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The recent judgment by the Supreme Court of Appeal in KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd (2017) 3 All SA 739 (SCA) has stirred the proverbial pot with regards to the accepted principles of “without prejudice” correspondence in relation to prescription matters.

It is an accepted principle of South African law that “without prejudice” letters exchanged between parties are inadmissible in Court. The reasoning for this is to allow for parties to a dispute the requisite space to achieve an amicable resolution, without the fear that any admissions made during their negotiations could later be adversely used in litigious proceedings.

Insolvency proceedings

Prior to the KLD Residential case, the only exception to this principle was in respect of insolvency proceedings. If a party made an admission in “without prejudice” correspondence that amounted to an admission of insolvency, said correspondence would be admissible in court on the basis that it would be in the public interest that the party in question be declared insolvent.

An exception to the rule

The SCA’s judgement in the KLD Residential matter, however, introduces a new exception to the abovementioned principle. The SCA was tasked with deciding whether or not an acknowledgement of debt by a party in a “without prejudice” letter served to interrupt prescription in terms of Section 14 of the Prescription Act, 68 of 1969. The Court a quo found that prescription would not be interrupted, as such “without prejudice” correspondence exchanged between the parties was inadmissible in formal Court proceedings. The SCA, however, held differently.

The SCA held that a “without prejudice” letter would be admissible for the purposes of interrupting prescription, however only that specific portion of the letter which purports to acknowledge the indebtedness of said party. The remainder of the letter which may deal with, inter alia, the quantum of the debt and nature of the claim etc., would be inadmissible. The SCA based its reasoning on the fact that both the principle of prescription and the “without prejudice” principle are there to serve the public interest, and that in order to prevent one principle overriding the other, the application of this new exception would ensure the public interest is properly protected.

Reality versus practicality

The SCA held further that, although the application of this exception would always be determined by the facts and circumstances of each case, parties to a “without prejudice” settlement negotiation could agree at the outset that such exception would not apply. The practicality of this notion remains to be seen.

It is accordingly imperative that when you attempt to amicably resolve a dispute off the record, the wording of any correspondence exchanged during such negotiations cannot be utilised at a later stage to your detriment.

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. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

David du Plessis
C & A Friedlander Inc.- General & Commercial Litigation

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