What is prescription of a debt?
We are all likely to become a debtor by owing someone a certain amount of money or a creditor by loaning an amount to another person for example. Whether one has a gym membership, a credit facility, a car payment etc, at some point or another we will step into the shoes of a debtor. For this reason, it is vital to be aware of the eventual prescription of the debt you owe to your creditor resulting in same no longer being due. In this regard, extinctive prescription relates to the prescribing of the obligation relating to a debt due to the passing of time, more specifically after 3 years (meaning, that after a period of 3 years, the debt "falls away" provided that prescription has not been interrupted for some or other reason). Naturally, nothing is without qualification and prescription can be interrupted by a number of actions and it only begins to run at a certain point in time.
In this regard, section 12 of the Prescription Act 68 of 1969 reads:
“12 When prescription begins to run:-
(1) Subject to the provisions of subsections (2), (3) and (4), prescription shall commence to run as soon as the debt is due.
(2) If the debtor wilfully prevents the creditor from coming to know of the existence of the debt, prescription shall not commence to run until the creditor becomes aware of the existence of the debt.
(3) A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises: Provided that a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care.”
Section 12(1) of the Prescription Act provides for the general rule relating to the commencement of the running of prescription. Section 12(3) of the Prescription Act requires a creditor to have knowledge that the conduct of the debtor giving rise to the debt is wrongful and actionable before prescription may start running against the creditor. The first exception, in subsection (2), is that prescription does not commence to run against a creditor if the debtor wilfully prevents him or her “from coming to know of the existence of the debt” until the creditor “becomes aware of the existence of the debt”. Therefore, under subsection (2) it is not every time a creditor does not know of the existence of a debt that prescription does not commence to run.
The Constitutional Court has pronounced on this issue relating to extinctive prescription in Mtokonya v Minister of Police 2017 (CC) 33. The CC held that it is only in those cases where the debtor is wilfully preventing or has wilfully prevented the creditor from “coming to know of the existence of the debt” that prescription does not begin to run. Thus, one cannot use the exception in subsection (2) to say that in all cases in which a creditor does not know of the existence of a debt that prescription does not commence to run. In accordance with the CC judgment, there is a reason why the exception in subsection (2) applies only where the reason for the creditor’s lack of knowledge of the existence of the debt is a result of the fact that the debtor has been wilfully preventing the creditor from coming to know of the existence of the debt. It is that, if the reason the creditor does not know of the existence of the debt is that the creditor has failed to acquire that knowledge by exercising reasonable care when he otherwise could have acquired it by exercising reasonable care, then the debt will have become due and prescription will have commenced running.
Section 12(3) does not require the creditor to have knowledge of any right to sue the debtor nor does it require him or her to have knowledge of legal conclusions that may be drawn from “the facts from which the debt arises”. In this regard, the Supreme Court of Appeal in Truter v Deysel 2006 4 SA 168 (SCA), has previously held that the facts from which the debt arises are the facts which a creditor would need to prove in order to establish the liability of the debtor. The question that arises is whether knowledge that the conduct of the debtor is wrongful and actionable is knowledge of a fact. This is important because the knowledge that section 12(3) requires a creditor to have is, “knowledge of facts from which the debt arises”. It refers to the “facts from which the debt arises”. On this point, the SCA in Minister of Finance v Gore N.O. 2006 (SCA) 98; 2007 (1) SA 111 (SCA), held that time begins to run against the creditor when it has the minimum facts that are necessary to institute action and that the running of prescription is not postponed until a creditor becomes aware of the full extent of its legal rights.
The most recent judgment of the SCA relevant to this topic is Fluxmans Inc v Leveson 2016 (SCA) 183; 2017 (2) SA 520 (SCA), which has also confirmed that section 12(3) does not require knowledge of legal conclusions on the part of a creditor before a debt can be said to be due. Importantly, a conclusion that an agreement is invalid is not a fact but a legal conclusion.
Our recent case law provides much clarity on the topic of prescription and when same begins to run. Importantly, it is not relevant when the legal conclusions are drawn relating to a specific debt but rather when the underlying facts arise are relevant for purposes of determining when prescription begins to run. It is therefore not necessarily required for your creditor to have awareness of his/her right to sue you based on your debt in order for the 3 year period to start running. This may be in the debtors’ favour in certain circumstances where time is on their side and the prescription has not been interrupted by way of the creditor instituting summons for example. It is essential to act quickly when enforcing debts, as it is possible that it may prescribe if the lender does not act quickly enough.
Should you have any enquiries relating to a debt and the prescription thereof, or which to take steps relating thereto – please reach out to our team at Spence Attorneys at our Johannesburg or Cape Town branch. (firstname.lastname@example.org ; email@example.com).
By Lara Gelderbloem, Candidate Legal Practitioner and Natalie Macdonald-Spence, Director
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