In terms of the Prescription Act a debt will become extinguished (prescribe) three years after it arose. The Act however provides longer prescription periods for:
debts secured by mortgage bonds, judgment debts, debts in respect of any taxation - 30 years
debts arising from a bill of exchange, or other negotiable instruments and notarial contracts - 6 years
debts owed to the state for loans of money or sale or lease of land - 15 years`
DEBTOR'S LEGAL IMPEDIMENTS
In terms of the Act a prescription period begins to run as soon as the debt is due but the beginning of the period may be postponed where:
- The creditor is under legal disability e.g. is insane or a minor debtor
- is outside South Africa or
- is married to the creditor or
- is a governing member of a creditor that is juristic person
- the creditor and debtor are partners and the debt arose out of the partnership relationship
- the debt is the object of a dispute subject to arbitration
- the debt has been filed as a claim against a deceased estate, insolvent estate or a company in liquidation
- the debtor has died and an executor has not been appointed
The period of prescription would have been completed within one year after the day upon which the above impediments ceased to exist
The debt will not become prescribed for a year after the day referred to above.
CREDITOR'S KNOWLEDGE OF DEBT
If the debtor wilfully prevents the creditor from coming to know of the existence of the debt the prescription period does not begin until the creditor becomes aware of the existence of the debt. In addition a debt is not deemed to be due until the creditor has knowledge of the identity of the debtor provided however that the creditor took reasonable care to establish such identity.
INTERRUPTION OF PRESCRIPTION
Should a debtor expressly or tacitly acknowledge liability then prescription is interrupted and begins to run afresh
The running of prescription is interrupted by the service of legal process for the enforcement of a debt except where the creditor does not successfully prosecute the action.
DEBTS DUE BY THE STATE
Prior to 2002 the issue of prescription was complicated by an number of Acts which applied to different organs of State each of which contained different periods of prescription and essential prerequisites for the initiation of legal proceedings. These Acts included the Defence Act 44 of 1957, the South African Police Act 68 of 1995 and the Limitation of Legal Proceedings (Provincial and Local Authorities) Act 94 of 1970.
Fortunately however it was recognised that the relevant provisions of these Acts contravened the provisions of Section 34 of the Constitution which provides that everyone has the right to have any dispute that can be resolved by application of law decided at a fair public hearing before a court or other appropriate forum.
In 2002 the Institution of Legal Proceedings Against Certain Organs of State Act was passed. This Act repealed various provisions of the offending Acts and provided for organs of state to be subject to the provisions of the Prescription Act.
In terms of Section 3 of the Act no legal proceedings for the recovery of a debt may be instituted against an organ of state unless the creditor has given 6 months notice of intention to do so. The notice should include sufficient details as to the facts giving rise to the debt. The Act also regulates the method and procedure for service of notices and legal processes.
Essentially this Act brought actionable debts of the state in line with other debts and was a most welcome development.
PRIVATE CONTRACTS - SHORTER PRESCRIPTION PERIODS
Contracts often contain clauses that provide for shorter prescription periods than those set out in the Prescription Act and the question that arises is whether these clauses should be regarded as contravening the provisions of Section 34 of the Constitution.
This question came before the Constitutional Count in the case of Barkhuizen vs Napier 2007 (5) SA 232 (CC), 2007 (7) BCLR 691 where the facts were as follows:
An insured entered into a short term insurance contract for the insurance of his motor vehicle against loss resulting from damage to the vehicle. A clause in the contract provided that if the insurer rejected liability then it would not be liable unless the insured caused summons to be served within 90 days of repudiation.
The vehicle was damaged beyond economical repair in a collision on 24 November 1999 and and on 2 December 1999 the insured submitted a claim for the loss. On 17 January 2000 the insurer repudiated the claim alleging that the vehicle had been used for business purposes instead of the disclosed purpose of private use. The insured waited for about two years before instituting action against the insurer.
The insured conceded that the summons was served after the stipulated time period but contended that the clause contravened the provisions of Section 34 of the Constitution.
It was found that the clause did not do so as it did not deny the insured an adequate and fair opportunity to have the dispute resolved in a court of law. The court held that in general the enforcement of an unfair or unreasonable time limitation clause would be contrary to public policy. An example of such an unfair clause was one that required a claimant to institute action within 24 hours. Such a clause would effectively deny the insured the right to seek judicial redress. It was however held that in this instance the 90 day period was not manifestly unfair and that there was sufficient time for the insured to institute proceedings against the insurer.
The court also took into consideration the fact that the contract was entered into between the parties freely and voluntarily with there being no uneven bargaining power and that it is an important element of freedom that parties should have self-autonomy to regulate their own affairs - even if to their own detriment.