1. Introduction

In the landmark case Transform Schools (North Lanarkshire) Ltd v (First) Balfour Beatty Construction Ltd and (Second) Balfour Beatty Kilpatrick Ltd ([2020] CSOH 19), the Scottish Court of Session addressed critical issues surrounding the use of "without prejudice" communications in the adjudication process. This dispute emerged from a construction contract involving latent defects in drainage systems at various schools, including the Stepps Primary and Stepps Cultural Centre Project (the "Stepps Project") in North Lanarkshire.

The pursuers, Transform Schools, engaged the defenders, Balfour Beatty Construction Ltd and Balfour Beatty Kilpatrick Ltd, for extensive construction work. Post-completion, disputes regarding latent defects in the drainage systems led to adjudication, resulting in an adjudicator's decision favoring Transform Schools. Balfour Beatty subsequently contested the enforcement of this adjudicator's award, primarily on the grounds related to the admissibility and use of "without prejudice" correspondence during adjudication.

2. Summary of the Judgment

The core issue before Lord Ericcht was whether the adjudicator's decision should be enforced, especially considering the defenders' objections to the use of "without prejudice" documents. The adjudicator had relied on certain correspondences marked "without prejudice" to determine that the prescriptive period under the Prescription and Limitation (Scotland) Act 1973 had not expired, thereby legitimizing the pursuers' claim.

The defenders argued that these "without prejudice" communications were improperly used, advocating for the non-enforceability of the adjudicator's decision on the basis of breach of natural justice and apparent bias. Conversely, the pursuers contended that adjudicator decisions are generally enforceable, with limited exceptions.

Lord Ericcht upheld the enforcement of the adjudicator's decision. He dismissed the defenders' arguments regarding the improper use of "without prejudice" documents, emphasizing that the adjudicator had appropriately considered their admissibility within the legal framework. The court affirmed that unless there is a serious breach of natural justice, adjudicator decisions should be enforced.

3. Analysis

3.1 Precedents Cited

The judgment extensively referenced several precedents to elucidate the treatment of "without prejudice" communications in adjudication:

• Richardson v Quercus Limited (1999 SC 278)
• Bradford & Bingley v Rashid ([2006] 1 WLR 2066)
• Ofulue v Bossert ([2009] 1 AC 990)
• Rush & Tomkins Limited v Greater London Council ([1989] AC 1280)
• Specialist Ceiling Services Northern Limited v ZVI Construction (UK) Limited ([2004] BLR 403)
• Ellis Building Contractors Limited v Goldstein ([2011] EWHC 269 (TCC))

These cases collectively underscore the delicate balance between protecting settlement negotiations and ensuring fairness in adjudication. Notably, Rush & Tomkins established the public policy underpinning the "without prejudice" rule, emphasizing the encouragement of settlement without fear of prejudicial use of communications.

3.2 Legal Reasoning

Lord Ericcht meticulously dissected the adjudicator's reliance on "without prejudice" correspondence. The central legal question revolved around whether such documents could influence the determination of prescription under the Prescription and Limitation (Scotland) Act 1973.

The adjudicator had initially classified the letters as "without prejudice" based on their titles and content. However, upon deeper analysis, including references to previous communications and the broader context, Lord Ericcht concluded that certain correspondences labeled "without prejudice" did not irrevocably shield their content from being considered in adjudication. Specifically, he noted that the intent behind the "without prejudice" markings, when juxtaposed with actions and subsequent communications, could render these documents admissible.

Importantly, Lord Ericcht highlighted that the adjudicator had acted within his jurisdiction by evaluating the admissibility of these documents. He posited that even if there were errors in the adjudicator's legal interpretations, such mistakes would not inherently negate the enforceability of the adjudicator's decision unless there was a profound breach of natural justice.

3.3 Impact

This judgment has significant implications for the construction industry and adjudication processes:

• Clarification on 'Without Prejudice': It delineates the boundaries of the "without prejudice" rule, especially in adjudicative settings, emphasizing that such communications are not absolute shields against disclosure if contextually warranted.
• Enforcement of Adjudicator Decisions: Reinforces the principle that adjudicator decisions are enforceable, supporting the stability and reliability of the adjudication process as a mechanism for dispute resolution.
• Natural Justice in Adjudication: Establishes that breaches of natural justice within adjudication must be substantial to warrant non-enforcement, thereby protecting the integrity of adjudicator neutrality.

Future cases involving "without prejudice" communications in adjudications will likely reference this judgment, particularly regarding the admissibility and influence of such documents on adjudicator decisions.

4. Complex Concepts Simplified

4.1 'Without Prejudice' Communications

The term "without prejudice" refers to communications made during negotiations intended to settle a dispute without these communications being admissible in court or other adjudicative proceedings. The primary purpose is to encourage open and honest negotiation by protecting parties from having their concessions or offers used against them if negotiations fail.

4.2 Prescription under the Prescription and Limitation (Scotland) Act 1973

Prescription refers to the limitation period within which legal actions must be initiated. Under the act, certain claims must be filed within a specified timeframe, failing which the right to sue may be forfeited. Sections 10(1)(b) and 6(4) notably deal with situations where acknowledgment of debt or a subsequent agreement can extend these limitation periods, preventing claims from becoming prescribed.

4.3 Adjudication Process

Adjudication is a rapid, interim dispute resolution process commonly used in the construction industry. An adjudicator, an impartial third party, is appointed to make a decision on the dispute, which is intended to be binding unless and until challenged in court or arbitration at a later stage.

5. Conclusion

The judgment in Transform Schools (North Lanarkshire) Ltd v Balfour Beatty Construction Ltd serves as a pivotal reference in understanding the intricate dynamics between "without prejudice" communications and adjudicator decisions. Lord Ericcht's deliberation underscores the necessity for adjudicators to navigate the admissibility of such documents with legal acumen while maintaining the principles of natural justice.

By upholding the enforceability of the adjudicator's decision despite the contested use of "without prejudice" correspondence, the court reinforced the reliability of adjudication as a dispute resolution mechanism. This ensures that parties can engage in constructive negotiations without the looming threat of their communications undermining their legal standings, provided that their integrity and fairness within the process remain uncompromised.

Ultimately, this judgment balances the protection of negotiation privacy with the imperative of upholding fair and just adjudicative outcomes, thereby contributing significantly to Scottish construction law and broader adjudication practices.