PRESCRIPTION AND TIME BAR CLAUSES

Time is of the essence: prescription and time bar clauses.

Prescription occurs when a debtor’s obligation to pay extinguishes after a period of time. Unless specified by an Act of Parliament, the prescribed time period is three years. Section 12 of the Prescription Act 68 of 1969 (“the Act”) states that prescription will only begin to run once the debt is due where the creditor is aware of the existence of the debt, has knowledge of the identity of the debtor as well as the facts from which the debt arose.

The Supreme Court of Appeal of South Africa (SCA) dealt with the issue of prescription in Stemmet and Another v Mokhethi and Another (681/2022) [2023] ZASCA (04 October 2023) where the main point of contention was whether the respondents had acquired the minimum knowledge necessary to institute action against the appellants.

The respondents purchased the appellants’ property after being impressed with its condition. However, several months after the purchase and occupation of the property, the respondents noticed various defects, which led to them lodging a claim with ABSA Bank on 24 June 2014. ABSA rejected the claim on 12 August 2014 due to the defects being old, gradual and having been previously patched. The respondents served summons upon the appellants on 27 July 2017. The appellants thus raised a special plea of prescription.

The Magistrate’s Court found that the respondents could only have obtained the minimum facts to interrupt prescription on 12 August 2014. The appellants appealed to the high court where contention was made as to what would be considered the minimum facts for prescription to commence. The majority agreed with the magistrate’s court, reasoning that the knowledge the respondents based their cause of action on, was acquired from the letter provided to them by ABSA or alternatively, the expert opinion they acquired on 30 September 2014. Furthermore, the respondents could not have known whether their debtor was the insurer, builder, or the appellants.

The main issue the SCA grappled with was establishing specifically when the respondents had obtained the minimum necessary knowledge required to institute action against the appellants and whether at that stage, were aware of the identity of the person responsible for the defects, in terms of section 12 of the Act. In doing so, it found that the respondents could not have had any doubt that the appellants were responsible as the property was purchased from the appellants and further stated that the respondents were aware of the defects before lodging their claim but did not know the cause of it. The issue developed into whether the respondents ought to know the cause of the defects to meet the minimum knowledge of facts requirement. The SCA found that knowing the cause of the defect was not a necessity in meeting the requirement, thus the claim had prescribed since the respondents knew of the damages before 24 June 2014. It concluded that the high court was out of keeping with established legal principles.

The prescribed time period permitting legal proceedings to be instituted against a debtor may be further curtailed by time-bar clauses set out in contracts. In Barkhuizen v Napier 2007 (5) SA 323 (CC), time limitation clauses were judicially considered where it was argued that they offend public policy. However, it was found that due regard must be given to reasonableness and fairness and that such clauses serve a legitimate purpose of preventing undue delays and procrastination of disputes.

A two-stage inquiry was laid out to determine fairness. First, the objective terms of the contract must be looked at and if they are found not to be contrary to public policy the second inquiry is contemplated, which involves ascertaining whether the terms are inconsistent with public policy taking into consideration the respective circumstances of the contracting parties to ensure there is no unequal bargaining power. The applicant failed to furnish reasons as to why he did not adhere to the 90-day time bar clause, set out in the insurance contract, to institute legal proceedings. Thus, the court was unable to determine whether the enforcement of the clause would be contrary to public policy and unfair on the applicant.

Therefore, it is imperative that one is conscious of the fact that prescription and time bar clauses may derail valid claims and legal proceedings. Due diligence upon entering contractual agreements must be performed to ensure awareness of time bar clauses which could affect prescription periods in instituting legal proceedings.