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  • Without prejudice” disclosures (typically published in a hostile or litigious environment) are generally seen as an opportunity to be completely candid with an opponent in legal or contemplated legal proceedings without fear of jeopardising one’s case or risking any disclosure emerging in an open or court environment. Indeed, statements made and letters written without prejudice are, as a general rule, not admissible as evidence in court. This is because the law aims to encourage parties to resolve their disputes amicably, without fear that what they say during negotiations may be used against them should the dispute go to trial. For the most part this rule is binding, but there is a limit to the protection afforded by the without prejudice rule: admissions to liability for a debt.
  • In the recent case of KLD Residential CC (KLD) v Empire Earth Investments 17 (Pty) Ltd (Empire)[1] KLD faced the unsettling prospect of its claim for debts totalling R2 105 960.00 having prescribed. It had served summons for payment in June 2013 but most of the debt had been incurred more than 3 (three) years prior to the date on which the summons was served and, according to the Prescription Act, 68 of 1969, a claim for payment of a debt lapses 3 (three) years after it becomes due (note: it is not the issue of a summons but the service that interrupts prescription).
  • However, the court was able to come to the KLD’s rescue because, although the general rule is that a debt lapses 3 (three) years after it becomes due, the running of prescription may be interrupted by an admission of liability on the part of the debtor and, in this case, such an interruption had in fact occurred.
  • On 29 July 2011 Empire’s attorneys had sent a “without prejudice” letter to KLD’s attorneys in which they acknowledged that Empire owed KLD R2 105 960.00 and, even though this letter was labelled “without prejudice”, it was admitted in evidence as an admission of liability. In its judgment, the court explained that it would be highly unfair if a debtor could get out of a debt by relying on prescription if the only reason it had not yet been obliged to pay was because it had induced the creditor into delaying the institution of litigation by admitting it owed the debt.
  • On a more technical note, the court explained that one of the reasons for extinctive prescription is to provide certainty to a debtor as to whether a debt is still owed and certainty as to the amount owed. Evidence as to the nature of the debt (its terms and the amount owed) may become lost or unreliable over time and so, to avoid injustice being done to a debtor, the law provides for extinctive prescription. In this case, certainty as to the nature of the debt owed was not in issue because Empire acknowledged liability. Thus, Empire’s admission was admitted as evidence in court and KLD got its money back.
  • Clearly a welcome relief for KLD and all the accommodating creditors out there. Clearly the court was guided not only by legal principles but also by the need to be just. This case however is a clear warning that not everything said during the course of without prejudice interactions is safe from judicial scrutiny.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Please feel free to contact Brian Kahn for further information or specific and detailed advice. Errors and omissions excepted (E&OE)