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Letters sent without prejudice

Understand the legal issues involved with adjudication and you’ll be one step closer to your payments

When you need your cash quickly, adjudication may be the answer. This is a quick process for resolving disputes where the adjudicator makes a decision within a month of the matter being referred.

But there are benefits of negotiation. A commercial decision where you might accept less than you believe is due to you may save money in the long run compared to costly formal dispute resolution.

It is common when entering into these types of negotiations for the correspondence between the parties to be marked “Without Prejudice”. It is important to understand this term and the protection it offers.

Courts are well aware of the benefits of negotiating. Without prejudice correspondence provides a means by which parties can enter into negotiations without prejudicing their position in formal proceedings.

Letters that are written without prejudice during a dispute cannot as a general rule be disclosed as evidence.

Therefore when making such an offer you would assume that it will not be brought to the attention of an adjudicator in an adjudication.

However, there are circumstances where such correspondence may come before an adjudicator. If this correspondence reveals that one party is willing to accept a lot less than they are claiming in an attempt to settle, then there is an argument that this may cloud the view of the adjudicator to such an extent that he may be biased.

This issue arose in the case of Specialist Ceiling Services Northern Limited v ZVI Construction (UK) Limited. ZVI was resisting the enforcement of an adjudicator’s decision on the ground that the adjudicator should have resigned after SCSN’s quantity surveyor had disclosed without prejudice material to him in the referral.

ZVI claimed that as a result the adjudication was unfair and it should not be enforced. Although the adjudicator was made aware of the fact that a without prejudice offer was made, he was not made aware of the detail of this offer.

The adjudicator was of the view that his knowledge of the without prejudice offer would not affect his impartiality.

The judge agreed with the adjudicator and based his decision on a number of points:

  1. The adjudicator was ‘unfazed’ by the knowledge that there had been without prejudice negotiations
  2. He expected without prejudice negotiations to occur
  3. His experience was that offers were often made on a commercial basis
  4. His decision was inconsistent with being influenced by the offer
  5. The judge was of the view that the adjudicator approached the adjudication in an “even handed manner”.

It is clear from this decision that even if an adjudicator has seen without prejudice correspondence, where there is no objective indication of bias or unfairness there is no ground for challenging the adjudicator’s decision or defence to enforcement.

This is an important case to note in the current climate. With an increase in disputes there will inevitably be an increase in without prejudice negotiations. Parties should be aware that these may come before an adjudicator. He or she may nevertheless continue with the adjudication with the knowledge that one or other party was willing to accept a different position than that advanced in the adjudication.

This should not discourage parties from negotiating and attempting to settle the matter. It is important to be aware that an adjudicator may get sight of any offers that are made and if he can demonstrate that it has not caused him bias he can continue in the adjudication.

Andrew Jones is a partner with law firm HBJ Gateley Wareing