Restrictions on disclosure of without prejudice offers

February 1st, 2012

By HJ Erasmus

Rule 34 of the Uniform Rules of Court deals with offers made unconditionally or without prejudice in an attempt to settle a case. An unconditional offer is designed for the situation where a defendant admits liability in respect of the claim, in whole or in part. An offer without prejudice is an offer of settlement coupled with a denial of liability. The object of the rule, which derives from the English practice of paying money into court in an attempt to settle a case, is to enable a defendant to avoid further litigation and, failing that, to avoid liability for the costs of the litigation. The rule is not only to the benefit of a particular defendant, but also generally for the public good (Naylor and Another v Jansen 2007 (1) SA 16 (SCA) at para 13 and the authorities cited therein. On the rule in general, see AC Cilliers, C Loots & HC Nel Herbstein and Van Winsen: The Civil Practice of the High Courts and Supreme Court of Appeal of South Africa 5ed (Durban: Juta 2009) at 615). This object is achieved, inter alia, by restrictions imposed on the disclosure of such offers to the court before judgment.

This article is concerned with the restrictions on disclosure. Some attention will also be given to the question whether or not it is advisable that the restriction on disclosure should apply to appeal proceedings.

The restriction on disclosure

The restriction on disclosure is set out in sub-rules (10) and (13) of r 34:

‘(10)  No offer or tender in terms of this rule made without prejudice shall be disclosed to the court at any time before judgment has been given. No reference to such offer or tender shall appear on any file in the office of the registrar containing the papers in the said case.’

‘(13)  Any party who, contrary to this rule, personally or through any person representing him, discloses such an offer or tender to the judge or the court shall be liable to have costs given against him even if he is successful in the action.’

The injunction is imposed in imperative terms: No offer or tender made without prejudice ‘shall be disclosed’ to the court and no reference to an offer or tender ‘shall appear’ on any file in the office of the registrar containing the papers in the case.

Similar peremptory language is used in the equivalent English rule. Part 36.13(2) of the Civil Procedure Rules provides:

‘The fact that a part 36 offer has been made must not be communicated to the trial judge or the judge (if any) allocated in advance to conduct the trial until the case has been decided.’

The Pre-Action Protocol for Low Value Personal Injury Claims in Road Traffic Accidents (the RTA Protocol), which was added to part 36 as r 36.16 to 36.22 in 2010, provides:

‘Any other offer to settle must not be communicated to the court at all’ (part 36.20(2)).

The use of peremptory language serves to emphasise the conclusive role that the prohibition on non-disclosure fulfils in ensuring the effective functioning of r 34.

Effect of disclosure

There is, as far as I am aware, only one reported case dealing explicitly with a contravention of the restriction on disclosure. In Jacobs v Santam Insurance Co Ltd 1974 (3) SA 455 (C) the office of the registrar, in error and in contravention of r 34(9) (the equivalent of the current r 34(10)), included, in the file handed to the trial judge documents containing references to an offer lodged by the defendant. There is no reported case of which I am aware that deals with disclosure by a party or legal representative in contravention of r 34(13). The judgment of Baker J in the Jacobs case contains important findings and guidelines as to the appropriate response where the existence of a tender or offer is prematurely disclosed by the office of the registrar. Those guidelines are of assistance in cases where a party or a legal representative, whether in error or by design, makes such a disclosure in contravention of sub-r (13).

At the outset, two principles emerge. The first is that r 34(10) and (13), though imperative in form (also in the sense that a court cannot grant dispensation in advance from their requirements), are directory (see the Jacobs case at 464G). This is apparent from r 34(13), which clearly contemplates that, despite disclosure, the case may continue before the same judge with the result envisaged by the rule, namely that the successful defendant may be penalised in costs for his revelation to the court that there was a tender or offer (see the Jacobs case at 460E). The second is that the court may, in the exercise of its discretion, allow the case to continue before it if knowledge of the offer cannot reasonably cause any miscarriage of justice. The consideration that must weigh with a court faced with the need to decide whether or not a case shall continue before it, is the question of prejudice to one or more of the parties (see Jacobs at 464H–465A). Prejudice to the parties may also include the delay and extra cost occasioned by the recusal of the judge. (This factor was stressed by Dyson LJ in Garrett v Saxby [2004] EWCA Civ 341; [2004] 1 WLR 2 152 (CA) in paras 20 and 21. Dyson LJ took into consideration the fact that the case was ‘a fast track case’, that the claim was less than £15 000 and ‘justice would have required’ that the judge proceed with the case.)

In the exercise of his discretion, the judge should bear in mind the purpose of the rule and that a disclosure in contravention of the rule may undermine this purpose (see Doyle v Salgo (2) 1958 (1) SA 41 (FC) at 43A, where it was stated that, in the exercise of its discretion, the court must ensure ‘that the rules do not fail in this purpose’ – cited with approval in the Naylor case at para 13).

From the foregoing, it follows that it is incumbent on the judge to whom the disclosure has been made to consider whether the case should continue before him or whether a new trial before a different judge should be ordered. Dyson LJ, when dealing with a disclosure of a part 36 offer in the Court of Appeal in the Garrett case, said:

‘It is for the judge to decide in each case whether the disclosure of a part 36 offer or payment makes a fair trial impossible and whether justice demands that he recuse himself.’

It would be appropriate, perhaps even desirable, that the judge requests the parties to address him on the issue (in the Jacobs case counsel were unable to reach agreement and requested the judge to decide whether the matter could and should continue before him, or whether a new trial before a different judge should be ordered).

In weighing the question of prejudice, the judge cannot, however, be led exclusively by the attitude of the parties. It is incumbent on the judge to have regard to his own position and whether or not he might be embarrassed by knowledge of the tender or offer. In the Jacobs case Baker J ruled that the case could continue before him, mainly on the basis that the principal questions to be decided involved factual inquiries and that the only ‘value judgments’ required (relating to pain and suffering and loss of amenities) involved claims that were small in relation to the claims, the outcome of which depended on the resolution of factual issues. The judge did, however, add that where quantum is the only issue ‘… then, of course, the knowledge of the amount paid in can conceivably result in prejudice …’ (at 463B) and that in certain cases ‘the court might be extremely embarrassed by its knowledge of not only the fact but also the amount of the payment in’ (at 463D–E).

Cases in which knowledge of a tender or offer may place a judge in a difficult or untenable position are those involving what Baker J calls ‘value judgments’, such as those evaluating the acceptability of witnesses and their credibility, and the determination of the quantum of an award for pain, suffering and loss of amenities (the Jacobs case at 460A and 463E). Another kind of ‘value judgment’ is that which featured in NM and Others v Smith and Others (Freedom of Expression Institute as Amicus Curiae) 2007 (5) SA 250 (CC)), namely an award for injured feelings under the actio iniuriarum.

Disclosure by a party or legal representative

Rule 34(13), although phrased in imperative terms, is, as has been pointed out above, directory in the sense that it contemplates that the action can continue before the judge to whom the disclosure has been made. The sanction envisaged by the sub-rule, that a successful defendant may be penalised in costs, is also a matter of discretion. But the fact that the sub-rule in explicit terms provides that the successful defendant ‘shall be liable’ to be penalised in costs for his revelation to the court that there has been a tender or offer is not insignificant. The sub-rule does not lay down a ‘rule’, nor does it fetter the judicial exercise of the discretion, but it does oblige the judge to exercise a judicial discretion. It further means that –

‘… the exercise of the court’s discretion as to costs in this way would usually be proper and unimpeachable, and failure to do so would, if unjustifiable, amount to a misdirection’ (Naylor at para 14).

The wording of r 34(13) constitutes a direction to parties and their legal representatives, the observation of which (if I may borrow the words used by Scott LJ in Millensted v Grosvenor House (Park Lane) Ltd [1937] 1 All ER 736 (CA) at 740 in relation to a predecessor of part 36) ‘the framers of the rule thought was generally in the interest of the administration of justice’ and that ‘a dereliction from the duty so indicated’ is a matter which the judge trying the case must weigh in the exercise of his discretion (the Millensted case). It can be expected from legal representatives to be aware of the purpose of the rule and, in appropriate circumstances (for example, a deliberate disclosure in contravention of the rule for some ulterior purpose), a penal order as to costs may be apposite.

Disclosure on appeal

Rule 34(12) has no application to the Supreme Court of Appeal. In the Naylor case Cloete JA said, at para 24:

‘Rule 34(12) has no application to this court, but practice of the court is to follow the Uniform Rules of Court, so far as is practicable, where its own rules are silent.’

Thus a court of appeal may, where it changes the award made by the court a quo, apply the provisions of r 34(12) in regard to the proceedings in the lower court (see in this regard Kgolokwane v Smit 1987 (2) SA 421 (O), which concerned an appeal from a magistrate’s court in which a payment into court under r 18(6) of the magistrates’ courts rules had been made). However, the fact that an offer of settlement was made prior to the trial which exceeds an award as altered by a court of appeal does not affect the issue of the costs of appeal (Griffiths v Mutual and Federal Insurance Co Ltd 1994 (1) SA 535 (A) at 549C, not approving of statements to the contrary in the Kgolokwane case at 433H–434E.). Thus in the Griffiths case, where the plaintiff achieved substantial success on appeal, although she did not beat the tender, she was awarded her costs of appeal. This was approved of in the Naylor case (see para 24).

The current position in South Africa is that a court of appeal is apprised of the fact and nature of an offer or tender. A recent example is the judgment of the Constitutional Court in the NM case. In an action based on the actio injuriarum, the defendants claimed damages for violation of their rights to privacy, dignity and psychological integrity arising from the publication of a book. On the first day of the trial, the defendants, in terms of r 34, made an offer of R35 000 to each of the plaintiffs. The offer was not accepted. The trial court awarded R15 000 to each of the defendants. The Constitutional Court, with knowledge of the offers, reconsidered the quantum of the damages and increased the award to R35 000 to each of the defendants. The court in its award of costs took into consideration the offers that the defendants had made, and also the fact that they had made their offers on the morning of the first day of the hearing in the court a quo, thereby taking the plaintiffs ‘off-guard, so to speak’ (Langa CJ disagreed with this award of costs on the ground that different principles applied to cases involving constitutional rights).

The question whether or not it is advisable that a court of appeal should be unaware of a tender or offer in terms of r 34 was, in somewhat unique circumstances, left open in Bruwer v Joubert 1966 (3) SA 334 (A). An award of R2 500 had been awarded as general damages in an action relating to adultery. The award was apparently in excess of a tender which did not, therefore, have any bearing on the costs order in the court a quo. The fact and amount of the tender were accordingly not disclosed to the court a quo. In the court of appeal, the possibility of a reduced award caused counsel for the defendant to mention the fact, but not the amount, of the tender. This elicited the following response from the court:

‘Hierdie hof is deur verweerder se advokaat meegedeel dat ’n tender in die hof a quo deur verweerder kragtens reël 34 van die Eenvormige Reëls van die Provinsiale Howe gemaak is. Eiser se advokaat het geen beswaar teen die meedeling gemaak nie en derhalwe is dit nie nodig om te oorweeg nie of dit wenslik is dat hierdie hof ook onkundig oor die bestaan van so n tender behoort te wees. Die inhoud van die tender wat tans in n verseëlde koevert in die sorg van die griffier van hierdie hof is, sal na lewering van hierdie uitspraak geopenbaar word, en uitspraak aangaande koste in die hof a quo sal dan in die lig daarvan gelewer word’ (at 339B–C).

This is the only occasion (of which I am aware) on which a South African judge raised the question, albeit in tentative terms, of the desirability of disclosure to a court of appeal of the existence of a tender or offer. Much stronger was the reaction, many years ago, of Lord Denning MR in Mason v Mason and Others [1966] 1 WLR 767 at 768-769; [1965] 3 All ER 492 at 493:

‘I want to say a word about payment into court. … A trial judge does not know what payment has been made into court. Although at one time he used to know, under the rules of court he no longer knows. It is thought to be fairer that he should not know. Although there is no rule about the Court of Appeal, it seems to me that it would be less embarrassing to this court if they did not know of the payment into court. I would welcome it, if the rule committee thought it right, that the same rule should apply to the Court of Appeal as to the trial judge, namely, that this court should not know the amount of the payment into court. In any event, I dismiss it entirely from my mind in considering this case.’

Disclosure on appeal in English law

Lord Denning’s plea has not fallen on deaf ears. The current position in English law is that a part 36 offer may –

  • be made at any time, including before the commencement of proceedings; and
  • may be made in appeal proceedings.

The effect of this is that a part 36 offer made in proceedings at first instance does not have consequences in any appeal proceedings and that a fresh part 36 offer needs to be made in appeal proceedings. The restrictions on disclosure in appeal proceedings set out in part 52.12 apply to both a part 36 offer made in the proceedings at first instance and one made in the appeal.

Part 52.12(1) provides:

‘(1)    The fact that a part 36 offer or payment into court has been made must not be disclosed to any judge of the appeal court who is to hear or determine –

(a)     an application for permission to appeal; or

(b)     an appeal,

until all questions (other than costs) have been determined.’

This paragraph does not apply if the part 36 offer or payment into court is relevant to the substance of the appeal or where properly relevant to the matter to be decided in any application in the appeal proceedings (part 52.12(2) and (3)).

By reason of their training and experience, judges are capable of analysing and deciding the issues on their merits without being influenced by their knowledge of an offer of settlement (see the remarks of Dyson LJ in the Garrett case at para 20 and those of Baker J in the Jacobs case at 465B–E). In the Mason case, in which Lord Denning pleaded that judges in the Court of Appeal should be spared the ‘embarrassment’ of having knowledge of an offer to settle, the Court of Appeal was, due to the state of the law at that time, obliged to consider the appeal. Lord Denning said, in considering the case: ‘I dismiss [knowledge of the offer of settlement] entirely from my mind’.

There remains the ‘danger’ of a natural human bias on the mind of the judge; or at least, the perception of bias. The embarrassment that a judge might experience as a result of knowledge of an offer relates not only to unease in the mind of the judge, but also to the realisation that a perception of bias might be created. In courts of appeal, where cases are heard by Benches consisting of a number of judges, possible bias and the perception of bias have a less important role than in the hearing before a single judge in courts of first instance.

And yet, the question remains whether or not the arrangement in relation to appeals in the English courts is not more satisfactory than that in South African courts.

HJ Erasmus MA (UF) LLB (Unisa) D.Litt. et Phil (Leiden) is a former judge of the High Court and extraordinary professor in the department of private law at the University of Stellenbosch.

This article was first published in De Rebus in 2012 (Jan/Feb) DR 30.