Prescription – can you waive your rights?

Prescription in South Africa is regulated by the Prescription Act No. 68 of 1968, as amended. Prescription refers to the role that the passage of time plays in the creating and ending of certain rights.

For debtors, the operation of prescription provides legal certainty, but for the creditor it poses a substantial risk. Particularly where the creditor does not have processes in place ensuring that debts are collected timeously. For this reason, many creditors search for mechanisms through which they can limit their risk. Moreover, many textbooks conclude that the waiver of prescription (in the form of an undertaking or term of an agreement not to raise the defence of prescription) is enforceable.

Waiving prescription

Importantly, at the time of the creation of a debt, no party to such agreement can legally commit oneself not to rely on prescription. An agreement of this nature can be regarded as contra bonos mores, and is, therefore invalid [JC de Wet en AH van Wyk De Wet en Yeats Kontrak]. This is the common law position.


This position has been confirmed in the Western Cape High Court in the matter between Absa Bank h/a Bankfin v Louw en Andere[1997 (3) SA 1085] and later, in the Supreme Court of Appeal [Representative of Lloyds and Others v Classic Sailing Adventures (Pty) Ltd 2010 (5) SA 90 (SCA)]. It is important to note, however, that the abovementioned ABSA matter, however, contradicted an earlier decision from the then Transvaal Bench in Nedfin Bank matter[Nedfin Bank Bpk v Meisienheimer en Andere 1989 (4) SA 701 (T)].

According to Van der Merwe [De Rebus January / February 2017: 32 – 33.], the SCA held that a renunciation must be distinguished from a waiver. A renunciation is effectively a new agreement and, therefore, has the effect to renew the debt after it has become prescribed. This is an important distinction, because renunciation of a prescribed debt is permissible, but the SCA held that the waiver of prescription is not.

The common law status quo was confirmed:

“Rather than asking whether statutory provisions are prohibitory or dispositive, a better approach to determining whether parties may exclude to operation of statutory provisions by choice of another system of law might be to question whether they can waive the application of the provisions. …..held that they may renounced by a party (in that case the State) for whose benefit they are enacted. But where public policy and interest would be prejudiced by a waiver, such provisions cannot be escaped.

Waiver is not possible, said this court, if it affects public policy or interest or a right. … the application of the provisions of the Prescription Act 68 of 1969 may be waived by a debtor under a contract after the prescriptive period has run because renunciation did not substantially or materially impact on the public interest.”

In Links v Department of Health, Northern [Cape] Province [2016 (4) SA 414 (CC)]:

“The provisions of s 12 seek to strike a fair balance between, on the one hand, the need for a cut-off point beyond which a person who has a claim to pursue against another may not do so after the lapse of a certain period of time if he or she has failed to act diligently and on the other the need to ensure fairness in those cases in which a rigid application of prescription legislation would result in injustice.”


The Links judgment resulted in the court now having to determine whether it will be fair, just, and equitable to allow a claim to become prescribed or not. In addition, the common law prevails when it comes to waiver of prescription and, therefore, that any undertaking or term of an agreement not to raise the defence of prescription is not enforceable and is contrary to public policy.

Article written by: Nicolene Schoeman-Louw

Twin Peaks and Credit Providers

1. There have been questions to what extent the Financial Sector Regulation Bill (Bill), or Twin Peaks as it is commonly referred to, will affect the Credit Industry, if at all. The answer in my view is not easy. The Bill is complex and has a lot of policy and principles in it. It is clearly aimed at closing regulatory gaps and arbitrage.

2. The main object of the Bill is to achieve a financial system that works in the interests of financial customers, and supports balanced and sustainable economic growth in the Republic, by establishing, in conjunction with the other financial sector laws, a regulatory and supervisory framework that promotes:

● financial stability;
● the safety and soundness of financial institutions;
● the fair treatment and protection of financial customers;
● the efficiency and integrity of the financial system;
● the prevention of financial crime;
● financial inclusion; and
● confidence in the financial system.

3. To achieve the objects of the Bill two new financial sector regulators will be established. One is the Prudential Authority and the other the Financial Sector Conduct Authority (FSCA).

4. The National Credit Act and Regulator (NCA and NCR respectively) is not part of the Twin Peaks model but is mentioned in and catered for in the Bill. Clearly the NCR remains the sole regulator of the credit agreement itself and the features around the product. The NCR therefore regulates credit providers as provided for within the NCA.

5. There is however credit that falls outside the scope of the NCA and the FSCA will regulate this type of credit.

6. Both the NCR and the FSCA will regulate credit providers for their conduct but it will be done in different ways and with a different focus. The FSCA can regulate credit providers on a risk basis.

7. The FSCA can set standards for financial services provided in relation to credit agreements to provide for a system-wide approach to conduct provided that the standards support regulatory requirements set by the NCR under the NCA.

8. The SARB and the Prudential Authority also has an overlap with the NCR. They will regulate credit providers for stability, safety and soundness and very much on a risk-based approach. When it comes to systemic risk the Governor of the Reserve Bank may issue Directives the credit industry.

9. The Bill is rife with references to the NCR and the NCA. Lots of emphasis is placed on cooperation, collaboration and communication among the various entities and relevant Government Departments.

10. These are early days for the Twin Peaks. The Bill has been passed by the National Assembly and has been discussed in February 2017 in the National Council of Provinces. The first stage is to establish the regulators and to set up a uniform system and standards. The second stage will streamline the current activity based legislation such as banking, insurance, credit, pensions etc. into consolidated legislation.

11. In my view as the present Bill does not take away from the NCR and the NCA, but it does add on to it. I believe it would be naïve to think that the Twin Peaks will not affect the way that the NCR and Credit Providers go about their business. Credit Providers should become aware of the other Financial Sector Regulators in the credit arena and increased regulatory oversight and scrutiny.

Article written by Adv Jan Augustyn

Transactions to “avoid” legal impact

The application of the National Credit Act 34 of 2005 (the NCA) can have onerous consequences for money lenders. It requires strict compliance with its provisions relating to registration of credit providers, reckless lending and notice.
This has resulted in a number of money-lenders dressing up their transactions as something other than credit agreements, in order to circumvent the provisions of the NCA. Although it is trite that a court will have regard to the substance of an agreement, rather than its form, it is not always easy to determine when an agreement is such a simulated transaction.

The legal position

The test to determine simulation is two-fold. As stated by Lewis JA in Commissioner for the South African Revenue Service v NWK Ltd 2011 (2) SA 67 (SCA) at para 55:

‘In my view the test to determine simulation cannot simply be whether there is an intention to give effect to a contract in accordance with its terms. Invariably where parties structure a transaction to achieve an objective other than the one ostensibly achieved they will intend to give effect to the transaction on the terms agreed. The test should thus go further, and require an examination of the commercial sense of the transaction: Of its real substance and purpose. If the purpose of the transaction is only to achieve an object that allows the evasion of tax, or of a peremptory law, then it will be regarded as simulated. And the mere fact that parties do perform in terms of the contract does not show that it is not simulated: The charade of performance is generally meant to give credence to their simulation.’
There are two forms of simulated transactions. Firstly, if parties make an agreement as a sham or pretence (eg, to mislead the fiscus), then they do not intend to create obligations and their simulated agreement is invalid (see Long Oak Ltd v Edworks (Pty) Ltd 1994 (3) SA 370 (SE) at 375-379). If the simulated agreement is a disguise for some other type of transaction, the court will strip off the form of the simulated agreement and reveal its true nature, so that the law may operate.

Secondly, where parties enter into an agreement and act in accordance with the agreement but for a different purpose than that which the agreement contends for.

If a transaction or agreement is genuine a court would give effect to it and, if not, the court would give effect to the underlying transaction that it concealed (see Zandberg v Van Zyl 1910 AD 302, Vasco Dry Cleaners v Twycross 1979 (1) SA 603 (A) and Michau v Maize Board 2003 (6) SA 459 (SCA)).
Whether an agreement is genuine depends on a consideration of all the facts and circumstances surrounding the transaction. A court will examine the transaction as a whole, including all surrounding circumstances, any unusual features of the transaction and the manner in which the parties intended to implement it, before determining in any particular case whether the agreement was simulated (see Roshcon (Pty) Ltd v Anchor Auto Body Builders CC and Others 2014 (4) SA 319 (SCA) at paras 27, 32 and 37).

In the matter of Hippo Quarries (Tvl) (Pty) Ltd v Eardley 1992 (1) SA 867 (A) the court looked at the form of a transaction and concluded that the parties genuinely intended to give effect to that which they had apparently agreed. In Commissioner for Inland Revenue v Conhage (Pty) Ltd (Formerly Tycon (Pty) Ltd 1999 (4) SA 1149 (SCA) Hefer JA found that sale and leaseback agreements, which had unusual terms but which made good business sense, were honestly intended to have the effect contended for by the parties.

In the Hippo Quarries case, the court drew a distinction between motive and purpose, on the one hand, and intention on the other, in trying to determine the genuineness of a contract, and of the underlying intention to transfer a right, where the transfer was not an end in itself. Nienaber JA said:
‘Motive and purpose differ from intention. If the purpose of the parties is unlawful, immoral or against public policy, the transaction will be ineffectual even if the intention to cede is genuine. That is a principle of law. Conversely, if their intention to cede is not genuine because the real purpose of the parties is something other than cession, their ostensible transaction will likewise be ineffectual. That is because the law disregards simulation. But where, as here, the purpose is legitimate and the intention is genuine, such intention, all other things being equal, will be implemented.’

In S v H Friedman Motors (Pty) Ltd and Another 1972 (3) SA 421 (A) the contracts in question were designed to avoid legislation regulating moneylending transactions. In order to obtain funds to acquire a motorcar, an individual would sell his car to a bank. The bank would immediately resell the car to the individual for a higher price, but would reserve ownership in the car until the full purchase price was paid – a hire-purchase contract. The individual would pay a cash deposit and monthly instalments and on payment of the full purchase price ownership of the car would revert to him. The same object would usually be achieved through a loan of the price by the bank to the individual, repayable with interest. Colman J, in S v Friedman Motors (Pty) Ltd and Another 1972 (1) SA 76 (T), considered that the transactions might be loans, disguised as sales, or genuine sales, depending on the parties’ intention. He said at 80 G – H:

‘If two people, instead of making a contract for a loan of money by one of them to the other, genuinely agree to achieve a similar result through the sale and repurchase of a chattel, there is no room for an application of the maxim plus valet quod agitur quam quod simulate concipitur. The transaction is intended to be one of sale and repurchase, and that, at common law, is what it is.’

In the Friedman and Conhage cases, where the courts held that the parties intended their contracts to be performed in accordance with their tenor, there were sound reasons for structuring the transactions as they did. The purchaser of the car in the Friedman case was required to give security in return for the funds advanced by the bank. A pledge would have deprived him of the car and its use. Hence the sale and resale: It allowed the purchaser to keep and use the car. In the Conhage case the sale and leaseback of manufacturing equipment permitted the manufacturer to retain possession of the equipment. There was a commercial reason or purpose for the transactions to be structured as they were. In both instances there was a genuine transfer of ownership. Had the purchaser failed to pay the seller he would have lost the right to become the owner in due course.


Although it may not always be easy to determine whether an agreement is simulated or not, the authorities quoted above provide some useful guidelines in determining this question. Whether an agreement is genuine depends on a consideration of all the facts and circumstances surrounding the transaction. A court will examine the transaction as a whole, including all surrounding circumstances, any unusual features of the transaction and the manner in which the parties intended to implement it, before determining in any particular case whether the agreement was simulated.

Chantelle Humphries LLB (UJ) is an advocate at Bridge Group in Johannesburg. Don Mahon LLB (UP) is an advocate at Maisels Group in Johannesburg.