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Without Prejudice Admissions May Interrupt Prescription

The provisions of the Prescription Act 68 of 1969 (“the Act”) are remarkably succinct and accessible to the general public, however, it is this brevity that oft does not address the particular factual circumstance of those outlier or penumbral cases. In such a scenario it is the Courts that will balance the conveniences, and assess the merits of the particular circumstances to supplement and develop the legislation, so as to better give effect to the intention of the legislature. On or about July 2017 the Supreme Court of Appeal (“SCA”), developed the rules surrounding prescription as shall be discussed in greater detail below.

Original Position

In terms of Section 14 of the Act, the running of prescription is interrupted by the express or tacit acknowledgment of liability by a debtor. In the event that prescription is interrupted by way of such acknowledgment, the Act provides that the new prescription period shall commence from the day on which the interruption takes place. 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 passive, 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 sufficient 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, except where the reasons for the principles underlying prescription fall away and the protection of a creditor is justified.

With the the rights of the creditor protected, does that protection fall away if the acknowledgment of debt is made without prejudice? This issue was addressed by the SCA in the matter between KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd 2017 (6) SA 55 (SCA). Prior to the aforementioned case, one exception to without prejudice communication being inadmissible to court existed where correspondence between parties amounted to an acknowledgement of insolvency. The rationale behind this is that such an admission, notwithstanding it being made in confidence, cannot be considered to be privileged when weighed against public policy, since liquidation or insolvency proceedings are matters which naturally involve the public interest.

The SCA Ruling

In the present case, the SCA dealt with an instance where it was submitted that inadmissibility ought not to apply to without prejudice communication, when the communication is solely relied on to prove an acknowledgement of liability. Consequentially, this would have the effect that prescription is interrupted in terms of Section 14 of the Act. The facts of the matter are as follows. The Appellant, KLD Residential had to market and sell the residential property of the Respondent, Empire Earth Investments. The Appellant alleged that it had sold 99 units of the Respondent during 2008 and 2009 and, thereafter, in 2013 claimed commission for these sales in an amount exceeding R 2 000 000. A special plea of prescription was raised by the Respondent and in response thereto, the Appellant claimed that the claim could not have prescribed as a “without prejudice letter”, transmitted by the Respondent’s attorney in 2011, had the effect of interrupting prescription and thus causing prescription to start to run afresh. The court a quo ruled that the running of prescription had not been interrupted by the without prejudice acknowledgment of debt.

On appeal, the SCA held that the contention raised by the Appellant was meritorious. Where acknowledgments of liability in without prejudice communications virtually interrupted prescription in terms of the Act, such acknowledgments should be admissible, but solely for the purpose of interrupting prescription. It is in the public interest that a debtor who acknowledges his debt during the course of negotiations and so induces his creditor not to have immediate resort to litigation, should not be able to claim that the debt has prescribed, especially where a debtor requests further time to settle his debt.

Accordingly, the debtor should not be permitted to escape the obligation because the admission was made in the course of negotiations to settle a dispute. The SCA reasoned that the purpose of the exception was for the prevention of abuse of the without prejudice rule and the protection of a creditor. The SCA also acknowledged the sensitivity of negotiations and held further that the content of a without prejudice letter would be admissible, but solely for the purposes of interrupting prescription as the remainder of the content of the letter, specifically the quantum of the debt, would remain protected.

Practically, there was nothing preventing the parties from expressly or impliedly ousting the exception in their discussions. This means that one may still engage with the opposing party in without prejudice communication if both parties, prior to any negotiations, agree that admissions of liability and its effect on prescription, will be excluded from being given as evidence. The SCA further found that it was not a question of whether the without prejudice rule trumps prescription, but rather recognizing that both prescription and the without prejudice rule protect public interest, and in applying the exception the courts are ensuring that both interests are properly served. Accordingly, the SCA upheld the Appeal, however, it acknowledged and held that this exception to the running of prescription was not absolute and would have to be determined on a case by case basis.

This ruling calls for a higher degree of care and diligence by attorneys and/or individuals entering negotiations on their own accord as concessions made prior to entering such negotiations may exclude prescription from taking effect. Consequentially and specifically in respect of attorneys, this may be construed as professional negligence.

Prepared by: 

Matthew Cannon | Candidate Attorney

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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