Bradford & Bingley plc v Rashid

The House of Lords held that letters from the debtor acknowledging an outstanding mortgage shortfall were admissible as acknowledgements for the purposes of section 29(5) and section 30 of the Limitation Act 1980 and therefore restarted the limitation period. The letters' references to an "outstanding balance" and an "outstanding amount" were plain acknowledgements of liability. The Lords rejected the view that such acknowledgements are automatically excluded by the without prejudice rule when they form part of negotiations about repayment, finding instead that where negotiations do not involve a genuine dispute about liability the without prejudice privilege does not apply.

Key legal principles:

• The formulation of an acknowledgement under section 29(5) need not state a precise sum if the amount is ascertainable by extrinsic evidence (relying on Dungate v Dungate).
• The without prejudice rule excludes communications made in attempt to compromise a dispute about liability, but does not generally exclude open admissions of indebtedness where the correspondence relates only to mode, time or indulgence for payment.
• Different analytic approaches were offered by the Law Lords: some emphasised that the statements were not within the scope of without prejudice; Lord Hoffmann offered an alternative rationale distinguishing use as the acknowledgement itself from testimonial use as evidence of truth.

Background and facts: Bradford & Bingley were mortgagees who suffered a shortfall following possession and sale of the mortgaged property. The mortgagor, Mr Rashid, defaulted with last payment in January 1991. After correspondence and attempts to obtain proposals for repayment, two letters of 26 September 2001 and 4 October 2001 from an advice centre on Mr Rashid's behalf stated that he was not in a position to repay the "outstanding balance" and offered approximately £500 as a final settlement. No payments were made.

Procedural history: At first instance the deputy district judge admitted the earlier letter and gave judgment for the building society. His Honour Judge Hawkesworth allowed an appeal and excluded the letters as without prejudice. The Court of Appeal ([2005] EWCA Civ 1080) dismissed Bradford & Bingley's appeal. The matter came to the House of Lords on the sole issues described below.

Nature of relief sought: Bradford & Bingley sought to rely on the letters as written acknowledgements under section 29(5) of the Limitation Act 1980 so as to avoid the defendant's limitation defence and obtain judgment for the debt.

Issues framed:

• Whether the letters of 26 September 2001 and 4 October 2001 constituted acknowledgements in writing for the purposes of sections 29(5) and 30 of the Limitation Act 1980.
• If they were acknowledgements, whether they were inadmissible because they formed part of without prejudice negotiations to obtain time to pay or to accept a lesser sum.

Court's reasoning: The majority concluded the letters were written acknowledgements: the wording "outstanding balance" and "outstanding amount" sufficiently admitted legal liability and the quantum could be established by extrinsic evidence (following Dungate v Dungate). On admissibility, the majority held that the without prejudice rule is confined to communications genuinely aimed at compromising a dispute about liability; where correspondence deals only with obtaining time or indulgence for payment of an admitted debt it does not attract the rule. Lord Hoffmann, while agreeing the letters were admissible, offered a different rationale: the without prejudice rule should not exclude use of a communication as the acknowledgement itself because the use is not testimonial proof of truth but the act of making the acknowledgement which restarts limitation. The Lords balanced the competing public policy aims of encouraging settlement and preserving the acknowledgement rule and allowed the appeal.

Result: The House allowed the appeal and restored the deputy district judge's judgment for the creditor.

Appeal allowed. The House of Lords held that the letters of 26 September 2001 and 4 October 2001 constituted written acknowledgements for the purposes of section 29(5) and section 30 of the Limitation Act 1980 and were admissible despite forming part of correspondence about repayment. The majority concluded the without prejudice rule did not apply because the correspondence did not involve a genuine dispute about liability but only sought time/indulgence; Lord Hoffmann agreed the letters were admissible and offered an alternative principle distinguishing use of a statement as the acknowledgement itself from testimonial use to prove its truth.

First instance: Deputy District Judge admitted earlier letter and gave judgment for creditor. Appeal to Bradford County Court: His Honour Judge Hawkesworth allowed the debtor's appeal (letters excluded). Court of Appeal: dismissed Bradford & Bingley's appeal ([2005] EWCA Civ 1080). House of Lords: appeal allowed ([2006] UKHL 37).