The Standard Bank of South Africa Ltd v Miracle Mile Investments 67 (Pty) Ltd and Present Perfect Investments 116 (Pty) Ltd

In August 2005, Standard Bank granted Nicolas Papachrysostomou a loan facility (Liberator facility) for R13,984,600 repayable over 240 months. The respondent companies (Miracle Mile and Present Perfect) executed deeds of suretyship and registered mortgage bonds over their properties as security. The agreement contained an acceleration clause that allowed the bank to convert the facility to one repayable on demand if Nicolas failed to pay any instalment and failed to remedy the default within 7 days of written notice, followed by a further written notice terminating the facility and claiming immediate payment. Nicolas defaulted on monthly instalments, with his last payment on 21 October 2008. On 12 August 2008, the bank sent a section 129 NCA notice requiring payment of arrears of R671,072.88, but this did not contain notice of acceleration or claim the full amount. Nicolas' estate was sequestrated in 2012. The bank instituted action against the respondents in August 2013. The respondents launched an application seeking cancellation of the bonds on the ground that the bank's claim had prescribed, contending prescription ran from 21 October 2008 when Nicolas defaulted.

• When does prescription commence to run in respect of a debt arising from an agreement containing an acceleration clause - when the debtor defaults on an instalment, or when the creditor elects to enforce the acceleration clause?
• What is the meaning of 'debt is due' in section 12(1) of the Prescription Act 68 of 1969?
• Whether the giving of notice to accelerate payment is a condition precedent to the creditor's right to claim the full balance?
• Whether a creditor can delay prescription by deferring election to enforce an acceleration clause?

The appeal was upheld with costs, including costs for two counsel. The order of the court a quo was set aside and substituted with an order dismissing the application with costs.

Under section 12(1) of the Prescription Act 68 of 1969, prescription commences to run when a debt becomes 'due', not when a right of action first accrues. In an instalment loan agreement containing an acceleration clause that gives the creditor the right to elect to claim the full outstanding balance upon the debtor's default, the full debt only becomes 'due' when the creditor exercises that election and complies with any contractual conditions precedent (such as giving required notices). Until such election is made and communicated, prescription does not commence to run on the full outstanding balance, though it continues to run on individual arrear instalments. The election and communication thereof are essential pre-conditions to create a cause of action for the full amount. A debt is 'due' when the creditor acquires a complete cause of action for recovery of the debt - when the entire set of facts which the creditor must prove to succeed is in place.

The court noted that depending on the terms of the contract, an acceleration clause may automatically come into effect upon default without election by the creditor, where the creditor has made an advance election in the contract. However, because acceleration clauses operate for the benefit of the creditor, the contract must clearly indicate the parties' intention for automatic operation. The court also observed that while the creditor holds in abeyance the decision whether to enforce an acceleration clause, prescription continues to run in respect of individual arrear instalments. The court acknowledged the policy concern that creditors should not be able to determine when prescription runs by deferring election, but held this policy consideration cannot override the clear provisions of the Act. The court referenced academic criticism of cases like Orton, noting the 'curious result' that an acceleration clause intended entirely for the creditor's benefit could actually operate to the creditor's detriment under those decisions.

This case definitively clarifies the law on when prescription commences in respect of instalment agreements containing acceleration clauses under the Prescription Act 68 of 1969. It establishes that the change in wording from 'when a right of action accrues' (old Act) to 'when a debt is due' (current Act) has substantive legal effect. The judgment provides important guidance for creditors and debtors in understanding their rights and obligations under loan agreements with acceleration clauses, and confirms that contractual procedural requirements for acceleration are not merely procedural but are essential elements of the cause of action. The case overturns the approach in earlier cases (Western Bank, Servic, Bankorp) that had followed the old Act's reasoning despite the changed legislative wording.