In South African law, creditors have three years to claim money that is owed to them by debtors.
A recent ruling in Western Cape High Court, however, is creating new opportunities to extend this period.
Known as ‘extinctive prescription’, the three-year period is enforced from the day that the debt becomes legally due.
A creditor would need to deliver a summons and pursue the money that is owed in court. If the creditor fails to do this within three years, then the debt would fall away.
“Sending an invoice, email or letter isn’t enough; the creditor would need to pursue the case in court,” says Vanessa Jacklin-Levin, a dispute resolutions specialist at Dentons Law Firm.
During the KLD Residential CC v Empire Earth Investments 17 case in July 2017, the Supreme Court of Appeal ruled that the debtor (in this case, Empire Earth) admitted that the money was owed, and that the creditor’s (KLD Residential) three-year period starts afresh from the admission date thanks to this admission of liability.
How do you get someone to admit that they owe you money?
Lawyers can try to extract this information from a client’s debtor in writing or email correspondence. While the court will recognise an admission that was made in person during a face-to-face conversation, the client would still be responsible for proving that the debtor admitted liability.
“Ideally, you would need your debtor to admit in writing that he or she owes you money. Once you have this admission, the original three-year extinctive prescription period has been interrupted and you will have another three years to legally pursue the money that is due to you,” says Jacklin-Levin.
What if the person admits to owing you money “off the record”?
The “without prejudice” rule has long been part of South African law. During negotiations between creditors and debtors, business partners, spouses who are divorcing, or any other parties who are involved in a dispute, the “without prejudice” rule means that communication that happens during negotiations can’t be used against the party in court proceedings.
“This rule enables people to communicate without prejudice basis and in the case of someone owing you money, it means that the debtor doesn’t lose his or her rights or privileges. In the past, a debtor admitting that money was owed would be seen as a ‘without prejudice admission’ – essentially a statement that was made off the record – but the new ruling has changed the nature of this type of dispute resolution as the admission of liability can now be used to extend the three-year extinctive prescription date,” says Jacklin-Levin.
Why is this ruling important?
This ruling is an important development in South African law. While a liability admission is still considered to be content that is without prejudice for the debtor, it enables the creditor to extend the period that they are legally able to claim money.
“Outstanding debt is a problem for many local businesses. This new development gives people the opportunity to keep their claim alive so that they can get access to money that is rightfully owed to them. By following the right legal processes, a creditor can now successfully lift the barriers and time limits that have been enforced on claiming outstanding money,” concludes Jacklin-Levin.