Thereafter, the parties continued to correspond with a view to settling the claim. Seven months later, the insurers wrote to JVK's solicitors advising that their previous letter admitting liability was written under the mistaken belief that early compliance with certain English procedures was needed and without the benefit of a fuller investigation, which investigation had now been carried out. Consequently, liability was to be disputed.
Issue:
The critical question to be determined by the Court was whether the insurer's letter admitting liability constituted an extra-judicial admission or a binding agreement, the distinction being of importance since an extra-judicial admission does not have contractual force and so may subsequently be withdrawn, whereas a binding agreement is just that and cannot be revoked.
Decision:
It was held in these circumstances that the admission of liability was an extra-judicial admission for the following reasons:
- The wording of the letter did not indicate a binding undertaking to pay damages;
- The letter was not intended to operate as an offer that might give rise to a binding agreement;
- In the correspondence that followed the letter there was no acceptance by JVK's solicitors that accepted any offer that may have been contained in the insurer's letter;
- Any admission made before the parties' positions are finally set out must normally be provisional, open to modification if new material emerges;
- The letter left open two critical matters - the assessment of damages and expenses.
The insurers were accordingly allowed to withdraw their admission of liability, and JVK's solicitors were precluded from relying on it.
Conclusion:
Any party seeking to rely on an admission of liability should be aware that if such an admission is made in the course of the preparation and presentation of the parties cases, at the stage where facts have not been conclusively determined and investigation may disclose additional information which indicates that the existing view of the facts is incorrect, the admission may subsequently be withdrawn on the basis that it constitutes an extra-judicial admission.
On the other hand, parties making an admission of liability in the course of settlement negotiations should ensure that any such admission is framed in terms so as to constitute an extra-judicial admission, rather than a binding agreement, in order that their position may be altered if need be.