Brief Summary

Prescription — Acknowledgement of liability — Plaintiff claimed payment based on a loan agreement and suretyships, with Defendants raising a special plea of prescription. The court considered whether the running of prescription was interrupted by any acknowledgements of liability from the First Defendant. The court held that the First Defendant's conduct, including payments and letters acknowledging the debt, constituted sufficient acknowledgment of liability to interrupt prescription, thus allowing the Plaintiff's claim to proceed.

Comprehensive Summary

Summary of Judgment

1. Introduction

This was an action in the High Court of South Africa (Gauteng Division, Pretoria) in which Investec Bank Limited (the plaintiff) sued Erf 436 Elandspoort (Pty) Ltd (the first defendant) as principal debtor, together with various corporate defendants as sureties (the second, third, fifth and sixth defendants), for payment of R3 979 184.50, interest, and costs arising from a loan agreement and associated suretyships. The fourth defendant was not before the court because it had been liquidated.

The litigation progressed on a separated-issues basis. By agreement between the parties, the defendants’ special plea of prescription was to be determined separately in terms of Rule 33(4), with the remaining issues postponed sine die. The court accordingly dealt only with prescription and not with the merits of the debt, the suretyships, or any other defences.

The dispute concerned whether the plaintiff’s claim (summons having been issued and served on 21 January 2011) had become extinguished by prescription, and more specifically whether prescription had been interrupted by any express or tacit acknowledgement of liability contemplated by section 14(1) of the Prescription Act 68 of 1969, allegedly evidenced by payments and correspondence.

2. Material Facts

It was common cause that, on 9 February 2000, the plaintiff and the first defendant concluded the loan agreement, and that the remaining defendants executed suretyships on 4 February 2000.

A further common cause factual backdrop related to the security and the property rights underlying the transaction. On 16 March 1998, the South African Rail Commuter Corporation Ltd (SARCC) and the first defendant concluded a notarial lease agreement over immovable property for a term of 50 years commencing 1 November 1997. On 17 May 2000, the plaintiff, the first defendant, and SARCC concluded a tripartite agreement providing the plaintiff with an option to lease the property from SARCC under certain circumstances. On 14 June 2000, a notarial covering bond was registered over the first defendant’s right, title, and interest in the lease as security for amounts owing by the first defendant to the plaintiff.

During January 2002, SARCC cancelled the lease, and that cancellation was confirmed by a court order dated 21 August 2002. It was common cause that the cancellation extinguished the first defendant’s title in the lease and simultaneously extinguished the plaintiff’s real right as mortgagee under the bond in the lease.

On 10 September 2002, the plaintiff sent a letter of demand to the first defendant asserting that the cancellation constituted a breach and demanding payment of the outstanding balance under the loan, failing which summons would be issued. The first defendant did not comply, and summons was later issued and served on 21 January 2011.

The parties accepted (for purposes of the separated issue) that prescription commenced running on 18 September 2002, being seven days after the demand.

The plaintiff alleged, in replication, that after the cancellation it exercised its option and became lessee in terms of a later notarial lease (“second lease agreement”), and that it concluded one or more oral agreements with the first defendant under which rentals from subtenants and/or proceeds of a disposal of the lease rights would be applied to reduce the first defendant’s loan obligations. The plaintiff further alleged that rentals were collected and allocated to the loan account, first by the first defendant and thereafter by the plaintiff, and that amounts were received in 2009 from a third party (Johnny Prop (Pty) Ltd) upon disposal of rights arising from the second lease agreement and were credited to the loan account. The plaintiff also relied on several letters dated between 7 May 2003 and 21 May 2007 as admissions by the first defendant.

In argument, and on the evidence accepted by the court for purposes of the prescription enquiry, the defendants accepted (and the judgment recorded) that payments by the first defendant up to about June 2003, and specifically the letters dated 7 May 2003 and 13 June 2003, constituted acknowledgements of liability sufficient to interrupt prescription at that time. The dispute then narrowed to whether there was any further interruption thereafter, particularly during the period the court described as the “relevant period” for purposes of section 14(2), in light of the summons having been served only in January 2011.

3. Legal Issues

The central legal question was whether prescription was interrupted in terms of section 14(1) of the Prescription Act 68 of 1969 by an express or tacit acknowledgement of liability by the first defendant (as debtor), either through correspondence or through payments credited to the loan account, with the result that the claim would not have prescribed by the time summons was served.

This was principally a dispute about the application of legal principles to facts. It required a factual evaluation of what the letters and payment mechanisms objectively conveyed, and whether any payments made by third parties could be attributed to the first defendant as acknowledgements made by the debtor or its authorised agent. It also entailed applying the statutory consequence in section 14(2), namely that after interruption prescription runs afresh from the date of acknowledgement, making the timing of any acknowledgement decisive.

4. Court’s Reasoning

The court approached the matter on the basis that only the prescription issue had been separated for determination, and that the key enquiry was whether the plaintiff had proved an interruption of prescription under section 14(1) after the point at which prescription was accepted to have begun running afresh.

The judgment recorded and applied the principle that section 14(1) requires an actual acknowledgement of liability, not merely an acknowledgement that an obligation once existed or that there may be liability in the future depending on contingencies. The acknowledgement must amount to an admission that the debt exists and that the debtor is presently liable for it. In this context, the court accepted the defendants’ submission (grounded in the cited authorities) that an acknowledgement of a potential liability conditional upon future events is insufficient to interrupt prescription.

The court further accepted that the enquiry into acknowledgement of liability is factual and turns on the debtor’s intention, assessed through an objective test: the court must be satisfied that objective indicia justify imputing the requisite subjective intent to acknowledge liability. The court also accepted that the party alleging interruption must establish when the acknowledgement occurred, because that date is essential to determine when prescription begins to run afresh under section 14(2).

On the evidence, the court agreed with the defendants that the plaintiff could not rely on rental payments made by subtenants to the plaintiff as acknowledgements by the first defendant. Mr Oosthuizen (who testified for the plaintiff) conceded that after approximately 1 July 2003 there was no contractual nexus between the first defendant and the subtenants, because the plaintiff had been substituted as sublessor and the subtenants during the relevant period had concluded subleases with the plaintiff. The court found there was no evidence that subtenants paid rentals as agents of the first defendant when performing their own contractual obligations to the plaintiff. In the absence of agency, payments by third parties could not constitute the debtor’s acknowledgement under section 14(1).

Similarly, the court held that the payments made by Johnny Prop (Pty) Ltd to the plaintiff (following the disposal of the plaintiff’s rights arising from the second lease agreement) could not be treated as acknowledgements of liability by the first defendant. Those payments were made in performance of Johnny Prop’s own obligations under its agreement with the plaintiff, and there was no evidence that Johnny Prop acted as agent for the first defendant.

As to the correspondence relied upon by the plaintiff, the court noted that none of the letters annexed to the replication was written during the period the parties treated as decisive for showing a non-prescribed claim when summons was served. In addition, the court accepted that the later letters either referred only to potential liability dependent on the realisation of certain events, or did not in any event amount to acknowledgements of debt and liability in the sense required by section 14(1). The court also noted the absence of any indication, in the relevant contexts reflected in those letters, that anyone acted on behalf of the first defendant so as to create an acknowledgement attributable to it.

The plaintiff argued that every rental payment collected and credited to the loan account, in accordance with mechanisms agreed with the first defendant, should be treated as an admission of liability interrupting prescription and that agency by subtenants was irrelevant. The court rejected this contention. It held that the statutory requirement is for acknowledgement by the debtor (or its authorised agent), and that the mere fact that the parties had devised a mechanism by which rental receipts were applied to reduce the account did not, without proof of the required agency or debtor acknowledgement, satisfy section 14(1).

Having accepted that acknowledgements up to 13 June 2003 interrupted prescription (with prescription then running afresh from that date), the court concluded that the plaintiff failed to prove any further interruption after 13 June 2003. On that basis, the special plea of prescription had to succeed.

5. Outcome and Relief

The court upheld the special plea of prescription.

The plaintiff’s claim was dismissed with costs.

Only the separated prescription issue was determined; the remaining issues had been postponed sine die, but the dismissal of the claim followed from the finding that the debt had prescribed.

Cases Cited

Agnew v Union and South West Africa Insurance Company Ltd 1977 (1) SA 617 (A)

Benson v Walters 1984 (1) SA 73 (A)

Road Accident Fund v Mothupi 2000 (4) SA 38 (SCA)

First Consolidated Lease Incorporation (Pty) Ltd v Service SA (Pty) Ltd 1981 (4) SA 381 (W)

Cape Town Municipality v Allie NO 1981 (2) SA 1 (C)

Legislation Cited

Prescription Act 68 of 1969 (sections 14(1) and 14(2))

Rules of Court Cited

Uniform Rules of Court, Rule 33(4)

Held

The court held that, although certain payments and correspondence up to 13 June 2003 constituted acknowledgements of liability sufficient to interrupt prescription, the plaintiff failed to prove any further acknowledgement of liability by the first defendant (or by an authorised agent) thereafter.

The court held that rental payments made by subtenants to the plaintiff, and payments made by a third party (Johnny Prop (Pty) Ltd) to the plaintiff, did not interrupt prescription because they were not shown to have been made by the first defendant or on its behalf as acknowledgements of liability. The letters relied upon were either outside the decisive period and/or did not amount to the requisite acknowledgements of present liability.

Accordingly, prescription was not interrupted after 13 June 2003, and the claim had prescribed by the time summons was served in January 2011. The special plea of prescription was therefore upheld and the action dismissed with costs.

LEGAL PRINCIPLES

Section 14(1) of the Prescription Act 68 of 1969 requires an acknowledgement of liability (not merely an acknowledgement of indebtedness or a contingent, potential obligation) in order to interrupt prescription.

An acknowledgement sufficient to interrupt prescription must convey an admission that the debt exists and that the debtor is presently liable for it; an acknowledgement framed in conditional or contingent terms may be insufficient.

The enquiry whether there has been an acknowledgement of liability is factual and depends on intention, assessed through an objective test based on the debtor’s conduct and the surrounding objective indicia.

For interruption under section 14(1), the acknowledgement must be made by the debtor or the debtor’s duly authorised agent to the creditor (or the creditor’s authorised agent). Payments by third parties do not interrupt prescription unless the creditor proves they were made as agent for the debtor.

A party relying on interruption must prove when the acknowledgement occurred, because section 14(2) causes prescription to run afresh from the date of interruption, making the timing of the acknowledgement decisive.

Investec Bank Limited v Erf 439 Elandspoort (Pty) Ltd and Others (2517/2011) [2019] ZAGPPHC 77 (7 March 2019)