Bradford & Bingley plc (Appellants) v. Rashid (FC) (Respondent)
19. For those reasons I would allow the appeal and restore the decision of the Deputy District Judge.LORD HOPE OF CRAIGHEAD
20. I agree with all my noble and learned friends, whose speeches I have had the advantage of reading in draft, that the appeal should be allowed. But my reasons are not entirely the same as theirs. So I should like to explain in my own words why I have reached the same conclusion as they have done.
21. I have no difficulty in regarding the letter of 26 September 2001 as an acknowledgment of the appellants' claim within the meaning of section 29(5) of the Limitation Act 1980. In Surrendra Overseas Ltd v Government of Sri Lanka  1 WLR 565, 575E-F Kerr J said that the debtor can only be held to have acknowledged the claim if he has in effect admitted his legal liability to pay that which the plaintiff seeks to recover. But his acknowledgment need not identify the amount of the debt. As Diplock LJ said in Dungate v Dungate  1 WLR 1477, 1487E-F, his acknowledgment will be sufficient if the amount for which he accepts legal liability can be ascertained by extrinsic evidence.
22. In its letter of 26 September 2001 the Advice Centre stated that the respondent was not in a position to pay "the outstanding balance, owed to you." It seems to me that the plain meaning of those words is that the respondent was admitting that he owed the appellants a sum of money which for the time being he was unable to pay. There could not be a clearer way of acknowledging that the respondent was under a legal liability to pay the outstanding balance. It is not disputed that the amount of the balance was capable of being determined by extrinsic evidence. In Dungate, at p 1487H, having construed the letter on which the plaintiff relied which referred to "amounts I owe you" as an acknowledgment under the Act, Diplock LJ said that this did not seem to him to differ from the statement which was held to be an acknowledgment in Spencer v Hemmerde  2 AC 507. The wording of the letter of 26 September 2001 is no less clear, and I think that the same result must follow. The wording of the letter of 4 October 2001 is slightly different. It refers to "the outstanding amount". But the key to the meaning of that phrase lies in its use of the definite article. This indicates that there is an amount representing the respondent's present state of indebtedness which is readily ascertainable. I think that this letter too was an acknowledgment within the meaning of the statute.
23. The more difficult issue is whether these acknowledgments are protected by the "without prejudice" privilege. As Megarry V-C said in Chocoladefabriken Lindt & Sprungli AG and another v The Nestlé Co Ltd  RPC 287, 288, the mere failure to use that expression does not conclude the matter. The question is whether the letters were written in an attempt to compromise actual or pending litigation and, if so, whether it can be inferred from their terms and their whole context that they contained an offer in settlement for which the party who made the offer can claim privilege which prevents the acknowledgments from being relied upon for the purposes of the Act. In the present case the context in which the letters were written offers little, if anything, by way of guidance on this issue. The first letter was not written in response to an invitation to negotiate as to what, if anything, was due. It was written in response to an invitation to say how the amount due was to be repaid. So everything, it seems to me, turns on the wording of the letters themselves and the meaning that is to be attached to them.
24. The guiding principle is that parties should be encouraged so far as possible to resolve their dispute without resort to litigation, and that they should not be discouraged by the knowledge that anything that is said in the course of such negotiations may be used to their prejudice in the course of the proceedings: Cutts v Head  Ch 290, 306, per Oliver LJ. In Savings & Investment Bank Ltd v Fincken  1 WLR 667, 684, para 57 Rix LJ observed that the public interest in encouraging parties to speak frankly to one another in aid of reaching a settlement is very great and ought not to be sacrificed save in truly exceptional and needy circumstances. As to how this rule is to be applied in practice, in Jones v Foxall (1852) 15 Beav 388, 396 Romilly MR deplored attempts to convert offers of compromise into admissions of acts prejudicial to the party making them. In Unilever Plc v Procter & Gamble Co  1 WLR 2436, 2448 Robert Walker LJ said that, while the protection of admission against interest is the most important practical effect of the rule, it would be contrary to the underlying objective of giving protection to the parties to dissect out identifiable admissions and withhold protection from the rest. This approach directs attention to the question whether the writer of the letter was seeking a compromise and, if so, what was the issue between the parties that he was seeking to resolve. If the admission was within the scope of the subject matter of the compromise, it is to be given the benefit of the privilege.
25. The cases that have been decided on this issue in Scotland indicate that the judges there have adopted the same guiding principle as that described by Oliver LJ in Cutts v Head  Ch 290, 306. But they take a more pragmatic approach to the question how it is to be applied in practice. They are more willing to find that admissions in a document which contains an offer to compromise are to be treated as admissible. Offers, suggestions or concessions made in the course of negotiations are, of course, given the benefit of the privilege. But they are distinguished from clear admissions or statements of fact which, although contained in the same communication, did not form part of the offer to compromise. On such admissions or statements, if they can be clearly identified as such, the other party is entitled to rely. Another important difference in the practice which is adopted in Scotland is that professional advisers who wish to take advantage of the without prejudice rule are expected to say so expressly, and invariably do so. Authority is lacking on the question whether the rule can be invoked where the letter in question omits these words. There has been no discussion of the extent of the protection that the rule gives in that situation. The Scottish cases to which your Lordships have been referred must be understood in the light of this background. They are all cases where the standard phrase was used, and they all proceed on the basis that its use is not conclusive. Scrutiny of the communication is permitted to determine the extent of the protection that was being claimed. An admission which was made in plain terms is admissible, if it falls outside the area of the offer to compromise.
26. In Watson-Towers v McPhail, 1986 SLT 617, the pursuers sought summary decree, relying on a letter which had been written on the defenders' behalf offering to settle the claim for payment of goods supplied to them. The offer was said to be made without prejudice. The pursuers had supplied a quantity of steel and aluminium plates to a company which later went into receivership. The letter proposed a sum in settlement of the pursuers' claim, which was based on a reservation of title clause. But attached to it was a schedule which specified the amount of the plates that were held in stock on the date of the offer by the joint receivers of the company. Lord Wylie found that the schedule was not part of the offer to compromise. He said that the reference to the plates in stock as specified in the schedule was simply a statement of fact. It was not a hypothetical admission or a concession for the purpose of securing a settlement. He held that the without prejudice privilege did not attach to it, and that the pursuers were entitled to rely upon it as an admission for the purposes of their motion for summary decree.
27. Daks Simpson Group plc v Kuiper, 1994 SLT 689, was another case in which the pursuers who were seeking summary decree founded on a letter which had been written by the first defender's solicitor expressly without prejudice. The sums in question were amounts of commission which the first defender had obtained in secret from the pursuers' customers. The letter contained a statement that the first defender was prepared to accept that the first four commission payments stated in a draft settlement agreement listing a number of commission payments paid to him were correct. The total of these four payments was the amount for which the pursuer sought summary decree. Lord Sutherland rejected the first defender's argument that the whole contents of the letter were covered by the privilege and granted summary decree for that amount. Among the authorities to which he was referred were Watson-Towers v McPhail, 1986 SLT 617 and Cutts v Head  Ch 290. His attention was also drawn to the Canadian case of Kirschbaum v "Our Voices" Publishing Co  1 OR 737, where the Court said that the question to be considered is what was the view and intention of the party in making the statement: whether it was to concede a fact hypothetically in order to effect a settlement or to declare a fact really to exist.
28. Lord Sutherland accepted the general principle as described by Oliver LJ in Cutts v Head. He then summarised his approach in these words:
29. The claims in Watson-Towers v McPhail, 1986 SLT 617, and Daks Simpson Group plc v Kuiper, 1994 SLT 689, were both brought within the relevant time limit. So the court was not concerned in those cases with the question which arises here, which is whether the debt has been acknowledged for the purpose of prolonging the limitation period. But that was one of the questions which came before the Inner House in Richardson v Quercus, 1999 SC 278. In that case the pursuer was the owner of a flat on the second and top floors of a building which had been damaged by renovation works carried out by the defenders to the basement and ground floor of the same building. He relied on a letter by the defenders' loss adjusters dated 2 June 1992 which confirmed that they had no objection to the pursuer instructing the necessary remedial works to his property but which stated that it was written "without prejudice to liability". This letter, taken together with previous correspondence, was held to amount to a relevant acknowledgment within the meaning of section 10(1) of the Prescription and Limitation (Scotland) Act 1973 of the subsistence of an obligation to make reparation which would otherwise have been extinguished by the five year negative prescription. That subsection provides that in order to constitute a relevant acknowledgement there must be an unequivocal written admission clearly acknowledging that the obligation still subsists.
30. It was accepted in Richardson v Quercus that the principles set out in Daks Simpson Group provided the appropriate test. The principal issue was whether the letter was of sufficient substance to overcome the without prejudice docquet. Lord Prosser dealt at pp 283H-284C with the question whether the letter of 2 June 1992 had to be looked at for this purpose in isolation, as the defenders contended, or under reference to extraneous facts or prior correspondence:
31. The South African case of Kapeller v Rondalia Versekeringskorporasie van Suid-Afrika Bpk 1964 (4) SA 722 (T) to which Lord Mance has drawn our attention seems to me to be entirely consistent with Richardson v Quercus. In Kapeller a clear admission by an insurer of liability in the course of without prejudice negotiations about quantum was sufficient to restart the limitation period. That in a nutshell is exactly what the Court of Session decided in Richardson's case. In the Canadian case of Kirschbaum v "Our Voices" Publishing Co  1 OR 737 to which Lord Sutherland referred in Daks Simpson Group plc v Kuiper Haines J sitting in the Ontario High Court adopted the same approach. The question in that case was whether discovery of letters written without prejudice should be permitted so that the parties might explore the question whether they contained admissions of fact which could be taken into account at the trial. Answering that question in the affirmative, the judge said at pp 738-739 that contrary to popular belief the proposition that the shibboleth "without prejudice" written on a letter protects it from subsequent use as an admission was not accurate:
32. In The Law of Evidence in Canada, Sopinka, Lederman and Bryant, 2nd ed (1999), para 14.204 the authors summarise the competing theories discussed in 4 Wigmore, Evidence (Chadbourn rev, 1972), para 1061. They state that the proposition that all admissions in the course of negotiation towards settlement are without prejudice whether those words are used or not and are not admissible in evidence is clearly the one that is accepted in Ontario. But Kirschbaum's case has not been overruled or disapproved, so the proposition to which the authors refer must be read subject to the qualification that is set out in that case. This brief comparative exercise shows that, while there may be room for some difference of view as to the application of that qualification in particular cases, the general approach which is taken to this issue in Scotland is far from unorthodox. It cannot be said to be out of line with that which is taken elsewhere.
33. How then do the letters of 26 September 2001 and 4 October 2001 stand up to examination? Neither of them contained the words "without prejudice", so the issue is whether they are protected by the public policy rule. It seems to me that the first letter does two things. It contains a clear admission that there is a balance of debt that is still outstanding and then there is a request for time to pay. The Court of Appeal agreed with the judge that it was written as part of an attempt to negotiate. But there is no suggestion in this letter that the amount of the debt itself was open to compromise. The only issue that was being opened up for compromise was how that debt was to be paid off. In my opinion there is nothing in this letter that entitles the respondent to the without prejudice privilege. The second letter, on the other hand, contains both an admission and an offer to compromise. The admission is that there is an amount which is still outstanding. The offer is to pay £500 in full and final settlement of it. But it does not contest the outstanding amount. On the contrary, it is based on what the respondent can offer to pay, not on what he believes to be due. In my opinion this too is not an offer of the kind that attracts the without prejudice privilege on public policy grounds.
34. In these circumstances I do not think that we need to resolve the question whether, if the admissions are covered by the without prejudice rule, they can nevertheless be admitted as acknowledgments for the purpose of setting a new time limit under the 1980 Act. There is, as Lord Brown points out in para 63, no absolute rule that admissions of liability which are contained in communications expressly written without prejudice cannot be admitted for this purpose. But I would respectfully suggest, differing from my noble and learned friend, that the position is the same in cases where the admission is made in the course of correspondence which attracts the protection on grounds of public policy. There is, as he points out, a public interest in prolonging the limitation period in the case of an acknowledged claim, as this tends to keep claims that are still capable of settlement out of court. So there is a balance to be struck between the public interest in that respect and the public interest in preventing statements made in the course of negotiations being used at the trial as admissions of liability. 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.
35. Like Lord Hoffmann (see para 9), therefore, I would wish to find a solution which preserves the acknowledgment rule without damaging the without prejudice rule. But I must repeat the point that I have already made (see para 26) that the Scottish cases were not concerned with the situation which arises where the acknowledgment is contained in a communication which lacks the without prejudice docquet. The only case which deals with the acknowledgment rule is Richardson v Quercus, where the acknowledgment was contained in a letter written by loss adjusters which was expressed to be without prejudice to liability. It is not right to say, as Lord Hoffmann does in para 9, that Scottish authority denies altogether the application of the without prejudice rule to unqualified admissions made in the course of negotiations for settlement. The issue was treated in that case as one of construction, to be determined according to the words used and in the light of the surrounding circumstances. But the Scottish approach suggests to me that a solution less radical than that which Lord Hoffmann proposes could usefully be adopted where the without prejudice rule is invoked in the absence of a docquet to this effect. I have the same misgivings about his solution as those which have been expressed by Lord Walker and Lord Brown. I venture to suggest that the solution which I propose is less objectionable. It is based on the way the without prejudice rule operates in the docquet cases. The qualification that applies in those cases is capable of providing a common sense answer to the problem that arises in the non docquet cases also.
36. The appellants' case is that one or other or both of these letters contains an acknowledgment for the purposes of section 29(5)(a) of the 1980 Act. The letters seem to me to provide all that is needed to satisfy this requirement. Why else, one might ask, were they written other than to acknowledge there was a claim that could still be maintained against the respondent? The purpose of the first letter was to obtain time to pay, and the purpose of the second was to persuade the appellants to accept a lesser sum in final settlement of an amount which was admitted to be outstanding. The only explanation that can be given for writing to the appellants in these terms is that the respondent appreciated that there was a claim which they still could enforce against him. That was why he was seeking to find ways of avoiding that result. It seems to me that they provide a good example of an acknowledgment in writing of the kind that the statute contemplates. They contain an express and unequivocal admission of the existence of debt. In my opinion the appellants would have been entitled to found on that admission as an acknowledgment for the purposes of the statute, even if there had been other material in the letters which attracted the without prejudice privilege.
LORD WALKER OF GESTINGTHORPE
37. I have had the great advantage of reading all my Lords' opinions in draft. On two basic conclusions your Lordships are unanimous, and I am in agreement with those conclusions: Mr Rashid (through his agent) gave an acknowledgment within the meaning of section 29(5) of the Limitation Act 1980, and it was not protected by the "without prejudice" rule from being admitted in evidence as an acknowledgment. There is however no unanimity as to why it was admissible in evidence as an acknowledgment.
38. In common with all your Lordships I think that the Court of Appeal failed to see that there are two public interests engaged in this appeal. There is the interest in encouraging the settlement of disputes so as to avoid (or at least shorten) litigation; that the Court of Appeal did recognise. 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. That is, as Lord Hoffmann says, the policy behind the acknowledgment rule, to which Parliament, in enacting the Limitation Act 1939, gave a broader and simpler scope (for the earlier history see the Fifth Interim Report (Statutes of Limitation) of the Law Revision Committee (1936) Cmd. 5334, para 19).
39. In the opinion of my noble and learned friend Lord Brown of Eaton-under-Heywood Mr Rashid's acknowledgment was not protected for two reasons: it was not expressed to be "without prejudice", and there was no dispute as to liability to be compromised, the only element of negotiation being directed to obtaining time for payment (any reduction in the amount to be paid, as suggested in the agent's second letter, would have been a matter of pure indulgence on the part of the lender). On this point my noble and learned friends Lord Hope of Craighead and Lord Mance appear to take much the same view as Lord Brown.
40. Lord Hoffmann (in paras 15 and 16 of his opinion) expresses doubts about the soundness and practicality of a distinction between compromise as to liability and compromise (or indulgence) as to time for payment, and proposes that an acknowledgment should be recognised as outside the rule since the relevant statement is not evidence of an acknowledgment (or of anything else); it is the acknowledgment. This proposed principle is a development of the thoughts which my Lord (as Hoffmann LJ) expressed in Muller v Linsley & Mortimer  1 PN LR 74.
41. I have to say that I was initially much attracted to this solution. But on reflection I have the same difficulty with it as is expressed in Lord Brown's opinion. It is indeed well established in the law of evidence that the hearsay rule applies only to statements which are to be relied on as evidence of the truth of the matters stated. As Lord Wilberforce said in Ratten v The Queen  AC 378, 387,
So in Ratten evidence was admitted that a woman making a telephone call was in a hysterical state, and in Subramaniam evidence of threats was admitted as relevant to the issue of duress.
42. Like Lord Brown, I do not see how this principle can easily be applied to an acknowledgment. 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 (so as to equate it with the threats in Subramaniam) seems to me rather unreal. Few debtors would see any advantage in making a false admission of a debt, as a sort of latter-day indebitatus assumpsit. 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.
43. For these reasons, and for the reasons more fully set out in the opinion of Lord Brown, I too would allow this appeal.
LORD BROWN OF EATON-UNDER-HEYWOOD