House of Lords
|Session 2005 - 06|
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Bradford & Bingley plc (Appellants) v. Rashid (FC) (Respondent)
1. The chief question is whether a letter containing an acknowledgement of a debt for the purposes of section 29(5) of the Limitation Act 1980 is inadmissible on the ground that the letter formed part of a negotiation with a view to the creditor giving the debtor time to pay or accepting a lesser amount. In common with all of your Lordships, I consider that the letter was admissible. But there is some difference of opinion over the reasons and I must therefore state my own. There is also a subsidiary question as to whether the letters contained acknowledgements within the meaning of the Act. They are set out in the speech to be delivered by my noble and learned friend Lord Brown of Eaton-under-Heywood and I agree with him and my noble and learned friend Lord Hope of Craighead that references in the letter of 26 September 2001 to an "outstanding balance" and in the letter of 4 October 2001 to an "outstanding amount" are plain acknowledgements of the existence of a debt. It is clear on the authorities that nothing more is needed.
2. The more complex question is why the letters are admissible. There is no doubt that they formed part of a negotiation. They were written in reply to an invitation from the building society to make them an offer. Judge Hawkesworth QC, sitting in the Bradford County Court and hearing an appeal from the Deputy District Judge, who had admitted one of the letters and given judgment for the building society, regarded this as sufficient to exclude the letters on the grounds that they were impliedly written without prejudice. He said:
3. The Court of Appeal agreed. I doubt whether anyone could object to the general sentiment expressed. Even when the indebtedness cannot be denied, the parties should be encouraged to agree on the method by which it should be discharged, if necessary giving the debtor time to pay. But the question is how this policy can best be given effect and here, it seems to me, the judge and the Court of Appeal took a rather one-sided view of the matter. They 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 acknowledgement 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. A good example is the celebrated case of Spencer v Hemmerde  2 AC 507, in which a member of the Bar borrowed £1,000 for two months in 1910 and then did not pay it back. In 1915 there was a correspondence in which the creditor pressed for payment and the debtor acknowledged his indebtedness but sought to gain time. In consequence of this correspondence the creditor, as Viscount Cave put it, "stayed his hand". When proceedings were commenced in 1920, the debtor pleaded the statute of limitations. As the law then stood, it was also necessary that there should be not only an acknowledgement but also an inference of a promise to pay. The issue before the House was whether such a promise could be inferred. There was no suggestion that the letters might be excluded as written in the course of negotiations - a significant omission to which I shall in due course return. However, it is difficult to escape the conclusion that the House, in deciding that the letters were sufficient to lift the time bar, was influenced by the injustice of a debtor asking for time to pay an acknowledged debt and then pleading the statute. As counsel for the creditor said (at p. 510), "the debtor was asking for an indulgence, and by means of those letters he obtained the indulgence which enabled him to set up the statute."
4. The policy of encouraging negotiation therefore requires that the law should give effect to two objectives: first, the objective furthered by the normal without prejudice rule, which allows the parties to speak freely without fear that their statements will be relied upon as admissions if negotiations should break down, and secondly, the objective of the special acknowledgement rule in the Limitation Act, which allows a creditor to give time to negotiate for the payment of an admitted indebtedness without fear that the claim will become statute barred. These two objectives may sometimes appear to pull in opposite directions, although I hope to demonstrate that upon a proper analysis they do not.
5. The Court of Appeal, as I have said, did not recognise any possibility of conflict because they gave no weight to the policy of the acknowledgement rule. In fact, I think that the decision of the Court of Appeal would largely destroy that rule. In the nature of things, most acknowledgements will be coupled with attempts to obtain time to pay or remission of part of the debt. As Lord Sumner said in Spencer v Hemmerde  2 AC at p. 526:
In other words, he intends to initiate or pursue a negotiation as to how and how much of the debt should be paid. It is of course possible that a debtor in arrear might write an acknowledgement unaccompanied by any suggestion that he should be allowed time to pay. But, looking at the examples of acknowledgements which have been admitted and construed as such in the past, I think that such cases would be unusual. Certainly in Spencer v Hemmerde there was material upon which counsel for the debtor, if the thought had occurred to him, could have argued that his client's letters formed part of an attempt at negotiation. Likewise in Dungate v Dungate  1 WLR 1477, the debtor's letter saying:
bears a strong family resemblance to the letters in this case. The same is true of the acknowledgement in the Canadian case of Phillips v Rogers  2 WWR 53, 56:
6. These three letters must be typical of those written by hard pressed debtors since time immemorial and they all either respond to invitations to negotiate terms of payment or attempt to initiate such negotiations. If the acknowledgements they contain are excluded by the without prejudice rule, that will be an end of the rule.
7. In the Court of Appeal, Sir Martin Nourse did not accept this. He said (at paragraph 29):
8. This seems to me to make things worse rather than better. The Court disavows any statement of principle by which the correspondence in cases like Spencer v Hemmerde  2 AC 507, Dungate v Dungate  1 WLR 1477 and Phillips v Rogers  2 WWR 53 can be distinguished. This would be bound to lead to fine distinctions and a good deal of litigation.
9. It is therefore necessary to find a principle which would preserve the acknowledgement rule without doing damage to the without prejudice rule. The solution proposed by my noble and learned friend Lord Hope of Craighead, based on Scottish authority, is to deny altogether the application of the without prejudice rule to unqualified admissions, even if made in the course of negotiations for a settlement. In Scotland, this is based upon a fairly recent line of authority going back to the decision of Lord Wylie in Watson-Towers Ltd v McPhail 1986 SLT 617.
10. Watson-Towers was a motion for summary judgment for the value of goods which had been supplied subject to a reservation of title clause. The pursuer's evidence consisted of a letter from the defender making an offer expressed to be without prejudice but which attached a schedule listing the goods in its possession. Lord Wylie held that the schedule was admissible because it was, on the true construction of the letter, not a "hypothetical admission or concession for the purpose of securing a settlement" but a statement of fact.
11. This case was followed by Lord Sutherland in Daks Simpson Group plc v Kuiper 1994 SLT 689, another motion for summary judgment in a claim against a director for an account of secret commissions. In a letter expressed to be without prejudice, the director had said that he was prepared to accept that he had received such commissions in stated amounts. Lord Sutherland said (at p. 692):
12. In support of this view, Lord Sutherland referred not only to Watson-Towers Ltd v McPhail 1986 SLT 617 but also to the Canadian case of Kirschbaum v 'Our Voices' Publishing Co  1 OR 737, in which also the judge had distinguished between whether an admission in a letter without prejudice was "to concede a fact hypothetically, in order to effect a settlement, or to declare a fact really to exist." He might have added a reference to Lord Kenyon in Turner v Railton (1796) 2 Esp 474:
13. This limitation on the scope of the without prejudice rule, confining it to admissions which can be construed as made hypothetically rather than without qualification, is not limited to the use of these admissions as acknowledgements under section 29(5) or its Scottish equivalent. It is entirely general. As such, I think that, with all respect to the Scottish judges, including my noble and learned friend Lord Hope, it goes too far. There is nothing in the modern English authorities to encourage a dissection of correspondence or, still worse, conversations, to ascertain whether admissions of fact were made hypothetically or without qualification. 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 a standard disclaimer that any admissions of fact were to be taken to be hypothetical and solely for the purposes of the negotiation.
14. It is true that the adoption of such a rule would preserve the acknowledgement rule, because an acknowledgement would by definition be an unqualified admission of liability. But I think that such a remedy would be to throw out the baby with the bathwater and that a more precisely targeted principle is needed.
15. Another possible solution is to say that negotiations over the mode of payment of an admitted debt are not really negotiations for the purposes of the without prejudice rule. The debtor is seeking an indulgence rather than a compromise. This is in some ways an attractive solution and I would be willing, if pressed by there being no other, to adopt it. But I feel somewhat uneasy about it because, first, it also has wider implications than saving the acknowledgement rule and secondly, it may in some cases be ineffective to do so. For example, it is clear from the authorities that an admission of indebtedness in general terms, as in this case, is sufficient to constitute an acknowledgement. The procedural bar against bringing the action is lifted and the creditor is free to prove his debt in the ordinary way. But assume that this acknowledgement is made in the course of negotiations about both the amount of the debt and the mode of payment. It would be difficult to say that there was no genuine negotiation to settle the question of the amount for which the debtor was liable. If the negotiations break down and the amount of the debt is later contested in court, one would expect any admissions as to the amount made in the course of negotiations to be excluded by the without prejudice rule. But would the acknowledgement be admissible for the purposes of section 29(5)? If the test is whether the parties were genuinely negotiating over liability rather than the concession of an indulgence, it would have to be excluded. And this would be the case even if the dispute over liability was relatively trivial. It would be hard to distinguish cases on such uncertain grounds. But the public policy of encouraging such negotiations to proceed, once liability has in principle been conceded, without putting the creditor at risk of finding himself time-barred also seems to me a strong one.
16. The solution which I would therefore favour, and which I think is in accordance with principle, is that the without prejudice rule, so far as it is based upon general public policy and not upon some agreement of the parties, does not apply at all to the use of a statement as an acknowledgement for the purposes of section 29(5). That, I would infer, is what everyone thought in Spencer v Hemmerde  2 AC 507. It is in accordance with principle because the main purpose of the rule is to prevent the use of anything said in negotiations as evidence of anything expressly or impliedly admitted: that certain things happened, that the party concerned thought he had a weak case and so forth. But when a statement is used as an acknowledgement for the purposes of section 29(5), it is not being used as evidence of anything. The statement is not evidence of an acknowledgement. It is the acknowledgement. It may, if admissible for that purpose, also be evidence of an indebtedness when it comes to deciding this question at the trial, but for the purposes of section 29(5) it is not being used as such. All that an acknowledgement does under section 29(5) is to allow the creditor to proceed with his case. It lifts the procedural bar on bringing the action. Questions of evidence to prove the debt will arise later.
17. The distinction between adducing a statement as evidence of something expressly or impliedly asserted in the statement and simply as evidence that the statement was made is well known in the law of evidence ( see Subramaniam v. Public Prosecutor  1 W.L.R. 965) and was the basis upon which the Court of Appeal in Muller v Linsley and Mortimer  1 PNLR 74 decided that without prejudice correspondence was admissible to prove that a party was acting reasonably in settling a claim against a third party. In a judgment with which Swinton Thomas and Leggatt LJJ agreed, I said:
18. After a detailed examination of the cases in Unilever plc v Procter & Gamble Co  1 WLR 2436, 2446 Robert Walker LJ expressed some doubt as to whether the "large residue of communications which remain protected [as being outside the recognised exceptions to the without prejudice rule] can all be described as admissions." I would certainly accept that the without prejudice rule is capable of excluding statements which are not being used as evidence of the truth of what they expressly or impliedly admit. For example, I do not think that a litigant could be cross-examined to credit on without prejudice correspondence to show that he has made previous inconsistent statements. And I have no doubt that the Unilever case was rightly decided. It was obvious to everyone in that case that the alternative to settlement of the patent dispute was litigation. The without prejudice meeting was held with a view to discussing settlement and the notion that any reference to the consequences of failure should be admissible as a threat of litigation contrary to section 70 of the Patents Act 1977 was absurd. But, as I pointed out in Muller's case, the thread which runs through most of the alleged exceptions to the without prejudice rule is that the statement is not being used as evidence of the truth of anything expressly or impliedly asserted or admitted. The fact that acknowledgements used for the purposes of the Limitation Act fall within the same category, combined with the public policy of preserving the acknowledgement rule, seem to me to provide strong grounds for holding that the without prejudice rule does not apply to them. That produces a clear rule, easy to apply and having no side-effects, which preserves the acknowledgement principle without otherwise restricting the scope of the normal without prejudice privilege. It is of course open to the parties to agree that whatever they say in negotiations will not be capable of being used even as an acknowledgement for the purposes of section 29(5), but in such a case the creditor will be alerted to the fact that the debtor intends to rely upon the statute.