Construction Law- Considering Prescription – The Construction Law Perspective

INTRODUCTION

As in all legal disputes, extinctive prescription is an important factor to be considered when evaluating the merits of a claim and formulating a defence. Construction law cases, in many instances, involve not only complex contractual relationships, but also difficult technical aspects. Determining the date on which prescription starts to run involves careful factual analysis and when the actions of the reasonable person are to be factored into the debate, things can get even more difficult.
 

PRESCRIPTION

The 1969 Prescription Act provides for four different basic prescription periods. The periods are 30, 15, 6 and 3 years respectively.

Most of the cases I will be referring to relate to debts which are subject to a 3 year prescription period. I will also refer briefly to a scenario towards the end of the presentation where the 30 year period finds application.
 

WHEN DOES PRECRIPTION BEGIN TO RUN?

Section 12 of the Act provides as follows:

(1) … prescription shall commence to run as soon as the debt is due…

(3) A debt shall not be deemed to be due until the creditor has knowledge of the identity of the debtor and of the facts from which the debt arises:

… a creditor shall be deemed to have such knowledge if he could have acquired it by exercising reasonable care.”

WHEN IS THE DEBT DUE?

The decision in Martin Harris & Seuns OFS (Pty) Ltd v Qwa-Qwa Regeringsdiens 2000 (3) SA 339 (A) provides an excellent illustration of when a debt becomes due for the purposes of Section 12(1) of the Act.

The facts of this matter are briefly as follows:

– The building contract provided that the appellant would be paid after a progress certificate was issued by an architect (the principal agent) in respect of work already performed. Such certificates were issued and the appellant was duly paid.
– Within three years after completion of the works as a whole, but more than three years after uncertified sections of work was done, the appellant instituted action for an outstanding balance in respect of “uncertified” work.
– The respondent alleged that the claim had prescribed because the entitlement/debt arose when each section of work had been completed.

The Court held in the contractor’s favour and I summarise the position as follows:
– The issuing of progress certificates was only a contractual mechanism to place the contractor in a position to finance the continuation of the completion of the works.
– The completion of each specific section of the work did not entitle the appellant to receive payment for the work.
– Only upon completion of the work as a whole would the appellant have such entitlement.
– The appellant’s claim would rest upon a certificate as a separate and self-supporting cause of action, where a certificate had already been issued.
– The would then be for payment of the percentage of the value of the works for which the architect had certified.
– Prescription of the appellant’s claim (for payment for all sections which had not appeared in any certificate) began to run at the earliest when the work as a whole was completed.

The debt had therefore not become due and respondent accordingly failed in its prescription argument.

In LTA Construction v The Minister of Public Works and Land Affairs 1992 (1) SA 837 (C) the court also shed more light on the same question.

The claimant claimed for losses sustained in consequence of the delay in the commencement of the works. The building contract provided for the completion of the works within 33 months from date of acceptance of the tender. A further term was that the employer would hand over the site within a certain period. The progress on site and completion of the project were adversely affected by:

The employer’s late handover of the site (7 working days delay).

Completion delayed due to causes beyond the contractor’s control (320 working days).

The defendant then raised a prescription argument and said that the plaintiff’s claim had become prescribed because the debt claimed for became due 33 months and 10 days (7 working days and 3 non-working days) after acceptance of the tender.

This argument resulted in 16 July 1986 being calculated as being the date on which the debt was to have become due.

Summons was served on 5 December 1989.

The defendant’s argument however did not take into proper consideration that a further term of the contract provided for the contract period to be extended in the event of delays due to causes beyond the contractor’s control.

This provision extended the date on which the debt became due with a further 320 working days. The defendant was unsuccessful.
 

KNOWLEDGE AND DEEMED KNOWLEDGE

As we have seen Section 12(3) of the Act provides that a debt is not deemed to be due until the creditor has knowledge or is deemed to have knowledge of the identity of the debtor, as well as of the facts from which the debt arises.

In Minister of Public Works and Land Affairs v Group Five Building Limited 1999 (4) SA 12 (SCA) counsel for the contractor contended that the employer’s claim had become prescribed in terms of Section 12(1) of the Prescription Act.

The employer had allegedly become aware of the relevant facts by 30 May 1991. The contract was terminated on 3 December 1991 and the employer’s counter-claim was delivered on 1 December 1994. The contractor had therefore to prove that prescription had begun to run.

In the instant case, the date on which the employer gained knowledge of the facts from which the debt arose (30 May 1991) was irrelevant as this particular contract contained a clause which entitled the employer’s engineer to require the contractor to remedy defective work. The very earliest stage when the employer’s damages could conceivably have become due was when the contractor, who had the duty to remedy the defective work, had the last chance to do so. This was the date on which the contract was cancelled (3 December 1991).

The employer’s counter-claim was delivered on 1 December 1994 and therefore fell within the three year prescriptive period. The contractor had accordingly failed to prove that prescription had run.
 

THE REASONABLE PERSON

In Drennan Maud & Partners v Pennington Town Board 1998 (3) SA 200 (SCA), the appellant was a civil engineering consultancy. It designed and recommended the construction of a reinforced concrete retaining wall as the Town Board wished to protect certain properties which became threatened by the Umzinto River in Kwa-Zulu Natal. The Town Board accepted design and proceeded to engage a contractor to build the wall.

During September and November 1989 heavy rains fell and the river came into flood. Sinkholes formed in the backfill material behind the wall during this period. These developed progressively and eventually became very substantial. By January 1990 the river was flowing freely under the whole length of the wall and the Town Board were back to where they had been before the appellant was consulted and claimed was for the wasted costs of building the wall.

It was alleged by the engineers that by no later than 13 November 1989 the Town Board had knowledge of the facts from which the alleged claim arose. It was later alleged that the Town Board acquired deemed knowledge in the light of the facts known to it by the above date. The Town Board should have exercised reasonable care.

In his judgement the Honourable Mr Justice Olivier made the following statement:

“… a creditor shall be deemed to have the required knowledge ‘if he could have acquired it by exercising reasonable care’. In my view, the requirement ‘exercising reasonable care’ required diligence not only in the facts underlying the debt, but also in relation to the evaluation and significance of those facts. This means that the creditor is deemed to have the requisite knowledge if a reasonable person in his position would have adduced … the facts from which the debt arises.”

It was clear from the subsidence of the backfill material behind the wall that the design had failed and could not withstand the scouring effect of the passing flood.

As the Town Board’s claim was for the wasted costs of building the wall, the loss claimed for had already occurred when the Town Board acquired deemed knowledge that the wall did not serve the purpose for which it was designed and built and that the related costs were wasted.

The consultant’s prescription argument was therefore well founded as the respondent’s summons was issued outside of the 3 year prescription period.

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