting their joint and several liability for
my fees, [the defenders] shall pay my invoiced fees, there are no expenses. If
[the pursuers] pays any amount towards my fees, [the defenders] shall
reimburse that amount to it within seven days of a written request to do so.”
The “without prejudice” correspondence
[5] In his decision, the adjudicator referred to three documents which bore to be
“without prejudice”:
a A letter from the first defender to the pursuers’ solicitors (Fladgate LLP) dated
12 October 2016. The letter stated “Based on the survey information provided
we would propose to carry out the following works on a without prejudice basis
or without admission of liability” and then went on to list specific work such as
survey, reconstructing manholes following investigations, repairs to reformed
sections of pipe and the remedying of various open joints.
b A letter of 8 November 2016 from the first defender to the pursuers’ solicitors
setting out various proposed works. The letter concluded with the following
paragraph:
“We note that, although you claim in your correspondence that there have
been breaches of contract on the part of Balfour Beatty, nothing has been
provided to evidence that assertion and accordingly our proposals above for
the carrying out of remedial works remains on an entirely without prejudice
basis without admission of liability.”
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c A letter from the second defender to the pursuers’ agents dated 16 January 2017.
That letter was headed:
“B7 Stepps Primary School – Drainage
Without Prejudice”
The letter stated:
“The ‘without prejudice’ offer of remedial works that we made in our letter of
8 November 2016 was based on the surveys that you have provided to us and
our own inspections of the alleged defects.”
The letter went on to disagree with the pursuers as to whether certain defects
existed and to maintain that the remedial work proposed by the defenders
would be adequate.
[6] These “without prejudice” letters were part of a chain of letters between the first
defender and the pursuers’ solicitors running from 8 March 2016 to 10 December 2018.
Submissions for the defenders
[7] Senior Counsel for the defenders submitted that the court should refuse to enforce
the adjudicator’s award for five reasons:
1. The “without prejudice” correspondence was completely protected against any
2. The adjudicator relied upon the protected items of correspondence to a material
extent in determining an important issue critical to liability, namely prescription.
3. The approach of the adjudicator offended against the public policy which
underpinned the “without prejudice” privilege (Rush & Tomkins Limited v Greater
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parties could not enter into “without prejudice” settlement discussions without
the risk of these being relied on in an adjudication, the process of adjudication
would be damaged.
4. The adjudicator was guilty of a material error in admitting, considering and
relying upon the “without prejudice” correspondence.
5. The adjudicator’s error amounted to a material breach of natural justice. The
defenders were denied a fair opportunity of presenting their case (Costain
the court could refuse to enforce an adjudicator’s decision which relied on
without prejudice correspondence (Ellis Building Contractors Limited v Goldstein,
[2011] EWHC 269 (TCC)) and can give rise to apparent bias (Specialist Ceiling
Services Northern Limited v ZVI Construction (UK) Limited, [2004] BLR 403;
paragraphs 12.33 to 12.35).
Pursuer’s submissions
[8] Senior Counsel for the pursuers submitted that the decisions of adjudicators were to
be enforced pending the final determination of disputes (Macob Civil Engineering Ltd v
Morrison Construction Ltd [1999] BLR 93 at para [14]). The policy of the courts was to take a
robust approach to enforcement of adjudicator’s decisions. The court would only refrain
from enforcing in limited circumstances (Keating on Construction Contracts (10th edn.) at
paragraph 18-056; GT Equitix Inverness Ltd v Board of Management of Inverness College
[2019] SLT 957 at para [34]; Guidance by the Commercial Court Judges on the Enforcement of
Adjudication Awards January 2019). The courts are to treat adjudicator’s decisions as binding
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and enforceable until any challenge is finally determined, even if the adjudicator errs on
facts or law or makes a procedural error (GT Equitix at para [34]; Macob at paras [12] to [14],
at paras [11] to [15] and [27] to [28]; Outwing Construction Ltd v H Randall & Son Ltd
[1999] BLR 156 at 160). Any breach of natural justice required to be material and only in the
plainest of cases would a challenge on the basis of breach of natural justice be successful
[2006] BLR 15 at paras [53.3], [84] and [87]; Dickie & Moore Limited v McLeish & Ors [2019] SLT 1487
para [48]; GT Equitix at para [34]). The test for apparent bias was set out in AMEC Capital
[2002] 2 AC 357 at para [103]. It was incumbent on the party resisting enforcement to plead and
establish a basis to justify a court refraining from enforcement (GT Equitix at para [35]).
[9] Counsel submitted that the adjudicator had provided both parties with an
opportunity to make representations in relation to the “without prejudice” material. The
adjudicator considered submissions by both parties on whether the “without prejudice”
material was admissible. He was correct in law to reach the view which he did. Even if he
was not correct as a matter of law, he was not plainly wrong and the finding was one which
was open to him to reach (Richardson v Quercus Limited). Even if the adjudicator erred on
law there was no breach of natural justice as parties had an opportunity to make
representations. The defender’s case does not fall within the examples of successful natural
justice challenges provided in Keating at paragraph 18-094. There was no basis for the
defender’s assertion of bias. The existence of “without prejudice” wording was not
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determinative of the issue of whether the correspondence was a relevant acknowledgement
for the purpose of stopping prescription (Richardson v Quercus Ltd and Bradford & Bingley v
Rashid).
Discussion and decision
[10] It is important to emphasise at the outset that this action came before me on the
limited issue of whether the adjudicator’s decision should be enforced by the court.
[11] The principles to be applied in considering whether to enforce an adjudicator’s
decision are conveniently set out in Carillion Construction at paragraph 52 as follows:
“1. The adjudication procedure does not involve the final determination of
anybody’s rights (unless all the parties so wish).
2 The Court of Appeal has repeatedly emphasised that adjudicators’ decisions
must be enforced, even if they result from errors of procedure, fact or law…;
3 Where an adjudicator has acted in excess of his jurisdiction or in serious breach of
the rules of natural justice, the court will not enforce his decision….
4. Judges must be astute to examine technical defences with a degree of scepticism
consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an
adjudicator must be examined critically before the court accepts that such errors
constitute excess of jurisdiction or serious breaches of the rules of natural justice.”
[12] The final determination of the questions considered by the adjudicator (in particular
whether the claim has prescribed and whether the “without prejudice” letters are
admissible) is a matter for this court in a later stage of this action. The facts and law as set
out in this opinion relate only to the question of enforcement and are not intended to be
binding on the court in its final determination. Any reference to the “without prejudice”
letters is made under reservation of the defenders’ right to argue in due course that they are
not admissible in relation to the final determination of this action. Nothing in this opinion is
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to be taken as expressing a binding view as to whether the adjudicator was correct in his
conclusions on prescription or on admissibility of the “without prejudice” letters.
[13] The challenge to enforcement in the current action proceeds under the third principle
set out in Carillion, namely natural justice. The defenders’ fourth plea-in-law is to the effect
that the adjudicator having acted to a material degree in breach of natural justice, the
decision is unenforceable and the decision should be reduced ope exceptionis and the
defenders assoilzied from the conclusions which seek enforcement of the decision. The
defenders also challenge enforcement on the grounds of apparent bias. Their fifth
plea-in-law is to the effect that the adjudicator having acted in a manner such as to create a
situation of apparent bias, with the result that his decision is unenforceable, the decision
should be reduced ope exceptionis and the defenders assoilzied from these conclusions.
[14] Both of these challenges turn on the use made by the adjudicator of letters which
bore to be “without prejudice”.
[15] The policy underlying the “without prejudice” rule was set out by Lord Griffiths in
Rush and Tompkins v GLC:
“The ‘without prejudice’ rule is a rule governing the admissibility of evidence and is
founded upon the public policy of encouraging litigants to settle their differences
rather than litigate them to a finish. It is nowhere more clearly expressed than in the
judgment of Oliver L.J. in Cutts v. Head [1984] Ch.290, 306:
‘That the rule rests, at least in part, upon public policy is clear from many
authorities, and the convenient starting point of the inquiry is the nature of
the underlying policy. It 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 such
negotiations (and that includes, of course, as much the failure to reply to an
offer as an actual reply) may be used to their prejudice in the course of the
proceedings. They should, as it was expressed by Clauson J. in Scott Paper
Co. v. Drayton Paper Works Ltd. (1927) 44 R.P.C. 151, 156, be encouraged fully
and frankly to put their cards on the table. ... The public policy justification, in
truth, essentially rests on the desirability of preventing statements or offers
made in the course of negotiations for settlement being brought before the
court of trial as admissions on the question of liability.’" (p1299 D)
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[16] However, the scope of the “without prejudice” rule does not extend to exclude all
consideration of documents which bear to be “without prejudice”. Where there is a dispute
as to whether the rule applies to a particular document, the court is entitled to look at the
document, even if it bears the words “without prejudice”, in order to make a decision as to
whether the “without prejudice” rule applies to it and accordingly whether or not it is
admissible. Thus for example, in Rush and Tompkins, the House of Lords considered whether
“without prejudice” documentation between the plaintiffs and the first defendant was
admissible as between the plaintiffs and the second defendant. In Richardson v Quercus Ltd
an Extra Division considered whether the surrounding circumstances had obliterated the
effect of the words “without prejudice” in a letter so as to make a letter admissible (p283F
to 284C, 290 F-G).
[17] In the context of the current case, the significance of the “without prejudice” letters
lies in relation to the question of whether the obligation to make payment has prescribed.
[18] The adjudicator found that the prescriptive period commenced in late autumn 2013
(paragraphs 142, 153, 175). The adjudication commenced more than 5 years after late
autumn 2013. Accordingly, the obligation would have prescribed unless it had been
relevantly acknowledged during the prescriptive period under section 10(1)(b) of the
Prescription and Limitation (Scotland) Act 1973, or the prescriptive period fell to be extended
under section 6(4) of that Act.
[19] The pursuers argued before the adjudicator that both of these sections applied and
the obligation had not prescribed.
[20] The adjudicator rejected the pursuers’ section 10(1)(b) argument, finding that the
letters of 14 October and 8 November were not a relevant acknowledgement in terms of
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section 10. He considered the terms of the “without prejudice” letters, and concluded that
their wording did not constitute a clear admission of liability as required by section 10(1)(b)
(paragraph 197.4).
[21] However the adjudicator accepted the pursuers’ section 6(4) argument. He
considered letters dated 8 March 2016, 12 October 2016, 14 October 2016, 8 November 2016,
16 January 2017, 5 June 2017, 1 February 2018, 21 March 2018, 14 June 2018, 26 November
2018 and 10 December 2018. These included the letters of 12 October 2016, 8 November 2016
and 16 January 2017 which bore to be “without prejudice”. He concluded:
“198.
Considering this correspondence as a whole for the purposes of s. 6(4) of the
1973 Act, I am satisfied that by its correspondence in the period from the
8th March 2016 and prior to 1st February 2018, [the defenders], by stating its
continuing commitment to remediate Latent Defects if they were
demonstrated to be such induced or contributed to [the pursuers] erroneously
believing that this would be done without the need for formal proceeding
and that, in consequence, it refrained from making a relevant claim against
[the defenders]. I am not persuaded, if such is alleged, that during this
period, [the pursuers] could, with reasonable diligence have discovered this
error.
199. It follows that, by operation of s. 6(4), the period from the 8th March 2016 to
the 1st February 2018, a period of just less than 23 months, is not to be
reckoned as part of the prescriptive period that I have concluded under
Issue 2D commenced in the late Autumn of 2013. Thus, [the pursuers’] claim
in this adjudication has not yet prescribed.”
[22] Before coming to his conclusions on sections 10(1)(b) and 6(4), the adjudicator gave
careful consideration to the prior question of whether the “without prejudice” letters were
admissible.
[23] In their initial submissions to the adjudicator (the pursuers’ Referral Notice of 25 July
2019, the defenders’ Response of 7 August 2019 and the pursuers’ Reply of 15 August 2019)
neither the pursuers nor the defenders identified the use of “without prejudice” material as
being an issue in the adjudication. The issue was identified and raised for the first time
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ex proprio motu by the adjudicator in his List of Issues and Observations dated 19 August
2019. The adjudicator is legally qualified as an English barrister. He raised the following
observation, adding emphasis by his use of bold type:
“93 I note that the 16th January 2017 letter referred to in paragraph 21 of the Reply
and in paragraph 44.3 of the Mr Weare’s WS [witness statement] accompanying the
Reply is headed ‘without prejudice’. I have not read that letter and propose to
ignore paragraph 44.3 of the witness statement and the reference to that letter in
paragraph 21 of the Reply pending submissions on whether I may read that letter”.
[24] The pursuers responded to that observation (Response to the adjudicator’s List of
Issues and Observations dated 23 August 2019) stating:
“14. Paragraph 93.
14.1 [The pursuers] submits that the letter dated 16 January 2017 is not without
prejudice and may be read.
14.2 The letter needs to be viewed in the context of the relevant chain of
correspondence and in particular its reference to an earlier open letter dated
8 November 2016. That earlier letter sets out [the defenders’] remediation proposals
and refers to another open letter dated 12 October 2016 which once again sets out
[the defenders’] remediation proposals.”
[25] The defenders also responded to the observation (Submissions dated 23 August
2019) stating:
“2.3.8 Paragraph 26 of the List of Issues refers to the [pursuers’] position that it
requested the [defenders] to put forward a remediation proposal in 2016 for the
drainage and it did so by letters dated 12 October 2016 and 8 November 2016. This
is taken from paragraph 45 of the Referral.
2.3.9 The [pursuers] fails to note that the letters referred to and relied on were
written without prejudice. As a result, the Adjudicator cannot consider the content of
those letters. Indeed, the writer is somewhat surprised that the [pursuers’]
representatives consider it appropriate to make reference to these letters given that
they are both written without prejudice. For the avoidance of doubt, given the
without prejudice status of those letters, the content of the letters cannot be said on
any level to amount to a relevant acknowledgement on the part of the [defenders]
which the [pursuers] seeks to argue in the Reply”……
9.2 The Adjudicator has correctly noted that the letter dated 16 January 2017
referred to in the Reply and Mr Weare's statement is headed without prejudice. As
noted above, that is not the only correspondence issued on a without prejudice basis.
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Letters dated 12 October 2016 and 8 November 2016 are also without prejudice and
so should not be reviewed by the Adjudicator.”
The defenders went on to make specific submissions about the significance of these letters
being without prejudice, making reference to Richardson v Quercus.
[26] In a Further Submission dated 30 August 2019 the pursuers submitted under
reference to Richardson v Quercus that the “without prejudice” correspondence could amount
to a relevant acknowledgement for the purposes of section 10(1)(b). (Paragraph 32.)
[27] In a further submissions document dated 30 August 2019 the defenders made further
submissions to the effect that the “without prejudice” letters set out proposals made in a
genuine attempt to resolve matters on a without prejudice basis could not be referred to,
relied upon or reviewed by the adjudicator. (Paragraph 2.17.)
[28] The adjudicator gave careful consideration to the arguments of both parties on the
admissibility of the “without prejudice” correspondence:
“34. [The pursuers] also referred to a 16th January 2017 letter in this context, a
letter to which I referred in paragraph 93 of the [List of Inquiries]:
‘I note that the 16th January 2017 letter referred to in paragraph 21 of the
Reply and in paragraph 44.3 of the Mr Weare’s WS accompanying the Reply
is headed ‘without prejudice’. I have not read that letter and propose to
ignore paragraph 44.3 of the witness statement and the reference to that letter
in paragraph 21 of the Reply pending submissions on whether I may read
that letter.’
35. [The defenders] agrees with this statement but says that this was not the only
such letter. Its letters of the 12th October and 8th November 2016 also being without
prejudice, thus should not be reviewed by the Adjudicator.
36. [The pursuers] says that the 16th January 2017 letter is not without prejudice
and may be read. It needs to be viewed in the context of the relevant chain of
correspondence, in particular its reference to the open latter of the 8th November
2016 which sets out [defenders’] remediation proposals and, in turn, refers to another
open letter of the 12th October 2016 which also sets out [defenders] remediation
proposals.
37. Considering first the 12th October and 8th November 2016 letters, these,
which both concern survey and remedial works which [the defenders] proposes to
carry out in connection with the drainage, are not headed ‘without prejudice’.
However both state that the works proposed are on a without prejudice basis
without admission of liability. Considered the context of the letters, specifically
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Messrs Fladgate’s [ie the pursuers’ solicitors] letters of the 9th September and
14th October 2016, I consider that the use of the words ‘without prejudice’ was
intended to convey that by offering to carry out the works proposed, [the defenders]
was not admitting liability, not that the correspondence was to be regarded as
without prejudice in the sense of not being referable to in subsequent proceedings.
38. As for the 16th January 2017 letter, although this is headed ‘Without
Prejudice’, not only does it refer back to correspondence, [the defenders’] letter of the
8th November 2016 which, for reasons given above, I have concluded is not subject
to the without prejudice rule, it is part of a chain of correspondence and meetings
which continues into 2017 about whether, and if so, what defects in drainage are
identified in the surveys being carried, and what works are necessary to address
those defects; none of which was stated by [the defenders] at the time, or contended
by it in this Adjudication, to be subject to the without prejudice rule. Rather, as [the
defenders] accepts, during this period it was working with [the pursuers] to
investigate the matter and understand the extent, if any, of [the defenders’] liability.
39. Thus, I conclude that, like in the earlier correspondence, the use of the words
‘without prejudice’ in the 16th January 2017 letter were intended to make clear, by
proposing to carry out the works referred to, [the defenders] was not admitting
liability, not that the letter was not to be referred to in subsequent proceedings.”
[29] In paragraph 93.9 the adjudicator considers the question of whether what is stated in
“without prejudice” correspondence can amount to a relevant acknowledgment for the
purposes of section 10(1)(b), and discusses Richardson v Quercus in that context. That need
not concern us in considering enforcement of his decision, as he found in favour of the
defenders on that point.
[30] In considering whether the adjudicator’s decision should be enforced the focus must
be on the section 6(4) case and the use made by the adjudicator of the “without prejudice”
letters in concluding that prescription had not operated as the prescriptive period had been
extended. The adjudicator’s approach was to look at the correspondence as a whole. He
looked at letters over a 23 month period, most of which were not marked “without
prejudice.” He took the view, based on Richardson v Quercus, that it was possible for a court,
and thus an adjudicator, to conclude that words in a letter such as “without prejudice to
liability” do not, when considered in the wider relevant context, necessarily mean what they
appear to say (paragraph 197.2). In looking at the correspondence as a whole, he placed
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particular significance on letters which were not marked “without prejudice” and both
pre-dated and post-dated the “without prejudice” letters:
“197.1 In its letter of the 8th March 2016 [the defenders], after denying, for reasons
given in that letter by reference to various Latent Defects alleged by [the
pursuers], the suggestion that it was in breach of contract or negligent,
concludes: ‘we reaffirm our commitment to resolving Latent defects that are
demonstrated and agreed between us, in accordance with the building
contract’. These words ….. are a commitment from [the defenders] to resolve
Latent Defects, by which I accept is meant, remediate such defects, if they are
demonstrated to be such.
197.2
The letter of the 12th October 2016 identifies certain works which [the
defenders] proposes to carry out ‘on a without prejudice basis and without
admission of liability’. I have considered Richardson v. Quercus under
Issue 2B above, concluding that it stands for the proposition that it is possible
for a court, thus an adjudicator, to conclude that words in a letter, such as
‘without prejudice to liability’ do not, when considered in the wider relevant
context, necessarily mean that they appear to say.
197.3
I have been provided with very little correspondence between the 8th March
2016 and the date of this letter. However it appears in subsequent
correspondence, specifically Fladgate’s letter of the 14th October, [defenders’]
letter of the 8th November and Fladgate’s letter of the 15th December 2016,
that [the pursuers] did not consider [the defenders’] proposals adequate to
address what it considered were [defenders’] breaches and, this clearly being
stated in [the defenders’] letter of the 8th November 2016, [the pursuers]
considered that nothing had been provided to evidence [the pursuers’]
assertion that it had been in breach of contract: ‘accordingly the proposals
above for the carrying out of the remedial works remain on entirely without
prejudice basis without admission of liability’.
….
197.5
However, despite the ‘without prejudice as to liability’ qualification, and the
parties disagreeing about what remedial work was required, this
correspondence is consistent with [the defenders’] letter of the 8th March
2016, in that, as [the pursuers] says, it shows [the defenders’] continuing
commitment to remediate Latent Defects if they are demonstrated to be such.
A commitment that was reiterated in at a time when, by Fladgate’s letter of
the 12th October 2016, [the pursuers] was stating that if [the defenders] did
not respond with proposals, [the pursuers] would ‘proceed with the required
remediation works without further reference to you, save in relation to the
cost of the works which it will pursue against the Joint Venture …’. Thus
indicating an intention to address Latent Defects without the need for such
proceedings.
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197.6
Other than to confirm that the proposals previously made were without
prejudice, [the defenders’] letter of the 16th January 2017 does not take
matters further in respect of [the pursuers’] case under s. 10(1)(b). …, the
letter concludes ‘we are willing to work with your client and are prepared to
continue discussions in that respect and agree proposals where that is
appropriate but we can only do that based on the evidence that is available to
us. Until such times you can explain the obvious inconsistencies between the
evidence that you have provided and the statements that you make on what
remedial works are required and provide substantiation for the assertion that
the JV is liable for all the of the defects you allege, our position remains in our
letter of 8 November 2016 for the present time.’
197.7 …. that letter … it reiterates [the defenders’] previous commitment to resolve
Latent Defects if they are demonstrated to be such.
197.8
The letter of the 27th June 2017 refers to a meeting of the 30th May 2017;
matters discussed at that meeting being recorded in Fladgate’s letter of the
5th June 2017. There is nothing in Fladgate’s letter or in the 27th June 2017
letter to suggest that the meeting, or the letter itself were intended to be
without prejudice. Rather it appears from the notes of the meeting and [the
defenders’] letter, that [the defenders] had accepted that, at least to some
extent, it had a liability for certain of the defects in the foul drainage
identified by [the pursuers]. Thus, I do not accept [the defenders’]
submission that the meeting and letter were without prejudice.
197.9
The 27th June 2017 letter states in respect of foul drainage runs having sags
of 20% or greater that ‘we will now prepare detailed proposals to remedy out
of tolerance areas suspended under the piled concrete slab’. In respect of the
popups, the letter accepts that the Hamilton survey have highlighted that
some have open joints that will require repair but further surveys will require
to be undertaken to obtain a better understanding the scope this work before
any remedial works are proposed’. The letter concludes by requesting
confirmation ‘that we are able to agree access and methodology direct with
your client commence remedial work of two out of tolerance areas and
undertake further surveys’.
197.10 ….., by proposing to carry out such work [the defenders], is reinforcing the
impression given in its earlier correspondence that it is committed to
remediating Latent Defects, if they are demonstrated to be such without the
need for legal proceedings. This impression was, I am satisfied, also
reinforced by [the defenders] paying for the 2017 Hamilton Survey the
purpose of which was to establish the extent to which there were Latent
Defects in the pop-ups.
197.11 [the defenders’] letter of the 1st February 2018 addresses a number of
different matters. In respect of the design of the drainage system and the
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16
hangers, it is clear that [the defenders] is not accepting liability and that any
proposals for work associated with the hangers are on a without prejudice
basis. Thus, in respect of those matters, this letter cannot be read as an
unequivocal, absolutely clear, admission of the obligations which [the
pursuers] seeks to enforce by its claim in this Adjudication of the type
required by s. 10 (1) (b).
197.12 The letter also addresses under a separate margin heading ‘October Surveys’
the content of the October 17 pop-up surveys. It states that [the defenders]
‘agree that it appears that the 11 areas of open/displaced joints identified as
open or displaced will require remedial detailed to be agreed … prior to work
being undertaken’. There is no suggestion that this section of the letter or the
remedial work to which it refers is also intended to be carried out without
prejudice. Indeed, it appears to refer back to the work to the pop-ups which
[the pursuers] accepted was required, subject to further surveys to establish
the extent of such work, in its letter of the 27th June 2017. This is, I am
satisfied, and unequivocal, absolutely clear, admission of the obligations
which [the pursuers] seeks to enforce by its claim in this Adjudication of the
type required by s. 10 (1) (b), in so far as those obligations concern the 11
areas of open/displaced joints referred to.
197.13 However, the letter concludes by stating ‘We concur that we need to reach
agreement on what appropriate remedial solution needs to be put in place,
however we are not in a position to provide a remedial solution to the
drainage system as a whole because we fundamentally disagree that design
principles behind the drainage details are incorrect, that the design has failed
to accommodate the anticipated movement, or that the drains have not been
laid true to line between manholes. We consider that the solution that needs
to be agreed between our expert engineers is one to implement rectification
works to deal with any workmanship issues that may have led to areas of the
drainage being out-with standard industry tolerances. If we can agree to this,
our offer to assist the remedial works naturally still stand’.
197.14 Given these words, [the pursuers] cannot have been in any doubt that [the
defenders] did not consider that there were Latent Defects due to defects in
the design of the foul drainage, specifically the hanger system, or that, despite
the impression given by [the defenders] in its earlier correspondence that it
was committed to remediating Latent Defects, if they are demonstrated to be
such, that it would do so to the extent required by [the pursuers], that is
rectifying the whole of the foul drainage because of defects in the hanger
system, without the need for formal proceedings.
197.15 The letter of the 21st March 2018, concerns a proposal to share on a 50/50
basis reasonable costs incurred in carrying out intrusive investigation work
between MH F2-F4, [the defenders] stating that its agreement to share these
cost ‘shall in no way be construed as any admission of liability on our part in
respect of these issues: rather we agree that this provides a positive
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opportunity to information gathering scope any remedial works that may be
required (if any). … Neither, read in the context of [the defenders’] letter of
the 1st February 2018, does this letter suggest that [the defenders] is
committed to remediating Latent Defects to the extent required by [the
pursuers], that is rectifying the whole of the foul drainage because of defects
in the hanger system, without the need for formal proceedings.
197.16 [The defenders’] letter of 14th June 2018, refers to ‘a slide deck which explains
the works to the external drainage which [the defenders] propose to carry out
on a without prejudice basis …’. I have not been provided with a copy of the
slide deck referred to, thus am unable to establish whether any of the external
drainage referred to concerns [the pursuers’] claims in this adjudication. …..
Neither does this letter suggest that [the defenders] is committed to
remediating Latent Defects to the extent required by [the pursuers], that is
rectifying the whole of the foul drainage, without the need for formal
proceedings.
197.17 The letter of the 26th November 2018 refers to the intrusive investigation
works which it was proposed in [the defenders’] letter of the 21st March 2018
to share on a 50/50 basis which, it appears that letter, had now been carried
out. ….. Neither does this letter suggest that [the defenders] is committed to
remediating Latent Defects to the extent required by [the pursuers], that is
rectifying the whole of the foul drainage, without the need for formal
proceedings.
197.18 It is, in any case, clear from Fladgate’s letter of the 10th December 2018, that
[the pursuers] realised that agreement would not be reached with [the
defenders] about what remedial works were required, stating that it intended
to proceed with a remedial scheme without reference to [the defenders].”
[31] It is clear from the adjudicator’s decision and the submissions made to him by parties
that the task of the adjudicator was to decide whether or not the pursuers’ claim had
prescribed. In order to do that he had to make a decision as to whether the “without
prejudice” letters were admissible. Having considered parties’ submissions and the case law
to which he was referred he decided that they were admissible. Then as a consequence of
his decision that they were admissible he took them into account in deciding that the
prescriptive period had been extended under section 6(4). He considered them in the
context of the whole chain of correspondence since March 2016, giving greater weight to
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letters which were not marked “without prejudice”, such as the letter of 16 March 2016 and
those subsequent to January 2017.
[32] In my opinion the adjudicator was entitled to consider the question of whether the
letters were admissible. He was entitled to consider the submissions which the parties had
made to him in that regard. A court would be entitled to look at the “without prejudice”
documents and make a decision as to whether they were admissible. There is no reason
why an adjudicator should not be entitled to do likewise. The adjudicator in this case may
or may not have been right to decide they were admissible. But if he was wrong, then that
was an error of law, and errors of law on the part of the adjudicator do not justify this court
in refusing to enforce the adjudicator’s decision (Carillion, supra).
[33] This court will however be justified in refusing to enforce the adjudicator’s decision
if there has been a serious breach of natural justice (Carillion, supra). The application of the
principles of natural justice in the context of adjudication was given careful analysis by
Lord Drummond Young in Costain Ltd v Strathclyde Builders Ltd:
“[10]….
I am of opinion that certain minimum standards of conduct
are required from adjudicators, and that those standards are found in the
well-established principles of natural justice. These are traditionally expressed in
the maxims nemo judex in causa sua, no one appointed to determine a dispute should
have any bias or personal interest in the outcome of that dispute, and audi alteram
partem, both sides must be given a fair opportunity to present their cases. In the
context of adjudication, it is usually the second principle that will be relevant. I
mention this because in certain of the English decisions on the applicability of the
principles of natural justice to adjudicators there has been a tendency to run the two
principles together, and to treat a failure to give one side a fair opportunity to
present its case as a form of bias. In some relatively extreme cases, such as Discain
Project Services Ltd v Opecprime Development Ltd, [2001] BLR 285, that may be justified.
Nevertheless, the existence of bias is not essential to the principle that parties must
be given a fair opportunity to present their respective cases, and usually it will only
be necessary to consider the latter principle.”
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[34] The relationship between “without prejudice” documents and the rules of natural
justice has been considered in two English first instance cases. In both cases the court
enforced the adjudicator’s decision.
[35] In Specialist Ceiling Services Northern Limited v ZVI Construction UK Limited the
defendant opposed enforcement of adjudication by the court on the ground that the
adjudicator should have recused himself after the claimant had submitted without prejudice
material to him in the Referral, and that as a result the adjudication was unfair and should
not be enforced. The Referral stated that a “without prejudice” offer to settle by the
defendant had been rejected by the claimant. A “without prejudice” covering letter bearing
to enclose the offer was submitted to the adjudicator, but the breakdown of the offer was
not. The defendant’s solicitor objected to the adjudicator continuing with the adjudication.
The adjudicator refused the objection on the basis that he had not had sight of the offer and
was not aware of its content. The court held that the adjudicator was entitled to do so: the
adjudicator was entirely uninfluenced by the “without prejudice” material he had seen, and
had “in effect brushed aside the material and properly ignored it when reaching the various
decisions on the issues before him” (para [26]).
[36] In Ellis Building Contractors Limited v Vincent Goldstein, after the notice of adjudication
had been issued the defendant’s solicitor sent to the claimant’s solicitor a “without
prejudice” letter offering to settle the adjudication for a specified sum. The claimant referred
to the letter in its Reply. The defendant did not object to the reference nor rebut the Reply.
The defendant opposed enforcement of the adjudication by the court on the basis that there
was apparent as opposed to deliberate bias on the part of the adjudicator in allowing in and
not raising with the parties the “without prejudice” letter. The court held that the
deployment of the “without prejudice” letter was improper and the material was not
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admissible, but the adjudicator did not base his decision on its contents and on the facts of
the case there was no legitimate fear that the adjudicator might not have been impartial. In
his judgment Akenhead J considered the use of “without prejudice” material in
adjudications:
“25. The improper deployment of ‘without prejudice’ material in adjudication is
something which happens in adjudication as in court although this Court has at least
anecdotally seen an increase in this behaviour in adjudication. This often arises
because parties represent themselves or are represented by consultants who are not
legally qualified and, perhaps, they do not fully understand that truly ‘without
prejudice’ communications are privileged and should not be referred to in any legal
or quasi-legal proceedings, including adjudication. Whilst if ‘without prejudice’
communications surface in a court, the judge being legally qualified and experienced
can usually put it out of his or her mind, it is a more pernicious practice in
adjudication because most adjudicators are not legally qualified and there will often
be a greater feeling of unease that the ‘without prejudice’ material may have really
influenced the adjudicator. This Court can only strongly discourage parties from
deploying ‘without prejudice’ communications in adjudication.”
[37] Akenhead J then went on to review the authorities and came to the following
conclusion:
“29. One can draw the following conclusions about the consequences and
ramifications of the improper submission of ‘without prejudice’ material before an
adjudicator:
(a) Obviously, such material should not be put before an adjudicator.
Lawyers who do so may face professional disciplinary action.
(b) Where an adjudicator decides a case primarily upon the basis of wrongly
received ‘without prejudice’ material, his or her decision may well not be
enforced.
(c) The test as to whether there is apparent bias present is 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.”
[38] The current case is far removed from the scenario deplored by Akenhead J. The
current case was not a situation where the adjudicator was improperly made aware of an
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irrelevant and collateral “without prejudice” offer to settle which he ought to put out of his
mind. In the current case the question of the admissibility of the “without prejudice” letters
was one which the adjudicator had to decide as one of the central issues in the adjudication.
The adjudicator was legally qualified. It was the adjudicator himself who identified
admissibility as being a central issue. The adjudicator gave both parties an opportunity to
make submissions on the question. He considered their submissions and the case law to
which he was referred and came to a reasoned decision on the question. It cannot be said
that the submission of the letters to the adjudicator, or the way in which he dealt with them,
was in any way improper or involved any breach of natural justice or apparent bias.
Order
[39] I shall sustain the pursuer’s fifth plea-in-law and repel the defenders’ fourth and fifth
pleas in law and grant decree in terms of the first and second conclusions, and reserve all
questions of expenses in the meantime. I shall put the case out by order for discussion of
expenses and further procedure.