The expression ‘without prejudice’ means ‘without any loss or waiver of rights or privileges’ and is generally used during negotiations to settle a dispute.
The phrase indicates that a particular aspect of the negotiation — which may be a conversation or letter, a concession or admission — is made for purpose of settlement without giving up the legal rights of the persons involved. In other words, they do not waive their legal rights by delivering the contents of the letter, participating in discussions or making an admission during attempts to settle a dispute.
Letters or emails that are written ‘without prejudice’ are effectively considered ‘off the record’, which means that if something is admitted in correspondence between parties written in a genuine attempt to settle a dispute, that statement is inadmissible in any subsequent litigation between them.
Katherine Timoney, Candidate Attorney at Gillan & Veldhuizen, says, “This rule comes to our law from English law and is based on public policy grounds that if people have a dispute, they should be encouraged to avoid resorting to litigation, which can be expensive, time-consuming and often has a negative impact on the relationship between the parties.”
The theory is that people should instead be encouraged to resolve their disputes as co-operatively and amicably as possible, with the reassurance that if the negotiations fail, things that were said in the course of these discussions cannot subsequently be used against them in court.
Requirements of the ‘without prejudice’ privilege
For the ‘without prejudice’ privilege to apply and to protect communications or information from being used in court, the following must apply:
- i) an admission or statement must be made,
- ii) in the course of settlement negotiations,
iii) a genuine attempt to settle the dispute.
When does the privilege fall away?
If a settlement is reached after ‘without prejudice’ negotiations and a party fails to honour its terms, then the negotiations can be admitted as evidence in court of breach of the settlement agreement.
The ‘without prejudice’ rule has also been limited by the Courts, as two recent judgments of the Supreme Court of Appeal show.
The case of Absa Bank v Hammerle Group 2015 (5) SA 2015 (SCA)* found that in the context of settlement discussions with a bank, settlement discussions (usually considered to be ‘without prejudice’) which include an admission that the person or company owing the money is unable to pay its debts can constitute an act of insolvency which could lead to liquidation or insolvency proceedings. Here the court’s finding, essentially, was that the protection provided by the ‘without prejudice’ rule is not unlimited.
This finding was applied in the second case, KLD Residential v Empire Earth Investments [2017] SCA 98**. In this situation the court had to balance two competing ideas that are both in the public interest – namely the rules relating to the interruption of prescription by the debtor admitting their liability and the protection of admissions made ‘without prejudice’. The general rule of prescription is that a civil debt must be enforced within three years, but this can be interrupted by the debtor’s acknowledgement of their liability. The Supreme Court of Appeal had to decide if prescription could be interrupted by an admission of liability that would normally be considered ‘without prejudice’. Once again, the court limited the ‘without prejudice’ rule by finding that a debtor’s admission of liability interrupts prescription even if the admission is made on a ‘without prejudice’ basis.
Following these cases it is important to be aware of, and cautious of the content of any correspondence which is sent marked ‘without prejudice’ as admissions carelessly made could leave debtors exposed to a liquidation or sequestration application or prevented from relying on prescription.
Timoney adds, “Parties are encouraged to discuss matters with their attorneys before putting pen to paper to avoid catastrophic, unintended consequences.”
-Ends-
* The case of Absa Bank v Hammerle Group 2015 (5) SA 2015 (SCA) found that in the context of settlement discussions with a bank, settlement discussions (which would usually be considered to be ‘without prejudice’) which include an admission that the person or company owing the money is unable to pay due debts can constitute an act of insolvency. This act of insolvency can then be used as a justification for bringing liquidation or insolvency proceedings against that person or company. In that situation, the court found that “the reason for the exception is that liquidation or insolvency proceedings are a matter which by its very nature involves the public interest […] It follows that any admission of such insolvency, whether made in confidence or otherwise, cannot be considered privileged.” The court’s finding, essentially, was that the protection provided by the ‘without prejudice’ rule is not unlimited.
**In the case of KLD Residential v Empire Earth Investments [2017] SCA 98, the ‘without prejudice’ rule was balanced against the rules of prescription set out in the Prescription Act 68 of 1969. The general rule of prescription is that a civil debt must be enforced within three years, but section 14 of the Prescription Act provides that the running of prescription can be interrupted by the express or tacit acknowledgement of liability from the debtor, and will then start running again from the date at which that interruption took place. The question that arose for the SCA to decide was whether an acknowledgement of liability by a debtor contained in ‘without prejudice’ correspondence would interrupt the running of prescription.
The court ultimately found that the ‘without prejudice’ rule can be limited in this situation so that where an acknowledgement of liability is made that would normally be sufficient to interrupt prescription in terms of section 14 of the Prescription Act, this acknowledgement should be admissible, even if it is made ‘without prejudice’ during settlement negotiations. However, this ruling was made with the caveat that these statements will be admissible “solely for the purpose of interrupting prescription” and that the parties can expressly or impliedly oust this admissibility during their settlement discussions. The court described this finding as an exception which allows for both “the prevention of abuse of the ‘without prejudice’ rule, and the protection of a creditor.”
About Gillan and Veldhuizen
Gillan and Veldhuizen Inc was founded in 1999 by PJ Veldhuizen and Joan Gillan. Since its inception, and with more than 15 years of successful practice, the company has evolved to become a specialised firm focusing primarily on commercial law arising from issues relating to the Companies Act, the Consumer Protection Act and the National Credit Act.
Website: www.gvinc.law.za
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