THE SUPREME COURT OF APPEAL OF SOUTH AFRICA

JUDGMENT

Reportable
Case No: 187/2015

In the matter between:

THE STANDARD BANK OF SOUTH AFRICA LTD
APPELLANT

and

MIRACLE MILE INVESTMENTS 67 (PTY) LTD
FIRST RESPONDENT

PRESENT PERFECT INVESTMENTS 116 (PTY) LTD
SECOND RESPONDENT

Neutral citation:
Standard Bank v Miracle Mile Investments (187/2015) ZASCA 91 (1
June 2016)

Coram:

Leach, Saldulker, Swain and Mbha JJA and Baartman AJA

Heard:

13 May 2016

Delivered:

1 June 2016

Summary:
Prescription – extinctive – claim based on agreement providing for a loan
repayable in instalments and containing acceleration clause – only enforceable where
creditor has made election to cancel agreement and claim full amount – prescription
accordingly commences running upon election being made.

____________________________________________________________________

ORDER
____________________________________________________________________

On appeal from: Gauteng Local Division of the High Court, Johannesburg (Gaibie AJ
sitting as court of first instance):

1. The appeal is upheld with costs, such costs to include the employment of two
counsel.
2. The order of the court a quo is set aside and is substituted with the following:
‘The application is dismissed with costs.’
______________________________________________________________________

JUDGMENT
______________________________________________________________________

Mbha JA (Leach, Saldulker, and Swain JJA and Baartman AJA concurring):

[1] This appeal, with the leave of the court a quo, is against the judgment of the
Gauteng Local Division, Johannesburg (Gaibie AJ) in which it held that the respondent
companies, Miracle Mile Investments 67 (Pty) Ltd (Miracle) and Present Perfect
Investments 116 (Pty) Ltd (Present), the first and second respondent respectively, were
entitled to cancel mortgage bonds registered in favour of the appellant, Standard Bank
of South Africa Ltd, over several of the respondents’ immovable properties without
payment to the bank on the ground that the bank’s claim had prescribed. The debt
arose from a facility advanced by the bank to Mr Nicolas Chrysostomos

Papachrysostomou (Nicolas) as principal debtor, for which the respondents stood
surety.

[2] The appeal raises an important issue of principle concerning when prescription
commences to run in an agreement containing an acceleration clause that entitles the
creditor bank to claim the whole outstanding amount payable, upon the occurrence of a
breach by the principal debtor. The crux of the dispute is when the debt becomes ‘due’
in terms of s 12(1) of the Prescription Act 68 of 1969 (the Act).1 Put differently, is the
debt due when the principal debtor breaches the obligation to pay the monthly
instalment, or is it due when the creditor elects to enforce the acceleration clause, in
order to render the whole amount payable?

[3] The respondents contend that prescription commenced to run and that the debt
became ‘due’ when the principal debtor breached his obligation to pay the monthly
instalment. On the other hand, Standard Bank avers that since it did not elect to give
notice to accelerate payment of the outstanding balance, and until it did, prescription did
not begin to run on the full amount.

1 Making provision for ‘when prescription begins to run’, s 12 of the Act in its entirety provides:
‘(1) Subject to the provisions of subsections (2) and (3), prescription shall commence to run as soon as
the debt is due.
(2) If the debtor wilfully prevents the creditor from coming to know of the existence of the debt,
prescription shall not commence to run until the creditor becomes aware of the existence of the debt.
(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: Provided that a creditor shall be deemed to have such knowledge
if he could have acquired it by exercising reasonable care.’ (My emphasis.)

[4] Standard Bank also avers that it is entitled to rely on the 30-year prescription
period in respect of a debt secured by a mortgage bond in terms of s 11 of the Act;2 as
well as the interruption of prescription by an acknowledgment of liability by Nicolas in
terms of s 14 of the Act.3

[5] The relevant background facts giving rise to the dispute can be summarised as
follows. In August 2005 Standard Bank and Nicolas entered into a written agreement,
the terms of which were incorporated in a letter of grant, a terms and conditions
agreement and the bonds4 – whereby he was granted a line of credit styled a ‘Liberator
facility’ (the facility)5 for a maximum amount of R13 984 600, which was repayable over
a period of 240 months. The first monthly instalment was due 30 days after the first use
of the facility. As security expressly required in terms of the facility, the respondents

2 Section 11 of the Act provides the following:
‘11. Periods of prescription of debts
The periods of prescription of debts shall be the following:
(a) thirty years in respect of –
(i)
any debt secured by mortgage bond;
(ii)   any judgment debt;
(iii)  any debt in respect of any taxation imposed or levied by or under any law;
(iv)   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;
(b) fifteen 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, unless a longer period applies in respect of the
debt in question in terms of paragraph (a);
(c) six years in respect of a debt arising from a bill of exchange or other negotiable instrument or from a
notarial contract, unless a longer period applies in respect of the debt in question in terms of
paragraph (a) or (b);
(d) save where an Act of Parliament provides otherwise, three years in respect of any other debt.’
3 Section 14(1) of the Act provides that the running of prescription shall be interrupted by an express or
tacit acknowledgement of liability by the debtor. Section 14(2) provides that if prescription is interrupted in
terms of subsec (1), prescription shall commence to run afresh from the date on which the interruption
takes place, or from any date thereafter the parties agree to postpone the due date to.
4 Clause 1.1 of the Liberator facility agreement provides that the:
‘agreement is the Liberator facility application, the letter of grant, including [the] terms and conditions . . .
and the bond[s] where applicable’.
5 This has been described as an overdraft facility with a high credit limit for the bank’s high end private
clients, which is secured to the bank’s satisfaction. It is repayable in monthly instalments computed over
an extended and predetermined period of 240 months, the terms of which are incorporated the written
agreement(s) concluded between the bank and Nicolas as the principal debtor.

executed written deeds of suretyship in favour of Standard Bank in terms of which they
bound themselves as sureties and co-principal debtors with Nicolas in solidum for his
indebtedness to the bank in respect of the facility. The respondents furthermore caused
mortgage bonds (the bonds) to be registered over certain of their immovable properties
in favour of Standard Bank as part of the collateral required in terms of the facility.

[6] It was an express term of the agreement that Standard Bank could convert the
facility to one repayable on demand, inter alia, if Nicolas failed to pay any instalment
due and not remedy this default within seven days of written notice having been given to
him by the bank. In that event (as well as other events of default as specified therein),
Standard Bank would have the right, without prejudice to any other rights or remedies
available to it, to terminate the facility and claim immediate payment of the outstanding
balance by giving a further written notice.6

[7] Pursuant to the conclusion of the facility agreement, the deeds of suretyship
were executed by the respondents and the bonds were registered against their

6 The relevant parts of the agreement provide as follows:
‘Default and Termination
12.1
We will not be obliged to make any advance or re-advance under the facility and/or we may
convert the facility to one repayable on demand and/or we may revise any of the terms and conditions of
the facility and/or increase the interest rate charged if any of the following events occur:
12.1.1  you breach any of the terms and conditions of this facility or any other agreement between us and
you fail to remedy this breach within 7 days of written notice having been given to you to do so;
12.1.2  you fail to pay any instalment due in terms of this agreement and you do not remedy this failure
within 7 days of written notice having been given to you to do so;
. . .
12.2
In any of the events envisaged in 12.1, we shall have the right without prejudiced to any other
rights or remedies available to us, to terminate the facility and claim immediate payment of the
outstanding balance by giving written notice. It may be effective immediately or from a date stated in the
notice. If the facility is cancelled any amounts owing to us become payable:
12.2.1 immediately, if stated in the notice, or
12.2.2 on the date stated in the notice.’ (My emphasis.)

properties in favour of Standard Bank. Thereafter Nicolas drew on the facility, but
subsequently defaulted on his monthly instalment repayments when his debit order
payments were reversed due to him having insufficient funds to meet his monthly
obligations.

[8] On 12 August 2008, Standard Bank addressed a letter to Nicolas in terms of
s 129 of the National Credit Act 34 of 2005 (the NCA). He was advised that he had not
met his obligations in respect of the agreement and that, in order to bring his account up
to date, he had to pay the total arrears of R671 072.88 which were due immediately. Of
critical importance is that this notice did not contain any intimation by the bank of an
election to accelerate the debt to claim the full amount owing. Nicolas made no
payments to Standard Bank after 21 October 2008, at which date the amount owed was
R 7 432 443.

[9] Nicolas’ estate was provisionally sequestrated on 7 February 2012, which order
was made final on 23 April 2012. In terms of the deeds of suretyship executed by the
respondents, the sequestration had no bearing upon their liability and the continued
enforceability of the bonds. On 27 August 2013, Standard Bank instituted action against
the respondents, inter alia, to recover the debt due and declare the properties
mortgaged executable. That action is still pending.

[10] The respondents in the interim launched an application during June 2013, in
which they sought an order directing Standard Bank to consent in writing to the

cancellation of the bonds, notwithstanding that the debt they secured remained unpaid.
The basis of the application was that Standard Bank’s claim had prescribed on 22
October 2011 as a result of Nicolas’ failure to pay any instalments after the last payment
on 21 October 2008, which had interrupted the running of prescription. They contended
that as there was no longer any principal debt for the bonds to secure, they were no
longer liable as sureties.

[11] Standard Bank opposed the application, contending that its claim against Nicolas
had not prescribed. Its notice in terms of s 129 of the NCA dated 12 August 2008, had
merely called upon Nicolas to bring the arrear instalments up to date and accordingly
the full indebtedness under the facility was not due, owing or payable. In the
circumstances prescription had not commenced running.

[12] The court a quo recognised that, whether or not the debt incurred by Nicolas in
terms of the facility had prescribed, depended on when the debt had become ‘due’,
within the meaning of that word in s 12(1) of the Act.7 If the debt became due from the
date of Nicolas’ default, namely on 21 October 2008, prescription would have
commenced running from that date and the Bank’s claim would have prescribed on 22
October 2011, prior to Standard Bank’s institution of the action for the recovery of the
debt against the sureties and Nicolas. Having recognised that the phrase ‘debt is due’ in
s 12(1) is not defined in the Act, the court a quo examined the jurisprudence dealing
with the interpretation of the phrase. Relying on Hamilton Plase (Edms) Bpk v Stadler
1977 (3) SA 361 (NC) and Orton v Barhouch 1973 (2) SA 565 (D), it held that if

7 Which provides that ‘prescription shall commence to run as soon as the debt is due’.

Standard Bank was entitled to accelerate the debt and claim the full amount but failed to
do so, this did not prevent prescription from running. Prescription ran from the date that
Standard Bank acquired the right to enforce payment of the full amount even though it
elected not to do so.

[13] As Professor Loubser8 has pointed out, Hamilton and Orton were decided under
s 5(1)(d) of the Prescription Act 18 of 1943 (the old Act), which provided that
prescription commenced running when the right of action first accrued and not when it
became due. These cases held that prescription in respect of the creditor’s right of
action to claim the full outstanding amount of the debt, began to run immediately upon
the default of the debtor, when the creditor’s right of action accrued and not when he
elected to enforce it. In Orton it was held that prescription ran from when the creditor
could have brought his action. Because he could have done so on the first default,
prescription ran from that date. The cause of action arose at the time when the debt
could first have been recovered by action. In Hamilton, the same view was adopted.
The creditor was not faced with a choice between irreconcilable causes of action. The
only cause of action he possessed was to claim the capital amount owed to him. His
choice was simply when to take action, either at the time when the breach occurs, or to
wait for a later stage. This was a choice available to any party to a contract and if he
waited too long he ran the risk of the debt becoming prescribed.

[14] The ratio for these decisions was the policy consideration that a creditor should
not be able to determine, of his own accord, when prescription will begin to run by

8 M M Loubser Extinctive Prescription (1996) at 71-.

deferring his election to enforce an acceleration clause, contained in an instalment
contract. This principle was relied upon by the court a quo in stating that if Standard
Bank’s argument was accepted, it could effectively delay prescription from running.

[15] However, as Professor Loubser emphasizes, contrary to the provisions of the old
Act, s 12(1) of the current Act provides that prescription begins to run when the debt
becomes ‘due’ and not when it first accrued. Thus where an acceleration clause affords
the creditor the right of election to enforce the clause upon default by the debtor, the
debt in terms of the acceleration clause only becomes due when the creditor has
elected to enforce the clause. Before an election by the creditor, prescription does not
begin to run.9 The policy consideration that a creditor should not be able to determine of
his own accord when prescription will begin to run against him, by deferring his election
to enforce an acceleration clause, cannot override the clear provisions of the Act. Whilst
the creditor holds in abeyance his decision whether or not to enforce an acceleration
clause, prescription will continue to run in respect of the individual arrear instalments,
payable by the debtor. The creditor’s election to enforce the acceleration clause has the
effect of transforming the existing instalment debts, into a single debt for the full amount
outstanding under the contract. If a creditor elects not to enforce the acceleration
clause, he is entitled to wait until all the individual instalments have fallen due before
instituting action, albeit at the risk that prescription may then have taken effect in
respect of earlier instalments.

9 Ibid.

[16] Professor Loubser points out that depending upon the terms of the contract an
acceleration clause may automatically come into effect upon default by the debtor,
without any election by the creditor. This would be the case where the creditor has in
advance made an election in terms of the contract to enforce the acceleration clause.
Because an acceleration clause is intended to operate solely for the benefit of the
creditor, it is imperative that the contract should clearly indicate the parties’ intention
that the acceleration clause shall come into operation automatically if that is to be a
term of their contract.

[17] Christie supports the views of Professor Loubser and explains the position as
follows:
‘If the contract contains an acceleration clause making the entire balance of the debt
payable on the debtor’s failure to pay any one instalment, it will only be necessary to
examine the clause carefully in order to see whether anything in addition to the debtor’s
default, such as a written demand, is required to bring it into operation. The normal
acceleration clause does not itself make the balance of the debt payable but gives the
creditor the option to demand it, so prescription runs from his demand, not from the
debtor’s failure to pay the instalments.’10

[18] Similarly, Joubert points out that:
‘Where the contract contains an acceleration clause entitling the creditor to payment in
full if a debtor falls in arrears with the payment of one instalment, then prescription in
respect of  the balance, commences as soon as the balance can be claimed. Where the

10 R H Christie & G B Bradfield Christie’s The law of contract in South Africa 6 ed (2011) at 436.

clause allows the creditor an election, it commences when he exercises his right to
claim payment in full; where the clause operates automatically prescription commences
as soon as the debtor falls in arrears’.11

[19] Professor McLennan12 who was critical of the decision in Orton stated that the
difficulty was that:
‘Each instalment gives rise to a separate cause of action as and when it falls due for payment,
and, obviously, prescription cannot begin to run until the particular instalment falls due for
payment. The rights conferred on a creditor by an acceleration clause such as the one in the
present case are surely additional to and not in substitution for the ordinary rights attaching to
the debt. So, although the period of prescription in respect of the right date from the acceleration
clause may begin to run as soon as the debtor is in default, this does not, it is submitted, affect
the creditors’ rights in respect of the instalments that are not yet due. The curious result of
Orton’s case is that an acceleration clause, which is intended entirely for the benefit of the
creditor, can actually operate to its detriment. There may be many good reasons why a creditor
should decide not to enforce an acceleration clause.’

[20] The effect of an election possessed by a party to a contract, on the running of
prescription, was considered in the decisions of HMBMP Properties (Pty) Ltd v King
1981 (1) SA 906 (N) at 910-911 ─ in respect of an anticipatory breach of a contract ─
and Big Rock v Hoffman 1983 (1) SA 534 (T) ─ in the context of the giving of notice in
terms of s 13 of the Sale of Land on Instalments Act 72 of 1971. In HMBMP Properties,
it was held that the innocent party’s cause of action for damages resulting from the

11 D J Joubert General principles of the law of contract (1987) at 307.
12 Annual Survey of South African Law (1973) at 66.

defaulting party’s repudiation of an obligation which is to be performed by him at some
future date, only accrues (ie the ‘debt’ of the default party only becomes due) when the
innocent party elects to cancel the contract and to treat it as at an end.13 Prescription,
consequently, commenced to run from that date.14 In Big Rock v Hoffman 1983 (1) SA
534 (T) it was held that the furnishing of a notice in terms of s 13 of the Land Instalment
Act to remedy a default and a failure to comply, was a condition precedent to the seller’s
right to claim payment of the full balance owing under the contract. Prescription
therefore only began to run after the expiry of the prescribed notice period.

[21] The cases of Western Bank v Van Vuuren 1980 (2) SA 438 (T), First
Consolidated Lease Incorporation (Pty) Ltd v Servic SA (Pty) Ltd & another 1981 (4) SA
380 (W) and Bankorp Ltd v Leipsig 1993 (1) SA 427 (W) were all decided under the
current Act. However, contrary to the views of academics, these cases affirmed the
decisions taken under the old Act that prescription began to run on default by the debtor
and not when the creditor elected to claim the balance outstanding. In Western Bank it
was held that ‘debt is due’ meant that the debt was immediately claimable, or the debtor
was under an obligation to pay the debt immediately. The legislature envisaged a debt
in respect of which the claimant could institute action. By analogy with the old Act,
prescription began to run from the date on which the right of action first accrued. This
right accrued when the first default occurred and the right to claim the balance owing
accrued when this occurred. It was held that the contract did not provide that the right to
claim the balance only arose when the creditor decided to claim, but arose immediately

13 At 910G-H.
14 See Big Rock (Pty) Ltd v Hoffman 1983 (1) SA 534 (T) at 549-550; Nkata v Firstrand Bank Limited &
others 2014 (2) SA 412 (WCC) para 21 and paras 37-38.

on default of payment. It was held that a creditor would otherwise be able by his own
conduct, to delay the running of prescription.

[22] Servic followed the decision in Western Bank holding that once the right of
election arises the debt becomes due. In Bankorp, the reasoning in Hamilton was
followed, namely; where the creditor is entitled to payment, the only issue is to sue for it
immediately, or to sue at a later stage; and that consequently, the right to enforce
payment must mark the commencement of prescription, because that is when the debt
is due. Reference was however made to the attractiveness of the contrary argument
that there can be no commencement of prescription until the election is made, because
there was no sense in looking for the point in time when the debt is due, if the debt does
not even exist.

[23] The decisions in Orton, Hamilton, Western Bank and Servic, as pointed out in Big
Rock,15 are all distinguishable on the basis that in none of them was the giving of notice
by the creditor to remedy a default and a failure by the debtor to comply, a condition
precedent to the creditor’s right to claim payment of the full balance owing under the
contract, as is here the case.

[24] The court a quo accordingly erred in its reliance on Orton and Hamilton which
were not only decided in terms of s 5(1)(d) of the old Act, but in neither of them was the
giving of notice to remedy a default and a failure by the other party to comply, a
condition precedent to the creditor’s right to claim payment of the full balance owing

15 At 540A-B

under the contract. In terms of the current Act, a debt must be immediately enforceable
before a claim in respect of it can arise. In the normal course of events, a debt is due
when it is claimable by the creditor, and as the corollary thereof, is payable by the
debtor. Thus in Deloitte Haskins & Sells Consultants (Pty) Ltd v Bowthorpe Hellerman
Deutsch (Pty) Ltd [1990] ZASCA 136; 1991 (1) SA 525 (A) at 532G-H, the court held
that for prescription to commence running,
‘there has to be a debt immediately claimable by the creditor or, stated in another way, there
has to be a debt in respect of which the debtor is under an obligation to perform immediately’.
(See also The Master v IL Back and Co Ltd 1993 (1) SA 986 (A) at 1004F-H.) In Truter
& another v Deysel [2006] ZASCA 16; 2006 (4) SA 168 SCA para 16,16 Van Heerden JA
said that a debt is due when the creditor acquires a complete cause of action for the
recovery of the debt, ie when the entire set of facts which the creditor must prove in
order to succeed with his or her claim against the debtor is in place or, in other words,
when everything has happened which would entitle the creditor to institute action and to
pursue his or her claim. In the present context this could only occur if and when
Standard Bank elected to give the requisite notices to Nicolas.

[25] In the present case the acceleration clause in the agreement has its own
procedural requisites to be satisfied before Standard Bank can claim the full balance
owing. As in Big Rock, a condition precedent to Standard Bank’s right to claim payment
of the full balance owing, is the furnishing of written notice to Nicolas to remedy a failure
to pay any instalment within seven days, in terms of clause 12.1.2. In the event of a

16 See also Primavera Construction SA v Government, North-West Province 2003 (3) SA 579 (BPD) at
596A-598A; and 21 Lawsa 2 ed (2010) para 1 to 5.

failure to make payment, Standard Bank is entitled in terms of clause 12.2 to terminate
the facility and claim immediate repayment of the outstanding balance, by giving a
further written notice. This notice may be effective immediately, or from a date stated in
the notice. It is common cause that although notice was effectively given in terms of
clause 12.1.2 by virtue of the s 129 notice in terms of the NCA to Nicolas, after he had
breached his obligation on 21 October 2008, no notice in terms of clause 12.2 to claim
payment of the outstanding balance was ever given to him.

[26] Compliance with the jurisdictional requirements for acceleration of the
outstanding balance is not simply a procedural matter but is essential in establishing a
cause of action. Hence, it is no answer for the respondents to suggest that the failure by
Standard Bank to exercise the election to claim the outstanding balance, is an instance
of the creditor delaying the running of prescription by its own act. As pointed out in
Bankorp, there is no sense in looking for the point in time when the debt is due, if the
debt does not even exist. It is not a case of delaying an existing claim. The creditor
cannot be said to be in default, or guilty of dilatoriness, until he has made his election.
The election and communication thereof in the form of the requisite notices are
essential pre-conditions to create a cause of action in the first place. The election is one
which Standard Bank does not have to take at all. Prescription would therefore
commence to run only from the date of a notice claiming the outstanding balance in
terms of clause 12.2.

[27] The balance owing on the facility, excluding the outstanding arrear payments,
was not due as Standard Bank did not elect to terminate the facility and claim
repayment of the outstanding balance. It therefore follows that prescription did not
commence to run on the so-called ‘critical date’ or ‘decisive date’ of 21 October 2008.
The finding of the court a quo in this respect was erroneous, falls to be set aside and
the appeal must succeed. Before us it was agreed that the determination of this issue
would be dispositive of the appeal. Accordingly, it will not be necessary to determine the
additional issues raised by Standard Bank referred to in para 4 above.

[28] I accordingly make an order as follows:
1. The appeal is upheld with costs, such costs to include the employment of two
counsel.
2. The order of the court a quo is set aside and is substituted with the following:
‘The application is dismissed with costs.’

________________
B H Mbha
Judge of Appeal

APPEARANCES:

For Appellant:

S Symon SC (with him X Stylianou)
Instructed by:

Ramsey Webber, Illovo

Matsepes Inc, Bloemfontein

For Respondents:

H B Marais SC (with him A J Venter)
Instructed by:

H J Möller Attorney, Randburg.

Rothman Attorneys, Bloemfontein