Investec Bank Limited v Erf 436 Elandspoort (Pty) Limited and Others

Investec Bank Limited lent money to Erf 436 Elandspoort (Pty) Ltd under a loan agreement. As security, a notarial covering mortgage bond was registered over the borrower’s rights in a notarial lease concluded with the South African Railway Commuter Corporation Limited (SARCC). SARCC cancelled the lease in January 2002, with the cancellation confirmed by court order in August 2002, thereby extinguishing the underlying lease rights. On 10 September 2002 Investec demanded payment of the outstanding loan balance, which became due on 18 September 2002. Investec only instituted action for payment in January 2011, more than eight years later, against the principal debtor and several sureties. The defendants raised a special plea that the claim had prescribed.

The appeal was dismissed with costs, confirming that the claim had prescribed under the three-year prescription period.

The case authoritatively clarifies that the 30-year prescription period in section 11(a)(i) of the Prescription Act applies only while a debt is in fact secured by a mortgage bond. Once the security is extinguished, the debt becomes subject to the ordinary three-year prescription period. The judgment provides important guidance for banks and creditors on the consequences of losing security and reinforces a strict, purposive interpretation of prescription legislation.