Ellis was employed by Goldstein to carry out a part demolition, rebuild, refurbishment and fit out of 12 commercial units in Brighton. In March 2009, Ellis tendered for the works. In June 2009, Goldstein sent a letter of intent to Ellis (the “First Letter of Intent”) which indicated that, as certain elements of the design was still being finalised a contingency sum of 10% would be added to Ellis’ tender sum, giving a contract sum of £472,000. The works would be carried out under the terms of the JCT 2005 Intermediate Building Works Contract.

In May 2010, a second letter of intent dated was issued (“the Second Letter of Intent”) which provided that the maximum amount Ellis could claim was £580,000. In June 2010, Ellis asserted that this limit would be exceeded shortly and requested a further letter of intent. This was rejected by Goldstein.

After a meeting between the parties on 30 June 2010, Ellis signed the contract documents prepared by the Architect but they did not incorporate the Letters of Intent. A Certificate of Practical Completion was issued in July 2010 and Ellis claimed a total sum of £650,000.

Ellis issued a Notice of Adjudication seeking payment of the outstanding sums. Goldstein’s solicitor then wrote a without prejudice letter to Ellis’ solicitor on 21 December 2010 setting out Goldstein’s position i.e. that the sum mentioned in the First Letter of Intent was the agreed cap. The letter indicated that although Goldstein’s view was that no further sum was payable, his “commercial view of the matter” was such that he was prepared to make an offer.

In the adjudication Ellis argued that the intermediate form of contract and denied it was it subject to the caps mentioned in the Letters of Intent. Goldstein relied upon the cap contained in the Second Letter of Intent as being the maximum liability to Ellis. Ellis’ reply referred to a without prejudice letter of 21 December 2010.

The Adjudicator’s decision, issued on 12 January 2011, decided that the parties had contracted on the basis of the two Letters of Intent and then the intermediate form of contract. Accordingly, there was no cap. Ellis was awarded its amount claimed and interest.

At enforcement, Goldstein argued that: (a) the Adjudicator decided the case on a basis which had never been argued by either side i.e. that the contract between the parties was in the Intermediate Form of Contract as issued by the Architect and signed and returned by Ellis; and (b) There was apparent (rather than deliberate) bias on the part of the Adjudicator in allowing in and not raising with the parties the “without prejudice” letter. This issue was only raised during the enforcement proceedings.

The Judge found that there had been no breach of the rules of natural justice. Ellis had put the issue of the parties’ contract before the Adjudicator by referring to the signed contract documents. Therefore it was open to the Adjudicator to make his finding.

The Court “strongly discouraged” parties from deploying without prejudice communications in adjudications:

"29. One can draw the following conclusions about the consequences and ramifications of the improper submission of "without prejudice" material before an Adjudicator:
(a) Obviously, such material should not be put before an Adjudicator. Lawyers who do so may face professional disciplinary action.
(b) Where an Adjudicator decides a case primarily upon the basis of wrongly received "without prejudice" material, his or her decision may well not be enforced.
(c) The test as to whether there is apparent bias present is whether, on an objective appraisal, the material facts give rise to a legitimate fear that the Adjudicator might not have been impartial. The Court on any enforcement proceedings should look at all the facts which may support or undermine a charge of bias, whether such facts were known to the Adjudicator or not.”

In this case, although it was improper that the without prejudice material had been used in the adjudication, there was no bias as it had not influenced the Adjudicator. The Adjudicator had not mentioned the letter in his decision, despite saying that he had taken account of all submissions made whether or not specifically mentioned in the decision. This suggested it was not part of, and did not influence, his decision. The Adjudicator did not appear to base his decision on the content of, the fact or inferences drawn from what was, or was not, in the without prejudice letter. Further, Goldstein/his solicitors did not object to the use of the letter between the service of the Reply and the issue of the decision.