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[2016] ZASCA 91
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Standard Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and Another (187/2015) [2016] ZASCA 91; [2016] 3 All SA 487 (SCA); 2017 (1) SA 185 (SCA) (1 June 2016)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case
No: 187/2015
In
the matter between:
THE
STANDARD BANK OF SOUTH AFRICA
LTD
APPELLANT
and
MIRACLE
MILE INVESTMENTS 67 (PTY) LTD
FIRST RESPONDENT
PRESENT
PERFECT INVESTMENTS 116 (PTY) LTD
SECOND RESPONDENT
Neutral
citation:
Standard
Bank v Miracle Mile Investments
(187/2015)
ZASCA 91 (1 June 2016)
Coram:
Leach, Saldulker, Swain and Mbha JJA
and Baartman AJA
Heard:
13 May 2016
Delivered:
1 June 2016
Summary
:
Prescription – extinctive – claim based on agreement
providing for a loan repayable in instalments
and containing
acceleration clause – only enforceable where creditor has made
election to cancel agreement and claim full
amount –
prescription accordingly commences running upon election being made.
ORDER
On
appeal from:
Gauteng Local Division of
the High Court, Johannesburg (Gaibie AJ sitting as court of first
instance):
1.
The appeal is upheld with costs, such costs to include the employment
of two counsel.
2.
The order of the court a quo is set aside and is substituted with the
following:
‘
The
application is dismissed with costs.’
JUDGMENT
Mbha
JA (Leach, Saldulker, and Swain JJA and Baartman AJA concurring):
[1]
This appeal, with the leave of the court a quo, is against the
judgment of the Gauteng Local Division, Johannesburg (Gaibie
AJ) in
which it held that the respondent companies, Miracle Mile Investments
67 (Pty) Ltd (Miracle) and Present Perfect Investments
116 (Pty) Ltd
(Present), the first and second respondent respectively, were
entitled to cancel mortgage bonds registered in favour
of the
appellant, Standard Bank of South Africa Ltd, over several of the
respondents’ immovable properties without payment
to the bank
on the ground that the bank’s claim had prescribed. The debt
arose from a facility advanced by the bank to Mr
Nicolas Chrysostomos
Papachrysostomou (Nicolas) as principal debtor, for which the
respondents stood surety.
[2]
The appeal raises an important issue of principle concerning when
prescription commences to run in an agreement containing an
acceleration clause that entitles the creditor bank to claim the
whole outstanding amount payable, upon the occurrence of a breach
by
the principal debtor. The crux of the dispute is when the debt
becomes ‘due’ in terms of s 12(1) of the Prescription
Act
68 of 1969 (the Act).
[1]
Put
differently, is the debt due when the principal debtor breaches the
obligation to pay the monthly instalment, or is it due when
the
creditor elects to enforce the acceleration clause, in order to
render the whole amount payable?
[3]
The respondents contend that prescription commenced to run and that
the debt became ‘due’ when the principal debtor
breached
his obligation to pay the monthly instalment. On the other hand,
Standard Bank avers that since it did not elect to give
notice to
accelerate payment of the outstanding balance, and until it did,
prescription did not begin to run on the full amount.
[4]
Standard Bank also avers that it is entitled to rely on the 30-year
prescription period in respect of a debt secured by a mortgage
bond
in terms of s 11 of the Act;
[2]
as well as
the interruption of prescription by an acknowledgment of liability by
Nicolas in terms of s 14 of the Act.
[3]
[5]
The relevant background facts giving rise to the dispute can be
summarised as follows. In August 2005 Standard Bank and Nicolas
entered into a written agreement, the terms of which were
incorporated in a letter of grant, a terms and conditions agreement
and the bonds
[4]
–
whereby
he was granted a line of credit styled a ‘Liberator facility’
(the facility)
[5]
for a
maximum amount of R13 984 600, which was repayable over a period
of 240 months. The first monthly instalment was due
30 days after the
first use of the facility. As security expressly required in terms of
the facility, the respondents executed
written deeds of suretyship in
favour of Standard Bank in terms of which they bound themselves as
sureties and co-principal debtors
with Nicolas in
solidum
for his indebtedness to the bank in respect of the facility. The
respondents furthermore caused mortgage bonds (the bonds) to be
registered over certain of their immovable properties in favour of
Standard Bank as part of the collateral required in terms of
the
facility.
[6]
It was an express term of the agreement that Standard Bank could
convert the facility to one repayable on demand, inter alia,
if
Nicolas failed to pay any instalment due and not remedy this default
within seven days of written notice having been given to
him by the
bank. In that event (as well as other events of default as specified
therein), Standard Bank would have the right, without
prejudice to
any other rights or remedies available to it, to terminate the
facility and claim immediate payment of the outstanding
balance by
giving a further written notice.
[6]
[7]
Pursuant to the conclusion of the facility agreement, the deeds of
suretyship were executed by the respondents and the bonds
were
registered against their properties in favour of Standard Bank.
Thereafter Nicolas drew on the facility, but subsequently
defaulted
on his monthly instalment repayments when his debit order payments
were reversed due to him having insufficient funds
to meet his
monthly obligations.
[8]
On 12 August 2008, Standard Bank addressed a letter to Nicolas in
terms of s 129 of the
National
Credit Act 34 of 2005 (the NCA). He was advised that he had not met
his obligations in respect of the agreement and that,
in order to
bring his account up to date, he had to pay the total arrears of
R671 072.88 which were due immediately. Of critical
importance
is that this notice did not contain any intimation by the bank of an
election to accelerate the debt to claim the full
amount owing.
Nicolas made no payments to Standard Bank after 21 October 2008, at
which date the amount owed was R 7 432 443.
[9]
Nicolas’ estate was provisionally sequestrated on 7 February
2012, which order was made final on 23 April 2012. In terms
of the
deeds of suretyship executed by the respondents, the sequestration
had no bearing upon their liability and the continued
enforceability
of the bonds. On 27 August 2013, Standard Bank instituted action
against the respondents, inter alia, to recover
the debt due and
declare the properties mortgaged executable. That action is still
pending.
[10]
The respondents in the interim launched an application during June
2013, in which they sought an order directing Standard Bank
to
consent in writing to the cancellation of the bonds, notwithstanding
that the debt they secured remained unpaid. The basis of
the
application was that Standard Bank’s claim had prescribed on 22
October 2011 as a result of Nicolas’ failure to
pay any
instalments after the last payment on 21 October 2008, which had
interrupted the running of prescription. They contended
that as there
was no longer any principal debt for the bonds to secure, they were
no longer liable as sureties.
[11]
Standard Bank opposed the application, contending that its claim
against Nicolas had not prescribed. Its notice in terms of
s 129 of
the NCA dated 12 August 2008, had merely called upon Nicolas to bring
the arrear instalments up to date and accordingly
the full
indebtedness under the facility was not due, owing or payable. In the
circumstances prescription had not commenced running.
[12]
The court a quo recognised that, whether or not the debt incurred by
Nicolas in terms of the facility had prescribed, depended
on when the
debt had become ‘due’, within the meaning of that word in
s 12(1) of the Act.
[7]
If the debt
became due from the date of Nicolas’ default, namely on 21
October 2008, prescription would have commenced running
from that
date and the Bank’s claim would have prescribed on 22 October
2011, prior to Standard Bank’s institution
of the action for
the recovery of the debt against the sureties and Nicolas. Having
recognised that the phrase ‘debt is due’
in s 12(1) is
not defined in the Act, the court a quo examined the jurisprudence
dealing with the interpretation of the phrase.
Relying on
Hamilton
Plase (Edms) Bpk v Stadler
1977
(3) SA 361
(NC) and
Orton
v Barhouch
1973 (2) SA 565
(D), it held that if Standard Bank was entitled to
accelerate the debt and claim the full amount but failed to do so,
this did
not prevent prescription from running. Prescription ran from
the date that Standard Bank acquired the right to enforce payment of
the full amount even though it elected not to do so.
[13]
As Professor Loubser
[8]
has pointed
out,
Hamilton
and
Orton
were
decided under s 5(1)(
d
)
of the Prescription Act 18 of 1943 (the old Act), which provided that
prescription commenced running when the right of action
first
accrued
and not when it became
due
.
These cases held that prescription in respect of the creditor’s
right of action to claim the full outstanding amount of
the debt,
began to run immediately upon the default of the debtor, when the
creditor’s right of action accrued and not when
he elected to
enforce it. In
Orton
it was held that prescription ran from when the creditor could have
brought his action. Because he could have done so on the first
default, prescription ran from that date. The cause of action arose
at the time when the debt could first have been recovered by
action.
In
Hamilton
,
the same view was adopted. The creditor was not faced with a choice
between irreconcilable causes of action. The only cause of
action he
possessed was to claim the capital amount owed to him. His choice was
simply when to take action, either at the time
when the breach
occurs, or to wait for a later stage. This was a choice available to
any party to a contract and if he waited too
long he ran the risk of
the debt becoming prescribed.
[14]
The ratio for these decisions was the policy consideration that a
creditor should not be able to determine, of his own accord,
when
prescription will begin to run by deferring his election to enforce
an acceleration clause, contained in an instalment contract.
This
principle was relied upon by the court a quo in stating that if
Standard Bank’s argument was accepted, it could effectively
delay prescription from running.
[15]
However, as Professor Loubser emphasizes, contrary to the provisions
of the old Act, s 12(1) of the current Act provides that
prescription
begins to run when the debt becomes ‘due’ and not when it
first accrued. Thus where an acceleration clause
affords the creditor
the right of election to enforce the clause upon default by the
debtor, the debt in terms of the acceleration
clause only becomes due
when the creditor has elected to enforce the clause. Before an
election by the creditor, prescription does
not begin to run.
[9]
The policy
consideration that a creditor should not be able to determine of his
own accord when prescription will begin to run against
him, by
deferring his election to enforce an acceleration clause, cannot
override the clear provisions of the Act. Whilst the creditor
holds
in abeyance his decision whether or not to enforce an acceleration
clause, prescription will continue to run in respect of
the
individual arrear instalments, payable by the debtor. The creditor’s
election to enforce the acceleration clause has
the effect of
transforming the existing instalment debts, into a single debt for
the full amount outstanding under the contract.
If a creditor elects
not to enforce the acceleration clause, he is entitled to wait until
all the individual instalments have fallen
due before instituting
action, albeit at the risk that prescription may then have taken
effect in respect of earlier instalments.
[16]
Professor Loubser points out that depending upon the terms of the
contract an acceleration clause may automatically come into
effect
upon default by the debtor, without any election by the creditor.
This would be the case where the creditor has in advance
made an
election in terms of the contract to enforce the acceleration clause.
Because an acceleration clause is intended to operate
solely for the
benefit of the creditor, it is imperative that the contract should
clearly indicate the parties’ intention
that the acceleration
clause shall come into operation automatically if that is to be a
term of their contract.
[17]
Christie supports the views of Professor Loubser and explains the
position as follows:
‘
If
the contract contains an acceleration clause making the entire
balance of the debt payable on the debtor’s failure to pay
any
one instalment, it will only be necessary to examine the clause
carefully in order to see whether anything in addition to the
debtor’s default, such as a written demand, is required to
bring it into operation. The normal acceleration clause does not
itself make the balance of the debt payable but gives the creditor
the option to demand it, so prescription runs from his demand,
not
from the debtor’s failure to pay the instalments.’
[10]
[18]
Similarly, Joubert points out that:
‘
Where
the contract contains an acceleration clause entitling the creditor
to payment in full if a debtor falls in arrears with the
payment of
one instalment, then prescription in respect of the balance,
commences as soon as the balance can be claimed.
Where the clause
allows the creditor an election, it commences when he exercises his
right to claim payment in full; where the
clause operates
automatically prescription commences as soon as the debtor falls in
arrears’.
[11]
[19]
Professor McLennan
[12]
who was
critical of the decision in
Orton
stated that the difficulty was that:
‘
Each
instalment gives rise to a separate cause of action as and when it
falls due for payment, and, obviously, prescription cannot
begin to
run until the particular instalment falls due for payment. The rights
conferred on a creditor by an acceleration clause
such as the one in
the present case are surely additional to and not in substitution for
the ordinary rights attaching to the debt.
So, although the period of
prescription in respect of the right date from the acceleration
clause may begin to run as soon as the
debtor is in default, this
does not, it is submitted, affect the creditors’
rights in
respect of the instalments that are not yet due. The curious result
of
Orton’s
case
is that an acceleration clause, which is intended entirely for the
benefit of the creditor, can actually operate to its detriment.
There
may be many good reasons why a creditor should decide not to enforce
an acceleration clause
.’
[20]
The effect of an election possessed by a party to a contract, on the
running of prescription, was considered in the decisions
of
HMBMP
Properties (Pty) Ltd v King
1981 (1) SA 906
(N) at 910-911 ─ in respect of an anticipatory
breach of a contract ─ and
Big
Rock v Hoffman
1983 (1) SA 534
(T) ─ in the context of the giving of notice in
terms of s 13 of the Sale of Land on Instalments Act 72 of 1971. In
HMBMP
Properties
,
it was held that the innocent party’s cause of action for
damages resulting from the defaulting party’s repudiation
of an
obligation which is to be performed by him at some future date, only
accrues (ie the ‘debt’ of the default party
only becomes
due
)
when the innocent party elects to cancel the contract and to treat it
as at an end.
[13]
Prescription,
consequently, commenced to run from that date.
[14]
In
Big
Rock v Hoffman
1983 (1) SA 534
(T) it was held that the furnishing of a notice in
terms of s 13 of the Land Instalment Act to remedy a default and a
failure to
comply, was a condition precedent to the seller’s
right to claim payment of the full balance owing under the contract.
Prescription
therefore only began to run after the expiry of the
prescribed notice period.
[21]
The cases of
Western Bank v Van Vuuren
1980 (2) SA 438
(T),
First Consolidated
Lease Incorporation (Pty) Ltd v Servic SA (Pty) Ltd & another
1981 (4) SA 380
(W) and
Bankorp Ltd v
Leipsig
1993 (1) SA 427
(W) were all
decided under the current Act. However, contrary to the views of
academics, these cases affirmed the decisions taken
under the old Act
that prescription began to run on default by the debtor and not when
the creditor elected to claim the balance
outstanding. In
Western
Bank
it was held that ‘debt is
due’ meant that the debt was immediately claimable, or the
debtor was under an obligation
to pay the debt immediately. The
legislature envisaged a debt in respect of which the claimant could
institute action. By analogy
with the old Act, prescription began to
run from the date on which the right of action first accrued. This
right accrued when the
first default occurred and the right to claim
the balance owing accrued when this occurred. It was held that the
contract did not
provide that the right to claim the balance only
arose when the creditor decided to claim, but arose immediately on
default of
payment. It was held that a creditor would otherwise be
able by his own conduct, to delay the running of prescription.
[22]
Servic
followed the decision in
Western Bank
holding that once the right of election arises the debt becomes due.
In
Bankorp
,
the reasoning in
Hamilton
was followed, namely; where the creditor is entitled to payment, the
only issue is to sue for it immediately, or to sue at a later
stage;
and that consequently, the right to enforce payment must mark the
commencement of prescription, because that is when the
debt is due.
Reference was however made to the attractiveness of the contrary
argument that there can be no commencement of prescription
until the
election is made, because there was no sense in looking for the point
in time when the debt is due, if the debt does
not even exist.
[23]
The decisions in
Orton
,
Hamilton
,
Western
Bank
and
Servic
,
as pointed out in
Big
Rock
,
[15]
are all
distinguishable on the basis that in none of them was the giving of
notice by the creditor to remedy a default and a failure
by the
debtor to comply, a condition precedent to the creditor’s right
to claim payment of the full balance owing under the
contract, as is
here the case.
[24]
The court a quo accordingly erred in its reliance on
Orton
and
Hamilton
which were not only decided in terms of s 5(1)(
d
)
of the old Act, but in neither of them was the giving of notice to
remedy a default and a failure by the other party to comply,
a
condition precedent to the creditor’s right to claim payment of
the full balance owing under the contract. In terms of
the current
Act, a debt must be immediately enforceable before a claim in respect
of it can arise. In the normal course of events,
a debt is due when
it is claimable by the creditor, and as the corollary thereof, is
payable by the debtor. Thus in
Deloitte Haskins & Sells
Consultants (Pty) Ltd v Bowthorpe Hellerman Deutsch (Pty) Ltd
[1990]
ZASCA 136
;
1991 (1) SA 525
(A) at 532G-H, the court held that for
prescription to commence running,
‘
there
has to be a debt immediately claimable by the creditor or, stated in
another way, there has to be a debt in respect of which
the debtor is
under an obligation to perform immediately’.
(See
also
The
Master v IL Back and Co Ltd
1993
(1) SA 986
(A) at 1004F-H.) In
Truter
& another v Deysel
[2006] ZASCA 16
;
2006 (4) SA 168
SCA para 16,
[16]
Van Heerden
JA said that a debt is due when the creditor acquires a complete
cause of action for the recovery of the debt, ie when
the entire set
of facts which the creditor must prove in order to succeed with his
or her claim against the debtor is in place
or, in other words, when
everything has happened which would entitle the creditor to institute
action and to pursue his or her
claim. In the present context this
could only occur if and when Standard Bank elected to give the
requisite notices to Nicolas.
[25]
In the present case the acceleration clause in the agreement has its
own procedural requisites to be satisfied before Standard
Bank can
claim the full balance owing. As in
Big
Rock
, a condition precedent to Standard
Bank’s right to claim payment of the full balance owing, is the
furnishing of written
notice to Nicolas to remedy a failure to pay
any instalment within seven days, in terms of clause 12.1.2. In the
event of a failure
to make payment, Standard Bank is entitled in
terms of clause 12.2 to terminate the facility and claim immediate
repayment of the
outstanding balance, by giving a further written
notice. This notice may be effective immediately, or from a date
stated in the
notice. It is common cause that although notice was
effectively given in terms of clause 12.1.2 by virtue of the s 129
notice in
terms of the NCA to Nicolas, after he had breached his
obligation on 21 October 2008, no notice in terms of clause 12.2 to
claim
payment of the outstanding balance was ever given to him.
[26]
Compliance with the jurisdictional requirements for acceleration of
the outstanding balance is not simply a procedural matter
but is
essential in establishing a cause of action. Hence, it is no answer
for the respondents to suggest that the failure by Standard
Bank to
exercise the election to claim the outstanding balance, is an
instance of the creditor delaying the running of prescription
by its
own act. As pointed out in
Bankorp
,
there is no sense in looking for the point in time when the debt is
due, if the debt does not even exist. It is not a case of
delaying an
existing claim. 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. Prescription would therefore commence
to run only from the
date of a notice claiming the outstanding balance in terms of clause
12.2.
[27]
The balance owing on the facility, excluding the outstanding arrear
payments, was not due as Standard Bank did not elect to
terminate the
facility and claim repayment of the outstanding balance. It therefore
follows that prescription did not commence
to run on the so-called
‘critical date’ or ‘decisive date’ of 21
October 2008. The finding of the court
a quo in this respect was
erroneous, falls to be set aside and the appeal must succeed. Before
us it was agreed that the determination
of this issue would be
dispositive of the appeal. Accordingly, it will not be necessary to
determine the additional issues raised
by Standard Bank referred to
in para 4 above.
[28]
I accordingly make an order as follows:
1.
The appeal is upheld with costs, such costs to include the employment
of two counsel.
2.
The order of the court a quo is set aside and is substituted with the
following:
‘
The
application is dismissed with costs.’
________________
B
H Mbha
Judge
of Appeal
APPEARANCES:
For
Appellant:
S Symon SC (with him X Stylianou)
Instructed
by:
Ramsey Webber, Illovo
Matsepes
Inc, Bloemfontein
For
Respondents:
H B Marais SC (with him A J Venter)
Instructed
by:
H J Möller Attorney, Randburg.
Rothman
Attorneys, Bloemfontein
[1]
Making
provision for ‘when prescription begins to run’, s 12 of
the Act in its entirety provides:
‘
(1)
Subject to the provisions of subsections (2) and (3), 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.’ (My emphasis.)
[2]
Section 11
of the Act provides the following:
‘
11.
Periods of prescription of debts
The
periods of prescription of debts shall be the following:
(a)
thirty years in respect of –
(i)
any debt secured by mortgage bond;
(ii)
any judgment debt;
(iii)
any debt in respect of any taxation imposed or levied by or
under any law;
(iv)
any debt owed to the State in respect of any share of the
profits, royalties or any similar
consideration
payable in respect of the right to mine minerals or other
substances;
(b)
fifteen years in respect of any debt owed to the
State and arising out of an advance or loan of money or a sale or
lease of land
by the State to the debtor, unless a longer period
applies in respect of the debt in question in terms of paragraph
(a)
;
(c)
six years in respect of a debt arising from a
bill of exchange or other negotiable instrument or from a notarial
contract, unless
a longer period applies in respect of the debt in
question in terms of paragraph
(a)
or
(b)
;
(d)
save where an Act of Parliament provides
otherwise, three years in respect of any other debt.’
[3]
Section
14(1) of the Act provides that the running of prescription shall be
interrupted by an express or tacit acknowledgement
of liability by
the debtor. Section 14(2) provides that if prescription is
interrupted in terms of subsec (1), prescription shall
commence to
run afresh from the date on which the interruption takes place, or
from any date thereafter the parties agree to
postpone the due date
to.
[4]
Clause 1.1
of the Liberator facility agreement provides that the:
‘
agreement
is the Liberator facility application, the letter of grant,
including [the] terms and conditions . . . and the bond[s]
where
applicable’.
[5]
This has
been described as an overdraft facility with a high credit limit for
the bank’s high end private clients, which
is secured to the
bank’s satisfaction. It is repayable in monthly instalments
computed over an extended and predetermined
period of 240 months,
the terms of which are incorporated the written agreement(s)
concluded between the bank and Nicolas as
the principal debtor.
[6]
The
relevant parts of the agreement provide as follows:
‘
Default
and Termination
12.1
We will not be obliged to make any advance or re-advance under the
facility and/or
we may convert the facility to one repayable on
demand
and/or we may revise any of the terms and conditions of
the facility and/or increase the interest rate charged
if any of
the following events occur
:
12.1.1
you breach any of the terms and conditions of this
facility
or any other agreement between us
and you fail to
remedy this breach within 7 days of written notice having been given
to you to do so
;
12.1.2
you fail to pay any instalment due in terms of this
agreement and you do not remedy this failure within 7 days of
written notice
having been given to you to do so
;
.
. .
12.2
In any of the events envisaged in 12.1, we shall have the right
without prejudiced to any other rights or remedies available to
us,
to terminate the facility and claim immediate payment of the
outstanding
balance by giving written notice.
It may
be effective immediately or from a date stated in the notice
.
If
the facility is cancelled any amounts owing to us become payable
:
12.2.1
immediately, if stated in the notice
,
or
12.2.2
on the date stated in the notice
.’
(My emphasis.)
[7]
Which
provides that ‘
prescription
shall commence to run as soon as the debt is due’.
[8]
M M Loubser
Extinctive
Prescription
(1996)
at 71-.
[9]
Ibid.
[10]
R H
Christie & G B Bradfield
Christie’s
The
law of contract in South Africa
6
ed
(2011) at 436.
[11]
D J Joubert
General
principles of the law of contract
(1987) at
307.
[12]
Annual
Survey of South African Law
(1973) at
66.
[13]
At 910G-H.
[14]
See
Big
Rock (Pty) Ltd v Hoffman
1983 (1) SA
534
(T) at 549-550;
Nkata
v Firstrand Bank Limited & others
2014 (2) SA 412
(WCC) para 21 and paras 37-38.
[15]
At 540A-B
[16]
See also
Primavera
Construction SA v Government, North-West Province
2003 (3) SA 579
(BPD) at 596A-598A; and 21
Lawsa
2 ed (2010) para 1 to 5.