An acknowledgement of debt made by a debtor to a creditor in the course of without prejudice negotiations will interrupt the running of extinctive prescription unless this consequence is excluded from the discussions.
In KLD Residential CC v Empire Earth Investments 17, the Supreme Court of Appeal was asked to strike a balance between the public interest of not forcing one party to settlement negotiations to issue summons to interrupt prescription before the conclusion of without prejudice negotiations, and the public interest in preventing without prejudice statements made by the other party admitting liability for the purposes of negotiations being used as evidence of the indebtedness to interrupt prescription.
The court held that a party engaged in negotiations and thus induced not to resort to litigation should not be prevented from relying on such an admission. The court has previously admitted an exception to the without prejudice rule where an admission of insolvency is made in the course of without prejudice negotiations.
It is regrettable that this new exception has been admitted. Those in the know will expressly make it a condition of their negotiations that any express or implied admission of indebtedness cannot be used as proof of indebtedness or used for the purposes of interrupting prescription under section 14 of the Prescription Act. Those ignorant of this law will be surprised to find out that what they said without prejudice is held against them. It is, after all, always in the control of the creditor whether to issue summons or not, or to ask for an extension of prescription during the negotiations and for a few months thereafter to give time for summons to be issued if negotiations fail.