English High Court Finds That Arbitrator Erred In Law In Finding Express 'Without Prejudice' Correspondence Admissible On Costs But Finds Impliedly 'Without Prejudice' Correspondence Admissible

In Sternberg Reed Solicitors v Harrison [2019] EWHC 2065 (Ch), the High Court decided that an arbitrator had made an error in law in deciding that he could consider correspondence marked “without prejudice” when deciding costs. However, correspondence that is impliedly “without prejudice” could be taken into consideration. Arbitrators usually have broad discretion when considering costs but the established English law rules on privilege will still limit what evidence of the parties' discussions is admissible. The court's decision on impliedly “without prejudice” correspondence is significant and may impact how parties to an arbitration (or litigation) react to settlement offers.

Admissibility of “without prejudice” communications

A detailed analysis and practical guidance following the court's findings on admissibility of expressly and impliedly “without prejudice” communication is explained in this post on our Litigation Notes blog. Parties to an arbitration should be mindful of the same issues. In particular, if correspondence is received which is aimed at settlement but is not stated to be "without prejudice", a tribunal may still take it into account in relation to costs, even if it is inadmissible in relation to the substantive dispute.

The court's approach to s69 applications

The judgment was in respect of an application under s 69 of the English Arbitration Act 1996 which allows parties to appeal to the court on a question of English law, save where such appeal is excluded (which is the case under many institutional arbitration rules). On the court's approach to such appeals where they are concerned with an award of costs, the court referred to SOS Corporación Alimentaria SA v Inerco Trade SA [2010] EWHC 162 (Comm) where Hamblen J found that the appellant had to show, from the reasons given by the arbitrator, that the award on costs was unlawful in the sense that there were no grounds on which the arbitrator could properly in law have made the order which he did, or that he made the order on grounds which he could not properly in law have taken into account, or that he failed to exercise his discretion at all.

The court acknowledged that such circumstances are likely to be rare. However, the court found that the arbitrator's conclusion that expressly “without prejudice” correspondence could be taken into account when deciding costs was not supported by authorities. It was therefore an error of law.

The court went on to find that the...

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