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Prescription and Arbitration Explained

Prescription is a well known term often used in cases where a long period of time has elapsed, before legal steps were taken to enforce a right or a claim for payment of a debt.
The purpose of prescription is to create legal certainty and to reach finality in a dispute so that a creditor does not possess a lifelong claim against a debtor without enforcing his claim. Prescription is a rule of law and is governed by the Prescription Act 68 of 1969 wherein a creditor / claimant is provided with a certain period of time, from date on which the debt falls due or the claim becomes enforceable, to institute legal proceedings to collect that debt. Failing any action within the prescribed time limit, the debt / claim cannot be enforced.

prescription arbitration

Therefore, a debt shall be extinguished by prescription after the lapse of a prescribed period. The Prescription Act provides for different periods of prescription for different debts. The categories of prescription can be summarised as follows:
• 30 years: any debt secured by mortgage bond; any judgment debt; any debt in respect of any taxation imposed or levied by or under any law; any debt owed to the State in respect of any share of the profits, royalties or any similar consideration payable in respect of the right to mine minerals or other substances.

• 15 years: in respect of any debt owed to the State and arising out of an advance or loan of money or a sale or lease of land by the State to the debtor.

• 6 years: in respect of a debt arising from a bill of exchange or other negotiable instrument (such as a cheque) or from a notarial contract.

• 3 years: save where legislation provides otherwise, three years in respect of any other debt (e.g. rentals, goods sold and delivered, services, loans, etc.).

Prescription is interrupted where action is instituted by service of summons, in terms whereof the creditor claims payment of the debt or enforcement of a right against a debtor, subject to certain exceptions.

Where the debtor acknowledges liability during the prescription period (i.e. payment of an instalment towards the debt), the running of the prescription period starts to run afresh.
Levies which were raised and falls due in terms of the Sectional Titles Act, Act 95 of 1986, is a debt as referred to in the Prescription Act and a 3 (three) year prescription period will apply to this debt.

The question to be asked is how the prescription period of a claim for the payment of levies, is affected when a dispute in terms of Prescribed Management Rule 71 (Annexure 8 of the Regulations under the ST Act), is declared and such a dispute is referred to arbitration. The same question may be asked in situations where parties to a contract have agreed that a dispute between the contracting parties is to be referred to arbitration.

Section 13(1)(f) of the Prescription Act provides that the completion of prescription will be delayed until one year after the arbitration proceedings came to an end. This was confirmed by the Appellate Division of the High Court in the matter between Murray & Roberts Construction (Pty) Ltd v Upington Municipality 1984 (1) SA 571 (A).
Accordingly, prescription of matters / disputes that are subject to arbitration will be delayed if the claimant serves a process whereby the relevant dispute is subjected to arbitration within a period of 3 years from date when the debt becomes payable or the cause of action arose. The mere referral of a dispute / matter to arbitration will not be sufficient to stay prescription and the parties will be obliged to proceed with the actual arbitration proceedings.

Upon conclusion of the arbitration proceedings, the prescription period will be delayed for a further period of one year. This means the successful claimant, who has obtained an arbitration award for payment of the debt, will have a minimum of one year to make the arbitration award an order of court in terms of Section 31 of the Arbitration Act, 42 of 1965. When the arbitration award is made an order of court, the prescription period will be prolonged for a period of 30 years to claim payment of the judgment debt.
It is therefore of the utmost importance to apply to the High Court to make an arbitration award an order of court within one year from the date on which the arbitration was concluded, to avoid possible prescription of the right to enforce the award.

Article by EY Stuart Attorneys, Pretoria

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