Judgments - Bradford & Bingley plc (Appellants) v. Rashid (FC) (Respondent)

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    44.  A debtor's written acknowledgment of his debt or other liquidated pecuniary claim starts time running afresh under the Limitation Act 1980 (the 1980 Act). Such is the effect of sections 29 (5) and 30. In what circumstances, however, can an acknowledgment be rendered inadmissible in evidence pursuant to the without prejudice rule? That critically is the issue before your Lordships. A subsidiary issue arises as to whether either or both of the documents relied upon by the appellants in the present case in fact constitutes an acknowledgment of their claim within the meaning of the 1980 Act.

    45.  The facts of the case can be briefly told. The appellants (Bradford & Bingley) were mortagees under a legal mortgage of 60 Duckworth Terrace, Bradford, created by the respondent (Mr Rashid) to secure repayment of the sum of £50,300 advanced towards the purchase of the property. Payments due under the mortgage speedily fell into arrears, and the last such payment was made on 3 January 1991. On 2 October 1991, following a possession order, the property was sold for £47,000 leaving a shortfall owing by Mr Rashid to Bradford & Bingley of £15,583 (the debt). On 14 June 1994 Bradford & Bingley notified Mr Rashid of the debt (having in the meantime had difficulty in tracing his whereabouts), indicating that they might be prepared to waive part of it were he to make a substantial immediate payment. Nothing of relevance then occurred until Bradford & Bingley returned to the matter in 2001, asking Mr Rashid to complete a draft income/expenditure form and to make an "offer of repayment". Following Mr Rashid's completion and return of the form (with a nil offer of repayment), solicitors for Bradford & Bingley wrote on 25 June 2001 saying that that was not acceptable and inviting Mr Rashid's "proposals for repayment as a matter of urgency".

    46.  The next three letters are the most important ones. On 26 September 2001 an Advice Centre wrote to Bradford & Bingley's solicitors on Mr Rashid's behalf:

    "Please find attached Mr Rashid's financial statement, which clearly indicates that at present he is not in a position to repay the outstanding balance, owed to you. However, my client requests that once his financial situation is stable he will start to repay. This could be in year 2003/04. Please could you take the above into consideration and reassess this matter and of course his financial situation."

    47.  On 2 October 2001 Bradford & Bingley's Solicitors replied:

    "Our client is not willing to hold this matter without payment. Our client requires Mr Rashid's proposals for repayment. Should your client be in a position to raise a lump sum payment in full and final settlement, our client is willing to consider writing off a substantial amount of this debt."

    (For whatever reason the letter of 2 October 2001 was not available in the courts below.)

    48.  On 4 October 2001 the Advice Centre replied:

    "I have informed my client Mr M. Rashid of the contents of your letter. He is willing to pay approximately £500 towards the outstanding amount as a final settlement. He is only able to afford this amount by borrowing from friends and family."

    The correspondence before your Lordships ends at this point. None of it was marked without prejudice. Nothing in the event was paid. It is the letters of 26 September 2001 and 4 October 2001 that Bradford & Bingley seek to rely on as acknowledgments for the purposes of the 1980 Act.

    49.  Eventually, on 17 June 2003, Bradford & Bingley issued proceedings claiming £15,583 plus statutory interest. The sole defence advanced was that of limitation, pursuant to section 20(1) of the 1980 Act (allowing a period of twelve years for an action brought to recover "any principal sum of money secured by a mortgage") in respect of the debt; section 20(5) (allowing six years for an action to recover arrears of interest payable in respect of any monies secured by a mortgage) in respect of the interest claim. It is clear that the twelve year period prescribed by section 20(1) for recovering the principal mortgage debt began to run on 3 January 1991 when Mr Rashid made his last payment on account (see West Bromwich Building Society v Wilkinson [2005] 1 WLR 2303) so that, but for any acknowledgment of the debt within the terms of section 29(5) of the 1980 Act, time would have expired before the issue of these proceedings on 17 June 2003.

    50.  The trial at first instance took place before Deputy District Judge Heaton in the Bradford County Court. He held that although the final letter of 4 October 2001 was written without prejudice and therefore inadmissible, the earlier letter of 26 September 2001 was not and, since it was a valid acknowledgment of the debt, the claim was not statute barred. Accordingly, by order dated 26 May 2004, he gave judgment for Bradford & Bingley in the sum of £22,127.86 inclusive of interest. Mr Rashid was given leave to appeal.

    51.  On 14 December 2004 his Honour Judge Hawkesworth allowed Mr Rashid's appeal, holding that both of the Advice Centre's letters were written without prejudice and were thus inadmissible as acknowledgments. Bradford & Bingley's claim was accordingly statute barred.

    52.  Finally, on 22 July 2005, the Court of Appeal (Buxton and Latham LJJ and Sir Martin Nourse) dismissed Bradford & Bingley's appeal (without, indeed, calling on counsel for Mr Rashid). Neither Judge Hawkesworth nor the Court of Appeal reached any conclusion upon whether either or both of the letters of 26 September 2001 and 4 October 2001 constituted an acknowledgment; it was sufficient for their decisions that they found these letters in any event to be inadmissible in evidence under the without prejudice rule.

    53.  I find it convenient to address first the issue whether either or both of the Advice Centre's letters constitute an acknowledgment. So far as relevant sections 29(5) and 30 of the 1980 Act provide:

    "29(5) . . . where any right of action has accrued to recover

    (a)  any debt or other liquidated pecuniary claim; or

    (b)   . . .

    and the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it the right shall be treated as having accrued on and not before the date of acknowledgment or payment."

    30(1)  To be effective for the purposes of section 29 of this Act, an acknowledgment must be in writing and signed by the person making it.

    (2)  For the purposes of section 29, any acknowledgment or payment

    (a)  may be made by the agent of the person by whom it is required to be made under that section; and

    (b)  shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made."

    54.  Although, as stated, Judge Hawkesworth and the Court of Appeal reached no decision as to whether the letters constituted an acknowledgment of Bradford & Bingley's claimed debt, it is noteworthy that Sir Martin Nourse, giving the only reasoned judgment in the Court of Appeal, held that the letter of 26 September, no less than that of 4 October, contained "an admission against interest" and was to be regarded as written without prejudice:

    "In my view, the words 'the outstanding balance, owed to you' do constitute an admission that the amount of the shortfall originally specified in the letter of 14 June 1994 is owed by the defendant to Bradford & Bingley".

    That notwithstanding, Mr Nugee QC submits that in neither letter did Mr Rashid admit that the debt claimed by Bradford & Bingley was a good one, merely that he could not at present pay, or was willing to settle for £500, whatever sum was in fact due. The letter referred only to "the outstanding balance, owed to you" (letter of 26 September) and "the outstanding amount" (letter of 4 October), in neither case acknowledging what sum was outstanding. In particular Mr Nugee submits that unless there is an admission of a definite amount due or an amount ascertainable by mere calculation, there is no acknowledgment within the statute.

    55.  In advancing this argument Mr Nugee seeks to reopen the issue as to what precisely was decided by the Court of Appeal in Good v Parry [1963] 2 QB 418, an issue raised and apparently resolved by the Court of Appeal's subsequent decision in Dungate v Dungate [1965] 1 WLR 1477. The relevant letter in Good v Parry discussed first the writer's proposed purchase of the house (offering £1,350 subject to contract), and continued: "The question of outstanding rent can be settled as a separate agreement as soon as you present your account." It was held not to constitute an acknowledgment of the landlord's claim for rent. Lord Denning MR said that the sentence meant "there may be some rent outstanding and it can be made the subject of an agreement as soon as you present your account" and concluded:

    "Such being the meaning of it, I am quite satisfied there is no acknowledgment, because there is no admission of any rent of a defined amount due, or of any amount that can be ascertained by calculation. The amount is uncertain altogether. Nor can I regard it as a promise to pay whatever amount may be found due on taking an account. The tenant clearly reserves the right to examine it and not to be bound except by separate agreement."

    Danckwerts LJ regarded the letter as "merely . . . an admission that there may be some possible justified claim but no admission that there is such a debt in fact." Davies LJ thought that "the letter did not acknowledge the claim; it only acknowledged that there might be a claim."

    56.  The debtor's letter in Dungate v Dungate (a claim against the widow and administratrix of the claimant's deceased brother) read: "Keep a check on totals and amounts I owe you and we will have account now and then . . . Sorry I cannot do you a cheque yet—terribly short at the moment." Holding this to be an acknowledgment of the claim, Diplock LJ said that "an acknowledgment under this Act need not identify the amount of the debt and may acknowledge a general indebtedness, provided that the amount of the debt can be ascertained by extraneous evidence" (as had been possible there). As for the letter in Good v Parry Diplock LJ agreed that it "'did not acknowledge the claim; it only acknowledged that there might be a claim.' … [It] did not state that any rent was in fact outstanding." Russell LJ and Sellers LJ agreed, Russell LJ stating that the Dungate letter acknowledged "I owe you money," adding "the quantum can be established, as it has been, by extrinsic evidence."

    57.  Edmund Davies J, the first instance judge in Dungate v Dungate, had said that the letter was "a totally unqualified admission of indebtedness—the 'totals and amounts I owe you'—and it is open thereafter for the plaintiff to supplement that letter by oral evidence (as he has done) to show the amounts which his brother then owed him and the present position."

    58.  It seems to me that Mr Nugee may well be right in suggesting a distinction between on the one hand Lord Denning's (although not, I think, his colleagues') apparent view in Good v Parry that, even had the letter there admitted that some rent was due, it would not have constituted an acknowledgment because the amount was "uncertain altogether" and not able to "be ascertained by calculation" (or, as Lord Denning had said earlier, "a mere matter of calculation from vouchers"); and on the other hand the approach taken in Dungate v Dungate, that any uncertainties as to the quantum of the admitted liability can be determined by "extraneous evidence", including if necessary oral evidence to resolve any dispute. Assume, for example, that a creditor seeks to recover an outstanding debt of £1,000 and the debtor, asserting that he has made a number of unreceipted cash payments in partial repayment, admits that he owes something but not as much as £1,000. It may be doubted whether Lord Denning would have regarded that as an acknowledgment, the precise sum owed being capable of ascertainment "by calculation", and without "separate agreement" of the parties. Dungate v Dungate, however, appears to me clear authority for holding that it would be an acknowledgment (although, had the debtor in fact admitted liability only for £500 rather than some unspecified sum short of £1,000, that, in my opinion, would constitute an acknowledgment of the claim only to the extent of £500—see Kerr J's judgment in Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565).

    59.  How, then, should one approach the letters of 26 September and 4 October in the present case? Neither letter, as Mr Nugee is bound to accept, in fact suggested any basis whatever for disputing Mr Rashid's liability for the whole of the shortfall specified in Bradford & Bingley's original letter of 14 June 1994. Indeed, as the statement of facts and issues before the House records:

    "There is not and never has been any dispute as to the quantum of the debt or the appellant's entitlement to obtain a judgment in respect thereof, subject to the question of limitation."

    Mr Nugee nevertheless submits that the letters cannot realistically be read as admitting the entirety of the claim: it would, for example, have been open to Mr Rashid thereafter to have sought to challenge the sufficiency of the sum realised by Bradford & Bingley on the sale of the property in 1991. No doubt it would. But in my opinion each of the letters of 26 September and 4 October constituted a clear acknowledgment for the purposes of the 1980 Act.

    60.  Dungate v Dungate was to my mind rightly decided. Acknowledgments are not confined to admissions of debts which are indisputable as to quantum as well as liability. That to my mind would be a retrograde step in the law, not least given the Law Commission's conclusion in their 2001 Report on Limitation of Actions (Law Com No. 270), following an extensive consultation process, that the present distinction made by section 29 (5) between claims for specific amounts and claims for unspecific amounts is "anomalous" (para 3.149), and their recommendation that a written acknowledgment or a part payment "irrespective of the nature of the claim, should restart the running of time" (para 3.155(1)).

    61.  I turn therefore to the application here of the without prejudice rule, noting that this is the first occasion upon which the House has had to consider the interrelationship between this rule and the operation of section 29(5) of the 1980 Act.

    62.  The principles upon which the without prejudice rule operates are well-established and conveniently found summarised in Lord Griffiths' speech in Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, 1299:

    "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 R.P.C. 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."

    63.  In both Cutts v Head and Rush & Tompkins itself the communications in question had been expressly made "without prejudice" and, generally speaking, such communications will attract the privilege even without the public policy justification of encouraging parties to negotiate and settle their disputes out of court. As Hoffmann LJ pointed out in Muller v Linsley & Mortimer [1996] 1 PNLR 74, 77, that indeed was the position in Cutts v Head: the only justification there for excluding reference to the without prejudice offer on costs was an implied agreement based on customary usage and understanding. But even in cases where communications are expressly made without prejudice there are occasions when the rule will not prevent their admission into evidence—the main instances (including those under the heading "unambiguous impropriety") are listed and described in Robert Walker LJ's judgment in Unilever Plc v The Procter & Gamble Co [2000] 1 WLR 2436, 2444-2445.

    64.  In the present case, of course, as already observed, the exchanges in question were not marked without prejudice, so there can be no question of any implied agreement here. Rather the critical question here is whether (in Lord Griffiths' words in Rush & Tompkins v GLC) "it is clear from the surrounding circumstances that the parties were seeking to compromise the action"—whether, as Megarry V-C put it in Chocoladefabriken Lindt & Sprungli AG v The Nestlé Co Ltd [1978] RPC 287, 288, "there is an attempt to compromise actual or impending litigation".

    65.  The mere fact, of course, that the communications in question constituted acknowledgments does not mean that they necessarily fall outside the protection of the without prejudice rule. There appeared to be some suggestion in Bradford & Bingley's written case that clear and unequivocal admissions, even if made explicitly without prejudice, are admissible in evidence, not least as acknowledgments to defeat a limitation defence (and certainly this seems to be so in Scotland—see particularly Watson-Towers Ltd v McPhail 1986 SLT 617, Daks Simpson Group Plc v Kuiper 1994 SLT 689 and Richardson v Quercus 1999 SC 278). This, however, is not how I understand the position in this jurisdiction. Rix LJ in the Court of Appeal in Savings and Investment Bank Ltd v Fincken [2004] 1 WLR 667, reviewing recently the many authorities on the "unambiguous impropriety" exception, concluded (at para 57):

    "It is not the mere inconsistency between an admission and a pleaded case or a stated position, with the mere possibility that such a case or position, if persisted in, may lead to perjury, that loses the admitting party the protection of the privilege . . . It is the fact that the privilege is itself abused that does so. It is not an abuse of the privilege to tell the truth, even where the truth is contrary to one's case. That, after all, is what the without prejudice rule is all about, to encourage parties to speak frankly to one another in aid of reaching a settlement: and the public interest in that rule is very great and not to be sacrificed save in truly exceptional and needy circumstances."

    66.  If without prejudice admissions of liability are not admissible at trial as evidence of their truth, no more in my opinion can they be admitted as acknowledgments for the purpose of setting time running afresh under the 1980 Act. I do not see the position here as analogous to that arising in Muller v Linsley & Mortimer where the Court of Appeal ordered disclosure to the defendants of without prejudice negotiations which had led to the settlement of an earlier action brought by the plaintiffs against other parties. The plaintiffs were asserting that their conduct in settling the earlier claim had been a reasonable attempt to mitigate their loss; the defendants denied this. Lord Hoffmann said:

    "The without prejudice correspondence forms part of that conduct and its relevance lies in the light it may throw on whether the Mullers acted reasonably in concluding the ultimate settlement and not in its admissibility to establish the truth of any express or implied admissions it may contain. On the contrary, any use which the defendants may wish to make of such admissions is likely to take the form of asserting that they were not true and that it was therefore unreasonable to make them."

    67.  Earlier he had said:

    "The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted."

    In acknowledgment cases, by contrast, the statements are sought to be adduced in evidence as admissions. Indeed, it is only as admissions that they are relevant as acknowledgments.

    68.  It need hardly be pointed out, moreover, that the wider the category of admissions to be regarded as capable of constituting statutory acknowledgments (and, as explained above, Dungate v Dungate to my mind establishes that any clear acceptance of a liquidated liability suffices, even if the quantum of that liability is disputed), the more inappropriate would it be to deny to such admissions the protection of the without prejudice rule assuming that it would otherwise apply.

    69.  I return, therefore to the key question on this appeal: were the exchanges between the parties in September and October 2001 properly to be regarded as an attempt to compromise actual or impending litigation?

    70.  Sir Martin Nourse, in his admirably clear and concise judgment below, said this:

    "It is true that in the letter of 26 September the defendant was saying that he was not in a position to pay anything and might well not be able to pay anything until the year 2003/2004. But that emphasises rather than detracts from the negotiating nature of the letter. Put more broadly, the 'difference' between Bradford & Bingley and the defendant was that Bradford & Bingley were seeking payment under the threat of proceedings, at any rate of something, and the defendant was seeking to avoid payment of anything over a period of two years or more."

    71.  A little later he quoted Judge Hawkesworth's judgment in the court below:

    "The letter of 26 September cannot be looked at in isolation. It was part of an attempt to negotiate on behalf of the defendant to avoid him being saddled with a large judgment debt. It seems to me that the public policy foundation for the without prejudice rule is made out both in respect of the opening letter and all subsequent letters. . . . What was in issue was enforcement, and it seems to me there is equally a public policy issue in encouraging the parties to reach agreement as to the repayment of a debt as there is in encouraging them to agree as to the existence of a debt. The letter of 26 September was indeed a letter in which the defendant was 'laying his cards upon the table' preparatory to negotiations."

    Sir Martin agreed:

    "in particular that there is equally a public policy issue in encouraging the parties to reach agreement as to the repayment of a debt as there is in encouraging them to agree as to the existence of a debt."

    Finally Sir Martin expressed his belief that the case would not serve as a precedent for other cases and would not result in virtually all acknowledgments being held to be privileged.

    72.  I would respectfully disagree with these conclusions. If the without prejudice rule is to apply not merely to attempts to resolve a dispute over the existence or extent of a liability but also to discussions as to how an admitted liability is to be paid, that would seem to me a very substantial enlargement of its scope. Save for a single case in the Bristol Mercantile Court—The Cadle Co v Hearley [2002] 1 Lloyds LR 143, a first instance decision of Judge Havelock-Allan QC, not in fact referred to by the Court of Appeal in the present case—there appears to be no previous authority for such an approach. On the contrary, one is struck by its apparent novelty. It never, for example, appears to have occurred to anyone in Dungate v Dungate (nor indeed, in Good v Parry) that, acknowledgment or not, the letter in question was in any event inadmissible under the without prejudice rule.

    73.  In my opinion the without prejudice rule has no application to apparently open communications, such as those here, designed only to discuss the repayment of an admitted liability rather than to negotiate and compromise a disputed liability. I find it impossible to regard the correspondence here as constituting "negotiations genuinely aimed at settlement" (Lord Griffiths in Rush & Tompkins v GLC) or "an attempt to compromise actual or impending litigation" (Megarry V-C in the Lindt case). Nor does the underlying public policy justification for the rule appear to have any application in circumstances such as these. That justification, as Oliver LJ observed in Cutts v Head (see para 62 above) "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". No "statements or offers" were made here with a view to settling a dispute. Since the debt was admitted, there was no dispute. As Mr Fenwick QC aptly put it in argument, Mr Rashid was simply asking for a concession; he was not giving one.

    74.  I cannot, moreover, agree with the court below that "there is equally a public policy issue in encouraging the parties to reach agreement as to the repayment of a debt as there is in encouraging them to agree as to the existence of a debt." That seems to me too simplistic an approach. The position as to acknowledgments is more complicated than that. Acknowledgments, if effective for the purposes of the 1980 Act, tend, like negotiated settlements, to keep the parties out of court. By prolonging the limitation period they enable the creditor to give the debtor time to pay; he is not driven to resort to litigation to recover the debt. If open acknowledgments, merely because accompanied by a proposal to pay by instalments or with a discount, or at some unspecified future date, are to attract without prejudice privilege, then creditors will have no option but to issue proceedings and thereby add to the debtor's ultimate liability. But that is not to say that all acknowledgments should therefore be excluded from the without prejudice rule.

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