Applicability of prescription in Zurich Insurance Co. SA Ltd v Gauteng Provincial Govt

The general principles around prescription are found in the Prescription Act 68 of 1969 (“the Act”) which governs the prescription of debt and promotes certainty in the ordinary affairs of people, by ensuring that a time limit is imposed on the existence of a debt. The three-year period over which prescription runs is regarded as enough time for the creditor to enforce the obligations, and if not pursued, the debtor will find assurance that the obligation has ended.  Notably, this may be limited in instances where the protections of a creditor is justified. The principles related to time limits are stipulated under section 10(1) of the Act where it provides that “A debt shall be extinguished by prescription after the lapse of the period which in terms of the relevant law applies in respect of the prescription of such debt”. Section 10(2) provides that when a principal debt is extinguished by prescription, so are any subsidiary debts, such as suretyships”. The case of Investec Bank Limited v Erf 436 Elandspoort (Pty) Ltd and others [2020] JOL 48588 (SCA); 2021 (1) SA 28 (SCA)[1] discusses the above principles.

There are four factors to consider when determining if a debt has prescribed,

1. What type of debts is it?
2. How long is the applicable prescription period ?
3. When did prescription begin to run?
4. Was the prescription delayed or interrupted?

In the case of Trinity Assest Management (Pty) Ltd v Grindstone Investment (Pty) Ltd SCA[2], the court concluded the following: ‘that the date upon which a debt becomes due must not be conflated with when repayment thereof is demanded. A debt which is repayable on demand becomes due the moment the money is lent to the debtor’.

Whilst the principles of prescription are canvassed in the Act, the application thereof can be found in the interpretation by our courts. In particular, we look at a recent reported judgment in the matter Zurich Insurance Company South Africa Ltd v Gauteng Provincial Government [2023] 1All SA368 SCA.[3].

Briefly, the Gauteng Provincial Government (“Provincial Government”) discovered what it believed to be damage parts of a tunnel system in which the Gautrain Rapid Rail System operated. A claim was submitted under the insurance policy with the Zurich Insurance Company South Africa (“Zurich”). Zurich repudiated the claim, and a summons was issued in which the provincial government claimed declaratory relief to the effect that Zurich was obliged to indemnify it in respect of the repair, replacement or making good of the damage to the tunnels, and that it was required to pay the province the amount that it proved in due course in respect of its loss. The Court a quo granted the relief sought, however Leave to appeal was granted on three issues, one being whether the provincial government’s claim against Zurich had prescribed.

The Court made the following obiter by stating that in terms of section 11 of the Act, the prescription period in respect of a debt in this particular case is three (3) years. Section 12 (1) provides that, as a general rule, “prescription shall commence to run as soon as the debt is due”, Section 12 (3) states that the 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”, but includes the proviso that “ a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care”. The interruption of time can take place in various ways, and in terms of section 15(1) of the Act, “by service on the debtor of any process whereby the creditor claims payment of the debt”.

The onus of establishing that a claim has prescribed rests on the party raising prescription and in order to discharge that onus, the onus-bearing party is required to prove the date when prescription began to run and that the other party had the requisite knowledge of the material facts from which the debt arose at the time. The nature of the knowledge that a party is required to have in order for prescription to start running was set out in Truter and Another V Deysel[4]

“For the purposes of the Act, the term ‘debt due’ means a debt, including a delictual debt, which is owing and payable. A debt is due in this sense when the creditor acquires a complete cause of action for the recovery of the debt, that is, when the entire set of facts which the creditor must prove in order to succeed with his or her claim against the debtor is in place or, in other words, when everything has happened which would entitle the creditor to institute action and to pursue his or her claim.”

Although the special plea of prescription was raised by Zurich, the onus of proof now rested upon Zurich to establish that the claim had prescribed. In this case, no evidence was led by Zurich in order to establish the defense of prescription. The Appeal was dismissed.

Notably, prescription is an important aspect to consider when pursuing any matter that relates to a claim. It is fundamental to ensure that the intended claim has not prescribed, whilst bearing in mind the exception which is the interruption of prescription found under section 14 of the Act. Section 14 states that the running of prescription shall be interrupted by an express or tacit acknowledgement of liability by the debtor.  Examples includes an acknowledgement of debt signed by the debtor, payment made in respect of the particular debt due and where an acknowledgement of indebtedness is made by the debtor to a creditor, even in without prejudice settlement negotiation may be admissible of the purposes of interrupting the running of prescription.

Always ensure that claims are brought timeously to avoid having to defend a special plea of prescription.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).