The defenders had challenged the adjudicator’s decision that they should pay the pursuers damages of more than £4 million, on the basis that he had relied on certain documents marked “without prejudice”, but a judge in the Court of Session ruled that the decision should be enforced.

‘Adjudicator’s decision’

Lord Ericht heard that in 2005 the pursuers Transform Schools (North Lanarkshire) Ltd entered into a project agreement with North Lanarkshire Council, which comprised 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 the area - one of which included Stepps Primary and the Stepps Cultural Centre Project, which became known as the Stepps Project.

The pursuers then entered into a building contract with the defenders Balfour Beatty Construction Ltd and Balfour Beatty Kilpatrick Ltd jointly and as an unincorporated joint venture to perform the pursuers’ obligations under that project agreement. 

The Stepps Project was constructed between 2006 and 2007 by the defenders, but a dispute arose between the parties in relation to latent defects. 

The court was told that 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, and subsequent investigation disclosed further defects. 

In about June 2019, a drain collapsed requiring emergency repairs, and the following month the pursuers submitted the matter for adjudication by serving a notice of adjudication on the defenders.

The adjudicator issued his decision on 6 September 2019, finding the defenders liable to the pursuers in damages of over £4m within 14 days of his decision, but they refused to pay, following which the subsequently raised a commercial action for enforcement of the adjudicator’s decision.

‘Without prejudice’

However, the defenders opposed the motion on the basis that the adjudicator had relied on three “without prejudice” letters from the defenders’ solicitors to the pursuers’ lawyers in a chain of correspondence running from March 2016 to December 2018, in determining whether the claim had prescribed in terms of the Prescription and Limitation (Scotland) Act 1973, which was critical to the issue of liability.

The adjudicator had found that the prescriptive period commenced in late autumn 2013. 

The adjudication commenced more than five years after late autumn 2013, meaning the obligation would have prescribed unless it had been relevantly acknowledged during the prescriptive period under section 10(1)(b) of the 1973 Act, or the prescriptive period fell to be extended under section 6(4).

Having considered the letters, the adjudicator accepted the pursuers’ section 6(4) argument.

The defenders argued that the “without prejudice” correspondence was “completely protected” against any use in the adjudication, and that the approach of the adjudicator “offended against the public policy” which underpinned “without prejudice privilege”.

If parties could not enter into “without prejudice” settlement negotiations without the risk of this correspondence being relied on in an adjudication, the process of adjudication would be “damaged”.

It was submitted that the adjudicator was guilty of a “material error” in admitting, considering and relying upon the “without prejudice” correspondence, and that the error amounted to a “material breach of natural justice”. 

‘Natural justice’

The judge enforced the adjudicator’s decision after ruling that there had been no breach of natural justice.

In a written opinion, Lord Ericht said: “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). 

“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.”

He added: “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.

“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.”