KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd

• Jurisdiction: South Africa
• Court: Supreme Court of Appeal
• Judge: Lewis JA, Tshiqi JA, MBHA JA, Fourie AJA and Schippers AJA
• Judgment Date: 06 July 2017
• Citation: 2017 (6) SA 55 (SCA)
• Hearing Date: 06 July 2017
• Docket Number: 1135/2016 [2017] ZASCA 98
• Counsel: A de V la Grange SC (with CR Cilliers) for the appellant. RJ Howie for the respondent.

Lewis JA (Tshiqi JA, Mbha JA and Fourie AJA concurring):

[1] The issue before us on appeal raises a novel question of law. That is, whether an acknowledgment of indebtedness by a debtor, embodied in a letter written for the purpose of settling litigation, and thus 'without-prejudice', may nonetheless be admitted in evidence for the limited B purpose of showing that the period of prescription has begun to run afresh in terms of s 14 of the Prescription Act 68 of 1969.

[2] The matter came before the Western Cape Division of the High Court by way of a stated case. The question of law posed was put thus C by the appellant:

'Does (or should) our law recognise an exception to the without-prejudice rule (otherwise known as settlement or negotiation privilege), to the effect that such inadmissibility rule is not applied where the only purpose for which reliance is placed on a communication otherwise covered by the rule is to prove an acknowledgment of liability interrupting prescription as contemplated in s 14 of the Prescription D Act . . . ?'

Rogers J considered that there was no such exception, but granted leave to appeal against his decision to this court.

[3] E The facts are largely common cause, and the only issue before us is whether the common law should recognise the exception for which the appellant argues. This is a matter entailing competing policy considerations underlying the without prejudice principle, and the law of prescription, and I shall deal with them in due course. It is necessary first to describe the factual matrix and the communication that is argued by F the respondent to be privileged even for the purpose of proving an acknowledgment of liability interrupting the running of prescription in terms of s 14 of the Prescription Act.

Factual background

[4] G The appellant, KLD Residential CC (KLD), in an action against the respondent, Empire Earth Investments 17 (Pty) Ltd (Empire Earth), alleged in its particulars of claim that it had been given a written mandate in November 2006 to market erven in a new property development, and to receive commission on sales of which it was the effective cause. H Commission was alleged to be payable once transfer of each property was passed to the buyer. KLD alleged that it was the effective cause of 99 sales referred to in a schedule to the particulars. It was entitled, it said, to R2,147 million in commission, due on transfers registered on dates ranging between October 2008 and November 2009. KLD issued summons for payment of the commissions in June 2013.

[5] I In a special plea Empire Earth pleaded that, save for one sale after 2009, the registration dates were more than three years before the summons was served, and that the claims for commission had become prescribed. In its plea on the merits, Empire Earth alleged that KLD itself was in breach of various terms of the contract such that any amount that J was due by it fell to be reduced. Empire Earth had already commenced

Lewis JA

action against KLD in respect of various claims and asked that judgment A be postponed until those claims had been adjudicated.

[6] KLD replicated to the special plea, alleging that on 29 July 2011 Empire Earth's then attorneys, Webber Wentzel, had written to KLD's then attorneys, acknowledging that it owed commissions in the sum of R2 105 960. This, it was alleged, had interrupted the running of B prescription in terms of s 14 of the Prescription Act, and the prescription period had begun to run afresh on the date of the letter. KLD's claim for commission had not become prescribed, it averred.

[7] The parties' respective claims were consolidated in September 2013. C It was agreed that a stated case would be put to the court, and that the issue set out earlier was to be determined. The letter is central to the argument and I shall set out its terms insofar as relevant fully. It should be recorded, however, that both in the court a quo and in this court, KLD accepted that the letter was written without prejudice to the rights of the parties, in the course of settlement negotiations. That concession was in D my view rightly made. KLD also conceded that Rogers J had correctly found that an admission of part of a liability is sufficient to interrupt the running of prescription.

[8] KLD also accepts the finding of Rogers J that the law governing the E legal question asked in the stated case is the English law of evidence as at 31 May 1961, as provided for in s 42 of the Civil Proceedings Evidence Act 25 of 1965. As Rogers J found, subject to specific legislation or any constitutional imperative, the law of evidence in England at the relevant date had long adopted the without prejudice rule — that statements, including admissions of liability, made in an F attempt to settle litigation between parties are inadmissible in subsequent litigation between them. The rule is based on policy grounds: parties to disputes should be encouraged to avoid litigation, which usually entails expense, delay, hostility and inconvenience, by resolving their disputes amicably in frank discussions without the fear that if negotiations fail, admissions made by them in the course of negotiating G may be used against them subsequently. It should be said that the rule has long been part of South African law as well, and I shall discuss the authorities in this regard later.

[9] However, as I have indicated, KLD does take issue with the finding by H Rogers J that there are no compelling reasons of public policy to limit the protection afforded by the without prejudice rule so as to recognise an exception to it for the purpose of interrupting prescription. This, as I have said, is the only issue on appeal.

The letter in question I

[10] The letter, written on 29 July 2011, was addressed by Empire Earth's then attorneys, Webber Wentzel, to Jooste Leidig Attorneys, who were acting on behalf of KLD, which was trading as Seeff Properties, and referred to as 'Seeff'. It read (the precise punctuation is not reproduced here): J

Lewis JA

'1

A As you know, our client [Empire Earth] instituted a claim against Seeff on 20 November 2007 for the payment of certain amounts for which Seeff is indebted to our client.

2

Certain moneys have now become due and payable to Seeff by our client. These are comprised of commissions to which Seeff has become entitled in terms of the agreement dated 27 November 2006 B and the extension thereof dated 23 March 2007, (collectively the agreement) entered into between our client and Seeff.

3

We remind you that in terms of the agreement Seeff would become entitled to a four per cent commission for each successful sale which Seeff effected, upon transfer of the sold property. For your convenience we include under cover hereof a list of the properties C sold by Seeff which were successfully transferred to the purchasers.

4

Accordingly Seeff has become entitled to commission in the amount of R2 105 960, including Vat.

5

By virtue of the operation of set-off this amount has been reduced by the following amounts for which Seeff is indebted to our client: . . . .'

There D followed a list of four claims, not all of which were in fact liquidated and were thus not capable of set-off. That is of no consequence here.

'6

From the aforegoing, it is apparent that Seeff's indebtedness to our client amounts to R1 023 625,45.

7

E Accordingly, we include under cover hereof a cheque for R1 082 334,55 including Vat (being R2 105 960 commission less the total indebtedness of R1 023 625,45) in full and final settlement of any and all claims that Seeff may have against our client, and of the litigation forming the subject matter of case number . . . .'

[11] F The cheque was not banked. KLD accepts that the entire letter was written without prejudice, in an attempt to settle the disputes between it and Empire Earth, and that no part of it would ordinarily be admissible for the purpose of proving the amounts owed, if any. It accepts that the acknowledgments of liability in paras 2 and 4 of the letter would G ordinarily be privileged. It nonetheless argues that the policy considerations underlying s 14 of the Prescription Act were not sufficiently taken into account by Rogers J and that too much weight was given to the policy underlying the without prejudice rule.

The H policy underlying s 14 of the Prescription Act

[12] The section reads:

'Interruption of prescription

(1) The running of prescription shall be interrupted by an express or tacit acknowledgement of liability by the debtor.

(2) If the running of prescription is interrupted as contemplated in I subsection (1), prescription shall commence to run afresh from the day on which the interruption takes place or, if at the time of the interruption or at any time thereafter the parties postpone the due date of the debt from the date upon which the debt again becomes due.'

[13] One of the principal reasons for extinctive prescription is to provide J certainty to a debtor — after a period of time when the creditor has been

Lewis JA

inert, the debtor should have certainty as to whether or not a debt is still A owed. The three-year period over which prescription runs is regarded as being enough time for the creditor to enforce the obligation, and conversely, if it is not enforced within that time, the debtor may be certain that the obligation has ended. The debtor is protected save where the reasons for the principles underlying prescription fall away and the protection of a creditor is justified. B

[14] This is clearly explained in Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality 1984 (1) SA 571 (A) at 578F – H where Grosskopf AJA said:

'Although many philosophical explanations have been suggested for the C principles of extinctive prescription . . . its...