By Johan van der Merwe
Most textbooks conclude that the waiver of prescription (in the form of an undertaking or term of an agreement not to raise the defence of prescription) is enforceable and not contrary to public policy (see for instance WA Joubert The Law of South Africa 2ed (Durban: LexisNexis 2010) vol 21 at 70; RH Christie and GB Bradfield Christie’s Law of Contract in South Africa (Durban: LexisNexis 2011) at 511; and S van der Merwe, LF van Huyssteen, MFB Reinecke and GF Lubbe Contract General Principles 4ed (Cape Town: Juta 2012) at 489). However, in view of recent case law anyone confronted with this issue, perhaps when drafting a commercial contract containing such clause, should think twice. This article will undertake a brief overview of the case law of the last decade, seen against the common law, and will show that most text books do not properly capture this issue.
Common law
It seems evident that one cannot, at the time of the creation of a debt, legally commit oneself not rely on prescription. If it were to be allowed, the entire institution of prescription could effectively be defeated, at least in debts arising from agreements. An agreement of this nature can be regarded as contra bonos mores, and is, therefore, invalid. (JC de Wet en AH van Wyk De Wet en Yeats Kontraktereg en Handelsreg 4ed (Durban: Butterworths 1978) at 274) (paraphrased).
Case law
The common law position was confirmed in the Western Cape High Court in the matter between Absa Bank h/a Bankfin v Louw en Andere 1997 (3) SA 1085 (C).
In Bankfin, the court 1090 A – B concluded: The part of the agreement between the appellant and the second and third respondents that determined that prescription does not run in favour of the second and third respondents, is thus against public interest. The two respondents could not entirely distance B from the protection of the Prescription Act 68 of 1969 (paraphrased).
The Bankfin matter, however, contradicts an earlier decision from the then Transvaal Bench in Nedfin Bank matter (Nedfin Bank Bpk v Meisenheimer en Andere 1989 (4) SA 701 (T).
The issue was thereafter raised in De Jager and Others v ABSA Bank Bpk [2000] 4 All SA 481 (A), but left undecided at para 16: The validity of an undertaking that will not raise prescription may depend on the time period it was given. In an instance that judgment refers to case law, where a debtor (including a guarantor) contractually commits himself or herself, usually at the start of the conclusion of the association and before prescription, to renounce and not to rely on the protection of prescription (‘an ongoing concern’). There are various decisions in the High Court if such an ongoing concern is valid or not – see, for example, Nedfin (op cit) (still valid); Absa Bank case (invalid). The basis of the latter decision is that such an undertaking undermines the institution of liberating prescription and, therefore, it is contradictory to public policy. Since we are not dealing in this appeal with an ongoing agreement, it is not necessary for us to take a stand (paraphrased).
The common law position as set out in Bankfin was eventually confirmed by the Supreme Court of Appeal (SCA) in Representative of Lloyds and Others v Classic Sailing Adventures (Pty) Ltd 2010 (5) SA 90 (SCA).
In the Classic Sailing matter the SCA held that a renunciation must be distinguished from a waiver. A renunciation is in effect a new agreement to renew the debt after it had become prescribed. This is an important distinction, because renunciaiton of a prescribed debt is permissible, but the SCA held that the waiver of prescription is not.
The court thus confirmed the common law position in regard to waiver of prescription:
‘Rather than asking whether statutory provisions are prohibitory or dispositive, a better approach to determining whether parties may exclude the operation of statutory provisions by choice of another system of law might be to question whether they can waive the application of the provisions. This question was addressed in South African Co-Operative Citrus Exchange Ltd v Director-General: Trade and Industry and Another [1997 (3) SA 236 (SCA)], where Harms JA, dealing with procedural statutory provisions, held that they may be renounced by a party (in that case the State) for whose benefit they are enacted. But where public policy and interest would be prejudiced by a waiver, such provisions cannot be escaped. Waiver is not possible, said this court, if it affects public policy or interest or a right. This principle was affirmed in De Jager en Andere v Absa Bank Bpk, where this court held that the application of the provisions of the Prescription Act 68 of 1969 may be waived by a debtor under a contract after the prescriptive period has run because renunciation did not substantially or materially impact on the public interest’ (at para 23) (my italics).
Constitutional approach to the Prescription Act
The Constitutional Court (CC) recently outlined the proper approach to the Prescription Act in Links v Department of Health, Northern [Cape] Province 2016 (4) SA 414 (CC) at pars 26:
‘The provisions of s 12 seek to strike a fair balance between, on the one hand, the need for a cut-off point beyond which a person who has a claim to pursue against another may not do so after the lapse of a certain period of time if he or she has failed to act diligently and on the other the need to ensure fairness in those cases in which a rigid application of prescription legislation would result in injustice. As already stated, in interpreting section 12(3) the injunction in section 39(2) of the Constitution must be borne in mind’ (my italics).
The CC did not amend the prescription periods, nor preached a lackadaisical approach or lowered the bar, but did infuse the law of prescription with considerations of justice and fairness.
The effect of the Links judgment is that a court must now also ask whether it will be fair, just and equitable to allow a claim to become prescribed or not.
Conclusion
The common law prevails when it comes to the waiver of prescription: The waiver of prescription (in the form of an undertaking or term of an agreement not to raise the defence of prescription) is not enforceable and is contrary to public policy.
If this particular issue is ever addressed by the CC, it is likely that the common law position will prevail. Given the overriding jurisprudence of fairness and justice dispensed by the CC, it may well lean towards upholding the bonos mores, the moral fibre, of our society.
Johan van der Merwe BCom BA (Hons) LLB (Stell) LLM (University of Kiel) (Germany)) is an attorney at JD van der Merwe Attorneys in Stellenbosch.
This article was first published in De Rebus in 2017 (Jan/Feb) DR 32.
