Mortgage arrears — Sale of mortgaged property — Claim to recover shortfall — Whether claim statute-barred — Section 29(5) of Limitation Act 1980 — Whether acknowledgement of claim occurring to start time running afresh — Applicability of without prejudice rule — Appeal allowed
A property that had been mortgaged to the appellant by the respondent was sold after the latter fell into arrears with his repayments. The sum realised on the sale fell short of the amount owing to the appellant, and correspondence took place between the parties regarding repayment of the outstanding sum. The appellant offered to waive part of the debt if the respondent agreed to make a substantial lump sum payment towards it. The respondent wrote to inform the appellant that he was not in a position to repay “the outstanding balance” at that time, but that he would begin to do so once his financial situation was stable. By a subsequent letter, he offered to pay £500 towards the “outstanding amount” as a final settlement. The correspondence ended at that point and no payment was made. None of the correspondence between the parties was marked as “without prejudice”.
The appellant eventually brought proceedings claiming the outstanding sum, with interest. In his defence, the respondent argued that the claim had been brought outside the limitation period provided by section 20 of the Limitation Act 1980. The appellant contended that the respondent’s letters amounted to an acknowledgement of its claim, so as to start time running afresh pursuant to sections 29(5) and 30. Issues arose as to whether: (i) the respondent’s letters contained such an acknowledgement; and (ii) they were inadmissible as forming part of without prejudice negotiations between the parties.
The claim was allowed at first instance, but two successive appeals resulted in a reversal of that decision. The Court of Appeal held that both letters had been impliedly written without prejudice since they formed part of a negotiation. On a further appeal by the appellant, the respondent submitted that, in any event, the letters did not amount to acknowledgements within section 29(5) because they contained no admission of a definite amount due or an amount ascertainable by calculation.
Held: The appeal was allowed.
(1) Each of the two letters constituted an acknowledgement for the purposes of the 1980 Act. Acknowledgements were not confined to admissions of debt that were indisputable as to quantum as well as liability: Dungate v Dungate [1965] 1 WLR 1477 applied; Good v Parry [1963] 2 QB 418 considered. The references in the letters to an “outstanding balance” and to an “outstanding amount” constituted acknowledgements of a debt, and nothing more was required to start time running again.
(2) (Per Lord Walker, Lord Brown and Lord Mance, with Lord Hoffmann and Lord Hope differing in their reasoning): The mere fact that communications constituted acknowledgements did not mean that they fell outside the protection of the without prejudice rule. In acknowledgement cases, a creditor was seeking to adduce the communications in evidence as admissions, and it would be inappropriate to deny such admissions the protection of the without prejudice rule where it would otherwise apply: Muller v Linsley & Mortimer [1996] 1 PNLR 74 distinguished. A communication made without prejudice could not be admitted as an acknowledgement for the purpose of setting time running afresh under the 1980 Act.
Acknowledgements would attract without prejudice privilege where the extent of the liability was genuinely in dispute and the parties were attempting to settle that difference. However, the rule did not apply to apparently open communications, such as those in the instant case, designed only to discuss the repayment of an admitted liability rather than to negotiate and compromise a disputed liability. Such correspondence did not constitute an attempt to compromise actual or impending litigation so as to qualify for protection under the without prejudice rule: Rush & Tompkins Ltd v Greater London Council [1989] AC 1280 and Chocoladefabriken Lindt & Sprüngli AG v Nestlé Co Ltd [1978] RPC 287 applied. The underlying public policy justification for the rule, namely the desirability of preventing statements or offers made during negotiations for settlement from being brought before the court of trial as admissions on the question of liability, did not apply in such circumstances. No statements or offers had been made with a view to settling a dispute, since the debt was admitted and there was no dispute. Acknowledgements, if effective for the purposes of the 1980 Act, tended to keep the parties out of court, thereby avoiding the need for creditors to issue proceedings and thereby add to the debtor’s ultimate liability.
Justin Fenwick QC and Nicole Sandells (instructed by Addleshaw Goddard, of Leeds) appeared for the appellant; Christopher Nugee QC and William Hanbury (instructed by Williscroft & Co, of Bradford) appeared for the respondent.
Sally Dobson, barrister
