When loans fall into default, it is normal for there to be correspondence between the lender and borrower (and their respective attorneys-at-law) aimed at settling the debt or negotiating new payment terms or extensions to the facility.

Ordinarily, without prejudice privilege prevents the admissibility of communication between opposing parties aimed at settling the claim. The rationale behind the privilege is that parties to disputes should be encouraged to settle their disputes outside the courtroom and should not be discouraged from doing so by the possibility of their settlement proposals being used against them in the course of the proceedings.

While this appears to be a straightforward rule, there is an important exception. Communications which contain an admission of an outstanding debt and proposals to pay said debt are not subject to the without prejudice rule and are admissible in court proceedings. These communications can then be used by banks and lenders to seek summary judgment (judgment without a trial) in civil proceedings, if the outstanding debt is not repaid. This exception to the without prejudice rule was set out by the House of Lords in Bradford & Bingley PLC v Rashid [2006] UKHL 37.

Bradford & Bingley Plc v Rashid

A commercial bank (“Bradford”) brought an action against Rashid to recover an outstanding debt arising under a mortgage loan. Attorneys acting on behalf of Rashid wrote to Bradford expressly admitting to an outstanding debt of £15,583, requesting time to repay, and proposing £500 in final settlement of the outstanding amount. Bradford rejected this offer and commenced proceedings to recover the debt, which had been outstanding for over 10 years.

The court considered two issues:

1) Whether the letters to Bradford amounted to an ‘acknowledgement of the debt’ under the Limitation Act 1980 (“the Act”) to revive the limitation period of 6 years; and

2) Whether the letters were protected by without prejudice privilege and were inadmissible.

The House of Lords held that a clear admission of the existence of a debt is in its very nature an acknowledgement of debt for the purposes of the Act, even where there is a dispute as to the actual quantum of the indebtedness. The court went on to also hold that the letters were admissible and not subject to privilege as they amounted to unequivocal admissions of indebtedness. The mere discussion about repayment of the debt is an admission of the liability.

Jamaican Application of the Exception

In Jamaica, the decision in Bradford & Bingley has been applied by the Supreme Court in Dorrett Wong Sam v Jamaica Redevelopment Foundation [2018] JMCC Comm 13.

The issue of admissibility of without prejudice communication was live in the case, as the claimant (mortgagor) applied for an order prohibiting the defendant (mortgagee) from using and adducing evidence of a letter and an e-mail from the claimant’s attorney to the defendant’s manager, admitting the debt and proposing terms for its full and final payment.

The Supreme Court reaffirmed the principle that for any communications to be protected by the privilege there must be a dispute of liability and the communications must be written for the purpose of compromise of the disputed liability. There was no dispute to be compromised in the case, since the correspondence treated the debt as an undisputed liability and the debtor was simply asking for a concession.

At paragraph 13 of its decision, the court held that the correspondence in question contained both an admission (that there was an outstanding amount) and an offer to compromise (of US $85,000 within 90 days in full and final settlement), while failing to contest the outstanding amount. For these reasons, the court was satisfied that the rule in Bradford & Bingley was applicable and the communications did not attract without prejudice protection.

The court also stated that the mere failure to use the expression “without prejudice” did not mean that the privilege was inapplicable. The question for the court was whether the correspondence was written in an attempt to compromise actual or pending litigation. However, since the court was of the view that there was no dispute as to whether the mortgagee was liable, but simply as to the amount of his indebtedness, the “without prejudice” privilege did not apply.

The Importance of the Exception for Lenders

The law has carefully and deliberately carved out an exception to the without prejudice rule, acknowledging the fact that in instances where there is a lack of dispute of liability or indebtedness, strict application of the privilege would be inconsistent with the public policy of promoting settlement.

When liability or indebtedness is clearly and unequivocally admitted, there is no dispute to compromise or to negotiate, except the terms of payment of the admitted debt. Communications consisting of the mere negotiation of the mode of repayment of debt are not covered by the privilege. In the event that court proceedings become necessary to recover the debt, this exception to the without prejudice rule is an important weapon in the arsenal for lenders.

Andre Taylor is an associate at Myers, Fletcher and Gordon and a member of the firm’s Litigation Department. He may be contacted at andre.taylor@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.