The Inner House of the Court of Session issued judgment on 7 May 2009 in Jeroen Van Klaveren v Servisair UK Ltd [2009] CSIH 37 reversing the decision at first instance referred to in the last edition of this newsletter.
The defenders had been held bound by the terms of an extra-judicial admission of liability made by their insurers in pre-litigation correspondence in the following terms: “We accept that our insured is liable for the purposes of this claim, and will pay damages, to be assessed when we receive details of the claim. We will also be paying your costs in accordance with the Civil Procedure Rules.”
In rejecting the original conclusion by the court that the defenders had bound themselves in liability to the pursuer by agreement, the Inner House held that the critical issue was how one characterised the terms of the admission. Was it: (i) a bilateral agreement reached between the parties that the defenders would accept liability; (ii) a unilateral obligation on the part of the defender to accept liability; or (iii) a “mere” extrajudicial admission of liability? The Inner House drew an essential distinction between an admission that falls into the third of those categories and one that falls into either of the other two: “An extrajudicial admission of liability may have contractual force, but for that to occur the admission must be constituted either by a bilateral agreement or by a unilateral undertaking that is intended to bind the party giving the undertaking. If an extrajudicial admission does not have contractual force, it may be withdrawn at any time prior to the closing of the record.”
The court drew the parallel that a party would not be bound by an admission made in written pleadings which was subsequently withdrawn before the closing of the record of written pleadings. The circumstances under which the admission was made and subsequently withdrawn might be explored in evidence, but making an admission at one stage does not necessarily preclude a party from putting forward a contradictory position at a later stage.
In concluding that the terms of the pre-litigation correspondence were not such as to represent either a bilateral or unilateral binding obligation on the part of the defenders, the court took into account four factors: (1) the wording of the pre-litigation correspondence would need to be in “clear terms” for the inference to be drawn that it was either a bilateral agreement or the defenders were undertaking a unilateral binding obligation to pay damages; (2) there are “relatively powerful” reasons for the rule that an extrajudicial admission may be withdrawn since an admission before the parties’ positions are fully set out would normally be provisional, and open to modification as further information emerges; (3) subsequent correspondence between the parties after the extrajudicial admission did not suggest that the pursuer expressly or impliedly accepted that a binding agreement upon the issue of liability had been undertaken by the defenders – which was how the pursuer sought to characterise the correspondence before the court; and (4) critical matters were left open in the correspondence containing the admission, namely the assessment of damages, both with respect to quantification of loss and causation, and expenses. The reference to “the Civil Procedure Rules” applicable to England and Wales could have no bearing upon expenses recoverable under Scottish procedures. It was difficult to see how the letter might be enforced by specific implement. The court concluded that the intention of the letter was “…as an extrajudicial admission, and nothing more.”
Whilst not referred to in Van Klaveren, it is appropriate to note that the House of Lords in Ofulue v Bossert [2009] UKHL 16, a judgment issued on 11 March 2009, clarified (by a 4-1 majority) that the public policy ground of encouraging uninhibited negotiation between parties with a view to resolving civil disputes justified extending the “without prejudice” protection to issues which had represented common ground between the parties in prior communications. In Ofulue this meant that one party could dispute that they had been the tenant of another despite that having been an accepted position in prior legal proceedings. Ofulue is a decision binding upon the courts of England and Wales alone at present, but there is an express indication in Lord Rodger of Earlsferry’s speech that the law of Scotland with regards to the admissibility of statements in otherwise privileged communications, “…appears to be inconsistent with the general approach endorsed by this House…” The invitation is there in the circumstances for a Scottish litigant to challenge whether the approach of the courts to permitting “without prejudice” admissions of fact to become admissible in Watson-Towers Ltd v McPhail 1986 SLT 617 and Daks Simpson Group plc v Kuiper 1994 SLT 689 remains valid.
Notwithstanding that the open admission in Van Klaveren may have had less drastic consequences for the defenders than the decision at first instance implied, there remains a suggestion by the pursuer that the defenders are personally barred from maintaining a defence upon liability. As recognised in Gordon v East Kilbride Development Corporation 1995 SLT 162, whilst an extrajudicial admission might not necessarily be contractually binding upon a party, if the opponent in reliance upon that admission suffers prejudice, such as if they refrained from proceeding with investigation of an issue and the evidence subsequently became unavailable, the question of personal bar can arise. In addition, the fact that an admission of liability can subsequently be withdrawn does not remove the difficulty for a party in accounting for the inconsistency. The circumstances of the admission may require to be explored, necessitating additional evidence, expenditure, delay and inconvenience during the conduct of legal proceedings. It should also be noted that it is envisaged in terms of paragraph 3.6 of the voluntary pre-action protocol for personal injury cases approved by the Law Society of Scotland that a party is bound by an extrajudicial admission of liability made in terms of the protocol in cases with a value of below £10,000, except where subsequent evidence emerges that the claim is fraudulent.
The above developments highlight the importance of (a) considering with care the specific terms and implications of any pre-litigation communication with opponents’ representatives, which are liable to be significant if the case becomes the subject of court proceedings, and (b) invoking where appropriate the protection of correspondence being conducted upon a “without prejudice” basis if it contains admissions about contentious matters upon which an opponent might seek to found.
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Graham Weatherston