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[2019] ZAGPPHC 213
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Public Investment Corporation Soc Ltd v Madibeng Local Municipality (16611/2010) [2019] ZAGPPHC 213 (4 June 2019)
IN THE HIGH
COURT OF SOUTH AFRICA
GAUTENG
DIVISON, PRETORIA
(1)
REPORTABLE:
YES/
NO
(2)
OF
INTEREST TO OTHER JUDGES: YES/
NO
(3)
REVISED
CASE NO:
16611/2010
4/6/2019
In
the matter between:
PUBLIC
INVESTMENT CORPORATION SOC LTD
PLAINTIFF
And
MADIBENG
LOCAL MUNICIPALITY
DEFENDANT
JUDGMENT
SARDIWALLA
J,
[1]
This
is an action for payments of loans advanced to the defendant. The
plaintiff instituted proceedings in March 2010 on the zero
coupon
stock certificates issued by the defendant. The plaintiff's original
amounts claimed were amended and the amount claimed
is R 162 639 962,
00 together with interest thereon at the rate of 10% per annum with
effect from 1 February 2010.
Background
[2]
The
matter initially came before Jansen, J, wherein the defendant sought
its special plea of authority to be adjudicated separately.
The
authority point was dismissed with punitive costs order against the
defendant.
[3]
The
matter then proceeded before the Supreme Court of Appeal wherein the
judgment of Jansen J was upheld and the punitive costs
order was
confirmed. The court in paragraphs 29, 30, 31, 32 and 33 held the
following:-
"[29] In
turning to consider the propriety of Jansen J's costs order it is,
unfortunately, necessary to say something about
the way in which
Madibeng conducted its case. It took the money on offer from the PIC
in order to avert a crisis of Madibeng's
own making. It agreed to a
means of repayment. When its debts fell due, it made certain
payments. Then, after it had reneged and
summons was issued against
it, it raised the unenforceability of the loans as a defence.
[30] The
conduct of Madibeng was beyond the pale. As an organ of state, it is
required to act ethically, and has failed dismally
to do so in this
matter. Litigation, said Harms DP in Cadac (Pty) Ltd v Weber-Stephen
Products Co & others, 'is not a game';
organs of state should act
as role models of propriety; and they may not behave in an
unconscionable manner.
[31] The
unconscionable approach taken by Madibeng appears to be the basis for
Jansen J granting a 'punitive costs order'. By that,
I presume she
meant an order of costs on the attorney and client scale. While it
was within her discretion, on the strength of
Madibeng's
unconscionable conduct to award a punitive costs order against it,
her order conduces to confusion and cannot be endorsed
in its
original form.
[32] Jansen
J's order in respect of the merits also requires reconsideration. She
ordered that the 'separate issue regarding the
alleged invalidity of
the zero coupon certificates is dismissed'. In my view it would have
been more appropriate for a declaratory
order to have issued to the
effect that the loans were not unenforceable for want of the
Administrator's consent. Thus, despite
the appeal failing, both
orders cannot stand They must be set aside and replaced with the
orders set out below.
[33] In the
result:
1 The order
of the court below is set aside and substituted with the following
order:
'1 It is
declared that the loans raised by the defendant from the plaintiff
are not unenforceable for want of compliance with s
52(2) of the
Local Government Ordinance 17 of 1939.
2 The
defendant is ordered to pay the plaintiff 's costs on an attorney and
client scale, such costs to include the costs of two
counsel.'
2 The appeal
is otherwise dismissed with costs, including the costs of two
counsel.
"
The
Pleadings
[4]
In
its plea, the defendant raised a special plea of prescription by
alleging that the plaintiffs' claim has prescribed. The defendant
pleads that:-
•
On
the hypothesis that the plaintiff had a valid claim against the
defendant, and that the defendant consequently owed the plaintiff
a
valid debt, the plaintiff's claim has been extinguished by
prescription in that -
o
the
plaintiff's claim arising from BR25 became due and payable on 30 June
2003;
o
the
plaintiff's claim arising from BR20 became due and payable on 30
November 2003;
o
the
plaintiff's claim arising from BR26 became due and payable on 30
November 2003;
o
the
plaintiff's aforesaid claims are debts as contemplated in the
Prescription Act;
o
by
no later than at least 1 December 2006 being a period of more than
three (3) years after the date on which the whole of the plaintiffs
cause of action and claims arose, the plaintiff had knowledge of the
defendant's identity and of the facts from which the plaintiffs
alleged claims arose,
alternatively,
the plaintiff could by exercising reasonable care have acquired
knowledge of the defendant' s identity and of the facts from which
its alleged claims arose;
o
in
terms of section 11(d) of the Prescription Act, the period of
extinctive prescription in respect of the defendant's alleged debt
to
the plaintiff is a period of three (3) years;
o
the
plaintiff issued and served its summons against the defendant in
March 2010 which is more than three (3) years after the dates
on
which its claims allegedly arose or from the dates on which the debts
became due;
o
the
defendant did not, at any time prior to the institution of the
plaintiff's action, expressly or tacitly acknowledge (to the
plaintiff itself) liability in the whole amount claimed in these
proceedings (nor for that matter in respect of the interest
component)
and in any event, none of the acts listed in subparagraph
10.2.2 of the plaintiff's particulars of claim amount to an express
or
tacit acknowledgment of liability in the whole of the amount
claimed as contemplated in section 14 of the Prescription Act; and
o
the payments referred to in subparagraphs 4.3, 5.3 and 6.3 of the
plaintiff's particulars
of claim do not amount to an express or tacit
acknowledgment of liability of the whole of the amount claimed as
contemplated in
section 14 of the Prescription Act and did not revive
the plaintiff's debts.
[5]
In
its replication the plaintiff pleads that in terms of
s 14
of the
Prescription Act 68 of 1969
, the Defendant made numerous part
payments thereby acknowledging liability of the debts, which had the
effect of interrupting prescription
prior to and after the issuing of
summons against it. Further in the alternative, the matter has not
prescribed in terms of
section 11(b)
of the
Prescription Act 68 of
1969
, which provides that the period of prescription of debts shall
be 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. Therefore, prescription was timeously interrupted
in terms of
section 15
of the
Prescription Act 68 of 1969
.
[6]
It was agreed again between the parties that the issue of
prescription would be adjudicated
separately and that the defendant
bears the onus in relation to the special plea.
Plaintiffs'
version
[7]
The
plaintiffs submits that the issue of prescription has been dismissed
by the oral evidence of M Leon Smit which remains uncontested.
It
contends that the aspect pertaining to the issue of amortization was
never pleaded by the defendant in its original plea and
that the
defendant raised this aspect only from the bar during cross
examination without leading any evidence. Further that
the defendant'
s acknowledgement of its liability through various means of
correspondence had the effect of interrupting any prescription
that
may have commenced even on the alleged amortization dates.
Defendants
version
[8]
The
Defendants raised a special plea of prescription alleging that the
claim relating to the zero coupon certificates had prescribed
in
terms of section11 of the
Prescription Act, 1969
in that a period of
more than 3 years has passed since the payments were made.
[9]
The
defendants submit that the aforementioned approach fits in with the
provisions of
section 12(1)
of the
Prescription Act, 1969
which reads
as follows:
" ..
.prescription shall commence to run as soon as the debt is due.
"
[10]
The
defendants allege that the cause of action originates from the
half-yearly amortization dates and prescription commenced to
run the
day after each of the payments was due which by its version has
subsequently prescribed and that any acknowledgement of
liability
made without prejudice by the defendant during settlement
negotiations does not resuscitate the debt.
[11]
It
is by agreement between the parties that the issue of prescription is
only issue therefore to be determined by this Court and
more
specifically:
(a)
When
did the claims arise,
(b)
When
did prescription begin to run, and
(c)
Whether
prescription was interrupted by the defendants acknowledgment of
liability?
Prescription
[12]
Section
12
of the
Prescription Act 68 of 1969
states that;
"12
When prescription begins to run
(1) Subject
to the provisions of subsections (2) and (3), prescription shall
commence to run
as soon as the debt is due.
(2)
..
(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.
"
Interruption
of prescription by acknowledgment of liability
[13]
The
Section 14
reads:
'Interruption
of prescription
(1)
The
running of prescription shall be interrupted by an express or tacit
acknowledgment of liability by the debtor.
(2)
If
the running of prescription is interrupted as contemplated in
subsection (1), prescription shall commence to run afresh from
the
day on which the interruption takes place or, if at the time of the
interruption or at any time thereafter the parties postpone
the due
date of the debt, from the date upon which the debt again becomes
due.
'
Judicial
Interruption of Prescription
[14]
The
Section 15
reads:
"(1) The
running of prescription shall, subject to the provisions of
subsection (2), be interrupted by the service on the debtor
of any
process whereby the creditor claims payment of the debt.
(2)Unless the
debtor acknowledges liability, the interruption of prescription in
terms of subsection (1) shall apse, and the running
of prescription
shall not be deemed to have been interrupted, if the creditor does
not successfully prosecute his claim under the
process in question to
final judgment or if he does so prosecute his claim but abandons the
judgment or the judgment is set aside.
"
[15]
The
term "due" is not defined in the
Prescription Act. Its
meaning was recently considered by the SCA in
Miracle
Mile
[1]
where
it was held that;
"In
terms of the [Prescription] 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} 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 & Co Ltd
1983 (1) SA 986
(A) at 1004F-H). In Truter
v
Deysel
[2006] ZASCA 16
;
2006 (4) SA 168
(SCA) ([2006] ZASCA 16) para 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, i.e. when the entire set of
facts which a creditor must prove in order to succeed with his or her
claim
against the debtor is in place
".
[2]
[15]
A
fundamental principle of prescription, which is much clearer under
the current
Prescription Act, is
that it will begin to run only when
the creditor is in a position to enforce his right in law, not
necessarily when that right
arises.
[3]
[16]
In
applying the principle held in
Miracle
Mile
that
a debt is due when it is immediately claimable by the creditor and
immediately payable by the debtor, the debt became claimable
by the
plaintiff on each of the amoritization dates in which the defendant
was required to reduce the loan as correctly averred
by the
defendant. However the complete cause of action was only established
after the redemption date of each certificate. This
principle was
also confirmed in
Truter
[4]
where
the SCA held that, for the purpose of prescription, a debt is due
when the creditor acquires a complete cause of action to
approach a
court to recover the debt. Although the right to reclaim the amounts
arose the day after each payment was due, in absence
of any knowledge
that the defendant would not extinguish the debt by complete payment
of the yield of stock on the redemption date
of each certificate it
would not make litigious sense to institute proceedings until the
redemption date. Therefore the plaintiff's
rights in law only became
enforceable on 1 December 2006 and 1 July 2006 respectively.
[17]
Considering
the above prescription would not have commenced as alleged by the
defendants, the day after each payment was made, but
would commence
from the instance the plaintiffs' became aware that the debt was due
which was after the redemption date, the plaintiffs'
claim would have
only then have prescribed on 1 December 2006 and 1 July 2006.
Was
Prescription interrupted?
[18]
It
is well established in South African Law that without prejudice
statements made by one party to another, in contemplation of
settlement, are inadmissible as evidence in later proceedings, should
such negotiations fail. The public policy doctrine underlying
this
rule is to encourage parties to enter into open settlement
discussions with one another, without fear that should the
negotiations
fail, admissions, including admissions of liability,
made during the course of those discussions, will be used against
them in
later litigation. Until recently our courts recognised
limited exceptional circumstances, in terms of which evidence
disclosed
in without prejudice negotiations were admissible. These
exceptions include: acts of insolvency, fraudulent
misrepresentations,
threats and limited instances of estoppel.
[19]
The
South African Supreme Court of Appeal has created a new exception to
the without prejudice rule. In
KLD
Residential v Empire Earth lnvestments
[5]
,
the court held that admissions of liability, made during without
prejudice negotiations, are now admissible for the purposes of
interrupting the prescription period in terms of
section 14
of the
Prescription Act, 1969
.
[20]
In
an action against the respondent, Empire Earth Investments 17 (Pty)
Ltd alleged in its particulars of claim that it had been
given a
written mandate to market erven in a new property development and to
receive commission on the resultant sales. Commission
was alleged to
be payable once transfer of each property was passed to the buyer.
KLD alleged that it was the effective cause of
99 sales referred to
in a schedule to its particulars of claim. It was entitled, it said,
to R2,147,000 in commission, due on transfers
registered on dates
ranging between October 2008 and November 2009. KLD issued summons
for payment of the commissions in June 2013.
Empire Earth raised a
special plea in reply to the particulars of claim, alleging that,
other than one sale after 2009, the registration
dates were more than
three years before the summons was served, and that the claims for
commission had become prescribed. KLD replicated
to the special plea,
alleging that Empire Earth wrote to KLD in July 2011 acknowledging
that it owed commissions in the sum of
R2,105,960 and that
prescription had begun to run afresh from the date of that letter of
acknowledgement. KLD accepted that the
letter of acknowledgement was
without prejudice to the rights of the parties in the course of
settlement negotiations. The court
stated that one of the principal
reasons for extinctive prescription is to provide certainty to a
debtor - after a period of time
when the creditor has been inert, the
debtor should have certainty as to whether or not a debt is still
owed. The court also emphasised
the vital role time limits play in
bringing certainty and stability to social and legal affairs and
maintaining the quality of
adjudication. Without prescription
periods, legal disputes would have the potential to be drawn out for
indefinite periods of time
bringing about prolonged uncertainty to
the parties to the dispute.
[21]
In
determining whether an exception to the without prejudice rule was
possible, the court referred to the case of
Absa
Bank
v.
Hammerle
Group
2015 (5) SA 215
(SCA),
where,
in response to a letter of demand written by the bank, Hammerle had
stated in a letter that it "would like to make a
settlement
proposal" but that it was "struggling to turn the business
around" and was "unable to make any meaningful
profit in
the business". Mbha J found that the contents of the letter not
only constituted an unequivocal acknowledgment of
indebtedness but
also showed that Hammerle was unable to pay its debts and was
commercially insolvent. The court declared that
any admission of such
insolvency, whether made in confidence or otherwise, cannot be
considered privileged.
[22]
In
establishing the latest exception, the majority judgment balanced the
policy considerations underlying
section 14
of the
Prescription Act;
namely
, to provide certainty to a debtor in circumstances where a
creditor has been inert, against the principles underlying the
without
prejudice rule and reasoned that,
"the
exception allows for... the prevention of abuse of the without
prejudice rule, and the protection of a creditor and that
recognising
such an exception would properly serve the policy interests of
section 14
of the
Prescription Act and
the without prejudice rule ."
[23]
The
SCA accordingly held that
"Where
acknowledgments of liability are made such that, by virtue of
section
14
of the
Prescription Act, they
would interrupt the running of
prescription, such acknowledgments should be admissible, even if made
without prejudice during settlement
negotiations, but solely for the
purpose of interrupting prescription. The exception itself is not
absolute and will depend on
the facts of each matter. And there is
nothing to prevent the parties from expressly or impliedly ousting it
in their discussions.
What the exception allows for, as I see it, is
the prevention of abuse of the without prejudice rule, and the
protection of a creditor.
The admission remains protected in so far
as proving the existence and the quantum of the debt is concerned."
KLD's
appeal was therefore upheld with costs and the special plea of
prescription was dismissed.
[24]
It
is common cause that there were various correspondences between the
parties regarding the amounts due to the plaintiff by the
defendant.
It is noteworthy that the defendant in its numerous requests for
balance certificates following the loans, did not at
any stage
dispute the amounts claimed by the plaintiff. In fact the balance
certificates were requested by the defendant in order
to compile its
financial statements for each financial year.
[25]
In
a letter dated 15 May 2003 the Municipal Manager stated that
"
My Council has now resorted to the State and the North West Province
in a dire plight to assist us as we simply do not have
the necessary
resources to repay your loan at this stage".
The
manager further went on to state that
"
I re-iterate that you must please not see our request as a ploy to
shirk Madibeng's liability, but rather a serious action
to find a
solution for the whole matter".
In
applying the principle of
Absa
Bank
this
was an unequivocal acknowledgment and admission of liability by the
defendant of its indebtedness and insolvency and cannot
be considered
privileged for the purposes of prescription.
[26]
It
is alleged by the defendant that the plaintiffs claim in respect of
the above mentioned amounts prescribed on the zero-coupon
certificates and that the parties entered into a new agreement
regarding the debt whereby the loan was restructured after various
Council resolutions. Turning to this I refer to the numerous
correspondences between the parties about the submission of these
proposals and must take cognisance of the fact that they indicated
that deliberations were on-going and active attempts were made
to
resolve the defendants financial issues. However there is no evidence
before me that the matter was indeed resolved and a new
agreement
restructuring the loan was agreed upon. The defendant led no evidence
in this regard. The plaintiff however led the evidence
of Mr Leon
Smit whose testimony confirmed that loan agreements were concluded
between the parties through monies advanced to the
defendant by
zero-coupon certificates which were repayable upon the redemption
dates of each certificate. This evidence was not
rebutted by the
defendant. Further that although the defendant alleges that the debts
prescribed at the end of on 1 December 2006,
there are payments made
by the defendant during and after the prescribed period and even
after proceedings were instituted against
the defendant. The
defendant sought to rely on the new restructured loan agreement to
justify the payments which on the face of
it is clear evidence of the
defendant's admission of its liability to the plaintiff. I am
therefore satisfied that an exception
as held in KLD exists and that
such payments are acknowledgments of the defendant's liability in
terms of
Section 14
of the
Prescription Act and
therefore interrupted
the running of prescription. I am satisfied that each payment was a
separate admission of liability that
interrupted prescription on each
of the payment dates and that prescription began to ran afresh each
time such admission of liability
was made. The plaintiff instituted
action in March 2010 and the last payment (admission of liability)
was made on 4 July 2011.
The last payment prior to the institution of
proceedings was made on 22 February 2008 for an amount of R2, 100
000.00. There can
be no doubt that this acknowledgement by the
defendant created a certainty that the debt was still owed and that
the exception
contended for is well founded. As I have already
found that prescription was interrupted each time a payment was made,
the
claim would only have prescribed on 22 February 2011. The
plaintiff accordingly instituted proceedings in March 2010 timeously.
[27]
I
hereby make the following findings:
1.
The
date of prescription began to run on each of the redemption dates
when a complete cause of action by the plaintiff arose;
2.
That
the payments by the defendants are an admission of liability which
interrupted the running of prescription on each date; and
3.
The
prescription date was 22 February 2011 and the claim has accordingly
not prescribed.
Order
1.
The
special plea is dismissed with costs including the costs of two
counsel.
CM
SARDIWALLA
APPEARANCES
Date
of hearing
:
12
February 2019
Date of
judgment
:
04 June
2019
Plaintiff's
Counsel
:
Adv.:
P.L Moekoena SC
&
Adv.:
P Khoza
Plaintiff's
Attorneys
:
Werkmans Attorneys
Defendant's
Counsel :
Adv.:
K. Tsatsawane SC & Adv.: X Mofokeng
Defendant's
Attorneys :
Gildenhuys Lessing
Malatji Inc
[1]
Standard Bank of South Africa Ltd v Miracle Mile Investments 67
(Pty) Ltd 2017 (I) SA 187 SCA
[2]
Standard Bank of South Africa Ltd v Miracle Mile Investments
supra at para 24.
[3]
See Lubbe " Die Aanvang van Verjaring waar die Skuldeiser
oor die Opeisbaarheid van die Skuld kan Beskik" (1988) 51 THRHR
135.
[4]
Truter v Deysel [2006) ZASCA I6 ;
2006 (4) SA I68
(SCA) at para
16.
[5]
(1135 /2016)
[2017] ZASCA 98