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[2016] ZAWCHC 83
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KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd (9861/13, 16844/07) [2016] ZAWCHC 83; [2016] 3 All SA 832 (WCC); 2016 (5) SA 485 (WCC) (24 June 2016)
THE
HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
Cases
9861/13 & 16844/07
In
the matter between
KLD
RESIDENTIAL CC
PLAINTIFF
and
EMPIRE
EARTH INVESTMENTS 17 (PTY) LTD
DEFENDANT
Coram
:
ROGERS J
Heard:
14 JUNE 2016
Delivered:
24 JUNE 2016
JUDGMENT
ROGERS
J:
Introduction
[1]
The issue in this case is
whether the plaintiff (‘KLD’) can rely on a without
prejudice letter as an acknowledgment
of liability interrupting
prescription. The issue has been presented in the form of a special
case as contemplated in rule 33.
The stated case was supplemented by
certain formal admissions to which I shall presently refer.
KLD’s
claim against Empire
[2]
KLD’s pleaded claim
against the defendant (‘Empire’) is the following. In
terms of a written mandate concluded
in November 2006 and extended
during March 2007, KLD was authorised to market erven in a
development and to receive commission
on sales of which it was the
effective cause, such commission to be regarded as earned once the
relevant purchaser took transfer.
KLD was the effective cause of 99
sales set out in a schedule to the particulars of claim. It was thus
entitled to commissions
totalling R2,147 million, which commissions
were earned on the registration dates specified in the schedule.
[3]
Save in one instance (the sale
of Erf 884 to Werner Grift), the registration dates specified in
KLD’s schedule range from
October 2008 to November 2009.
[4]
KLD issued summons in June
2013. According to the sheriff’s return, service was effected
on 26 June 2013. Empire alleges in
its special plea that summons was
served on or about 25 June 2013. Nothing turns on this.
[5]
In its special plea Empire
alleged that KLD’s alleged right to commissions became due on
the registration dates specified
in KLD’s schedule and that,
save for the Grift sale, those registration dates were more than
three years before service of
summons. KLD’s claim to all
commissions other than on the Grift sale had thus prescribed.
[6]
Empire pleaded over on the
merits. Empire alleged inter alia that KLD had breached the mandate
in various respects and that Empire
had certain claims arising from
the breaches. Empire also alleged in general terms that the
consequence of the breaches was that
KLD was not entitled to
commission in the amount claimed or at all. The plea concluded with a
prayer that KLD’s claim be
reduced by an amount of R428 000
plus interest and that judgment thereon in any event be postponed
pending determination of
the claims advanced by Empire in an action
already instituted by it against KLD.
[7]
In its replication to the
special plea KLD alleged that on 29 July 2011 Empire’s then
attorneys, Webber Wentzel, acting as
Empire’s authorized
representatives, wrote a letter to KLD’s then attorneys, Jooste
Leidig
Attorneys, acting in their capacity
as KLD’s authorized representatives, in which Empire
acknowledged that pursuant to the
mandate as extended KLD had become
entitled to commissions totalling R2 105 960. This was
alleged to have been an acknowledgment
interrupting prescription in
terms of
s 14
of the
Prescription Act 68 of 1969
. I shall refer
to this letter as the Webber Wentzel letter.
Empire’s
claims against KLD
[8]
The Webber Wentzel letter and
Empire’s plea mention a summons Empire issued against KLD in
2007. By order made in September
2013 the cases were consolidated on
the basis that Empire was to be treated as a claimant in reconvention
in KLD’s action.
At the commencement of the hearing before me
Mr La Grange SC, who appeared for KLD with Mr Cilliers, agreed that I
could have regard
to all pleadings in the consolidated cases to
ascertain, insofar as might be relevant, when the pleadings were
filed and what assertions
the parties were making. Mr Howie, who
appeared for Empire, agreed with this course which was in accordance
with his client’s
position in earlier procedural skirmishing on
the stated case.
[9]
Empire issued its summons in
November 2007, ie about three and a half years before the Webber
Wentzel letter and about five and
a half years before KLD’s
summons. Empire relied on the written mandate and extension thereof.
Empire alleged breaches by
KLD in terms similar to those subsequently
alleged in Empire’s plea to KLD’s claim. Empire alleged
that KLD owed it
R428 000 in respect of KLD’s contribution
to an advertising and marketing fund and R35 889 as damages in
respect
of expenses incurred by Empire in performing administrative
functions which KLD should have performed. Empire also alleged that
because of the breaches it had lawfully cancelled the extended
mandate on 29 August 2007.
[10]
In March 2008 Empire amended
its particulars of claim in respects to which it is unnecessary to
refer.
[11]
KLD filed its plea in May
2008. This was about six months before the earliest registrations of
transfer on which KLD relies for
its commission claim. KLD admitted
the initial mandate but denied the extension. On this basis KLD
denied the alleged breaches.
[12]
On 14 June 2011 Empire further
amended its particulars of claim to add an additional claim for
damages of R15 312 220
being alleged loss of profits it had
suffered when various purchasers cancelled their sale agreements.
[13]
The Webber Wentzel letter
followed on 29 July 2011. Webber Wentzel were Empire’s
attorneys of record until their substitution
by Empire’s
present attorneys during July 2013.
[14]
In January 2015 Empire again
amended its particulars by deleting the additional claim of
R15 312 220.
The
stated case
[15]
On 19 March 2015 the parties’
legal representatives signed a stated case for determination of the
special plea. In the stated
case the parties agreed that the Webber
Wentzel letter, which they attached, was sent and received by
authorized representatives
and that a cheque of R1 082 334,55
attached to the Webber Wentzel letter was never presented for
payment. The parties
recorded that there were two issues for
determination, which would dispose of the special plea: (i) whether
the Webber Wentzel
letter was, regardless of its admissibility for
other purposes, admissible as evidence of an interruption of
prescription; (ii) whether,
assuming the letter was admissible
for that purpose, the letter did in fact interrupt prescription.
[16]
The Webber Wentzel letter
reads as follows (references therein to Seeff being to KLD):
‘
1. As
you know, our client instituted a claim against Seeff on 20 November
2007 for the payment of certain amounts for
which Seeff is indebted
to our client.
2. Certain
monies have now become due and payable to Seeff by our client. These
are comprised of commissions to which
Seeff has become entitled in
terms of the agreement dated 27 November 2006 and the extension
thereof dated 23 March 2007 (collectively
“the agreement”)
entered into between our client and Seeff.
3..
We remind you that in terms of the agreement Seeff would become
entitled to a four percent commission for each successful sale
which
Seeff effected, upon transfer of the sold property. For your
convenience we include undercover hereof a list of the property
sold
by Seeff which was successfully transferred to the purchasers.
4.
Accordingly Seeff has become entitled to commission in the amount of
R2 106 960.
5. By
virtue of the operation of set-off this amount has been reduced by
the following amounts for which Seeff is indebted
to our client:
5.1 the
amount of R441 903,45 being Seeff’s unpaid contribution to
the development’s media advertising
and marketing fund. This
amount is arrived at as follows:
5.1.1
R700 000 required marketing contribution less R97 253,75
contribution by Mortgage SA less R160 842,80
(R180 360,79
incl VAT) made up of payments made directly to Empire Earth, which
totals R441 903,45;
5.2
the amount of R35 889 being expenses incurred by our client in
attending to the administration of sales by Seeff;
5.3 interest
of R241 515,81 and R19 650,48 respectively on the above
amounts since 20 November 2007, at the rate
of 15.5% per annum; and
5.4
R284 666,71 in respect of our client’s estimated legal
costs to date on the High Court party and party scale.
6. From
the aforegoing, it is apparent that Seeff’s indebtedness to our
client amounts to R1 023 625,45.
7. Accordingly
we include undercover hereof a cheque for R1 082 334,55
including VAT (being R2 105 960,00
commission less the
total indebtedness of R1 023 625,45) in full and final
settlement of any and all claims that Seeff
may have against our
client, and of the litigation forming the subject matter of case
number 16844/2007.’
[17]
Save for the omission of the
Grift transaction, the schedule attached to the Webber Wentzel letter
listed the same sales as in the
schedule attached to KLD’s
particulars of claim.
[18]
The stated case was set down
for argument on 11 June 2015. Due to the unavailability of counsel
who had signed the stated case on
Empire’s behalf Mr Howie was
briefed. Pursuant to advice from him, Empire’s attorneys wrote
to KLD’s attorneys
on 3 June 2015 to advise that Empire’s
legal team now considered that further matters should be included in
the agreed facts.
The further facts specifically mentioned were: the
institution of Empire’s action in 2007; some of the terms of
the mandate,
the alleged breach of which gave rise to Empire’s
action; the filing of KLD’s plea 8 May 2008; the fact that KLD
disputed
some of the terms alleged by Empire and denied the
conclusion of the extended mandate; the absence of a counterclaim for
commission
in the 2007 action. The letter continued that these were
the only further matters which had emerged to date though ‘…
in due course there may be further common cause facts which our
client would like to be agreed to for the purposes of arguing the
stated case’. KLD’s attorneys were asked to say whether
their client was willing to revisit the ambit of the agreed
facts.
[19]
KLD refused. On 10 June 2015
Empire served an application in which it sought orders: (i) that
there was disagreement between
the parties as to the stated facts to
be considered by the court in its determination of the special case;
(ii) that Empire
was not bound to have the disputed issues
determined as a special case on the terms set out in the stated case;
(iii) that
the stated case no longer constituted a special case
for adjudication in terms of
rule 33(1)
; (iv) that the disputed
issues be referred to trial; (v) that the wasted costs
occasioned by the granting of these orders
be paid by Empire save in
the event of opposition by KLD.
[20]
Because of this application
the hearing of the stated case did not proceed on 11 June 2015.
Empire’s application was argued
before Van Staden AJ on 6
August 2015. On 29 October 2015 he dismissed the application with
costs on the basis that Empire had
failed to show special
circumstances entitling it to resile from the stated case.
[21]
The stated case was
re-enrolled for hearing on 20 April 2016. Through no fault of the
parties the matter could not proceed on that
date and it was
postponed to 14 June 2016, the date on which I heard it.
Additional
matters
[22]
In his heads of argument Mr
Howie submitted that I was entitled to revisit the adequacy of the
stated case because Van Staden AJ’s
decision was interlocutory.
Since all the additional matters explicitly enumerated in the letter
of 3 June 2015 would be apparent
from the pleadings in the
consolidated cases, I asked Mr la Grange whether his client had any
objection to regard being had to
those pleadings to the extent that
they might be relevant. Mr la Grange said that there was no objection
to this.
[23]
Although Mr Howie did not
formally concede that this fully addressed the concerns raised in the
letter of 3 June 2015, he was unable
to identify any additional facts
which, if they were included in the stated case, might affect the
outcome. In any event there
is a difference between saying (i) that
a stated case does not record sufficient facts to allow a legal point
to be determined;
(ii) that the inclusion of additional facts in a
stated case would lead to a different determination. The decisions
cited by Mr
Howie (
Minister
of Police v
Mboweni
2014 (6) SA 256
(SCA) and
Feedpro
Anim
al Nutrition
Pty Ltd v Nienaber NO & Another
[2016]
ZASCA 32)
dealt with inadequacy in the former sense. Subject to the
two further matters mentioned below, I do not think the stated case
is
inadequate in that sense. As to the second form of inadequacy, Mr
Howie did not in oral argument press with any vigour the contention
that I should revisit Van Staden AJ’s ruling.
[24]
I raised two further matters
with Mr la Grange. The first was whether his client accepted as a
fact that the Webber Wentzel letter
was written without prejudice so
that KLD would not be entitled to rely on it on the merits (ie if the
special plea were dismissed).
I did not want to decide the main legal
point in the case, namely whether the without prejudice rule
precludes reliance on a privileged
letter as an acknowledgment for
purposes of interrupting prescription, if there was a dispute as to
whether the letter in fact
engaged whatever protection the without
prejudice rule affords. Mr la Grange said that KLD accepted that the
letter was written
without prejudice. More particularly, KLD accepted
that the effect of the concluding paragraph of the letter was that
KLD could
not have presented the tendered cheque for payment and sued
for the balance of the commission. Put differently, presentation of
the cheque would have resulted in a compromise.
[25]
This acceptance by Mr la
Grange appears to accord with how his client in fact reacted to the
letter (KLD did not present the cheque
for payment) and with the way
in which a tender of payment ‘in full and final settlement’
would usually be understood.
A compromise may be concluded even where
the debtor appears to acknowledge that he has no defence to a claim
for the reduced balance
tendered by him (see
Absa
Bank Ltd v Van de Vyver NO
2002
(4) SA 397
(SCA) paras 8-19;
Be
Bop a Lula Manufacturing & Printing CC v
Kingtex
Marketing (Pty) Ltd
2008
(3) SA 327
(SCA) para 11).
[26]
The stated case does not
record whether or not the Webber Wentzel letter was marked ‘without
prejudice’. During argument
I pointed out that the copy
attached to the stated case bore the faint outlines of a stamp.
Neither side could tell me what the
stamp contained. The presence or
absence of the words ‘without prejudice’ does not work
any magic. Their absence does
not deprive a letter of its without
prejudice protection if the letter was written with a view to
reaching a compromise (
Gcabashe
v Nene
1975 (3) SA
912
(D) at 914E; Schmidt & Rademeyer
Law
of Evidence
p 20-19;
Zeffertt & Paizes
The
South African Law of Evidence
2
nd
Ed p 703). Whether their presence can confer an additional
protection is not something I need decide (cf
Naidoo
v Marine & Trade Insurance Co Ltd
1978
(3) SA 666
(A) at 674D-H).
[27]
The second matter I raised
with Mr la Grange was whether his client accepted that prescription
began to run more than three years
before service of summons. The
onus of course rested on Empire to allege and prove when prescription
began to run. The premise
of the special plea was that prescription
began to run before 25 June 2010 but Empire made no allegation as to
when KLD ascertained
or could reasonably have ascertained the facts
giving rise to its commission claims. KLD, perhaps understandably,
did not address
this in its replication. I did not want to decide a
question of interruption unless it was accepted by KLD that, but for
such interruption,
its claim would have prescribed.
[28]
The matter stood down for Mr
la Grange to take instructions. He then placed on record that KLD
accepted that it could reasonably
have ascertained the facts giving
rise to its commission claims not later than 30 days after the
relevant dates of transfer. Save
for the Grift sale, prescription
thus began to run well before 25 June 2010.
[29]
Although these additional
matters do not form part of the signed special case, they constitute
formal admissions made on KLD’s
behalf in open court. They are
admissions to Empire’s advantage since the latter’s
position is that (i) the Webber
Wentzel letter engages the
without prejudice rule; and (ii) prescription began to run
before 25 June 2010.
Admissibility
of Webber Wentzel letter as interruption of prescription
[30]
Subject to any overriding
constitutional imperatives or specific legislation, the law I must
apply in determining whether the Webber
Wentzel letter is admissible
as an acknowledgment of liability for purposes of interrupting
prescription is the English law as
at 31 May 1961 (see s 42 of
the Civil Proceedings Evidence Act 25 of 1965;
Naidoo
supra at 677F-H). As a rule of law, the without prejudice rule is
based on public policy. Parties to disputes are to be encouraged
to
avoid litigation, with the expense, delay, hostility and
inconvenience it usually entails, by resolving their differences
amicably
in full and frank discussions without the fear that, if the
negotiations fail, any admissions made by them during such
discussions
may be used against them in the ensuing litigation
(
Naidoo
677C-D).
[31]
English law, and accordingly
our law, allows some exceptions. One is where a party alleges that
the settlement discussions resulted
in a compromise agreement. The
explanation for this exception is not, I think, that the exchanges
are relied upon as acts of offer
and acceptance rather than as proof
of admissions made. The exception, rather, is inherent in the public
policy underlying the
without prejudice rule: if the law wishes to
encourage the avoidance of litigation by compromise, a party must be
entitled to rely
on the without prejudice communications to establish
that the outcome desired by public policy was achieved (cg
Gcabashe
supra at 914H).
[32]
Certain other exceptions based
on public policy have been recognised. If the without prejudice
communication contains a threat or
constitutes an act of insolvency,
and if the making of the threat or the commission of an act of
insolvency is relevant to particular
proceedings, evidence of the
communication may be adduced despite its without prejudice character
(
Naidoo
681B-D
where such circumstances were described as ‘exceptional’;
see also the summary in Schmidt & Rademeyer op
cit p 20-22).
[33]
In
Absa
Bank Ltd v Hammerle Group
2015
(5) SA 215
(SCA) the court recognised a further exception, akin to an
act of insolvency, namely an admission by a company of its commercial
insolvency. Mbha JA, in delivering the court’s judgment, said
that the reason for the exception is that liquidation or insolvency
proceedings are matters involving the public interest.
[1]
A concursus creditorum is created and the public is protected from
the risk of further dealing with a person or company trading
in
insolvent circumstances (para 13). Mbha JA also said that the
company’s admission of liability was not made in the course
of
negotiations but in response to a letter of demand for payment of
arrear instalments (para 14). The court concluded that the
letter was
admissible as evidence of the company’s commercial insolvency
and as an acknowledgment of liability interrupting
prescription (para
15).
[2]
It is not altogether
clear to me whether admissibility for the second of these purposes
was based on (i) the fact that the letter
was found not to have been
made in the course of settlement negotiations; or (ii) the same
policy considerations which justified
its admissibility in regard to
the company’s commercial insolvency; or (iii) the
pragmatic view that, once the letter
had been accepted as evidence in
the liquidation proceedings for purposes of commercial insolvency, it
was admissible for all purposes
in those proceedings. If the second
or third of these explanations underlies the decision, the
justification for the exception
was the public interest in insolvency
and liquidation proceedings. Mr la Grange accepted that
Hammerle
did not determine admissibility in private proceedings.
[34]
Legislation which is
consistent with the Constitution may override the without prejudice
rule. This was the position in another
case cited by Mr la Grange,
Santam Ltd v Sayed
[1998] ZASCA 85
;
[1998] 4 All SA 564
(A). That case concerned the proper interpretation of s 14(2) of
the Motor Vehicle Accidents Act 84 of 1986. In terms thereof
the
running of prescription in respect of claims under the Act was
suspended for 90 days from the date on which the insurer delivered
to
the claimant a notice to repudiate liability or ‘to convey an
offer of settlement of the claim’. The offer of settlement
in
that case was expressly stated to be without prejudice. The court
held that there was nothing in the language of s 14(2)
to
exclude from its ambit settlement offers made expressly without
prejudice. Section 14(2) necessarily entailed that a claimant
relying
on suspension could adduce evidence of the settlement offer. (
Jili
v South African Eagle Insurance Co
Ltd
1995 (3) SA 269
(N), which Mr la Grange also cited, is an earlier decision to similar
effect.)
[35]
Section 14(1)
of the
Prescription Act refers
to an ‘express or tacit acknowledgment
of liability’. There is nothing in this formulation to justify
as a necessary
implication that reliance can be placed on settlement
negotiations as an exception to the without prejudice rule. As will
appear
below, the English decisions do not recognise any such
exception in relation to the equivalent provision in their limitation
statute.
[36]
It is sometimes argued that a
without prejudice communication which is inadmissible as evidence to
establish the truth of something
admitted by the debtor is
nevertheless admissible if it is the fact of the communication rather
than the truth of an admission
which is relevant. As applied to the
present case, the argument would be that KLD is relying on the Webber
Wentzel letter not as
proof of Empire’s liability to pay the
commissions but as an acknowledgment in fact. An argument along these
lines was rejected
in
Naidoo
.
The facts are instructive. The defendant wrote various without
prejudice letters to the plaintiff’s attorney in the course
of
which the defendant apparently accepted that it had been the insurer
of the negligent driver at the relevant time. The settlement
negotiations failed and the plaintiff issued summons. The defendant
denied that it was the negligent driver’s insurer. By
then the
plaintiff was out of time to sue the true insurer. In its replication
the plaintiff alleged that the defendant was estopped
from denying
that it was the insurer, having regard to the statements made in the
without prejudice correspondence. The defendant
disputed the
admissibility of the correspondence.
[37]
The trial judge ruled that the
letters were inadmissible and this conclusion was upheld by the
Appellate Division. The plaintiff,
I stress, was not relying on the
without prejudice correspondence to prove that the defendant was in
fact the insurer at the relevant
time. Indeed it appears that by the
time of the hearing in the trial court the plaintiff accepted that
the defendant had not been
on risk. The plaintiff was relying on the
letters as constituting a representation, for purposes of estoppel,
that the defendant
was the insurer at the relevant time, on the
strength of which the plaintiff had acted to his detriment (by not
taking action against
the true insurer). The Appellate Division
rejected an argument that the without prejudice rule only precluded
use of the relevant
statements as factual admissions and not for
other purposes (681A-E).
[38]
Apart from the fact that I am
bound by
Naidoo
,
the counter-argument I have summarised is based on an a priori
assumption about the scope and purpose of the without prejudice
rule,
namely that the shield of inadmissibility is limited to evidence on
the merits. There are no sound considerations of public
policy for
protection to be confined in that way. A person who makes a statement
in the course of without prejudice discussions
can be harmed as much
by reliance thereon as an acknowledgment (for purposes of
prescription) or a representation (for purposes
of estoppel) as by
its use as an admission of fact on the merits. The law’s policy
of encouraging full and frank discussions
without fear of prejudicial
disclosure would be hampered by limiting protection in the manner
supposed by the argument.
[39]
It is sometimes said that
because public policy favours the settlement of disputes the law
should not compel a creditor to rush
to court where his debtor has
admitted liability in the course of without prejudice discussions. I
do not think that this consideration
has much force. In many without
prejudice negotiations the alleged debtor will not make any admission
of liability. Although such
negotiations may appear to be worth
pursuing, the running of prescription is not suspended. I do not see
why a separate rule is
required where it so happens that, during the
course of the negotiations, the alleged debtor makes an admission of
liability (and
whether he has or has not made such an admission,
expressly or tacitly, may often require a much more extensive enquiry
into the
without prejudice negotiations than is necessary in the
present case). The three-year prescription period is not an
ungenerous
allowance of time. If the parties need more, the creditor
can make further talks conditional upon agreement to hold
prescription
in abeyance. This is often done in practice.
[40]
Mr la Grange referred in
argument to decisions from Canada (
Kirschbaum
v “Our Voices” Publishing Co et al
1971
CanLII 608 (ON SC))
and Scotland (
Richardson
v Quercus Ltd
[1998]
ScotCS
112).
Since the law in these
jurisdictions is not the law applicable in South Africa, it is
unnecessary to determine quite how they would
resolve the issue
arising in the present case. Many of the Canadian authorities were
reviewed in
Langley
(Township) v
Witschel
2015 BCSC 123
where the learned judge
concluded that the balance of Canadian authority was against allowing
an exception in relation to the interruption
of prescription (paras
44-49). As to Scottish law, the two leading decisions of the House of
Lords indicate that English and Scottish
law differ on the subject:
see
Bradford &
Bingley plc v Rashid
[2006] UKHL 37
;
[2006]
4 All ER 705
(HL) and
Ofulue
& Another v Bossert
[2009]
1 AC 990
(HL), both of which I shall discuss more fully below.
[41]
I was not referred to
Australian authority. My brief research indicates that prior to the
statutory regulation of the without prejudice
rule the leading
authority was
Field
v Commissioner of Railways (NSW)
[1957]
HCA 92
, a personal injury case. Although the defendant disputed
liability, he was willing to entertain settlement discussions. It was
agreed that the plaintiff would be examined by a doctor appointed by
the defendant. The examination had a dual purpose: to enable
the
defendant to form an estimate of the plaintiff’s injuries for
purposes of settlement and as a basis for expert evidence
if the case
should go to trial. At the examination the doctor took a history from
the plaintiff, in the course of which the plaintiff
made a damaging
admission about how the accident happened. The court held that the
parties’ legal representatives must have
understood that the
material on which the doctor would form his opinions included what
the plaintiff told him during the consultation
and the doctor’s
physical examination. What took place during the consultation was not
‘reasonably incidental’
to the negotiations. The
plaintiff’s admission was made ‘without any proper
connexion with any purpose connected with
the settlement of the
action’ (paras 7-8).
[42]
The without prejudice rule now
operates in Australia by virtue of statute (s 131 of the
Evidence Act, 1995). A without prejudice
communication is admissible
if it ‘affects the right of a person’ (s 131(2)).
Two recent cases which discuss the
meaning of this exception in
relation to acknowledgments for limitation purposes are
Liu
v Fairfax Media Publications Pty Ltd
[2012]
NSWSC 1352
and
Greenway
v Teoh
[2014] ACTSC
224.
[43]
To return to English law, all
five Law Lords in
Rashid
delivered opinions.
They agreed, though for differing reasons, that the creditor should
be permitted to rely on the correspondence
in question as an
acknowledgment of liability for purposes of the Limitation Act, 1980
.
[44]
Lord Brown held that an
acknowledgment of liability where the issue of quantum is the subject
of settlement negotiations should
qualify for without prejudice
protection (para 75). In distinguishing Scots law from English law,
he quoted with approval (in para
65) the following passage from the
judgment of Rix LJ in
Savings
and Investment Bank Ltd v
Fincken
[2004] 1 All ER 1125
(CA) para 57:
‘
It
is not the mere inconsistency between an admission and a pleaded case
or stated position, with the mere possibility that such
a case or
position, if persisted in, may lead to perjury, that loses the
admitting party the protection of the privilege…It
is the fact
that the privilege is itself abused that does so. It is not an abuse
of the privilege to tell the truth, even where
the truth is contrary
to one’s case. That, after all, is what the without prejudice
rule is all about, to encourage parties
to speak frankly to one
another in aid of reaching a settlement: and the public interest in
that rule is very great and not to
be sacrificed save in truly
exceptional and needy circumstances.’
[45]
Lord Brown held, however, that
the without prejudice rule did not extend to cases where the
liability was admitted in full and the
debtor was merely seeking to
reach an arrangement to pay off the debt by way of a concession from
his creditor. It was for this
reason that he held the correspondence
in
Rashid
to
be admissible. This was not by way of exception to the without
prejudice rule but because the letter was not protected by the
without prejudice rule at all, ie for any purposes.
[46]
Lord Walker gave a brief
opinion in which he concurred in Lord Brown’s opinion.
[47]
Lord Mance said that there
were two possible approaches where a claimant wished to rely on an
acknowledgment made in without prejudice
correspondence. The broader
approach was that unequivocal admissions made during without
prejudice communications may be isolated
from the remainder and so
used against the party making them, whether on the issue of liability
or to restart a limitation period.
That appeared to him to be the
position in Scotland (para 89). He agreed, however, with Lord Brown
that English law has viewed
the matter in different terms (para 90).
After quoting from two leading English cases, he concluded that the
first instance Scottish
authorities took an approach differing from
the English appellate approach (para 92). His limited review of other
Commonwealth
jurisdictions suggested that they adopted an approach
which was generally similar to English rather than Scottish law.
Interestingly,
he referred inter alia (at para 92) to a South African
decision,
Kapeller v
Rondalia Versekeringskorporasie van Suid-Afrika Bpk
1964 (4) SA 722
(T), where (so Lord
Mance said) Viljoen J was
‘
able
to distinguish a clear admission by a motor insurer as to liability
in respect of a motor accident from the without prejudice
negotiations which followed on that basis regarding quantum, and so
to treat the admission as restarting the limitation period’
.
He said he could
understand that line of reasoning but that the Scottish cases
appeared to go considerably further. He preferred
to say nothing more
about the scope of any such exception until a case arose where it
fell squarely for decision (para 92).
[48]
The other approach, Lord Mance
said, was the one supported in Lord Hoffmann’s opinion. In
essence, Lord Hoffmann was doubtful
whether the other Lords were
right in finding that the without prejudice rule did not apply where
a debtor admitted the liability
and merely sought a concession as to
paying it off. Lord Hoffmann’s preferred solution was to
distinguish between the use
of without prejudice communications on
the merits and their use as acknowledgments interrupting description.
In the latter case,
he said, the acknowledgment was not being used as
evidence of anything – the statement was not evidence of an
acknowledgment,
it was itself the acknowledgment (para 16). Lord
Hoffmann referred to an earlier decision of his along these lines in
Muller v Linsley &
Mortimer (a firm)
[1996]
PNLR 74.
Lord Mance observed that there was, in support of this
distinction, the argument that a debtor who makes an unqualified
admission
in the course of without prejudice negotiations is, in
effect, encouraging the creditor not to commence proceedings, so
that, while
it would be wrong to treat the admission as prejudicing
the debtor on the merits, it would also be wrong to allow him to take
the
benefit of time gained when it came to a limitation issue. He
continued (para 93):
‘…
On
the other hand, it may be said that the public policy in allowing
parties to negotiate freely would be undermined if, during
any
negotiations, they had to keep an eye open for the possible impact on
limitation of any admissions they were without prejudice
prepared to
make. The argument that a creditor may in such a context be
encouraged not to commence proceedings may also be said
to have a
certain circularity, on the basis that a creditor engaging in without
prejudice negotiations should always keep an eye
on the limitation
position for the very reason that the negotiations are without
prejudice…’
Ultimately, though, Lord
Mance preferred to say no more on this point because the suggested
distinction between the different effects
(merits/limitation) of one
and the same admission had not been explored in any detail in
argument.
[49]
Lord Hope considered the
position in Scotland more fully (see paras 25-32), concluding that
the general approach taken there was
‘far from unorthodox’
and could not be regarded as ‘out of line with that which is
taken elsewhere’, this
latter phrase being a reference to a
leading Canadian textbook (para 32) and
Kapeller
supra
.
Because he agreed with Lord Brown that the communications in question
did not engage the without prejudice rule at all, he said
it was
unnecessary to decide what the position would have been if the
correspondence had truly been without prejudice. He indicated
a
preference, however, for the Scottish approach, which in his view was
‘more pragmatic’ in the application of the
rule. His
understanding of the Scottish approach appears from para 25:
‘…
Offers,
suggestions or concessions made in the course of negotiations are, of
course, given the benefit of the privilege. But they
are
distinguished from clear admissions or statements of fact which,
although contained in the same communication, did not form
part of
the offer to compromise. On such admissions or statements, if they
can be clearly identified as such, the other party is
entitled to
rely. …’
[50]
I
have already referred to the essence of Lord Hoffmann’s
opinion. It does not seem to have carried support from the other
members of the court. It also appears, insofar as South African law
is concerned, to be inconsistent with
Naidoo
.
[3]
[51]
In
Ofulue
four of the five
Law Lords (all of whom delivered opinions, Lord Scott being in
dissent) held that the claimants could not rely
on an admission
contained in without prejudice correspondence. The case concerned
what we would call acquisitive prescription and
turned on the
question whether the defendants, who asserted a right to property by
adverse possession, had acknowledged the claimants’
title
during the 12-year prescription period. The acknowledgment was said
to be contained in without prejudice correspondence in
which the
defendants had offered to buy the property from the plaintiff. Lords
Hope, Walker and Rodger, in addition to delivering
their own
opinions, concurred in the opinion of Lord Neuberger.
[52]
Lord Neuberger said that
courts should guard against invitations to dissect without prejudice
communications into admissible and
inadmissible components (para 89).
Save perhaps for a statement ‘wholly unconnected’ with
the issues between the parties,
a statement in without prejudice
negotiations should not be admissible other than in exceptional
circumstances. He left open whether
and to what extent a statement
might be admissible if it were ‘in no way connected’ with
the issues which were the
subject of negotiations (paras 91-92).
[53]
As to the argument that the
defendants’ offers were admissible as evidence of
acknowledgments of the claimants’ title
even if they were
inadmissible as admissions of fact, Lord Neuberger considered the
distinction too subtle to apply in practice,
noting that none of the
other Lords in
Rashid
had concurred in Lord Hoffmann’s suggestions to this effect
(para 95). Importantly, Lord Neuberger added that to invoke a
statement in without prejudice negotiations as an acknowledgment was
as inconsistent with the protection afforded by such negotiations,
and the policy behind it, as invoking such statement as an admission
of the truth of what is stated (para 97). He did not consider
that
public policy justified a special exception to the without prejudice
rule for acknowledgments interrupting prescription (para
101).
[54]
The opinions of the three
concurring Law Lords were consistent with these views (see in
particular paras 11-12 per Lord Hope, paras
38 and 43 per Lord Rodger
and para 57 per Lord Walker). Lord Walker said (para 54) that an
acknowledgment under s 29 of the
English Limitation Act (the
equivalent of s 14 of our
Prescription Act) was
not a close
parallel to an act of bankruptcy. Lord Rodger said (para 39) that the
approach in the Scottish cases appeared to be
inconsistent with the
general approach endorsed by the House of Lords in
Rush
& Tompkins Ltd v Greater London Council
[1989]
AC 1280.
[55]
As
far as I am aware, no decisions of the English courts as at 31 May
1961 recognised, by way of exception, that without prejudice
communications could be used to prove an acknowledgment interrupting
prescription. In
Ofulue
Lord
Walker said that, apart from the recent dicta in
Rashid
,
counsel’s research had uncovered only one other English
authority on the question, the judgment of Mellish LJ in
In
re River Steamer Co; Mitchell’s Claim
(1871)
LR 6 Ch App 822
at 831-832 which was against the recognition of such
an exception.
[4]
The majority
opinions in
Rashid
and
Ofulue
,
which can be regarded as declaring the English law on the subject,
are against there having been any such exception. The majority
opinions appear to me to be entirely consistent with the law laid
down in
Naidoo
.
[56]
In
Kapeller
Viljoen J found
that the defendant’s agent, a loss adjuster, did not have
authority to make an admission of liability (729D-731E).
Strictly
speaking, therefore, it was unnecessary to decide whether the
supposed admission of liability was or was not covered by
the without
prejudice rule. The learned judge’s discussion of that issue
was relatively brief, which is perhaps unsurprising
given the view he
had formed on the agent’s lack of authority. The basis of his
conclusion that the admission did not enjoy
protection was that
liability was no longer on the table during the negotiations, the
only question being the quantum of damages.
Whether that conclusion
was justified on the facts need not detain me. The effect of his
conclusion, I may note, was that the supposed
acknowledgment of
liability would have been admissible for all purposes, not only as an
interruption of prescription.
[57]
In
Naidoo
Trollip JA said
that
Kapeller
supported a view
that the without prejudice rule does not extend to admissions ‘quite
unconnected with or irrelevant to the
settlement negotiations’
(678 in fine). He said Viljoen J had found that ‘…
according to the parties’
intention and discussions, the
admission of liability… was made quite independently of and
separately from the settlement
negotiations and was therefore
admissible’ and that ‘[t]he question about the nature of
the required connection between
the two elements did not therefore
arise’ (at 680E - the ‘two elements’ being the
admission sought to be adduced
and the inadmissible settlement
discussions).
[58]
In
Ofulue
Lord
Neuberger left open the question whether and to what extent a
statement in without prejudice negotiations was admissible on
the
basis that it was ‘in no way connected with’ the issues
under discussion (paras 92-93) but gave, as an example
of a situation
where this exception might apply, the old case of
Walridge
[5]
where
a without prejudice letter was admitted solely as evidence of the
author’s handwriting, being a factor ‘wholly
extraneous
to the contents of the letter’. Lord Neuberger then quoted Lord
Griffiths’ caveat in
Rush
& Tompkins
that
Walridge
was:
‘…
an
exceptional case [which] should not be allowed to whittle down the
protection given to the parties to speak freely about all
issues in
the litigation both factual and legal when seeking compromise and,
for the purpose of establishing a basis of compromise,
admitting
certain facts.’
[59]
It
is clear from both
Naidoo
and
the leading English cases that the courts will not readily exclude
from protection an admission made during the course of without
prejudice negotiations.
[6]
In
Naidoo
the apparent acceptance by the insurer’s representative that it
had been on risk at the relevant time appears to me to have
been no
more an issue ‘on the table’ in the settlement
discussions than the admission of liability in
Kapeller
yet the Appellate Division did not regard it as wholly unconnected to
the without prejudice discussions. In
Ofulue
the
admission of the claimants’ title had been made during the
course of settlement discussions in earlier litigation between
the
same parties where the claimants’ title had not only been
uncontentious but had actually been admitted on the pleadings;
yet
Lord Neuberger said that the admission of title was not sufficiently
remote from the matters then in issue as to be outside
the protection
of the rule (para 91).
[7]
[60]
Finally I should perhaps make
clear that I do not regard the absence of recognition in English law
of the exception on which Mr
la Grange relies, either as at 1961 or
now, as decisive. The English without prejudice rule which we have
inherited is a rule which
recognises exceptions where public policy
so dictates. Public policy is not immutable and the list of
recognised exceptions is
not a numerus clausus (as
Hammerle
shows). My conclusion is, however, that there are no compelling
reasons of public policy to limit without prejudice protection
in the
manner for which Mr la Grange contends and I am fortified in that
view by the fact that no such exception has been recognised
in
English law.
Conclusion
in the present case
[61]
As I said earlier, Mr la
Grange accepted that the Webber Wentzel letter qualified for without
prejudice protection. He did not contend
that only part of the letter
so qualified. KLD’s case on prescription is that without
prejudice protection does not apply
where the communication is relied
upon as an interruption of prescription. My conclusion is that the
law does not recognise such
an exception.
[62]
I nevertheless add the
following. KLD had not issued summons at the time the Webber Wentzel
letter was written. There is no evidence
in the stated case that KLD
had as yet asserted a claim to commission. This does not mean that
the Webber Wentzel letter could
not be a without prejudice endeavour
to settle a commission claim which Empire expected KLD to assert.
There was already pending
litigation between Empire and KLD regarding
the former’s claims arising from the mandate. The concluding
paragraph of the
letter expressly stated that the offer was in full
and final settlement not only of Empire’s claims against KLD
but the latter’s
claims against Empire.
[63]
The letter undoubtedly
contains an acknowledgment of liability. The acknowledgment cannot,
however, in my view be regarded as wholly
unconnected to the
settlement proposal. The acknowledgment in para 4 was not an
independent admission because it is clear from
what follows that
Empire did not, despite the way in which KLD framed its replication,
admit that it had a present liability to
pay commissions in the
amount there recorded (R2 105 960). The letter continued by
asserting various deductions which
reduced that amount by way of
set-off. Certain of the amounts so deducted would almost certainly
not have qualified in law to be
deducted by way of set-off since they
were not liquidated (the estimated legal costs of R284 666,71
and expenses totalling
R35 889) but this does not detract from
the stance Empire was adopting. Empire also left out of account, for
settlement purposes,
its further claim, which was still advanced on
the pleadings, for damages exceeding R15 million. Be that is it may,
if Empire ‘admitted’
anything, it was a residual
liability of R1 082 334,55, being the amount offered in
full and final settlement. One can
only know this, however, by having
regard to the asserted deductions and the actual settlement offer.
And the manner in which the
settlement offer was arrived at cannot be
understood if one excludes from consideration the opening amount of
R2 105 960
referred to in para 4.
[64]
Mr Howie correctly accepted in
argument that an admission of part of a liability is sufficient to
interrupt prescription (
Roestorf
& Another v Johannesburg Municipal Pension Fund & Others
2012
(6) SA 184
(SCA) para 19). But before a creditor can rely on an
acknowledgment of part of the liability as an interruption of
prescription
there must be admissible evidence of the partial
acknowledgment. The rule that a partial acknowledgment suffices
naturally does
not mean that one can cherry-pick parts of a without
prejudice communication.
[65]
It follows that the first
issue raised in the stated case (the admissibility of the Webber
Wentzel letter) must be determined in
Empire’s favour. The
second issue thus falls away. The result of this determination is
that the special plea of prescription
succeeds. Costs should follow
the result. As to the wasted costs of 11 June 2015, these were
occasioned by Empire’s belated
attempt to resile from the
stated case. Empire should thus pay the wasted costs. The
postponement of 20 April 2016 was not either
party’s fault; the
unavailability of a judge seems to have been brought about by a
misunderstanding on the part of the Judge-President’s
secretary. The wasted costs should thus be costs in the cause.
[66]
I make the following order:
(a) The issue
identified in para 3.1 of the stated case is determined in favour of
the defendant.
(b) The special plea
of prescription thus succeeds and the plaintiff’s claims for
commission, save in the amount of R18 240
relating to the sale
to Werner Grift (Erf 884 on the schedule to the plaintiff’s
particulars of claim), are dismissed with
costs, including the
reserved costs of 20 April 2016.
(c) The
defendant is to pay the wasted costs of 11 June 2015.
______________________
ROGERS
J
APPEARANCES
For
Plaintiff
Mr
A la Grange SC & Mr CR Cilliers
Instructed
by
Hannes
Pretorius Bock & Bryant
49
Reitz Street
Somerset
West
For
Defendant
Mr
RJ Howie
Instructed
by
Matthew
Walton & Associates Inc
Unit
5, 51 Bell Crescent
Westlake
Business Park
Cape
Town
[1]
See also
Absa
Bank Ltd v
Chopdat
2000 (2) SA
1088
at 1092I-1093A.
[2]
My
statement in
para
15 of
One
Stop Financial Services (Pty) Ltd v Neffensaan Ontwikkelings (Pty)
Ltd & Another
2015
(4) SA 623
(WCC) that the allegedly privileged document was received
not as an admission of insolvency but as an acknowledgment
interrupting
prescription is erroneous – it was received for
both purposes.
[3]
Mr la
Grange referred me to the reference to Lord Hoffmann's opinion in
Zeffertt & Paizes op cit p 702. That was in the
course of a
discussion as to whether, jurisprudentially, the without prejudice
rule should be regarded as a form of 'privilege'.
The authors do not
express any decided opinion on the substantive question which arises
in this case. The latest edition of their
work predates
Ofulue
.
[4]
In the
passage in question Mellish LJ said this: ‘As to the letter of
19 February, there is thus further objection, that
it is stated to
be without prejudice. I am strongly of opinion, although it is not
necessary to decide it in this case, that
a letter which is stated
to be without prejudice cannot be relied upon to take a case
out of the
Statute
of Limitations
,
for it cannot do so unless it can be relied upon as a new contract.
Now, if a man says his letter is without prejudice, that
is
tantamount to saying, "I make you an offer which you may accept
or not, as you like; but if you do not accept it, the
having made it
is to have no effect at all." It appears to me, not on the
ground of bad faith, but on the construction of
the document, that
when a man says in his letter it is to be without prejudice, he
cannot be held to have entered into any contract
by it if the offer
contained in it is not accepted.'
[5]
Walridge
v Kennison
(1794)
1 Esp 143.
See also
Naidoo
at
679A-C.
[6]
Standard
Bank of South Africa v A-Team Africa Trading CC
[2015]
ZAKZPHC 43 is an illustration of the kind of case where an admission
might stand independently of settlement negotiations.
In response to
a demand sent to the respondent, the latter’s attorney
acknowledged receipt and made certain settlement
proposals. The
acknowledgment of receipt was held to be admissible to establish
that the respondent had received the demand (this
having been placed
in issue).
[7]
The
admission in the earlier proceedings was naturally admissible as
evidence in the later proceedings but the date on which the
pleading
in question was filed was too early in time to assist the claimants
in warding off the limitation defence in the later
proceedings,
hence their reliance on without prejudice negotiations which took
place while the earlier proceedings were pending
but after the
pleading in question was filed.