Protea International (Pty) Ltd v Peat Marwick Mitchell & Co

• Jurisdiction: South Africa
• Judge: Joubert JA, Vivier JA, Milne JA, Friedman AJA and Nienaber AJA
• Judgment Date: 16 March 1990
• Hearing Date: 23 February 1990
• Court: Appellate Division

Joubert JA:

The appellant in this matter sued the respondent in the Witwatersrand Local Division for damages arising from breach of contract in an amount of R759 302. The respondent was engaged by the appellant to conduct annual audits for its financial years ended 30 June 1982 and 30 C June 1983 and to furnish reports as envisaged in terms of s 301 of the Companies Act 61 of 1973. The annual audits were completed on 10 August 1982 and 5 August 1983 respectively. The alleged breaches of contract consisted of the respondent's negligent failure to detect in each annual D audit certain irregular transactions which were brought to the knowledge of the appellant during March 1984. It was common cause that the alleged breaches of contract occurred at the latest on 10 August 1983. On 23 October 1986 the summons was served on the respondent.

In an alternative plea the respondent raised the defence that the appellant's claim had become prescribed in terms of the provisions of the Prescription Act 68 of 1969 (the 'main Act'). When the matter was E heard by Morris AJ the alternative plea was argued in limine as a special plea, which he upheld by granting absolution from the instance in respect of the appellant's claim. The appeal is brought with leave of the Court a quo against the judgment of Morris AJ.

Inasmuch as the appellant's claim is for the payment of a contractual F debt the period of extinctive prescription applicable to the debt is three years according to the provisions of s 11(d) of the main Act. Section 12 of the main Act deals with the commencement of extinctive prescription. In its original form as enacted the relevant provisions of s 12 read as follows:

'(1) Subject to the provisions of ss (2) and (3), prescription shall commence to run as soon as the debt is due. G

(2) If the debtor wilfully prevents the creditor from coming to know of the existence of the debt, prescription shall not commence to run until the creditor becomes aware of the existence of the debt.

(3) A debt which does not arise from contract shall not be deemed to be due until the creditor has knowledge of the identity of the debtor H and of the facts from which the debt arises: Provided that a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care.'

(My emphasis.)

Subject to certain exceptions, a prescribed debt is in terms of s 10(1) of the main Act extinguished after the lapse of the relevant prescriptive period. Since a prescribed debt is the correlative of the I creditor's contractual right of action, the prescription of the debt necessarily extinguishes the right of action. The extinction of a contractual right of action by prescription is accordingly a matter of substantive law and not a procedural matter. See Kuhne & Nagel AG Zurich v APA Distributors (Pty) Ltd 1981 (3) SA 536 (W) at 538F. This constitutes a radical departure from the position under the old J Prescription Act 18 of 1943. The effect of s 3(1)

Joubert JA

A of the latter Act was procedural in character, since the lapse of the prescriptive period rendered a contractual right of action unenforceable, whereas the prescribed debt became a natural obligation until the effluxion of 30 years after the contractual right of action had first come into existence (s 3(5)).

Let us now consider the commencement of extinctive prescription in B regard to contractual debts. In terms of s 12(1) of the main Act, prescription begins to run as soon as the contractual debt becomes due, ie as soon as the creditor's contractual right of action becomes enforceable. Under s 12(2) awareness on the part of the creditor of the fact that the contractual debt has become due is irrelevant unless the debtor wilfully prevented him from becoming aware of the existence of C the debt, in which event prescription will not commence to run until he became aware of such existence. See De Wet and Yeats Kontraktereg en Handelsreg 4th ed at 263.

Section 12(3) of the main Act, as originally enacted, expressly excluded from its operation debts arising from contracts. It was intended for other types of debts such as, for instance, delictual D debts. It introduced the requirement of knowledge on the part of the creditor of both the identity of the debtor and of the facts from which the debt arose, provided that he would be deemed to have such knowledge if he could have acquired it by exercising reasonable care. This provision was obviously based on an equitable principle. The section was, however, amended by s 1(3) of the Prescription Amendment Act 11 of E 1984 (the 'amending Act'), which came into operation on 7 March 1984, by the deletion of the phrase 'which does not rise from contract'. The effect of this amendment to s 12(3) of the main Act is to place the commencement of prescription concerning contractual debts on a par with that of other debts such as delictual debts.

The question to be decided is whether the appellant's contractual F claim against the respondent became prescribed before service of the summons on 23 October 1986. The answer to this question depends on whether the amendment to s 12(3) is applicable to the prescription of contractual claims which commenced to run before such amendment had become operative on 7 March 1984, or whether such amendment's application is to be confined to the prescription of contractual claims G which commenced to run on or after 7 March 1984. It should be noted that the provisions of s 12(2) have no bearing on the facts of the present matter...