The general rule is that the prescription period for debts is three years from when the debt fell due. A debt will become due once everything has been done that would entitle the creditor to call for payment. Debtors can therefore free themselves of a debt if the prescription period is not interrupted within three years of the debt falling due. A creditor may still attempt to collect a debt from the debtor after the three-year period has lapsed but the debtor will have the perfect legal defense of prescription. 

 

An important case in this regard is the Constitutional Court judgment of Trinity Asset Management (Pty) Limited v Grindstone Investments 132 (Pty) Limited. In this matter, the court looked to strike a balance between the express intention of the parties, and the policy considerations that underly prescription. The court held that a creditor should not be able to delay the running of prescription and that all debts which are payable on demand are immediately enforceable on the conclusion of a contract, and that is when prescription will begin to run. 

 

Prescription will therefore run from the moment that a creditor is able to claim, and not only when he chooses to claim. The words “on demand” therefore hold no force or effect. It is important to keep this in mind as a creditor, because you may find a claim to have prescribed even though a demand has not been made, therefore leaving you unable to claim your debt. Loan accounts are also at risk.   

 

A further important development has come out from the Supreme Court of Appeal case is the matter of KLD Residential CC v Empire Earth Investments 17 (Pty) Limited. This matter dealt with ‘without prejudice’ communications. These are communications which are privileged and may not be used as evidence in a court against the sender. These communications are employed in settlement negotiations as they allow the parties to speak freely without fear that what they say, may be used against them. Where a debtor makes an acknowledgment of liability, the running of prescription is interrupted. In this matter, the court held that if an acknowledgment of liability is made for the sole purpose of interrupting prescription, even if made on a ‘without prejudice’ basis, then such acknowledgment would be admissible before court. 

Creditors need to remain ever vigilant and regularly audit the prescription status of the debts due to them. 

 

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	DAVID VLCEK is a Partner at Cox Yeats Attorneys specialising in Commercial Litigation and Construction and Infrastructure Law. His commercial litigation experience comprises fields such as, Contractual Disputes, Administrative (Tender) Law and Commercial Arbitrations, negotiation and drafting of JBCC, NEC3, GCC and FIDIC agreements and their enforcement.
	CARLA BISHOP is a Candidate Attorney serving her articles in the Insolvency & Business Rescue Team.

 

They can be contacted on 031 536 8500 or via email: dvlcek@coxyeats.co.za and cbishop@coxyeats.co.za.