'Extinctive prescription' refers to the extinction of a right or claim due to a time lapse. The notion of extinctive prescription encourages claimants to pursue claims with due expedition and in a manner that does not unduly prejudice a defendant in its defence.
In South Africa, extinctive prescription is governed by the Prescription Act (68/1969), which came into force on December 1 1970. As a general proposition, the act provides that claims expire after a period of three years, calculated from the date on which the debt became 'due'. It is an established principle of South African common law that a debt is said to become due when every fact necessary to sustain a cause of action is apparent.
Of course, parties must look to the contractual arrangement between them as a first port of call in assessing when exactly a cause of action may arise and when a claim or debt may consequently become 'due'. However, in a construction context, where a contractor may have a series of claims proceeding through the contractually contemplated dispute resolution procedure (which, in the ordinary course, is the submission of a claim to an engineer and thereafter a mediator, adjudicator or dispute board before arbitration), the stage at which a claim or debt may become due has been the subject of much conflicting case law.
While perhaps an oversimplification, the courts have traditionally adopted one of two approaches to this issue:
- A claim becomes due on final completion of the works and the issue of a certificate to this effect; or
- A claim becomes due at the moment that the constitutive elements of the legal entitlement have arisen, or at the moment that the party becomes aware of such elements having arisen – which, in practical terms, arises at latest on submission of a claim to an engineer.
The Supreme Court of Appeal recently issued guidance on this issue. In Group Five Construction (Pty) Ltd v Minister of Water Affairs & Forestry the court alluded to the following prerequisites in determining whether a claim is due:
- the existence of a legal entitlement; and
- the existence of a fully 'enforceable' claim.
The court in Group Five required not only the existence of a legal entitlement in the narrow sense (ie, the existence of a claim event for which the employer is responsible and a causal link between the claim event and the loss or expense suffered), but also compliance with the contractually contemplated dispute resolution machinery, which the court held constituted a contractual prerequisite for the enforcement of the claim and formed part of the claimant's cause of action.
The effect of this judgment and of the introduction of the notion of enforceability in assessing when a debt may become due has the effect of delaying the running of prescription until such time as the parties have exhausted the contractually contemplated dispute resolution mechanisms and are free to pursue their claims in court or by way of arbitration (as may have been elected).
Although entirely dependent on the terms of the applicable agreement, prescription would, as a general proposition, commence running from the date of the notice of dissatisfaction with the outcome of the procedural step one prior to court or arbitration, as the case may be, at which stage the parties would be free to pursue court or arbitration proceedings. While soundly reasoned, this judgment makes it difficult for employers to raise the defence of prescription successfully in a construction context, and certainly favours the contractor.
For further information on this topic please contact Gerhard Rudolph at Rudolph Bernstein & Associates by telephone (+27 11 669 7600), fax (+ 27 11 669 7601) or email ([email protected]).