16 October 2019 by , and Dispute Resolution Alert

I love it when you talk foreign! Foreign debtors may not be as far away as you think

Under South African law, the prescription of debts is regulated by the Prescription Act, No 68 of 1969 (Act). A debt is said to prescribe after a certain period of time has lapsed from the date on which it became due. The result of a debt prescribing is that the creditor can no longer initiate legal proceedings to recover the debt in question.

Of importance is s13(1)(b) and s13(1)(i) of the Act that sets out the circumstances in which prescription will be delayed when a debtor is outside the Republic. It provides that:

If -

(b)   the debtor is outside the Republic; and

(i)     the relevant period of prescription would, but for the provisions of this subsection, be completed before or on, or within one year after, the day on which the relevant impediment referred to in paragraph (b), has ceased to exist, the period of prescription shall not be completed before a year has elapsed after the day referred to in para (i).”

This provision provides for an automatic delay of the period of prescription if the debtor is outside the Republic and will only be completed a year from the date of the debtor’s return.

In the matter Silouette Investments Ltd v Virgin Hotels Group Ltd [2009] 4 All SA 617 (SCA), the Supreme Court of Appeal (SCA) had to interpret the meaning of the phrase “outside the Republic” as contemplated in the Act. It was argued on behalf of the appellant creditor that the prescription of the appellant creditor’s claim had been interrupted, in terms of s13(1)(b) of the Act, because at all material times the respondent debtor had been outside the Republic. This submission was because the respondent debtor was a foreign company, incorporated and registered in the United Kingdom, with its chosen domicilium address in London and not in South Africa.

The court dismissed this argument and held that the legislature envisaged the absence of a debtor as an impediment for a creditor to institute legal proceedings and further held that:

“Where, as in the present case, the debtor has not only consented to the jurisdiction of the South African Courts (by way of a jurisdiction clause in the contract) but also agreed to accept service of process, care of its South African attorneys, there is no circumstance which gives rise to a problem which creates a difficult or undesirable situation for a creditor seeking to institute legal proceedings against the debtor in this country…I think that to interpret the phrase “outside the Republic” as covering a case where, although the debtor itself is physically outside the Republic, it has consented to the jurisdiction of the South African courts in respect of a claim and has a representative here whom it has authorised to receive service on its behalf of any process in which the claim in question is sought to be enforced would give a meaning to the provision under consideration which Parliament could never have intended”.

The Court ultimately found that it would go beyond the purpose of s13(1)(b) if it were held that the respondent debtor was outside the Republic for the purposes of interrupting prescription as the impediment had been removed.

Creditors need to err on the side of caution when seeking to institute legal proceedings against foreign debtors. The debtor may not be regarded as being outside the Republic for prescription purposes and thus the phrase “the sooner the better” is applicable to any legal proceedings to be instituted against the debtor.

download PDF

The information and material published on this website is provided for general purposes only and does not constitute legal advice.

We make every effort to ensure that the content is updated regularly and to offer the most current and accurate information. Please consult one of our lawyers on any specific legal problem or matter.

We accept no responsibility for any loss or damage, whether direct or consequential, which may arise from reliance on the information contained in these pages.

Please refer to the full terms and conditions on the website.

Copyright © 2020 Cliffe Dekker Hofmeyr. All rights reserved. For permission to reproduce an article or publication, please contact us cliffedekkerhofmeyr@cdhlegal.com

You may also be interested in