A thorn in the side of a prescription defence? December 2017

By TREVOR VERSFELD AND KAYLEIGH VAN VUUREN, Published in Litigation

It is trite that extinctive prescription refers to the concept that certain types of obligations may be extinguished, or rendered unenforceable, by the lapse of time. The law of prescription promotes legal certainty and relieves a debtor from having to defend a claim long after it arose.

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Prescription in South Africa is governed by the Prescription Act, 1969 and, to the extent that the Act does not cover a specific rule or principle relating to prescription, by the common law. In this respect, as per s39(2) of the Constitution, when interpreting the Act and when developing the common law, the courts must promote the spirit, purport and objects of the Bill of Rights.

The Act provides, in s10(1), that a debt is extinguished by prescription after the lapse of the period which, in terms of the relevant law, applies in respect of the prescription of such a debt. Section 12(3) provides that a debt is not deemed to be due until the creditor has knowledge of the identity of the debtor, and of the facts from which the debt arises. A creditor will be deemed to have this knowledge if it could have acquired it by exercising reasonable care.

Until recently, the law on prescription in South Africa has been relatively certain and seemingly indomitable. A spate of recent decisions have, however, disrupted the certainty that legal practitioners and litigants have come to rely on.

In the recent decision of Yarona Healthcare Network v Medshield (1108/2016) [2017] ZASCA 116 (22 September 2017) (Yarona), the Supreme Court of Appeal held that the actual or constructive knowledge of the facts giving rise to the claim necessary for prescription to start running is on the part of the board of trustees. Accordingly, it found that since the appellant had failed to prove that the board of trustees had any actual or constructive knowledge by the relevant date, the appellant's defence of prescription failed.

The rationale emerging from Yarona is problematic. The SCA, seemingly, does not grapple with the question of whether or not the legal entity itself had the requisite knowledge, which could be attributed to it by natural persons within the entity besides just its governing body. Instead, the SCA confined its enquiry simply to whether the entity's governing body, in this case the board of trustees, had such knowledge. The SCA goes so far as to state that "...in the absence of evidence that the authority to litigate was delegated, the requisite actual or constructive knowledge would have to be that of the board of trustees."

In many cases, knowledge of a claim within a juristic entity may never reach the governing body. In fact, it would more likely be the structures charged with the administrative, operational or financial control of the entity that would be in possession of such knowledge. It would appear from the Yarona case that this may then mean that a claim may never prescribe. This effectively undermines the concept of legal certainty which the doctrine of prescription purports to promote.

In the case of Makate v Vodacom (Proprietary) Limited [2016] ZACC 13 (Makate), the Constitutional Court (CC) interpreted the meaning of the term "debt", which is not defined in the Act. Prior to the Makate decision, the courts had held that "debt" must be assigned a wide and general meaning (LTA Construction Ltd v Minister of Public Works and Land Affairs 1992 (1) SA 837 (C); Singh v Commissioner, South African Revenue Service 2003 4 SA 520 (SCA) and Desai v Desai 1996 1 SA 141 (A)), which, according to Desai includes "an obligation to do something or refrain from doing something." In Makate, however, the CC reassessed the construction of the term assigned under the era of parliamentary supremacy, and interpreted the Act in accordance with s39(2) of the Constitution. The majority held that "debt", as used in the Act, had to be narrowly interpreted so that it least encroached on the right of access to courts. The CC held further that since the claim fell beyond the scope of the narrow meaning of debt, it was not necessary to determine the precise meaning of the term. This narrow interpretation of debt has been further endorsed by the CC in subsequent cases (Mogaila v Coca Cola Fortune [2017] ZACC 6 and Off-Beat Holiday Club and another v Sanbonani Holiday Spa 2017 (5) SA 9 (CC)).

Finally, in Mtokonya v Minister of Police [2017] ZACC 33 (Mtokonya), the CC had to determine whether, in terms of s12(3), a creditor is required to have knowledge that the conduct of the debtor, giving rise to the debt, is wrongful and actionable, before prescription can commence running. The majority held that the claimant need not know that the respondent's conduct is wrongful but merely needs to have knowledge of the debtor and the facts giving rise to the debt in order for prescription to start running.

While the CC bore in mind the provisions of s39(2) of the Constitution, it found that knowledge that the conduct of the debtor is wrongful and actionable is knowledge of a legal conclusion, and is not knowledge of a fact. Therefore, such knowledge falls outside the ambit of "knowledge of facts from which the debt arises" as per s12(3). This meant that prescription started running against Mtokonya once he knew the identity of the debtor and the facts around the incident, notwithstanding that he did not know that the incident was actionable. The appeal was accordingly dismissed.

In reaching its conclusion the CC stated:

"To say that the meaning of the phrase 'the knowledge of . . . the facts from which the debt arises' includes knowledge that the conduct of the debtor giving rise to the debt is wrongful and actionable in law would render our law of prescription so ineffective that it may as well be abolished. I say this because prescription would, for all intents and purposes, not run against people who have no legal training at all...The percentage of people in the South African population against whom prescription would not run when they have claims to pursue in the courts would be unacceptably high."

Interestingly, in this case, the CC acknowledged the chilling effect that certain decisions, if taken, would have on prescription. Juxtaposed with Yarona, the SCA does not appear to take its reasoning to its logical conclusion. In any event, it appears that the law of prescription is currently undergoing a process of reinterpretation in certain respects, be it in order to bring it in line with constitutional precepts, or otherwise. This process sometimes tends to strengthen the defence of prescription (Mtokonya) but at other times tends to hinder it (Makate and Yarona).

Legal practitioners and litigants should steady themselves for a fair amount of uncertainty as this process unfolds.

Versfeld is a Partner and Van Vuuren a Candidate Attorney with Webber Wentzel.

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