South Africa: Prescription Revisited

Last Updated: 17 October 2016
Article by Nicole Gabryk

A brief overview of the latest case law developments in terms of the Prescription Act 68 of 1969

In terms of the Prescription Act 68 of 1969 ("the Act"), "debts" prescribe after a period of 3 years. In order to avoid losing the legal right to enforce a claim (payment of a "debt"), a creditor must interrupt prescription by instituting proceedings against a debtor before the end of the 3 year period.

In terms of Section 12 of the Act, the 3 year prescription period is calculated, and begins to run, from the date on which the "debt" becomes "due". A "debt" in terms of the Act is only deemed to be due when a creditor has "knowledge" of both the identity of the debtor as well as of all the facts from which the "debt" arises.

Also, in terms of Section 14 of the Act, the running of prescription is interrupted by an "express or tacit acknowledgement of liability by a debtor."

The courts have recently considered:

  • the meaning of "debt" in terms of the Act (the term has now been defined by the Constitutional Court);
  • the interpretation and meaning of "knowledge"' in terms of the Act (the terms has been clarified);
  • instances where "knowledge" can be imputed to a creditor in terms of the Act (the instances are being narrowed);
  • whether a 'without prejudice' communication constitutes an "acknowledgement of liability" for the purposes of interrupting the running of prescription; and
  • the commencement of the running of prescription in relation to acceleration clauses in instalment sale agreements – when does a debt become 'due'?.

"Debt" – Makate v Vodacom (Pty) Ltd [2016] ZACC 13:

The approach adopted by our courts in interpreting the term "debt" in terms of the Act, prior to this case, had largely been to favour an interpretation that bore a "wide and general meaning", encompassing "whatever is due under any obligation, an obligation to do something or refrain from doing something" (see in this regard Desai NO v Desai [1995] ZASCA 113; 1996 (1) SA 141 (A)).

In the recent Constitutional Court case of Makate v Vodacom (Pty) Ltd [2016] ZACC 13, the Constitutional Court rejected the wide interpretation of the term "debt", and instead restricted the definition of "debt" to mean only "an obligation to pay money, deliver goods, or render services."

In his concurring judgment in the Vodacom case, Wallis JA confirmed the position that only personal rights, and not real rights, are capable of giving rise to "debts" which can be extinguished through (extinctive) prescription in terms of the Act.

While the Vodacom case was based on a claim arising out of a breach of the plaintiff's intellectual property rights, Wallis JA in his judgment, referenced arbitration agreements in the construction context to illustrate his finding:

"...the issue in the present case ... may have a parallel with the provision sometimes encountered in construction contracts, and apparently a consistent feature of standard form commodity contracts, that requires, as a pre-requisite to any claim arising, that the claimant must obtain an arbitration award, with the result that the very existence of a claim depends on the outcome of the arbitration. This is not the same as the more commonly encountered situation where the parties simply agree that any disputes they may have about the validity of existing claims will be determined by arbitration."

It is therefore necessary to distinguish between:

  • instances where, due to an agreement between the parties, a particular event (such as an arbitration) must occur as a pre-requisite to any claim arising, and accordingly the prescription period for such a claim only beginning to run once the pre-requisite is met (the obtaining of the arbitration award); and
  • instances where, due to an agreement between the parties, the "debt" (claim) arises immediately, and some procedural step (such as an arbitration) is needed merely to determine the extent or validity of such a claim - in this instance the presence of the arbitration clause does not delay the running of prescription in any way.

"Knowledge": Links v Member of the Executive Council, Department of Health, Northern Cape Province [2016] ZACC 10:

The Constitutional Court:

  1. confirmed that the onus rests on the party raising a defence of prescription to show that the claimant "had knowledge of all the material facts from which the debt arose or which he needed to know in order to institute action"; and
  2. in dealing with the question of what facts the creditor is required to know, in the context of a medical malpractice claim, held that "in a claim for delictual liability based on the Aquilian action, negligence and causation are essential elements", which have both factual and legal elements.

The court accordingly held, specifically in cases involving professional negligence (irrespective of whether the claim against the professional arises out of a delict or a breach of contract), that while the party raising the defence of prescription does not need to prove that the plaintiff actually knew that damages resulted due to another party's negligence, but must at least show that the plaintiff was in possession of sufficient facts to cause the plaintiff, on reasonable grounds, to suspect that there had been negligence (fault) which had caused the damages suffered by the plaintiff, and which in turn would reasonably have caused the plaintiff to seek further advice.

"Deemed knowledge" – First National Bank v Scenematic One (Pty) Ltd [2016] ZASCA 60:

It is also possible for a party raising the defence of prescription to establish that a claim has prescribed because a plaintiff could have acquired the necessary knowledge of all the facts from which a cause of action arose, if the plaintiff had exercised "reasonable care". A so-called "deemed knowledge" will accordingly be imputed to a plaintiff and result, in the commencement of the running of the prescription period,. This is because "...a creditor cannot by supine inaction arbitrarily and at will postpone the commencement of prescription" (see in this regard the case of Macleod v Kweyiya [2013] ZASCA 28).

On 14 April 2016, in the judgment of First National Bank v Scenematic One (Pty) Ltd, the Supreme Court of Appeal ("SCA") had to decide whether 'deemed knowledge' of a claim could be imputed on Scenematic (the plaintiff), and therefore whether the plaintiff's claim had prescribed.

In this case, the plaintiff failed to realise that unauthorised debit orders were being deducted from its account each month for over a year, until it conducted an audit. By the time it instituted proceedings, the first unauthorised debit order had already reflected 4 years prior to the institution of proceedings. A defence of prescription was accordingly raised by the defendants.

The court held that, in the circumstances, the plaintiff had "no reason to suspect that the debit orders... were not justified". Therefore, "although the plaintiff's staff may not be entirely blameless" the court could not find "that their failure to investigate the debits was so unreasonable that it can be said that the plaintiff had not exercised reasonable care."

"Acknowledgement of liability" in a 'without prejudice' communication: KLD Residential CC v Empire Earth Investments 17 (Pty) Ltd [2016] ZAWCHC 83:

The issue in this case was whether the plaintiff could rely on a 'without prejudice' letter as an acknowledgment of liability for the purposes of interrupting prescription.

It was common cause between the parties that the communication qualified for 'without prejudice' protection. KLD contended that the 'without prejudice' protection did not apply in instances where the communication relied upon serves to interrupt prescription.

Rogers J concluded that the "the law does not recognise such an exception" and that, for the purposes of Section 14(1) of the Act, for a creditor to rely on an acknowledgment of liability for the purposes of interrupting prescription, there must be admissible evidence of the acknowledgment (relying on Roestorf & Another v Johannesburg Municipal Pension Fund & Others [2012] ZASCA 24).

When a debt becomes 'due' - contractual acceleration clauses and the commencement of prescription: Standard Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and Another [2016] ZASCA 91:

The crux of the dispute in this matter was when a debt becomes 'due' in terms of the Act: specifically, in relation to instalment agreements which contain an acceleration clause, whether a debt becomes due at the time when the debtor breaches the agreement, or only once the creditor (in this case Standard Bank) elects to enforce its rights under an acceleration clause in the facility agreement (rendering the entire amount outstanding immediately due at that date).

The commencement of the running of prescription will necessarily depend on the wording of the particular acceleration clause. In this regard, two situations must be distinguished:

  1. instances where an acceleration clause states that the full outstanding debt automatically becomes accelerated upon a breach by the debtor – in such instances prescription will begin to run immediately upon such a breach occurring; and
  2. instances in which an acceleration clause affords a creditor a right to elect to accelerate the due date for the total amount still outstanding upon a breach by the debtor – in these instances the debt only becomes 'due' "when the creditor has elected to enforce the clause", and consequently, prescription only begins to run from the date on which the creditor elects to enforce its rights under the acceleration clause.

The court noted that if a creditor elects not to enforce its rights to accelerate the full outstanding amount, then the creditor is entitled to wait until all the individual instalments become due before instituting action against a debtor, but warned that, in those circumstances, a creditor runs the risk of prescription having "taken effect in respect of earlier instalments".
The court concluded that:

"...there is no sense in looking for the point in time when the debt is due, if the debt does not even exist... The creditor cannot be said to be in default, or guilty of dilatoriness, until he has made his election. The election and communication thereof in the form of the requisite notices are essential pre-conditions to create a cause of action in the first place. The election is one which Standard Bank does not have to take at all... The balance owing on the facility, excluding the outstanding arrear payments, was not due as Standard Bank did not elect to...claim repayment of the outstanding balance."

Conclusion

The courts' findings on the various elements of the Prescription Act are welcome, as they provide further clarity and legal certainty in relation to the prescription of debts.

Prescription Revisited

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nicole Gabryk
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions