The dispute arose between the deceased estate of Ashley Mason and his surviving brother, Graham Andrew Mason, who were the sole members of L Mason Electrical CC. The deceased held a 60% interest and managed the CC’s finances, while Mr Mason held 40% and was involved only in operational matters. An agreement between the brothers provided that on the death of one member, the survivor would purchase the deceased’s interest using life insurance proceeds, subject to a clause allowing deduction of any indebtedness owed by the deceased to the CC. After the deceased’s death in April 2016, forensic investigations revealed that over many years (2001–2016) the deceased had misappropriated substantial funds from the CC. The executrix sued for payment of the insurance proceeds, while Mr Mason and the CC resisted payment and counterclaimed, alleging misappropriation. The executrix raised a special plea of prescription, arguing that most of the CC’s claim had prescribed because Mr Mason had, or ought reasonably to have had, knowledge of the misappropriation during the deceased’s lifetime, which knowledge should be attributed to the CC.
The appeal was dismissed with costs, including the costs of two counsel. The cross-appeal against the costs order was dismissed, with no order as to costs of the cross-appeal.
The case provides authoritative guidance on the application of s 12(3) of the Prescription Act in the context of internal corporate wrongdoing. It clarifies that fiduciary status or statutory rights alone do not establish constructive knowledge for prescription purposes, and that courts must assess what a reasonable person in the creditor’s actual position could have discovered. The judgment also cautions against using hindsight to infer knowledge and underscores the evidentiary burden on a party raising prescription.