The South African Supreme Court of Appeal (the “SCA”) has created a new exception to the without prejudice rule. In KLD Residential v Empire Earth Investments (1135/2016)
It is well established in South African Law that without prejudice statements made by one party to another, in contemplation of settlement, are inadmissible as evidence in later proceedings, should such negotiations fail. The public policy doctrine underlying this rule is to encourage parties to enter into open settlement discussions with one another, without fear that should the negotiations fail, admissions, including admissions of liability, made during the course of those discussions, will be used against them in later litigation. Until recently our courts recognised limited exceptional circumstances, in terms of which evidence disclosed in without prejudice negotiations were admissible. These exceptions include: acts of insolvency, fraudulent misrepresentations, threats and limited instances of estoppel.
In establishing the latest exception, the majority judgment balanced the policy considerations underlying section 14 of the Prescription Act; namely, to provide certainty to a debtor in circumstances where a creditor has been inert, against the principles underlying the without prejudice rule and reasoned that, “the exception allows for… the prevention of abuse of the without prejudice rule, and the protection of a creditor and that recognising such an exception would properly serve the policy interests of section 14 of the Prescription Act and the without prejudice rule. “.
The SCA accordingly held that ”Where acknowledgments of liability are made such that, by virtue of section 14 of the Prescription Act, they would interrupt the running of prescription, such acknowledgments should be admissible, even if made without prejudice during settlement negotiations, but solely for the purpose of interrupting prescription. The exception itself is not absolute and will depend on the facts of each matter. And there is nothing to prevent the parties from expressly or impliedly ousting it in their discussions. What the exception allows for, as I see it, is the prevention of abuse of the without prejudice rule, and the protection of a creditor. The admission remains protected in so far as proving the existence and the quantum of the debt is concerned.”
In light of this recent ruling, litigants should carefully consider what they elect to admit during without prejudice discussions, as this may be used against them for purposes of interrupting prescription in subsequent litigation, should the negotiations ultimately fail.