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'?.
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  ZASCA 113; 1996 (1) SA 141 (A)).
In the recent Constitutional Court case of Makate v Vodacom (Pty) Ltd  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  ZACC 10:
The Constitutional Court:
- 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
- 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.
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  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  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  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  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:
- 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
- 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
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."
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.
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.