The Prescription Act 68 of 1969 ("the Act"), provides for four extinctive prescriptive periods:
Thirty years in respect of –
- any debt secured by a mortgage bond;
- any judgment debt;
- any debt in respect of any taxation;
- certain debts owed to the state in respect of any share of profits, royalties or any similar consideration payable in respect of rights to mine minerals.
Fifteen years in respect of any debt owed to the State and arising out of a loan of money or sale or lease of land by the State to a debtor.
Six years in respect of any debt arising from a negotiable instrument such as a cheque or from a notarial contract.
Three years in respect of any other debt, except where stipulated otherwise by another Act of Parliament.
When does extinctive prescription commence?
According to section 12(1) of the Act, extinctive prescription begins to run as soon as the debt is due.
The courts have held that a debt includes any liability arising from and being due or owing under a contract. A ‘debt’ refers to an obligation to do something, whether by payment of money or by delivery of goods and services, or not to do something (Electricity Supply Commission v Stewarts and Lloyds of SA (Pty) Ltd 1981 (3) SA 340 (A)).
Prescription begins to run not necessarily when the debt arises, but only when it becomes due. This has been interpreted to mean, that for prescription to begin running, there has to be a debt in respect of which the debtor is under an obligation to perform immediately. (Deloitte Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman Deutsch (Pty) Ltd 1991 (1) SA 525 (A)). Therefore, a debt is ‘due’ when it is claimable by the creditor and is payable by the debtor. It has furthermore been held that a debt is only due when the creditor’s cause of action is complete. Put differently, the creditor must be in a position to claim payment forthwith, and that the debtor does not have a defence to the claim for immediate payment. The cause of action must be complete at the time summons is served.
The Act provides that if a debtor willfully prevents a creditor from coming to know of the existence of the debt, prescription will not commence to run until the creditor becomes aware of the existence of the debt. A debt is not deemed to be due until the creditor has or ought to have had knowledge of the identity of the debtor, and of the facts from which the debt arises.
Delay in the completion of extinctive prescription
In certain circumstances listed in section 13(1) of the Act, the prescriptive period will be delayed and shall not be completed before a year has elapsed after the day on which the impediment has ceased to exist. Examples of the impediments are the debt is the subject of a dispute submitted to arbitration or the debtor is outside the Republic.
When is extinctive prescription interrupted?
Extinctive prescription may be interrupted in two ways, namely, by the express or tacit acknowledgement of liability by the debtor or by means of judicial interruption.
Interruption by acknowledgement of liability
Acknowledgement of liability by the debtor may be express or tacit. (section 14(1) of the Act) The same examples of acknowledgements of liability at common law will apply to the Act. (Cape Town Municipality v Allie NO 1981 (2) SA 1 (C)). Where any part of the debt has been acknowledged, then such acknowledgment ipso facto interrupts the running of prescription of the whole debt.
One must look to the intention of the debtor to decide if there has been an acknowledgment of liability. To interrupt prescription, an acknowledgement by the debtor must amount to an admission that the debt was in existence and that he is liable for it. The test is - did the debtor intend to admit that the debt was in existence and that he is liable for it? (Petzer v Radford (Pty) Ltd 1953 (4) SA 314 (N)). An admission that the debtor has incurred the obligation, coupled with an assertion that the obligation has been extinguished, will not interrupt prescription.
When considering a tacit acknowledgement of liability, the court will look at both the words of the debtor along with his conduct to assess whether an acknowledgement of liability has occurred.
Examples of acknowledgements of liability are: part payment of the debt; payment of interest; giving of security; admission of liability in any other manner. Entering into negotiations does not amount to an acknowledgement of liability.
If the running of prescription is interrupted by an acknowledgement of liability, prescription commences to run afresh from the day on which the interruption takes place, or, if at the time of the interruption or any time thereafter, the parties postpone the due date of the debt, on the date upon which the debt again becomes due. (s14(2) of the Act)
Judicial interruption of prescription
In terms of the Act, the running of prescription will be interrupted by the service on the debtor of any process whereby the creditor claims payment of the debt. In Du Bruyn v Joubert 1982 (4) SA 691 (W), it was said that in order effectively to interrupt prescription, there must at least be (a) a right enforceable against the debtor in respect of which extinctive prescription is running, and (b) a process served on the debtor instituting legal proceedings for the enforcement of that very right or substantially the same right.
Essentially, therefore, section 15(1) of the Act requires the service of a process by which legal proceedings are effectively commenced for the payment of the debt in question.
Where a plaintiff wishes to amend its claim, it will be precluded from doing so by prescription if the new claim is based upon a new cause of action and the relevant prescriptive period has run, but not if it was part of the original cause of action. The question is whether an amendment relies on a totally new set of facts to substantiate the claim or whether the facts are substantially the same as those relied on in the original summons?
An application for a winding up order is not a legal proceeding for the enforcement of a right relating to the applicant’s debt, and it is not a process whereby the applicant claims payment of that debt. The service of such an application does not therefore have the effect of interrupting the running of prescription of a debt.
For the initiation of legal process to have the effect of interrupting prescription, the creditor must prosecute his claim until final judgment and must not abandon the judgment. Additionally, if the judgment is set aside for whatever reason, interruption of prescription will not take place.
Extinctive prescription limits the time within which to launch a claim, but once the action has been instituted, its continuance is governed by the rules of court.
The documents that initiate legal process include: a summons; a notice of motion; a petition; a rule nisi; a pleading in reconvention; a third party notice referred to in the rules of court and any document whereby legal proceedings are commenced. A statement of claim in arbitration proceedings would fall within the ambit of the above.
For prescription to be interrupted in terms of section 15, three requirements must be present:
- There must be a process.
- The process must be served on the debtor.
- By that process, the creditor must claim payment of the debt.
In summary, the Act may have a significant impact on the collectability of a company's debtor’s book and in respect of any claim that such party may have against a third party. Clients should be wary of leaving claims on the back burner when they run the real risk of such claims prescribing on the basis set out in the Act.
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.