The vaunted section 126B – A Legal Opinion
ADRA published two opinions on the interpretation of section 126B as introduced into the National Credit Act as amended and undertook to publish further articles and/or opinions and requested that members forward their own opinion and/or legal opinions obtained on the topic. A prominent ADRA member forwarded the legal opinion appearing below from Prof. Max Loubser and consented to same being published in the ADRA Link.
Professor (Emeritus) Max M Loubser obtained the degrees BA and LLB (both cum laude) at the University of Stellenbosch. He was awarded the South Africa-At-Large Rhodes Scholarship for studies at the University of Oxford where he obtained his doctorate in law in 1977. He acts a lecturer at the University of Stellenbosch, is a Research Associate of the university, a director in the law firm Cluver Markotter and an author of various authoritative books, journals and articles in the field of private law.
Prof. Max Loubser is generally accepted as the leading authority on the Law of Prescription in South Africa and the author of the book titled, “Extinctive Prescription” published by Juta. This authoritative writing is the prescribed text book in most universities and the cornerstone of academic and practical research on the topic of prescription. There is hardly a reported judgement in which the judges do not extensively refer to and quote from this authority.
Take Note however that what appears below is only a legal opinion and not law. Section 126B has not been implemented yet and has no court of law ruled on the interpretation thereof. Only the ruling of a court will be authoritative interpretation. The full ADRA disclaimer therefore applies hereto and are members not advised to simply select the opinion most suited to their interest and apply same in their business. There are opposing opinions such as those previously published by ADRA, which opinions are available on the ADRA website. This opinion by Prof. Loubser is also made available on the website.
The opinion appears in its original form with only reference to the ADRA member being removed. Because of the depersonalisation of the opinion and to retain cross references the opinion as published commence from paragraph 2 thereof
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- Clause 31 of the Bill introduces the following new section into the National Credit Act:
126 B. Application of prescription on debt
(1) (a) No person may sell a debt under a credit agreement to which this Act applies and
that has been extinguished by prescription under the Prescription Act, 1969 (Act No.
68 of 1969).
(b) No person may continue the collection of, or re-activate a debt under a creditagreement to which this Act applies-
(i) which debt has been extinguished by prescription under the Prescription Act,
1969 (Act No. 68 of 1969); and
(ii) where the. consumer raises the defence of prescription, or would reasonably
have raised the defence of prescription had the consumer been aware of such
a defence, in response to a demand, whether as part of legal proceedings or
otherwise.
3.The ADRA Member is a registered credit provider as defined in the National
Credit Act 34 of 2005. The ADRA Member’s credit products include (but are not limited to) unsecured
credit transactions. The ADRA Member and its subsidiary companies have also acquired various
defaulted debt portfolios, which it collects for its own account.
4.The ADRA Member requires an opinion on the correctness of the following views that it takes on thesection in question:
A. Section 1268(1) does not introduce an outright prohibition on the collection of prescribed
debts.
B.Section 126(1)(b)(ii) indicates that the collection of prescribed debts is only prohibited
where the consumer has:
a.Raised the defence of prescription in respect of a prescribed debt or;
b.Reasonably would have raised the defence of prescription had the consumer been
aware of such a defence of prescription.
The latter part of Section 126B(1)(b)(ii) extends the protection of the defence to uneducated
consumers who are not aware of the existence of the defence of prescription. It follows that
this additional protection does not extend to a consumer who was aware of; alternatively
was made aware of the defence of prescription. Therefore, where the Credit Provider can
prove that the consumer was aware of the existence of the defence, alternatively was made
aware of the defence of prescription and did not raise the defence of prescription, the re-
activation and continued collection of prescribed debts is not prohibited.
Relevant principles governing prescription under the 1969 Prescription Act
5.The new section 1268(1), to be introduced into the National Credit Act 34 of 2005, contains
certain prohibitions relating to "a debt ... extinguished by prescription". The first question raised
by this provision is when a debt is to be considered "extinguished by prescription" under the
1969 Prescription Act. Although the Prescription Act 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",[1] prescription does not depend on the effluxion of time alone: it
does not operate like a parking meter. The Prescription Act contains certain provisions indicating
that, even if the applicable prescription period has elapsed, the debt in question may in effect
not yet be "extinguished". The relevant principles are set out in paragraphs 6-11 below.
6.If the debtor wilfully prevents the creditor from knowing that the debt exists, prescription will
not begin to run until the creditor becomes aware that the debt exists.[2] The courts have held
that the word 'wilfully' in this subsection means 'deliberately' or 'intentionally', not
'fraudulently'.[3] A debt is also not deemed to be due until the creditor has, or ought to have had
knowledge of the identity of the debtor and of the facts from which the debt arises.[4]
7.Even if the applicable prescription period has elapsed, the completion of prescription may be
delayed in certain circumstances, such as absence of the debtor from the Republic, or the death,
insolvency or liquidation of the debtor.[5]
8.Even if the applicable prescription period has elapsed, it may appear that the debtor had
acknowledged liability for the debt during the running of the prescription period, thereby
interrupting the running of prescription and causing it to begin to run afresh.[6]
9.The Act provides in respect of reciprocal contractual debts that one such debt does not become
prescribed before the other, so that interruption of prescription in respect of a contractual debt
has the effect of keeping alive a reciprocal debt, even if all the requirements for prescription
have been met in respect of such a reciprocal debt.[7]
10.Even if prescription has taken effect, "payment by the debtor of a debt after it has been
extinguished by prescription shall be regarded as payment of a debt".[8] A debt can therefore be
validly paid by the debtor if he or she for whatever reason does not rely on prescription.
11.Section 17(1) of the Prescription Act provides that a court shall not "of its own motion" take
notice of prescription. Section 17(2) deals with the manner of invoking prescription: "A party to
litigation who invokes prescription, shall do so in the relevant document filed of record in the
proceedings: Provided that a court may allow prescription to be raised at any stage of the
proceedings." The rule that prescription does not take effect by operation of law, but only if
invoked by a party to litigation,[9] has the effect that, even if the prescription period has elapsed,
the debt in question may be enforced if the debtor does not rely on prescription.
12.The provisions referred to in the preceding paragraphs 10-11 indicate that the provision "a debtshall be extinguished by prescription" creates anomalies if taken at face value. It appears thateven after all the requirements for prescription have been met, the debt in question may retainthe characteristics of a subsisting debt. Arguably prescription therefore does not "extinguish"adebt, but confers on the debtor a substantive statutory defence which, if invoked and proved, will render him or her exempt from performance.[10] The construction that the debtor acquiresthe right to refuse performance, which he or she may or may not invoke as a substantivedefence, while the debt subsists intact and can be paid, appears to be in accordance with both the logic and the practical effect of the 1969 Prescription Act. However, the courtsadheretothenotion that a debt is "extinguished by prescription" and have not engaged inanalysisoftheapparent anomalies inherent in this notion.[11]
13.A debtor may for whatever reason waive the defence of prescription. Whereas an unqualified
anticipatory waiver of prescription is undesirable as a matter of public policy and should
therefore be regarded as void,[12]waiver or an agreement to extend the prescription period which
occurs after the debt has come into existence, but while the prescription period in terms of the
Prescription Act is still running, can be valid. In such cases the situation will require an
assessment of the particular relationship between the parties to determine the existence of a
particular and commercially justifiable purpose for the waiver or extension, and whether the
debtor was in a position to apply his mind to the implications of the waiver or extension. A
negotiated waiver or extension of the prescription period, while the prescription period is still
running, could well be justifiable as a matter of policy.[13] After expiry of the applicable
prescription period, when prescription has taken effect, the debtor can validly undertake not to
invoke prescription. The Supreme Court of Appeal held in De Jager v Absa Bank Bpk[14]that a
debtor is not obliged to invoke prescription after the applicable prescription period has expired,
and at that time there is no basis in logic or principle for precluding a debtor from lawfully
binding himself not to invoke prescription. A debtor has the freedom not to invoke prescription
in terms of the Prescription Act, and also the contractual freedom to bind himself not to invoke
prescription, and such an agreement does not offend against public policy.[15]
Interpretation of the prohibitions contained in section 1268(1}
14. In terms of the principles referred to above the prohibitions contained in section 126B(1) in my
view must be understood as set out below.
15.Section 126B(1)(a):
Noperson may sell a debt under o credit agreement to which this Act applies and that has been
extinguished by prescription under the Prescription Act, 1969 (Act No. 68 of 1969).
In my view this prohibition applies only to a debt in respect of which -
- the debtor has invoked the defence of prescription in accordance with section 17 of the
Prescription Act (i.e. by way of a "relevant document filed of record in the proceedings");
and - the applicable prescription period has lapsed (onus on debtor to prove that the period has lapsed); and
- the creditor was not wilfully prevented from coming to know of the existence of the debt,
or reasonably unaware of the identity of the debtor and the facts from which the debt
arises, in terms of section 12(2) and 12(3) of the Prescription Act (onus on creditor to prove wilful prevention or reasonable ignorance); and - the completion of prescription has not been delayed in terms of section 13 of the
Prescription Act (onus on creditor to prove delay); and - the debtor has not acknowledged liability for the debt during the running of the
prescription period in accordance with section 14 of the Prescription Act, thereby
interrupting the running of prescription and causing it to begin to run afresh (onus on
creditor to prove acknowledgement); and - no reciprocal non-prescribed contractual debt exists in terms of section 13(2) of the
Prescription Act (onus on creditor to prove non-prescribed reciprocal contractual debt); and - the debtor has not waived the defence of prescription (onus on creditor to prove waiver).
16. Section 126B(1)(b):
No person may continue the collection of, or re-activate a debt under a credit agreement to
which this Act applies-
(i)which debt has been extinguished by prescription under the Prescription Act, 1969 (Act No,68 of 1969); and
(ii)where the consumer raises the defence of prescription, or would reasonably have raised thedefence of prescription had the consumer been aware of such a defence, in response to a demand, whether as part of legal proceedings or otherwise.
In my view this prohibition of collection or re-activation of a debt is not absolute and applies
only to a debt in respect of which -
- the debtor/consumer has raised the defence of prescription in response to a demand;
and - the debtor/consumer has raised the defence of prescription whether as part of legal
proceedings or otherwise i.e. the defence can be raised by letter or even orally; it is not
necessary for the defence to be raised in accordance with section 17 of the Prescription
Act by way of a "relevant document filed of record in the proceedings"); (II. and III. are
alternatives) – - the debtor/consumer has not raised the defence of prescription but would reasonably
have raised the defence in response to a demand the debtor consumer been aware
of such a defence (the reasonableness concerns the question whether the debtor would
have raised the defence with knowledge thereof, not whether the debtor should
reasonably have been aware of the defence); and - the applicable prescription period has lapsed (onus on debtor to prove that the period
has lapsed); and - the creditor was not wilfully prevented from coming to know of the existence of the debt,
or reasonably unaware of the identity of the debtor and the facts from which the debt
arises, in terms of section 12(2) and 12(3) of the Prescription Act (onus on creditor to
prove wilful prevention or reasonable ignorance); and - the completion of prescription has not been delayed in terms of section 13 of the
Prescription Act (onus on creditor to prove delay); and - the debtor has not acknowledged liability for the debt during the running of the
prescription period in accordance with section 14 of the Prescription Act, thereby
interrupting the running of prescription and causing it to begin to run afresh (onus on
creditor to prove acknowledgement); and - no reciprocal non-prescribed contractual debt exists in terms of section 13(2) of the
Prescription Act (onus on creditor to prove non-prescribed reciprocal contractual debt);
and - the debtor has not waived the defence of prescription (onus on creditor to prove waiver).
16. The latter part of section 126B(1)(b)(ii) therefore extends the protection of the defence of
prescription to consumers who are not aware of the existence of the defence, whether or not
such ignorance is reasonable. This additional protection does not extend to a consumer who was
aware of; or, alternatively, was made aware of the defence of prescription. It follows that, if the
Credit Provider can prove that the consumer was aware of the existence of the defence of
prescription or was made aware of the defence and did not raise the defence, the re-activation
or continued collection of prescribed debts is not prohibited.
MM Loubser
Cluver Markotter Inc
22 July 2014
[1]Section 10(1).
[2]Section 12(2).
[3]Jacobs v Adonis 1996 4 SA 246 CC) 250J-2518.
[4]Section 12(3). On the interpretation of 'identity of the debtor and ...the facts from which
the debt arises', see Nedcor .Bank Bpk v Regering van die Republiek van Suid-Afr!ka 2001 1
SA 987 (SCA); Minister of Finance v Gore NO 2007 1 SA 111 (SCA) .
[5]Section 13.
[6]Section 14
[7]Section 13(2).
[8]Section 10(3).
[9]Section 17(1).
[10]See Loubser Extinctive Prescription 14-18.
[11]See eg Lipschitz v Dechamps Textiles GMBH 1978 4 SA 427 (C); Standard General Insurance
Co Ltd v Verdun Estates (Ply) Ltd 1990 2 SA 693 (A); Volkskas Spaarbank Bpk v Van Aswegen
1990 3 SA 978 (A); De Jager v ABSA Bank Bpk 2001 3 SA 537 (SCA) para [18] ('Die skuld is
uitgewis').
[12]See the critical comments on the decision in Nedfin Bank Bpk v Meisenheimer 1989 4 SA 701
(T) in Loubser Extinctive Prescription 152-155.
[13]See Friederich Kling GMBH v Continental Jewellery Manufacturers 1995 4 SA 966 (C).
[14]2001 3 SA 537 (SCA).
[15]See also ABSA Bonk Bpk h|a Bonkfin v Louw 1997 3 SA 1085 (C).