In the case of Ellis Building Contractors Ltd v Vincent Goldstein, [2011] EWHC 269 (TCC) Mr Justice Akenhead had to look at whether an adjudicator's decision should be enforced given the disclosure of without prejudice material to the adjudicator during the course of the adjudication which, the employer alleged, gave rise to apparent bias against him.

The Facts

Ellis Building Contractors Limited (the "Contractor") were employed by Mr Goldstein (the "Employer") to carry out a part demolition, rebuild, refurbishment and fit out of 12 commercial units in Brighton.

The Contractor originally tendered for a total of £429,270.28 in respect of the works in early 2009. A first letter of intent was then issued on 18 June 2009 for works up to the value of the amount tendered for plus a contingency sum of 10% giving a value of £472,197.31 plus VAT. The letter of intent stated that the parties agreed that the works would be carried out under the terms of the JCT 2005 Intermediate Building Contract. The letter was signed by both parties.

Works started by mid September 2009 and, by April 2010, it was apparent there would be a significant overspend of some £110,000. A second letter of intent was issued on 4 May 2010 and was signed by the Contractor. This was for a maximum amount of £580,000.

On 3 June 2010, the Contractor notified the Employer that further amounts were due and that the limit in the second letter of intent would be exceeded shortly. They asked for a further letter of intent but the Employer refused to increase the financial limit. Following a meeting with the architect for the project on 1 July 2010, the Contractor sent the Employer the signed contract documents and asked him to sign them. He did not do so. The letter which enclosed the signed contract made it clear that the letters of intent were not incorporated into the document. Following practical completion on 23 July 2010, a dispute arose between the parties. The total gross sum said to be due by the Contractor was £650,224.46.

The dispute was referred to an adjudicator and, shortly after the issue of the notice of adjudication by the Contractor, a without prejudice letter was written to the Contractor's solicitors. This letter set out what was essentially the Employer's position at that stage, namely that the sum of £429,270.28 mentioned in the first letter of intent was the agreed cap. There was no mention of the applicability of the second letter of intent or the cap referred to in it. The letter stated that, although it was certainly the Employer's view that no further sum was payable, from a "commercial view of the matter" the Employer was prepared to offer a sum which in the version before the Court, and the adjudicator, was redacted.

In the adjudication, the Contractor argued that the JCT 2005 Intermediate Building Contract applied and that there was no cap in relation to the sums it could recover. The Employer argued there was a cap and that this was the cap set out in the second letter of intent. In its reply, the Contractor then referred to the without prejudice letter and included a copy in its submissions. No objections were raised to its inclusion and the adjudicator's decision was reached shortly afterwards.

The adjudicator held that there was no cap and awarded the Contractor £119,000 plus VAT and interest.

The Issue

There were a couple of issues but the one of particular interest was whether the inclusion of the without prejudice letter in the materials before the adjudicator was sufficient to make his decision unenforceable on the grounds of apparent bias.

The Decision

The Judge decided it was not. The test for bias is whether there was apparent bias present based on an objective appraisal and whether the material facts gave rise to a legitimate fear that the adjudicator might not have been impartial. The Court must look at all the facts which may support, or undermine, the charge of bias whether such facts were known to the adjudicator or not.

There were three material considerations in deciding whether or not the placement of the without prejudice material before the adjudicator gave rise to a legitimate fear that he might not have been impartial in the current case. These were:

  1. No objection was made by the Employer or his solicitors in the five days (three of which were working days) between the service of the reply and the issue of the decision. It was a reasonable inference to draw from this that the Employer and his solicitors thought between them the without prejudice material was unlikely to materially influence the adjudicator's decision;
  2. The adjudicator did expressly say at the end of his decision that he had "taken account of all submissions made, whether or not specifically mentioned" but such statements were not uncommon in adjudication decisions and reflected a desire to demonstrate that the adjudicator had considered everything put before him; and
  3. It was equally clear that the adjudicator did not base his decision, at least openly, on the contents of, the fact of or inferences drawn from what was, or was not, in the "without prejudice" letter.

The Judge also noted that the without prejudice communication did not raise anything other than a tangential point which was in any event supported by the open evidence.

Comments

The Judge was very scathing of those who sought to place without prejudice communications before adjudicators. He noted that "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 really have influenced the adjudicator. This Court can only strongly discourage parties from deploying "without prejudice" communications in adjudication."

Following this judgment, practitioners, including non-legally qualified consultants, should think more carefully than ever before placing without prejudice material in front of an adjudicator.

This article is one of a series contributed by Fenwick Elliott to the Building website. To see further articles in this series please go to www.fenwickelliott.com/legal-briefing.

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