Bester and Others NNO v Gouws and Others

The RVAF Trust operated a fraudulent Ponzi pyramid investment scheme through Herman Pretorius from the early 2000s until his suicide on 26 July 2012. The scheme promised investors returns of 14-25% per annum. Pretorius recruited investment brokers who received commissions for introducing investors to the scheme. The trust deed required three trustees acting jointly, but only two were appointed and Pretorius operated the scheme unilaterally. When the scheme collapsed, approximately R200 million had been invested. The Trust was provisionally sequestrated on 1 August 2012. The appellants were appointed as provisional trustees on 7 August 2012 and final trustees on 23 October 2012. They obtained authority to institute legal proceedings on 17 August 2012. On 9 November 2015, more than three years later, the trustees instituted action against the brokers to recover commissions paid, based on unjust enrichment and sections 26 and 32 of the Insolvency Act. The basis was that the Trust lacked capacity (insufficient trustees) and payments were made pursuant to an unlawful fraudulent scheme. The brokers pleaded prescription.

• Whether the trustees had, or could reasonably have acquired through exercise of reasonable care, the requisite knowledge under section 12(3) of the Prescription Act by 23 October 2012 to institute action against the brokers
• What constitutes 'knowledge of the identity of the debtor and of the facts from which the debt arises' under section 12(3) of the Prescription Act
• Whether the complexity of an insolvent estate and prioritisation of other matters justifies failure to exercise reasonable care in ascertaining facts giving rise to a debt
• Whether knowledge of agents/employees can be imputed to trustees for prescription purposes

The appeal was dismissed with costs, including costs of two counsel. However, costs for preparation, perusal and copying of the record were limited to 60% of costs incurred due to approximately 40% of the record being irrelevant to the appeal.

For the purposes of section 12(3) of the Prescription Act 68 of 1969, a creditor (including trustees in insolvency) is deemed to have knowledge of the identity of the debtor and facts from which the debt arises if such knowledge could have been acquired through the exercise of reasonable care. The requirement of 'exercising reasonable care' requires diligence both in ascertaining the facts underlying the debt and in evaluating the significance of those facts. A creditor cannot postpone the commencement of prescription through their own inaction or by prioritising certain matters over others. Where information giving rise to a claim is readily accessible in files and through knowledgeable employees or agents, failure to enquire and investigate demonstrates lack of reasonable care. Trustees and liquidators are subject to the same prescription requirements as other creditors and receive no special dispensation due to the complexity of estates under their administration. Knowledge extends to conviction or belief inferred from attendant circumstances; absolute certainty is not required. Knowledge of the factual ingredients giving rise to the debt is required, not knowledge of legal conclusions.

The Court made significant obiter comments about persistent non-compliance with the Rules of the Supreme Court of Appeal regarding preparation of records and practice notes. The Court noted that the 1870-page record contained approximately 40% irrelevant material, contrary to the rules requiring only necessary portions to be included. The Court cited Van Aardt v Galway 2012 (2) SA 312 (SCA) and reiterated that practice notes must list only those parts of the record that are 'necessary' for determination of the appeal. The Court expressed hope that its remarks and the costs order (limiting recovery to 60% of costs for record preparation) would serve as a warning to practitioners in future proceedings. The judgment also contains obiter observations about the characteristics of Ponzi schemes and the adage that 'if something sounds too good to be true, it probably is' as a warning to investors about promises of extravagant returns.

This case clarifies the application of section 12(3) of the Prescription Act 68 of 1969 in the context of insolvency proceedings. It establishes that trustees and liquidators are subject to the same prescription requirements as other creditors and cannot postpone the running of prescription by prioritising certain claims over others. The judgment emphasizes that 'reasonable care' requires diligence not only in ascertaining facts but also in evaluating their significance. It confirms that creditors cannot delay action simply because they choose to focus on other matters, even in complex insolvency situations. The case also reinforces that knowledge can be imputed where information is readily accessible from files and knowledgeable employees/agents. The decision demonstrates the courts' strict approach to prescription defences and the limited circumstances in which the running of prescription will be postponed. It serves as a warning to insolvency practitioners to identify and investigate all potential claims timeously, regardless of other priorities.