A recent ruling by the High Court in Bloemfontein confirms that an acknowledgement of liability by the debtor interrupts prescription, even if the acknowledgement is not made directly to the creditor.
According to the Prescription Act, if no payment has been made to an account for three years and no summons has been issued for that debt by the creditor within the last three years, then that debt is prescribed, and you are not legally bound to repay that debt.
In J.H.V v Centlec (SOC) Ltd and Others, the applicant, Mr V, approached the High Court for a declaratory order that he was not indebted to Centlec SOC Ltd, the municipal electricity provider for various areas in the Free State.
Centlec opposed the application and brought a counter-claim in the amount of R2 616 960.35, plus interest at the prescribed rate of 11.25% a year.
The case involves a portion of leased farmland. From 2012 to 1 September 2016, Centlec supplied electricity for the use on the land. The last payment received was on 20 October 2014. In August 2016, Mr V received an account requesting payment of R1 783128.35. A month later, the electricity was disconnected. Mr V denied liability and disputed the amount from the get-go, demanding a recalculation of the electricity consumption.
Although correspondence between the two parties followed, particularly regarding the institution or not of legal proceedings, Centlec did not issue summons against Mr V.
Hence Mr V argued that the debt had prescribed under the Prescription Act because he had not made payments or acknowledged liability since the supply was disconnected in 2016.
Centlec countered this by pointing to an agreement made in 2020 between Mr V and third parties – Pienaar Trust, the owner of the leased portion of farmland, and Mr V’s ex-wife.
In a memorandum of understanding, which formed part of a written addendum to the existing lease agreement (of the portion of farmland), Mr V and his ex-wife agreed to pay the outstanding account to Centlec per the clearance certificate issued by the electricity provider on 10 December 2020 for the payment of R2 616 960.35.
The relevant clause read:
“6.7. [the applicant] hereby irrevocably confirm and agree that they shall, before close of business on 31 December 2020, fix, alternatively resolve issues in respect of, in the further alternative pay the following damages and/or accounts in respect of the property:
6.7.1. Outstanding account of Centlec, with account number 500 […]”
Mr V contended that the clause did not amount to an acknowledgment of debt because it was not made to Celtec.
Acknowledgement of debt
Tristan Marot, an associate in Norton Rose Fullbright’s insurance team, analysed the court’s judgment in an article posted on the law firm’s website.
Marot noted that the court rejected the argument that the acknowledgement needed to be made directly to Centlec to be valid. As the court pointed out, the Prescription Act did not specify to whom the acknowledgement must be made.
Acting Judge Johanna Mthimunye said the question before the court was whether the clause amounted to an acknowledgment of debt.
The court referred to Lieberman v Santam Ltd, where the Supreme Court of Appeal held that an agreement can create a new contractual obligation that acknowledges debt and thereby interrupts prescription.
Marot explained that the court elaborated that an agreement creating a new obligation for the debtor can serve as an acknowledgement of an existing debt.
“Thereby interrupting prescription, highlighting the flexibility within contract law to recognise new agreements as continuations or acknowledgements of previous obligations, if they clearly articulate the debtor’s intention to fulfil those obligations,” Marot said.
Consequently, the court determined that the clause did amount to an acknowledgement of debt as it explicitly mentioned the intention to pay the outstanding account to Centlec.
“This, the court held, was sufficient to interrupt prescription according to section 14(1) of the Prescription Act, which states that prescription is ‘interrupted by an express or tacit acknowledgement of liability by the debtor’,” Marot said.
The court found that the debt was still enforceable against Mr V. The application was dismissed, and the counterclaim by Centlec was upheld.
