Laura McCorquodale

There is an ongoing misconception that labelling any document ‘without prejudice’ creates a magical legal force field around it, making it inadmissible in any subsequent proceedings.

A construction adjudication enforcement case Transform Schools (North Lanarkshire) Limited v Balfour Beatty Construction Limited and Balfour Beatty Kilpatrick Limited illustrates why this is not the case and hints at how to use ‘without prejudice’ wording to give the best chance of protecting documents from being relied on in dispute resolution proceedings.

Background

The Defenders completed construction of a primary school and cultural centre in Stepps for the Pursuer in around 2007. Latent defects emerged in the drainage system for the project in August 2015 and Balfour Beatty entered into correspondence with the Pursuer’s solicitors about the nature of the defects and the remedial work required to resolve them. Negotiations broke down and the Pursuer raised an adjudication for the cost of repairs to the drainage system in 2019.

The Adjudicator found in the Pursuer’s favour, ordering Balfour Beatty to pay £4 million. Balfour Beatty refused to pay, arguing that the Adjudicator’s decision was unenforceable because it was based on inadmissible ‘without prejudice’ correspondence and the matter came before the Court of Session as an adjudication enforcement action.

The ‘without prejudice’ correspondence

It was the Adjudicator who first raised a query about the admissibility of the correspondence. He invited submissions from both parties on whether or not he should read one particular letter dated January 2017 which had been produced but was labelled ‘without prejudice’.

The Pursuer submitted that the January 2017 letter was admissible as it was part of a chain of admissible correspondence. It made reference to an earlier open letter from November 2016 which set out Balfour Beatty’s remediation proposals and which, in turn, referred to an earlier open letter dated October 2016 in which remedial proposals were also discussed.

On the other hand, Balfour Beatty submitted that all of the letters in the chain of correspondence were ‘without prejudice’ and inadmissible. It submitted that the settlement proposals in the letters were made in a genuine attempt to resolve matters on a without prejudice basis and could not be referred to, relied upon or reviewed by the Adjudicator.

The Adjudicator’s approach was to look at the correspondence as a whole. He looked at all of the letters exchanged between 2016 and 2018, most of which were not marked ‘without prejudice’. He concluded that where letters were not headed up as being ‘without prejudice’ - the use of the words ‘without prejudice’ in the body of the correspondence referred to the remedial work being done on a ‘without prejudice’ basis and was intended to make clear that Balfour Beatty was not admitting liability; not that the letter was not to be referred to in subsequent proceedings. He therefore held that the whole chain of correspondence was admissible in the adjudication.

Consequence of the letters being admissible

The task of the Adjudicator was to decide whether or not the Pursuer’s claim had prescribed. The letters were relevant to this because the Pursuer argued that they amounted to a ‘relevant acknowledgement’ which paused the prescriptive period under section 10(1)(b) of the Prescription and Limitation (Scotland) Act 1973, failing which, that they extended the prescriptive period for the purpose of section 6(4) of the 1973 Act because they had induced the Pursuer to think that remedial works were to be undertaken and that formal proceedings were not necessary.

The Adjudicator concluded that the letters did not contain a clear admission of liability so were not a relevant acknowledgement for the purpose of section 10. He considered, however, that they did induce or contribute to the Pursuer’s erroneous belief that the remedial works would be done without the need for formal proceedings. The prescriptive period was therefore extended because the Pursuer had refrained from making a relevant claim on the basis of that error.

Breach of natural justice and apparent bias

The Adjudicator had provided both parties with an opportunity to make representations in relation to the ‘without prejudice’ material. He had considered their submissions and the case law to which he was referred and came to a reasoned decision on the question. For these reasons, the Judge was not persuaded that the way the Adjudicator dealt with the letters involved any breach of natural justice or apparent bias as alleged by the Defenders. The adjudication decision was accordingly enforced.

Interim decision

This decision is to be read in the context of adjudication enforcement proceedings, in which the Court’s remit is essentially to assess whether the adjudication procedure was properly conducted; not to re-determine the substance of the dispute. Lord Ericht confirmed [at para 12] that the opinion is not 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. It is doubtful that the view on prescription will stand if matters go further, but the interpretation of the use of ‘without prejudice’ correspondence is less clear cut.

Practical application

The words ‘without prejudice’ will never be enough to create legal protection for a document if the contents are not genuine concessions or settlement proposals of the type that fall within the scope of the ‘without prejudice’ doctrine.

Nevertheless, based on the Adjudicator’s reasoning, albeit not actually approved by the Court, any letters containing ‘without prejudice’ admissions or proposals which are intended to be excluded from subsequent proceedings should be clearly headed up as being ‘without prejudice’ to give the best chance of covering the correspondence itself.