Bradford & Bingley plc (Appellants) v. Rashid (FC) (Respondent)
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:
47. On 2 October 2001 Bradford & Bingley's Solicitors replied:
(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:
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  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:
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:
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  2 QB 418, an issue raised and apparently resolved by the Court of Appeal's subsequent decision in Dungate v Dungate  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:
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 yetterribly 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 indebtednessthe '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 £500see Kerr J's judgment in Surrendra Overseas Ltd v Government of Sri Lanka  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:
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  AC 1280, 1299:
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  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 evidencethe 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  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  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 Scotlandsee 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  1 WLR 667, reviewing recently the many authorities on the "unambiguous impropriety" exception, concluded (at para 57):
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:
67. Earlier he had said:
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:
71. A little later he quoted Judge Hawkesworth's judgment in the court below:
Sir Martin agreed:
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 CourtThe Cadle Co v Hearley  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 casethere 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.