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[2017] ZASCA 98
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KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd (1135/2016) [2017] ZASCA 98; [2017] 3 All SA 739 (SCA); 2017 (6) SA 55 (SCA) (6 July 2017)
THE SUPREME COURT OF
APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1135/2016
In
the matter between:
KLD
RESIDENTIAL
CC
APPELLANT
and
EMPIRE
EARTH INVESTMENTS 17 (PTY)
LTD
RESPONDENT
Neutral
Citation:
KLD Residential v Empire Earth Investments
(1135/2016)
[2017] ZASCA 98
(6 July 2017)
Coram:
Lewis, Tshiqi and Mbha JJA and Fourie and Schippers AJJA
Heard:
9 May 2017
Delivered:
6 July 2017
Summary:
Where an acknowledgment of indebtedness is made by a debtor to a
creditor, even in without prejudice settlement negotiations, the
acknowledgment may be admitted in evidence for the sole purpose of
interrupting the running of the prescription period in terms
of
s 14
of the
Prescription Act 68 of 1969
.
ORDER
On
appeal from:
Western Cape Division of
the High Court, Cape Town (Rogers J sitting as court of first
instance), reported sub nom
KLD
Residential CC v Empire Earth Investments 17 (Pty) Ltd
2016 (5) SA 485
(WCC).
1 The appeal is upheld
with the costs of two counsel.
2 The orders of the court
a quo in subparagraphs (a) and (b) of para 66 of the judgment are set
aside and replaced with the following:
‘
(a)
The issue identified in para 3.1 of the stated case is determined in
favour of the plaintiff.
(b) The special
plea of prescription is dismissed with costs, including those of two
counsel.’
JUDGMENT
Lewis
JA (Tshiqi and Mbha JJA and Fourie AJA concurring)
[1]
The issue before us on appeal raises a novel question of law. That
is, whether an acknowledgment of indebtedness by a debtor,
embodied
in a letter written for the purpose of settling litigation, and thus
‘without prejudice’, may nonetheless
be admitted in
evidence for the limited purpose of showing that the period of
prescription has begun to run afresh in terms of
s 14
of the
Prescription Act 68 of 1969
.
[2]
The matter came before the Western Cape Division of the High Court by
way of a stated case. The question of law posed was put
thus by the
appellant:
‘
Does
(or should) our law recognize an exception to the without prejudice
rule (otherwise known as settlement or negotiation privilege),
to the
effect that such inadmissibility rule is not applied where the only
purpose for which reliance is placed on a communication
otherwise
covered by the rule is to prove an acknowledgment of liability
interrupting prescription as contemplated in
s 14
of the
Prescription
Act
. . . ?’
Rogers
J considered that there was no such exception, but granted leave to
appeal against his decision to this court.
[3]
The facts are largely common cause, and the only issue before us is
whether the common law should recognize the exception for
which the
appellant argues. This is a matter entailing competing policy
considerations underlying the without prejudice principle,
and the
law of prescription, and I shall deal with them in due course. It is
necessary first to describe the factual matrix and
the communication
that is argued by the respondent to be privileged even for the
purpose of proving an acknowledgment of liability
interrupting the
running of prescription in terms of
s 14
of the
Prescription Act.
Factual
background
[4]
The appellant, KLD Residential CC (KLD), in an action against the
respondent, Empire Earth Investments 17 (Pty) Ltd (Empire
Earth),
alleged in its particulars of claim that it had been given a written
mandate in November 2006 to market erven in a new
property
development, and to receive commission on sales of which it was the
effective cause. Commission was alleged to be payable
once transfer
of each property was passed to the buyer. KLD alleged that it was the
effective cause of 99 sales referred to in
a schedule to the
particulars. It was entitled, it said, to R2 147 million in
commission, due on transfers registered on dates
ranging between
October 2008 and November 2009. KLD issued summons for payment of the
commissions in June 2013.
[5]
In a special plea, Empire Earth pleaded that, save for one sale after
2009, the registration dates were more than three years
before the
summons was served, and that the claims for commission had become
prescribed. In its plea on the merits, Empire Earth
alleged that KLD
itself was in breach of various terms of the contract such that any
amount that was due by it fell to be reduced.
Empire Earth had
already commenced action against KLD in respect of various claims,
and asked that judgment be postponed until
those claims had been
adjudicated.
[6]
KLD replicated to the special plea, alleging that on 29 July 2011,
Empire Earth’s then attorneys, Webber Wentzel, had
written to
KLD’s then attorneys, acknowledging that it owed commissions in
the sum of R2 105 960. This, it was alleged, had
interrupted the
running of prescription in terms of
s 14
of the
Prescription Act, and
the prescription period had begun to run afresh on the date of the
letter. KLD’s claim for commission had not become prescribed,
it averred.
[7]
The parties’ respective claims were consolidated in September
2013. It was agreed that a stated case would be put to the
court, and
that the issue set out earlier was to be determined. The letter is
central to the argument and I shall set out its terms
in so far as
relevant fully. It should be recorded, however, that both in the
court a quo and in this court, KLD accepted that
the letter was
written without prejudice to the rights of the parties, in the course
of settlement negotiations. That concession
was in my view rightly
made. KLD also conceded that Rogers J had correctly found that an
admission of part of a liability is sufficient
to interrupt the
running of prescription.
[8]
KLD also accepts the finding of Rogers J that the law governing the
legal question asked in the stated case is the English law
of
evidence as at 31 May 1961, as provided for in s 42 of the Civil
Proceedings Evidence Act 25 of 1965. As Rogers J found,
subject
to specific legislation or any constitutional imperative, the law of
evidence in England at the relevant date had long
adopted the without
prejudice rule – that statements, including admissions of
liability, made in an attempt to settle litigation
between parties
are inadmissible in subsequent litigation between them. The rule is
based on policy grounds: parties to disputes
should be encouraged to
avoid litigation, which usually entails expense, delay, hostility and
inconvenience, by resolving their
disputes amicably in frank
discussions without the fear that if negotiations fail, admissions
made by them in the course of negotiating
may be used against them
subsequently. It should be said that the rule has long been part of
South African law as well, and I shall
discuss the authorities in
this regard later.
[9]
However, as I have indicated, KLD does take issue with the finding by
Rogers J that there are no compelling reasons of
public policy
to limit the protection afforded by the without prejudice rule so as
to recognize an exception to it for the purpose
of interrupting
prescription. This, as I have said, is the only issue on appeal.
The
letter in question
[10]
The letter, written on 29 July 2011, was addressed by Empire Earth’s
then attorneys, Webber Wentzel, to Jooste Leidig
attorneys, who were
acting on behalf of KLD, which was trading as Seeff Properties, and
referred to as ‘Seeff’. It
read (the precise punctuation
is not reproduced here):
‘
1
As you know, our client [Empire Earth] 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 per cent commission for each successful sale
which
Seeff effected, upon transfer of the sold property. For your
convenience we include under cover hereof a list of the properties
sold by Seeff which were successfully transferred to the purchasers.
4
Accordingly Seeff has become entitled to commission in the amount of
R2 105 960, including Vat.
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: . .
.’
There
followed a list of four claims not all of which were in fact
liquidated and were thus not capable of set-off. That is of no
consequence here.
‘
6
From the aforegoing, it is apparent that Seeff’s indebtedness
to our client amounts to R1 023 625.45.
7
Accordingly, we include under cover hereof a cheque for R1 082 334.55
including Vat (being R2 105 960 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 . . . .’
[11]
The cheque was not banked. KLD accepts that the entire letter was
written without prejudice, in an attempt to settle the disputes
between it and Empire Earth, and that no part of it would ordinarily
be admissible for the purpose of proving the amounts owed,
if any. It
accepts that the acknowledgements of liability in paras 2 and 4 of
the letter would ordinarily be privileged. It nonetheless
argues that
the policy considerations underlying
s 14
of the
Prescription Act
were
not sufficiently taken into account by Rogers J and that too
much weight was given to the policy underlying the without prejudice
rule.
The
policy underlying
s 14
of the
Prescription Act
[12]
The section reads:
‘
Interruption
of prescription
(1)
The running of prescription shall be
interrupted by an express or tacit acknowledgment of liability by the
debtor.
(2)
If the running of prescription is
interrupted as contemplated in subsection (1), prescription shall
commence to run afresh from
the day on which the interruption takes
place or, if at the time of the interruption or at any time
thereafter the parties postpone
the due date of the debt, from the
date upon which the debt again becomes due.’
[13]
One of the principal reasons for extinctive prescription is to
provide certainty to a debtor – after a period of time
when the
creditor has been inert, the debtor should have certainty as to
whether or not a debt is still owed. The three-year period
over which
prescription runs is regarded as being enough time for the creditor
to enforce the obligation, and conversely, if it
is not enforced
within that time, the debtor may be certain that the obligation has
ended. The debtor is protected save where the
reasons for the
principles underlying prescription fall away and the protection of a
creditor is justified.
[14]
This is clearly explained in
Murray & Roberts Construction
(Cape) (Pty) Ltd v Upington Municipality
1984 (1) SA 571 (A) at
578F-H where Grosskopf AJA said:
‘
Although
many philosophical explanations have been suggested for the
principles of extinctive prescription . . . its main practical
purpose is to promote certainty in the ordinary affairs of people.
Where a creditor lays claim to a debt which has been due for
a long
period, doubts may exist as to whether a valid debt ever arose, or if
it did, whether it has been discharged. . . .
The alleged
debtor may have come to assume that no claim would be made, witnesses
may have died, memories would have faded, documents
or receipts may
have been lost, etc. These sources of uncertainty are reduced by
imposing a time limit on the existence of a debt,
and the relevant
time limits reflect, to some extent, the degree of uncertainty to
which a particular type of debt is ordinarily
subject (s 11 of the
Act).’
[15]
The justifications for extinctive prescription are also to be found
in
Road Accident Fund v Mdeyide
[2010] ZACC 18; 2011 (2) SA 26
(CC) and
Myathaza v Johannesburg Metropolitan Bus Services (SOC)
Limited t/a Metrobus & others
[2016] ZACC 49 paras 28 to 30.
In
Mdeyide
, Van der Westhuizen J said (para 8):
‘
This
Court has repeatedly emphasized the vital role time limits plays in
bringing certainty and stability to social and legal affairs
and
maintaining the quality of adjudication. Without prescription
periods, legal disputes would have the potential to be drawn
out for
indefinite periods of time bringing about prolonged uncertainty to
the parties to the dispute. The quality of adjudication
by courts is
likely to suffer as time passes, because evidence may have become
lost, witnesses may no longer be able to testify,
or their
recollection of events may have faded. The quality of adjudication is
central to the rule of law.’
See
generally as to the justifications for extinctive prescription G B
Bradfield
Christie’s Law of
Contract in South Africa
7 ed (2016)
561; M M Loubser ‘Towards a theory of extinctive prescription’
(1988) 105
SALJ
34
and M M Loubser
Extinctive Prescription
(1996) pp 22-24.
[16]
Section 14
of the
Prescription Act, on
the other hand, serves the
purpose of protecting the creditor. As this court said in
Murray &
Roberts
(at 578H-579A):
‘
The
same considerations which provide a justification for extinctive
prescription also suggest that limits should not be immutable.
. . .
Moreover, s 14 of the Act provides that the running of
prescription is interrupted by an express or tacit acknowledgment
of
liability by the debtor. The reason is clear – if the debtor
acknowledges liability there is no uncertainty about the
debt.’
The
court continued (at 579D-E):
‘
It
will thus be seen that that there are two general principles which
protect a creditor against the effects of extinctive prescription.
The first is the basic requirement of certainty which underlies
extinctive prescription. Where the debtor removes all uncertainty
by
acknowledging liability, or the creditor does so by instituting and
prosecuting legal proceedings, the running of prescription
is
suitably adapted.’
[17]
The second principle discussed by this court in
Murray
& Roberts
was that underlying
s 13
of the
Prescription Act, which
delays the completion of prescription
where it is difficult or undesirable for the creditor to claim
performance (for example,
where the debtor is a minor, or out of the
country).
[18]
Given that
s 14
of the
Prescription Act protects
the rights of the
creditor, does that protection fall away if the acknowledgment of
debt is made without prejudice? The question
requires a consideration
of the other, competing, policy, which is that admissions made in the
course of negotiating a settlement
should not be admitted in
proceedings between the creditor and the debtor.
The
policy underlying the without prejudice principle
[19]
The policy, as I indicated earlier, is to promote the settlement of
disputes without resort to litigation, and was discussed
at length by
Trollip JA in
Naidoo v Marine &
Trade Insurance Co Ltd
1978 (3) SA 666
(A). Referring (at 674A-B) to a statement made by Lord Mansfield in
the 19
th
century that ‘it must be permitted to men to “buy their
peace” without prejudice to them, if the offer did not
succeed;
and such offers are made to stop litigation without regard to the
question whether any thing or what is due’, Trollip
JA said
that the origin and the rationale for the without prejudice rule was
public policy.
[20]
In
Naidoo
the respondent, a third party insurer, wrote a
number of without prejudice letters to the attorney of Mr Naidoo (the
plaintiff),
admitting that it was on risk as the insurer of the
negligent driver. Settlement negotiations failed and in subsequent
proceedings
the insurer denied that it was the negligent driver’s
insurer. Naidoo, in his replication, asserted that the insurer was
estopped from denying the admission. The trial court found that the
correspondence was inadmissible as the letters were written
without
prejudice to the insurer’s rights. This court upheld the
finding. Trollip JA, finding that the letters had been written
without prejudice, said (at 677B-D):
‘
[S]uch
correspondence, once respondent objected to its being adduced in
evidence, was wholly inadmissible. The rationale of the
rule is
public policy: parties to disputes are to be encouraged to avoid
litigation and all the expenses (nowadays, very high),
delays,
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 will be used against them
in the ensuing
litigation.’
[21]
Rogers J in the court a quo considered that he was bound by
Naidoo
.
KLD contends on appeal that
Naidoo
is distinguishable in that
it was not concerned with the competing policy considerations
underlying the provisions of the
Prescription Act but
only with the
application of the without prejudice rule. In my view that is
correct. In his consideration of English cases dealing
with
acknowledgments of liability and the without prejudice rule, Rogers J
alluded to the tension between competing policy considerations.
But
he did not fully consider the policies underlying the rules of
prescription.
The
tension between competing policies and principles
[22]
The tension between competing policies is recognized and discussed in
Bradford & Bingley plc v Rashid
[2006] UKHL 37
;
[2006] 4 All ER 705.
There the respondent had
mortgaged property to the appellants. He was unable to meet his
payment obligations. He admitted in correspondence
that he owed them
money but asked for more time in which to pay. The House of Lords
came to the unanimous conclusion that the admissions
were not made
without prejudice. The five law lords who wrote speeches differed in
their approaches to the question whether there
should be an exception
to the without prejudice rule in the case of an acknowledgment of
liability made without prejudice, but
their statements in this regard
were all made obiter. However, all the speeches acknowledged that
there are competing policies
at play.
[23]
Lord Walker said in
Bradford
(para 38) that there were two
public interests engaged in the appeal.
‘
There
is the interest in encouraging the settlements of disputes so as to
avoid (or at least shorten) litigation; . . . but it is
also in the
public interest that a debtor who acknowledges his debt, and so
induces his creditor not to have immediate resort to
litigation,
should not then be able to claim that the debt is statute-barred
because the creditor held his hand.’
Lord
Hoffmann, in criticizing the approach of the Court of Appeal in
Bradford
, said (para 3) that it, and the judge a quo, took a
‘rather one-sided view of the matter’. He continued:
‘
[T]hey
looked only at encouraging the debtor to be open with his creditor
without fear of what he said being used against him. But
it takes two
to negotiate and there is also a public policy in encouraging the
creditor not to initiate legal proceedings. The
acknowledgment rule
plays an important part in furthering this policy because it means
that a creditor,
negotiating on the basis
that his debt has been acknowledged, can proceed with the
negotiations and give time to pay without being
distracted by the
sound of time’s winged chariot behind him. It is also unfair
that a debtor who does not dispute his indebtedness
should be able to
ask for time and use that indulgence to rely on the statute.’
[24]
Lord Mance, on the other hand, expressed concern about the difficulty
of dissecting admissions of liability for admissibility
from the
balance of without prejudice discussions. Parties to a dispute would
not be able to speak freely if they had to monitor
every sentence to
avoid making an acknowledgment of liability that would subsequently
be admissible in litigation (para 91). He
referred in this regard to
the judgment of Walker LJ in
Unilever
plc v The Proctor & Gamble Company
[2000] 1 WLR 2436
;
[2001] 1 All ER 783.
[25]
Lord Mance referred also to the decision in
Kapeller
v Rondalia Versekeringskorporasie van Suid-Afrika Bpk
1964 (4) SA 722
(T) where the court was able to distinguish a clear
admission by a motor vehicle insurer from the without prejudice
negotiations
that followed as to the quantum. But Lord Mance was not
willing to recognize any exception for the purpose of limitation
since
the issue did not arise in
Bradford
.
[26]
Indeed in
Naidoo
,
this court said that any admissions that are unconnected with
settlement negotiations are not protected by the without prejudice
rule. The admission in
Kapeller
was of such a nature. The admission in
Naidoo
was not. And in this matter, KLD accepted that the admission of the
debt was not separable from the negotiation about settlement.
[27]
In
Ofulue & another v Bossert
[2009] UKHL 16
the law lords
refused to admit an acknowledgment of title (the court was dealing
with acquisitive prescription) in letters written
without prejudice
despite the argument that there was no admission of fact, just an
acknowledgment of the claimants’ title.
Lord
Neuberger said (para 101):
‘
[T]he
argument that there is a special exception to the without prejudice
rule for acknowledgments for the purpose of
s 29
[of the Limitations
Act 1980] derives no support from any of the other opinions expressed
in this House in [
Bradford
]
. . . For my part at any rate, I do not accept that the argument is
justified. I do not consider that
there is
any significant
public policy element in
the acknowledgment provisions of the 1980 Act, save in so far as it
can be said that any statutory provision
carries with it an element
of public policy.
’
Lord Neuberger
accepted the view in
Bradford
,
expressed by Lord Walker, (para 43) that ‘the policy underlying
the without prejudice rule seems to me to outweigh the countervailing
policy reason for lengthening the period’ of limitation through
an acknowledgment.
[28]
Referring to the opinions in
Bradford
,
and to the policy considerations that compete, D T Zeffertt and A P
Paizes
The South African Law of Evidence
2 ed (2009) p 702 suggest that a ‘robust’ solution
to ‘the kind of problem that arose in
Bradford
. . . might . . . be to allow the reception of communications
for the purpose of determining whether the debt had prescribed
but
not for other purposes on the basis that this best serves the
resolution of the competing policies that the privilege
accommodates.’
That is the exception for which KLD now
contends.
[29]
Rogers J in the court a quo, on the other hand, accepted the approach
of the English cases although he pointed out that he
was not bound by
them. He said that there are no compelling reasons of public policy
to limit without prejudice protection and
‘I am fortified in
that view by the fact that no such exception has been recognized in
English law’.
The
exception to the without prejudice rule contended for
[30]
KLD argued in the court a quo that the judgment in
Absa
Bank v Hammerle Group
[2015] ZASCA 43
;
2015 (5) SA 215
(SCA) is authority for the proposition that South
African law recognizes that there are exceptions to the without
prejudice rule.
In that matter, in response to a letter of demand
written by the bank, Hammerle had stated in a letter that it ‘would
like
to make a settlement proposal’ but that it was ‘struggling
to turn the business around’ and was ‘unable
to make any
meaningful profit in the business’. Counsel for Hammerle
apparently conceded at the outset of the hearing that
it was
commercially insolvent and unable to pay its debts. Mbha JA stated
(para 7) that the concession was ‘well made’.
[31]
In his view, the contents of the letter constituted not only an
unequivocal acknowledgment of indebtedness but also showed
that
Hammerle was unable to pay its debts and was commercially insolvent.
The question that had to be determined was whether these
admissions
were protected by the without prejudice rule and were thus
inadmissible.
[32]
Mbha JA said (para 13):
‘
It
is true that, as a general rule, negotiations between parties which
are undertaken with a view to a settlement of their disputes
are
privileged from disclosure. This is regardless of whether or not the
negotiations have been stipulated to be without prejudice.
However,
there are exceptions to this rule. One of these exceptions is that an
offer made, even on a ‘without prejudice’
basis, is
admissible in evidence as an act of insolvency. Where a party
therefore concedes insolvency, as the respondent did in
this case,
public policy dictates that such admissions of insolvency should not
be precluded from sequestration or winding-up proceedings,
even if
made on a privileged occasion. The reason for the exception is that
liquidation or insolvency proceedings are a matter
which by its very
nature involves the public interest. . . . It follows that any
admission of such insolvency, whether made in
confidence or
otherwise, cannot be considered privileged.’
The
court referred to two decisions in which this exception had been
explained and recognized:
Absa Bank v
Chopdat
2000 (2) SA 1088
(W) and
Lynn
& Main Inc v Naidoo & another
2006 (1) SA 59
(N). The policy is discussed fully in
Lynn
Main
paras 23 to 30, with reference to
Chopdat
.
[33]
This court in
Hammerle
considered in any event, however, that the admissions of indebtedness
and insolvency were not made without prejudice, since there
were no
negotiations for the purpose of settlement (para 14). It concluded
that the plea of prescription could not be sustained
because of the
unequivocal admission of liability. Rogers J in the court a quo was
unable to discern whether the exception recognized
in
Hammerle
in para 13 was the reason for the finding that the plea of
prescription could not be sustained, or whether it was because the
admission of commercial insolvency was not made without prejudice. He
considered nonetheless that that exception was different because
of
the public interest element.
[34]
In my view nothing turns on whether the dicta of Mbha JA in para 13
of
Hammerle
are obiter or the reason for the finding. The insolvency exception
has been approved by this court and applied in the
Chopdat
and
Lynn Main
cases. The question before us is whether there should be another
exception to allow for admissions of liability, made without
prejudice, where the debt would otherwise prescribe.
[35]
KLD argues that there is no authority that precludes this court from
deciding that, for policy reasons, where an acknowledgment
of
indebtedness is made in the course of without prejudice discussions,
it should be admissible for the limited purpose of interrupting
the
running of prescription. As
Hammerle
shows, the without prejudice rule is subject to at least one
exception, for reasons of public policy. Another exception should
be
recognized, KLD argues, based on the policy that an acknowledgment of
liability protects a creditor from a debtor who is certain
as to the
existence of the debt and his or her liability, and the debtor should
not be permitted to escape the obligation because
the admission was
made in the course of negotiations to settle a dispute.
[36]
I referred earlier to the rationale underlying
s 14
of the
Prescription Act: where
there is an acknowledgment of liability,
there is no uncertainty on the part of the debtor as to the existence
of the debt. As
Grosskopf AJA said in
Murray
& Roberts
at 579D-E (above), where
the debtor removes uncertainty by admitting liability, the running of
prescription is ‘suitably
adapted’. This accords with the
views expressed in
Bradford
– it is in the public interest that a debtor who acknowledges
his debt, ‘and so induces his creditor not to have immediate
resort to litigation’, should not be able to claim that the
debt has prescribed because ‘the creditor held his hand’
(Lord Walker para 38 and Lord Hoffmann para 3).
[37]
And as Lord Hope said in
Bradford
, there is a balance to be
struck between the public interest in prolonging the prescription
period when there has been an acknowledgment
of liability, and the
public interest in preventing statements made in the course of
negotiations being used at trial as admissions
of liability. He
stated (para 34):
‘
It
would be bizarre if a claimant who had been dissuaded from taking
proceedings time and time again both before and after the expiry
of
the limitation period by prolonged correspondence which contained
repeated statements that liability was admitted, and which
sought to
negotiate only on the matter of quantum, was to be deprived of his
claim on limitation grounds when negotiations broke
down simply
because the admissions were made in letters which contained proposals
as to the amount that was to be paid in settlement
of that liability.
This suggests to me that there is something wrong with an absolute
rule that will always exclude an admission
made in the course of
negotiations from being relied upon as an acknowledgment for the
purposes of the 1980 Act.’
[38]
The example given by Lord Hope is not directly in point, for it deals
with the
Kapeller
situation when an admission of liability is made, and negotiations
that follow are purely in respect of quantum. And in any event
in
Bradford
the court found that the admissions were not made without prejudice.
It is accepted in this matter that the admissions in question
were
without prejudice. The point that Lord Hope makes, however, is that
there should not be an absolute rule.
[39]
I consider that the exception contended for is well-founded. Where
acknowledgments of liability are made such that, by virtue
of
s 14
of
the
Prescription Act, they
would interrupt the running of
prescription, such acknowledgments should be admissible, even if made
without prejudice during settlement
negotiations, but solely for the
purpose of interrupting prescription. The exception itself is not
absolute and will depend on
the facts of each matter. And there is
nothing to prevent the parties from expressly or impliedly ousting it
in their discussions.
What the exception allows for, as I see it, is
the prevention of abuse of the without prejudice rule, and the
protection of a creditor.
The admission remains protected in so far
as proving the existence and the quantum of the debt is concerned. It
is not, as Empire
Earth suggested in argument, a question of the
without prejudice rule trumping prescription. It is a question of
recognizing that
both
s 14
of the
Prescription Act and
the without
prejudice rule protect policy interests, and recognizing an exception
so that both interests are properly served.
[40]
I consider therefore that the appeal should be upheld with the costs
of two counsel, and the question in the stated case be
answered in
favour of KLD. That question, as framed in KLD’s heads,
reflecting the actual terms of para 3.1 of the stated
case, is
repeated here for the sake of clarity:
‘
Does
(or should) our law recognize an exception to the without prejudice
rule . . . to the effect that such general inadmissibility
rule is
not applied where the only purpose for which reliance is placed on a
communication otherwise covered by the rule is to
prove an
acknowledgment of liability interrupting prescription as contemplated
in
s 14
of the
Prescription Act 68 of 1969
?’
[41]
Accordingly:
1 The appeal is upheld
with the costs of two counsel.
2 The orders of the court
a quo in subparagraphs (a) and (b) of para 66 of the judgment are set
aside and replaced with the following:
‘
(a)
The issue identified in para 3.1 of the stated case is determined in
favour of the plaintiff.
(b)
The special plea of prescription is dismissed with costs, including
those of two counsel.’
_________________
C H Lewis
Judge of Appeal
Schippers
AJA dissenting:
[42]
There is a single issue in this appeal: whether an acknowledgment of
liability, made without prejudice in a written offer of
settlement,
may be admitted in evidence for the purpose of interrupting
prescription within the meaning of s 14 of the Prescription
Act
68 of 1969 (the
Prescription Act).
[1
]
My colleague, Lewis JA, has answered this question affirmatively,
holding that such acknowledgment justifies an exception to the
without prejudice rule because it ‘allows for . . . the
prevention of abuse of the without prejudice rule, and the protection
of a creditor’, and that recognising such an exception would
properly serve the policy interests of
s 14
of the
Prescription Act
and
the without prejudice rule.
[2]
[43]
In my opinion such an exception would negate the without prejudice
rule, which operates to encourage parties to a dispute to
settle
their differences amicably in full and frank discussions, and ‘to
exclude all negotiations genuinely aimed at settlement
whether oral
or in writing from being given in evidence’.
[3]
[44]
The appellant (KLD) accepts - as it must - that by virtue of s 42 of
the Civil Proceedings Evidence Act 25 of 1965 (an object
of which is
to state the law of evidence in regard to civil proceedings) the law
to be applied is the English law of evidence as
at 31 May 1961.
[4]
In my view, the court a quo was correct in holding that the English
cases do not permit an acknowledgment of liability in a genuine
offer
of settlement, as evidence of an interruption of time running against
a claimant under the provisions of the English Limitation
Act 1980
(the Limitation Act).
Facts
[45]
The basic facts may be simply summarised. On 27 November 2006 the
respondent (Empire) and KLD, an estate agent also known as
Seeff
Properties, entered into a written agreement (the agreement). In
terms of the agreement, KLD was given a mandate to market
and sell
erven in a residential property development by Empire in Croydon,
Western Cape (the development); commission was payable
once the
relevant purchaser took transfer; and KLD undertook to contribute to
the media advertising and marketing costs of the
development.
[46]
In November 2007 Empire sued KLD in the Western Cape High Court under
case number 16844/07, for payment of R428 000 in respect
of media
advertising and marketing costs, and R35 889 being expenses
which Empire had incurred in the administration of sales.
While this
action was pending, by letter dated 29 July 2011, Empire’s
attorneys made a written offer of settlement to KLD’s
attorneys
(the Letter).
[5]
The Letter referred to Empire’s action against KLD under case
number 16844/07, and stated that KLD was entitled to commissions
in a
total sum of R2 105 960 under the agreement, and that it
was indebted to Empire for marketing costs, expenses incurred
in the
administration of sales by KLD, and legal costs totalling
R1 023 625.45. The Letter concluded with the following
offer of compromise:
‘
Accordingly
we include under cover 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.’
[47]
It is common ground that the Letter was a without prejudice offer of
settlement, and that KLD did not deposit the cheque of
R1 082
334.55 and thus rejected the offer.
[48]
In June 2013 KLD instituted an action against Empire for R2 147
million, being commissions on the sales of 99 erven in
the
development set out in a schedule to KLD’s particulars of
claim. The commissions were earned on the registration dates
specified in the schedule. Save for one sale to Mr Werner Grift (the
Grift sale), the registration dates specified in KLD’s
schedule
range from October 2008 to November 2009.
[49]
KLD’s summons was served on 26
June 2013. Empire delivered a special
plea of prescription in which it alleged that KLD’s alleged
right to commissions became
due on the registration dates specified
in KLD’s schedule; that except for the Grift sale, those
registration dates were
more than three years before the service of
summons; and that KLD’s claims to commissions had thus
prescribed.
[50]
In its replication to the special plea, KLD alleged that in the
Letter, Empire’s attorneys, acting as Empire’s
authorised
representatives, expressly acknowledged that KLD had become entitled
to payment of commissions totalling R2 105 960.
This, so
KLD alleged, was an acknowledgment of liability which interrupted
prescription as contemplated in
s 14
of the
Prescription Act.
[51]
In the court a quo, 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. Thus prescription
began to run before 25 June 2010, save for the Grift
sale. And it is
not KLD’s case that it delayed in instituting its claim against
Empire because it understood that, by making
the offer of compromise
in the Letter, Empire acknowledged that it was liable for commissions
as contemplated in
s 14
of the
Prescription Act.
[52
]
The issue came before the court a quo in the form of a stated case as
envisaged in rule 33 of the Uniform Rules of Court. The
parties
agreed that the Letter, which they attached, was sent and received by
their authorised representatives. They recorded that
there were two
issues for determination, which would dispose of the special plea:
(a) whether the Letter, regardless of its admissibility
for any other
purpose, was admissible as evidence of an interruption of
prescription as contemplated in s 14 of the Prescription
Act; and (b)
whether, assuming that the Letter was admissible for that purpose, it
did in fact interrupt prescription.
The
without prejudice rule
[53]
The without prejudice rule operates to render evidence inadmissible.
The directly relevant authority for this proposition is
Rush
& Tompkins
,
[6]
in which Lord Griffiths said:
‘
The
“without prejudice rule” is a rule governing the
admissibility of evidence and is founded upon the public policy
of
encouraging litigants to settle their differences rather than
litigate them to a finish. It is nowhere more clearly expressed
than
in the judgment of Oliver LJ in
Cutts v
Head
[1984] Ch 290
, 306:
“
That
the rule rests, at least in part, upon public policy is clear from
many authorities, and the convenient starting point of the
inquiry is
the nature of the underlying policy. It is that parties should be
encouraged so far as possible to settle their disputes
without resort
to litigation and should not be discouraged by the knowledge that
anything that is said in the course of such negotiations
(and that
includes, of course, as much the failure to reply to an offer as an
actual reply) may be used to their prejudice in the
course of the
proceedings. They should, as it was expressed by Clauson J in
Scott
Paper Co v Drayton Paper Works Ltd
(1927) 44 RPC 151
, 156, be encouraged fully and frankly to put their
cards on the table. … The public policy justification, in
truth, essentially
rests on the desirability of preventing statements
or offers made in the course of negotiations for settlement being
brought before
the court of trial as admissions on the question of
liability.”
The
rule applies to exclude all negotiations genuinely aimed at
settlement whether oral or in writing from being given in evidence.
A
competent solicitor will always head any negotiating correspondence
“without prejudice” to make clear beyond doubt
that in
the event of the negotiations being unsuccessful they are not to be
referred to at the subsequent trial. However, the application
of the
rule is not dependent upon the use of the phrase “without
prejudice” and if it is clear from the surrounding
circumstances that the parties were seeking to compromise the action,
evidence of the content of those negotiations will, as a
general
rule, not be admissible at the trial and cannot be used to establish
an admission or partial admission.’
[54]
In
Unilever
,
[7]
Robert Walker LJ noted that aside from being based in part on the
public policy of encouraging parties to negotiate and settle
their
disputes out of court, a second basis of the without prejudice rule
‘. . . is in the express or implied agreement of
the parties
themselves that communications in the course of their negotiations
should not be admissible in evidence if, despite
the negotiations, a
contested hearing ensues’. Hoffmann LJ in
Muller
,
[8]
observed that ‘[i]n some cases both of these justifications are
present; in others, only one or the other’.
[55]
Without prejudice communications are normally inadmissible in their
entirety. In
Unilever
,
[9]
Robert Walker LJ explained why this is so:
‘
.
. . I consider that this court should, in determining this appeal,
give effect to the principles stated in the modern cases, especially
Cutts v Head
,
Rush & Tompkins
and
Muller
.
Whatever difficulties there are in a complete conciliation of those
cases, they make clear that the without prejudice rule is
founded
partly in public policy and partly in the agreement of the parties.
They show that the protection of admissions against
interest is the
most important practical effect of the rule. But to dissect out
identifiable admissions and withhold protection
from the rest of
without prejudice communications (except for a special reason) would
not only create huge practical difficulties
but would be contrary to
the underlying objective of giving protection to the parties (in the
words of Lord Griffiths in
Rush &
Tompkins
at p 1300)
“
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”.
Parties
cannot speak freely at a without prejudice meeting if they must
constantly monitor every sentence, with lawyers . . . sitting
at
their shoulders as minders.’
[56]
There are, however, occasions when the without prejudice rule does
not prevent the admission in evidence of what parties said
or wrote.
Robert Walker LJ in
Unilever
,
[10]
set out and explained eight such instances. The most important of
these are where the negotiations are said to have resulted in
a
contract, an estoppel, or a misrepresentation, or where they are
invoked ‘. . . as a cloak for perjury, blackmail or other
“unambiguous impropriety”,’ or an explanation for
delay. In
Rush
& Tompkins
[11]
Lord Griffiths referred to
Daintrey
[12]
as authority for the proposition that a court will not permit the
without prejudice rule to be used to exclude an act of bankruptcy;
and said that the admission of an independent fact in no way
connected with the merits of the cause is admissible even if made
in
the course of settlement negotiations. The UK Supreme Court has
recognised an exception to the rule in terms of which:
‘
facts
identified during without prejudice negotiations which lead to a
settlement agreement of the dispute between the parties are
admissible in evidence in order to ascertain the true construction of
the agreement as part of its factual matrix or surrounding
circumstances’.
[13]
[57]
Important for present purposes, is the observation by Robert Walker
LJ in
Unilever
,
[14]
with reference to an article by Professor David Vaver, published in
the University of British Columbia Law Review in 1974:
[15]
‘
It
is apparent that none of the exceptions to the public policy rule
involves the disclosure of admissions bearing on the subject
matter
in dispute, at any rate unless the expression “admission”
is given a substantially wider meaning than it usually
has in the law
of evidence. . . . Conversely, however, I respectfully doubt whether
the larger residue of communications which
remain protected can all
be described as admissions (again, unless that expression is given an
unusually wide meaning). One party’s
advocate should not be
able to subject the other party to speculative cross-examination on
matters disclosed or discussed in without
prejudice negotiations
simply because those matters do not amount to admissions.’
[58]
In our law the public policy foundation of the without prejudice rule
was affirmed by this court in
Naidoo
.
[16]
Trollip JA, referring to the same article by Vaver,
[17]
said:
‘ …
[O]ne
of the first reported uses of the words “without prejudice”
in the present sense was by Lord Mansfield in England
in the 18
th
century when he said, apropos of offers to compromise litigation not
being regarded as admissions of liability, that:
“
it
must be permitted to men ‘to buy their peace’ without
prejudice to them, if the offer did not succeed; and such offers
are
made to stop litigation without regard to the question whether
anything or what is due.’”
[18]
Trollip JA went on to
say:
‘
The
rationale of the rule is public policy: parties to disputes are to be
encouraged to avoid litigation and all the expenses (nowadays
very
high), delays, 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 will be used against
them in the
ensuing litigation. (
Kapeller
v Rondalia Versekeringskorporasie van Suid-Afrika Bpk
1964 (4) SA 722
(T) at 728F-G; Schmidt
Bewysreg
at 420; Hoffman
SA
Law of Evidence
2nd ed at 155;
Vaver
at 94.) Often such admissions are classified or described as being
“privileged” communications. That is an accurate
but
convenient label provided one always remembers that their
admissibility or otherwise [is] not necessarily governed by the same
considerations as are applicable to privileged communications (
Vaver
at 105;
Hoffman
(
supra
at 155)).’
[19]
[59]
As in the case of English law, our law recognises that in some
instances without prejudice communications may be admitted in
evidence. In
Naidoo
it was held that admissions unconnected with or irrelevant to
settlement negotiations are not covered by the rule and are
admissible
in evidence.
[20]
Trollip JA referred to
Kapeller’s
case,
[21]
in which it was found that according to the parties’ intention
and discussions, the admission of liability in question was
made
independently of and separately from the settlement negotiations and
was therefore admissible.
[60]
But
Naidoo
makes it clear that our courts must apply the
without prejudice rule as expounded by the English courts:
‘
According
to various statutes in South Africa our Courts are in effect enjoined
to apply the “without prejudice” rule
as developed and
expounded by the English Courts. I emphasize this here because, as
will presently appear, the judicial and other
views expressed in the
USA and Commonwealth countries other than the UK appear to differ
from the English view on a particular
aspect of the rule that is
crucial to the present case. If that is so, then undoubtedly the
English view must prevail. The reason
is that questions relating
generally to the admissibility of evidence, which includes “without
prejudice” communications,
are now governed by s 42 of our
Civil Proceedings Evidence Act 25 of 1965.’
[22]
[61]
In my view the position is no different under the Constitution, by
virtue of item 2(1) of Schedule 6 thereto. It reads:
‘
A
ll
law that was in force when the new Constitution took effect,
continues in force, subject to-
(a)
any
amendment or repeal; and
(b)
consistency
with the new Constitution.’
[23]
[62]
In
Naidoo
,
[24]
Trollip JA said that the House of Lords has not yet pronounced
authoritatively on the content of the English rule. It has since
done
so in
Ofulue
,
[25]
as regards an issue akin to the one in this case: an acknowledgment
or admission in a letter written without prejudice with a view
to
settling proceedings, cannot be relied upon so as to interrupt time
running against a claimant under the provisions of the Limitation
Act.
[63]
The relevant facts in
Ofulue
can be shortly stated. In 1989 Mr and Mrs Ofulue, the registered
owners of property, instituted proceedings against Mr Bossert
and his
daughter in the high court for possession of their property, on the
grounds that they were the owners, and the Bosserts
trespassers. In
their defence the Bosserts admitted the Ofulues’ title, but
denied their right to possession on the basis
that the lease of an
erstwhile tenant had been assigned to them, and that they had carried
out substantial work to the property
on the understanding that they
would be granted a 14-year lease. In the course of these proceedings,
on 14 January 1992 the Bosserts,
through their solicitors, wrote a
without prejudice letter to the Ofulues’ solicitors, stating
that the Ofulues were at most
entitled to arrear rental for six
years, and setting out their assessment of the value of the property
and the work carried out
to it. The letter concluded with the
following sentence: ‘In these circumstances, our client would
be willing to make an
offer of £35 000 to your client for
the purchase of the property’. The Ofulues rejected this offer.
[64]
Nothing happened as regards the proceedings brought by the Ofulues
for nearly ten years and they were automatically stayed
under the
provisions of the English Civil Procedure Rules. In 2002 the Ofulues
applied to lift the automatic stay. Ms Bossert (whose
father had
passed away) opposed the application, which was refused and the
proceedings were struck out. In 2003 the Ofulues issued
fresh
proceedings against Ms Bossert for possession of the property. Ms
Bossert then claimed that she had obtained title to the
property by
adverse possession, and that she and her father had been in
uninterrupted possession, as trespassers, for more than
12 years
before the 2003 proceedings had been initiated. To refute this
contention, the Ofulues sought to rely inter alia on the
Bosserts’
acknowledgment of their title during that 12 year period, in the
without prejudice letter of 14 January 1992.
[65]
Consequently, one of the issues that had to be decided was whether
the letter of 14 January 1992, written without prejudice
in order to
settle the earlier proceedings, could be relied on as an
acknowledgment of liability under s 29(2) of the Limitation
Act. In
terms of that provision, ‘[i]f a person in possession of the
land . . . acknowledges the title of the person
to whom the
right of action has accrued . . . the right shall be treated as
having accrued on and not before the date of the acknowledgement’.
It was argued that an acknowledgment which satisfies the requirements
of s 29(2) is an exception to the without prejudice rule,
and that
public policy justified such acknowledgment.
[66]
The Court of Appeal decided that the letter could not be relied on as
an acknowledgment, because it was written without prejudice
with a
view to settling the earlier proceedings.
[67]
A majority of the House of Lords (4:1) agreed and dismissed the
appeal. The majority, on the authority of
Rush
& Tompkins
and
Unilever
,
concluded that the without prejudice letter of 14 January 1992 could
not be invoked as an acknowledgment interrupting time running
against
a claimant under the provisions of s 29(2) of the Limitation Act. The
basic reason was that to do so would undermine the
effectiveness of
the without prejudice rule as an encouragement to parties to speak
freely when negotiating a compromise of their
dispute, without having
to worry that what they say may be used against them subsequently.
[68]
Lord Hope put the matter thus:
‘
I
think that the public policy basis for not allowing anything said in
the letter to be used later to her prejudice provides Ms
Bossert with
all she needs to defeat the argument that the implied admission that
it contains can be used as an acknowledgement
against her in these
proceedings. The essence of it lies in the nature of the protection
that is given to parties when they are
attempting to negotiate a
compromise. It is the ability to speak freely that indicates where
the limits of the rule should lie.
Far from being mechanistic, the
rule is generous in its application. It recognises that unseen
dangers may lurk behind things said
or written during this period,
and it removes the inhibiting effect that this may have in the
interests of promoting attempts to
achieve a settlement. It is not to
be defeated by other considerations of public policy which may emerge
later, such as those suggested
in this case, that would deny them
that protection.’
[26]
[69]
Lord Rodger was of the opinion that the without prejudice rule is
actually a privilege forming part of the general law of evidence
and
is based on public policy. Whilst the courts have recognised certain
exceptions to the privilege when the justice of the case
required it,
the question was whether creating such an exception in the
circumstances would be consistent with the overall policy
behind the
rule. He concluded that it would not, and that there was a
significant danger that the effectiveness of the rule as
an
encouragement to parties to speak freely, would be undermined if
admissions of independent facts were allowed in evidence.
[70]
Lord Walker took the view that as a matter of principle, the without
prejudice rule should not be restricted unless justice
clearly
demanded it. He said that the letter of 14 January 1992 was
undoubtedly connected with the possession proceedings that
the
parties were trying to settle, and that ‘the recognition of an
exception for an acknowledgement under section 29 of the
Limitation
Act 1980 would whittle down the protection given to the parties to
speak freely’.
[71]
Lord Neuberger’s opinion was to the same effect. He summed up
the position as follows:
‘
I
entirely agree with . . . Lord Rodger of Earlsferry . . . that it is
open to your Lordships to create further exceptions to the
rule, and
in particular the sort of admission identified by Lord Hoffman in
Rashid
[2006] 1 WLR 2066
, para 13 and by Lord Scott in this case. However, I
also agree with him, and indeed with Lord Hope and Lord Walker, that
it would
be inappropriate to do so, for reasons of legal and
practical certainty. To uphold such an exception in this case would
run counter
to the thrust of the approach of Lord Griffiths in
Rush
& Tompkins
[1989] AC 1280
and of Robert Walker LJ in
Unilever
[2001] 1 WLR 2436
, and would severely risk hampering the freedom
parties should feel when entering into settlement negotiations.’
[27]
[72]
With those principles in mind I return to the facts of this case. In
my view, to allow an admission against interest of the
kind sought by
KLD, would fly in the face of the underlying rationale for the
without prejudice rule, and would create legal and
practical
uncertainty. Viewed objectively, as it must be,
[28]
the Letter plainly was a without prejudice offer of compromise to
bring an end to the litigation that Empire instituted, and to
avert
future litigation by KLD. That is precisely why Empire acknowledged
that KLD was entitled to commissions. The protection
of this
acknowledgment is the most important practical effect of the without
prejudice rule.
[73]
I cannot put the point better than Lord Rodger did in
Ofulue
:
[29]
‘
In
Rush & Tompkins
[1989] AC 1280
, 1300F-G, he [Lord Griffiths] went out of his way to
emphasise that the exception in
Waldridge
v Kennison
(1794) 1 Esp 42
“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.”
In my view there
must indeed be a significant danger that allowing in evidence of
admissions of “independent facts”
would undermine the
effectiveness of the rule as an encouragement to parties to speak
freely when negotiating a compromise of their
dispute. As was said
many years ago,
“
If
the proper basis of the rule is privilege, is there any logical
theory under which the court can, by methods akin to chemistry,
analyze a compromise conversation so as to precipitate one element of
it as an offer of settlement and the other as an independent
statement of fact? Would not the layman entering into a compromise
negotiation be shocked if he were informed that certain sentences
of
his conversation could be used against him and other sentences could
not?” ’
[30]
[74]
The necessity of admitting certain facts so as to achieve a
compromise and the practical difficulty of admitting in evidence
those facts, is illustrated by this very case. What of the remaining
content of the Letter, if the acknowledgment of liability
for
commissions were to become admissible in evidence? Could it exist
independently of the acknowledgment? I think not. The acknowledgment
has a direct bearing on the subject matter in dispute. It cannot be
detached from the offer of compromise in the last paragraph
of the
Letter. Indeed, the Letter is meaningless without the offer of
compromise of which the acknowledgment of liability forms
an integral
part. It seems to me that on any view, the acknowledgments in paras 2
and 4 of the Letter that KLD was entitled to
commissions, as was held
in
Naidoo
,
‘. . . were not merely reasonably incidental to . . .
settlement negotiations, they were actually part of them.’;
and
cannot be said to be unconnected with, or to fall outside the ambit
of, the offer of compromise in the Letter.
[31]
It should therefore not be admissible in evidence against Empire.
[75]
It is thus hardly surprising that in
Ofulue
,
Lord Neuberger held that to uphold an exception to the rule that an
acknowledgment in a without prejudice letter is admissible
to stop
time running against a claimant under the provisions of the
Limitation Act (an exception of the kind sought by KLD), would
run
counter to the thrust of the approach in
Rush
& Tompkins
and
Unilever
,
and ‘. . . would severely risk hampering the freedom parties
should feel when entering into settlement negotiations’.
[32]
[76]
For these reasons, the submission by Mr La Grange, who with Mr
Cilliers appeared for KLD, that
Naidoo
is distinguishable because it did not involve the interruption of
prescription, is quite wrong.
[77]
What all of this shows, is the practical difficulty that arises when
dissecting out identifiable admissions from without prejudice
communications. But it also shows that to do so, particularly in the
circumstances of this case, would render the operation of
the without
prejudice rule nugatory and meaningless.
[78]
Lord Hope made the point more forcefully:
‘
If
converting offers of compromise into admissions of acts prejudicial
to the person making them were to be permitted no attempt
to
compromise a dispute could ever be made.’
[33]
[79]
So, the Letter was a bona fide attempt to compromise the dispute
between Empire and KLD in case number 16844/07 and to avoid
the
litigation by KLD, which at that stage had not yet commenced. It
contains statements and an offer genuinely made with a view
to
settling disputes. Had that offer of compromise been accepted, that
would have brought an end to Empire’s case and KLD
would not
have brought its claim for commissions. As such, the Letter, in my
view, falls under both the public policy and implied
agreement
justifications for the without prejudice rule: parties are encouraged
to settle their disputes out of court; and they
impliedly agree to
the consequences of offering to negotiate without prejudice - that
what they say will not be used against them
subsequently.
[34]
[80]
This being so, it cannot be suggested that the Letter constitutes
some sort of ‘abuse’ of the without prejudice
rule, to
justify an exception of the kind sought by KLD. There has been no
‘unambiguous impropriety’ on the part of
Empire, either
generally or in claiming the benefit of the rule and by raising
prescription. This, a fortiori in light of the following
facts. The
period of three years within which a claim must be brought under the
Prescription Act, as
the court a quo rightly observed, is generous.
When the Letter was sent, KLD’s claim had not yet prescribed.
Its inertia
has given rise to the issue in this case. There is
nothing to suggest that KLD’s delay in bringing its claim was
because
Empire had acknowledged its liability for commissions. And
there was nothing that prevented the parties from agreeing that the
running of time would be suspended whilst KLD considered the offer of
compromise in the Letter.
[81]
In these circumstances, I consider that the without prejudice rule
should not be restricted to permit KLD to rely on the Letter
as an
acknowledgment of liability interrupting prescription.
[82]
Any such restriction, in my opinion, would be one of principle and
cannot depend on the facts of a particular case.
[35]
It must mean that whenever liability is acknowledged in a without
prejudice offer of compromise, prescription can never be raised
as a
defence. The consequence of this surely must be the effective
exclusion of the without prejudice rule in these circumstances:
there
would be no point to attempt to compromise a dispute. The only
alternative would be an attempt at settling a dispute without
full
and frank discussions, with parties monitoring every sentence to
guard against admissions, and lawyers sitting at their shoulders
as
minders. In
Bradford
,
[36]
Lord Hoffmann said that guardedness in without prejudice negotiations
would be novel:
‘
It
has frequently been said that the purpose of the rule is to encourage
parties engaged in settlement negotiations to express themselves
freely and without inhibition. It is well established that the rule
applies to any genuine attempt at negotiation, whether or not
the
communications are expressly said to be without prejudice, and I
think it would be most unfortunate if the law introduced a
new
requirement that the parties should preface anything they said with
the standard disclaimer that any admissions of fact were
to be taken
to be hypothetical and solely for the purposes of the negotiation.’
[83]
This is quite apart from disputes that will arise when, for example,
a party disavows making an admission in the first place,
or there is
a dispute about the meaning of certain statements, during without
prejudice discussions or communications, which a
court will have to
determine on a balance of probabilities. Such practical difficulties,
of course, do not arise if effect is given
to the rationale for the
without prejudice rule.
[84]
The submission on behalf of KLD that the exception that it seeks to
the rule is clear, easy to apply, has no side-effects and
will not
restrict the scope of the rule, is therefore unsustainable.
[85]
KLD also submitted, on the authority of
Naidoo
,
that the rule may be departed from in exceptional circumstances,
which leaves room for the potential recognition of a distinction
between an admission and the mere fact that an admission had been
made. In other words, an acknowledgement of liability in a without
prejudice communication should be admissible not to establish its
truth, but as proof of the fact that it was made. Then it was
submitted that there is a public policy rationale for the exception
in the speech of Lord Walker in
Bradford
,
[37]
namely that it is in the public interest that a debtor who
acknowledges his debt and so induces his creditor not to resort to
litigation, should then not be able to claim that the debt is statute
barred; and that the exception was in effect recognised by
this court
in
Hammerle
.
[38]
[86]
These submissions are likewise unsustainable. The first is based on a
misreading of
Naidoo
.
As was said in that case, the purpose for which a party wishes to
adduce a without prejudice communication is all-important, since
it
may be admitted in evidence in exceptional circumstances to prove,
for example, that it contains a threat, an act of insolvency
or other
matters that it would be contrary to public policy to protect it from
being admissible.
[39]
No such exceptional circumstances exist in this case. One is again
driven back to the principle in
Naidoo
and the English authorities, in particular,
Ofulue
,
referred to above: the without prejudice rule applies to any genuine
attempt at settlement of a dispute and admissions forming
part of
such attempt are covered by the rule.
[40]
In the words of Lord Mance in
Bradford
:
[41]
‘
The
existence of a dispute and of an attempt to compromise it are at the
heart of the rule whereby evidence may be excluded (or
disclosure of
material precluded) as “without prejudice”.’
[87]
The difficulty with the argument that an acknowledgment in a without
prejudice communication should be admissible as a fact,
rather than
for the truth of its contents, was neatly stated by Lord Walker in
Bradford
:
‘
An
acknowledgment of a debt is in its very nature an express admission
(just as a payment on account is an implied admission) of
the
existence of a debt. To say that it does not matter whether the
admission is true or false . . . seems to me rather unreal.
Few
debtors would see any advantage in making a false admission of debt.
. . . Just as the law would be complicated and distorted
by a rule
which protected only “qualified” or “hypothetical”
admissions, so it would in my opinion tend
to be complicated and
distorted by a rule under which one and the same statement was
admissible as an acknowledgment for the purposes
of section 29(5) of
the Limitation Act 1980, but not as an admission against interest. It
would not, as I see it, be relying on
the distinction between
testimonial and non-testimonial use, but on a more elusive
distinction between different types of testimonial
use.’
[42]
[88]
Lord Brown made the point even more tersely:
‘
In
acknowledgment cases . . . the statements
are
sought to be adduced in evidence as admissions. Indeed, it is only as
admissions that they are relevant as acknowledgments.’
[43]
[89]
In my opinion
Bradford
does not support the argument that public policy dictates that a
debtor who acknowledges his debt in a without prejudice
communication,
should not be able to claim that the debt is time
barred, to the contrary. The issue in
Bradford
was whether admissions by a mortgagor in default that he was liable
for the outstanding amount, were admissible in subsequent proceedings
by the mortgagee for the arrears. The only question was whether those
admissions, as distinct from an offer in negotiations with
a view to
compromise of a disputed liability, were covered by the without
prejudice rule. The House of Lords held that they were
not. The
mortgagor was simply asking for time to pay. Lord Brown said that it
was impossible to regard the correspondence in question
as
constituting ‘negotiations genuinely aimed at settlement’
or ‘an attempt to compromise actual or impending
litigation’.
[44]
[90]
The argument that there is a public policy rationale for the
exception does not, in my view, bear scrutiny, for the reasons
advanced above. It also ignores the fact that in
Bradford
,
Lord Walker agreed with Lord Brown that the policy underlying the
without prejudice rule outweighed any countervailing policy
reason
for lengthening the period of limitation through a written
acknowledgment of liability. In fact, Lord Brown said that there
are
sound policy reasons for having limitation periods in the first place
- disputes should be litigated before they become too
stale.
[45]
[91]
Similar policy reasons underlie the
Prescription Act. Thus
in
Uitenhage
Municipality
,
Mahomed CJ said that one of the main purposes of the Act is to
protect a debtor from old claims against which it cannot effectively
defend itself because of the lapse of time.
[46]
This court has held that the main practical purpose of the Act is to
promote certainty in the ordinary affairs of people; and that
sources
of uncertainty such as whether a valid debt arose or has been
discharged, or an assumption by a debtor that no claim would
be made,
are reduced by imposing a time limit on the existence of a debt.
Uncertainty about the existence of a debt is removed
when the
creditor takes judicial steps to recover the debt. Likewise, there is
no uncertainty about a debt when the debtor expressly
or tacitly
acknowledges liability for it, and for this reason a creditor is not
required to interrupt prescription by instituting
legal proceedings
for the recovery of the debt.
[47]
[92]
This, however, in my opinion, does not mean that an acknowledgment of
liability,
made
without prejudice
by a debtor, should excuse the creditor from instituting proceedings
to recover the debt within three years, for the following
reasons.
First,
s 14
of the
Prescription Act does
not permit such a
construction, having regard to its wording, the context in which it
appears, its purpose and the material known
to those responsible for
its production.
[48]
If the legislature wanted without prejudice acknowledgements of
liability to interrupt prescription, it could have said so. Second,
this interpretation is buttressed by the presumption that the
legislature does not intend to alter the common law - the without
prejudice rule - unless it is clear from the language of the statute
that the object is to alter or modify it.
[49]
Nothing in the
Prescription Act suggests
such an object. And third,
there is simply no need to allow the admission in evidence of a
without prejudice acknowledgment of
liability to interrupt
prescription. As Lord Neuburger observed in
Ofulue
,
[50]
where a debtor acknowledges liability
and
so induces the creditor not to institute proceedings
,
the creditor can rely on such acknowledgment as founding an estoppel
- one of the exceptions listed in
Unilever
.
[93]
KLD’s submission that the exception for which it contends was
in effect recognised by this court
Hammerle
,
can be dealt with briefly. It has no merit. The holding in
Hammerle
that a without prejudice communication containing an act of
insolvency is admissible in evidence, is not new.
[51]
The exception was recognised in
Naidoo
.
[52]
The public policy grounds for allowing the insolvency exception stand
on a wholly different footing from an acknowledgment under
a
limitation statute, as recognised by Lord Neuberger in
Ofulue
:
‘
An
acknowledgment under
section 29
operates only as between the parties
to and by whom the acknowledgment is made (and their privies),
whereas a person’s act
of bankruptcy has an impact on all the
creditors and potential creditors of that person. Although not
mentioned in the judgment
of Vaughan Williams J [in
Daintrey
],
it appears to me that there is therefore a pretty strong case for
saying that the public interest in ensuring that an act of
bankruptcy
can be referred to and acted on as such, should outweigh the public
interest in the without prejudice rule being observed.’
[53]
Conclusion
[94]
In my opinion, the recognition of the exception sought would
contradict the public policy and contractual foundations of the
without prejudice rule. The exception is at odds with the rationale
for the rule as expounded in
Naidoo
and by the English courts.
I would therefore dismiss the appeal with costs.
___________________
A
Schippers
Acting
Judge of Appeal
APPEARANCES
For the Appellant:
A de V La Grange SC (with him C R Cilliers)
Instructed by:
Hannes Pretorius Bock & Bryant, Somerset West
c/o
MacGregor Stanford Kruger, Cape Town
Van
Wyk & Preller, Bloemfontein
For the Respondent:
R J Howie
Instructed by:
Matthew Walton & Ass Inc, c/o Harold Gie Attorneys, Cape Town
Honey
& Partners Inc, Bloemfontein
[1]
Section 14 of the Prescription Act reads:
‘
(1)
The running of prescription shall be interrupted by an express or
tacit acknowledgement of liability by the debtor.
(2)
If the running of prescription is interrupted as contemplated in
subsection (1), prescription shall commence to run afresh
from the
day on which the interruption takes place or, if at the time of the
interruption or at any time thereafter the parties
postpone the due
date of the debt from the date upon which the debt again becomes
due.’
[2]
Judgment of Lewis JA para 39.
[3]
Lord
Griffiths in
Rush
& Tompkins Ltd v Greater London Council
[1988] UKHL 7
,
[1989] AC 1280
,
[1988] 3 All ER 737
at 2.
[4]
Section 42 of the Civil Proceedings Evidence Act, 1965 reads:
‘
The
law of evidence including the law relating to the competency,
compellability, examination and cross-examination of witnesses
which
was in force in respect of civil proceedings on the thirtieth day of
May, 1961, shall apply in any case not provided for
by this Act or
any other law.’
[5]
The
Letter
is quoted in para 10 of the judgment of Lewis JA.
[6]
Rush &
Tompkins Ltd v Greater London Council
fn 1 at 2.
[7]
Unilever
Plc v The Proctor & Gamble Company
[2001] 1 All ER 783
,
[1999] EWCA Civ 3027
para 17, [2000] WLR 2436.
[8]
Muller
& Anor v Linsey & Mortimer
[1994] EWCA Civ 39; (1996) PNLR 74.
[9]
Unilever
fn 7 paras 35 and 36.
[10]
Unilever
fn 7 para 23.
[11]
Rush &
Tompkins Ltd
fn
6 at 3.
[12]
In
re
Daintrey,
Ex Parte Holt
[1893] 2 QB 116.
[13]
Oceanbulk
Shipping & Trading SA v TMT Asia Ltd & Ors
[2010] 4 All ER 1011
,
[2011] 1 AC 662
,
[2010] 3 WLR 1424
paras 30,
46 and 47.
[14]
Unilever fn 7 para 25.
[15]
D Vaver ‘
Without
Prejudice’ Communications – Their Admissibility and
Effect
Vol 9 (1974) UBCLR 85.
[16]
Naidoo
v Marine & Trade Insurance Co Ltd
1978 (3) SA 666 (A).
[17]
Vaver
fn 15.
[18]
Naidoo
fn 16 at 674A-B.
[19]
Naidoo
fn 16 at 677C-D.
[20]
Naidoo
fn 16 at 678H-679A.
[21]
Kapeller
v Rondalia Versekeringskorporasie van Suid-Afrika
Bpk
1964
(4) SA 722
(T) at 792A-D.
[22]
Naidoo
fn 16 at 677E-H.
[23]
City
of Johannesburg Metropolitan Municipality v Gauteng Development
Tribunal & others
[2010] ZACC 11; 2010 (6) SA 182 (CC); 2010 (9) BCLR 859 (CC).
[24]
Naidoo
fn 16 at 678E.
[25]
Ofulue
& Anor v Bossert
[2009] UKHL16, [2009] 3 All ER 93, [2009] 2 WLR 749.
[26]
Ofulue
fn 24
para 12.
[27]
Ofulue
fn 24 para 98.
[28]
Naidoo
fn 16 at 675B.
[29]
Ofulue
fn 24 para 39.
[30]
J E Tracey
Evidence
- Admissibility of Statements of Fact made during Negotiation for
Compromise
(1935-1936) 34 Michigan Law Review 524
at 529.
[31]
Naidoo
fn 16 at 680G-681A.
[32]
Ofulue
fn 24 para 98.
[33]
Ofulue
fn 24 para 2.
[34]
Hoffmann LJ in
Muller
& Anor
fn 8;
Unilever
fn 7 para 18.
[35]
Ofulue
fn 24 para 56.
[36]
Bradford
& Bingley Plc v Rashid
[2006] UKHL 37
,
[2006] 4 All ER 705
,
[2006] 1 WLR 2066
para 13.
[37]
Bradford
fn 35 para 38.
[38]
Absa
Bank Ltd v Hammerle Group
[2015] ZASCA 43; 2015 (5) SA 215 (SCA).
[39]
Naidoo
fn 16.
[40]
Naidoo
fn 16 at 680G-681A.
[41]
Bradford
fn 35 para 81.
[42]
Bradford
fn 35 para 42.
[43]
Bradford
fn 35 para 67.
[44]
Bradford
fn 35 para 73.
[45]
Bradford
fn 35, Lord Brown para 75, Lord Walker para 43.
[46]
Uitenhage
Municipality v Molloy
[1997] ZASCA 112
;
1998 (2) SA 735
(SCA) at 742I-743A.
[47]
Murray
& Roberts Construction (Cape) (Pty) Ltd v Upington Municipality
1984 (1) SA 571
(A) at 578F-579A.
[48]
Natal
Joint Municipal Pension Fund v Endumeni Municipality
[2012] ZASCA 13
;
2012 (4) SA 593
(SCA) para 18.
[49]
Attorney
General Transvaal v Botha
[1993] ZASCA 159
;
1994 (1) SA 306
(A) at 330I,
Land
and Agricultural Development Bank of SA t/a Landbank v Master of the
High Court & others
(352/05)
[2006] ZASCA 70
; [2006] SCA 68 (RSA) (30 May 2006) para 58.
[50]
Ofulue
fn 24 para 100.
[51]
Hammerle
fn 37 para 13.
[52]
Naidoo
fn 16 at 681B-C.
[53]
Ofulue
fn 24
para 102.