Assured Freight Services (Pty) Ltd v Comair Limited

Comair Ltd paid Assured Freight Services (Pty) Ltd (AFS) R6,515,864.85 on 20 February 2001, the bulk of which AFS was obliged by agreement to pay to SARS on Comair's behalf in settlement of a VAT debt arising from the importation of an aircraft from the United States. The balance was an agency fee owed to AFS for clearing agent services. AFS issued an invoice and pro forma bill of entry on 19 February 2001. The aircraft was cleared through customs, and in March 2001 Comair claimed a VAT refund from SARS for input tax (including the VAT on the aircraft), which was paid in May 2001. Comair attempted several times to obtain the original bill of entry from AFS but was unsuccessful. On 8 September 2004, Customs officials informed Comair they were investigating whether VAT had been paid on the aircraft. On 30 September 2004, Customs informed Comair that VAT had not been paid and demanded payment. Comair paid SARS in October 2004 and then instituted proceedings against AFS for repayment of the misappropriated amount.

• Whether AFS's debt to Comair had prescribed under the Prescription Act 68 of 1969
• When prescription began to run under section 12(1) and (3) of the Prescription Act
• Whether Comair had knowledge of the facts from which the debt arose, or could have acquired such knowledge by exercising reasonable care, more than three years before commencing proceedings
• Whether Comair's failure to ensure compliance with section 16(2)(d) of the Value-Added Tax Act 89 of 1991 amounted to a failure to exercise reasonable care for purposes of section 12(3) of the Prescription Act

The application for condonation of the late filing of the notice of appeal was dismissed with costs. The appeal was dismissed. The appellant (AFS) was ordered to pay the costs of appeal. The judgment of Goldstein J in the High Court at Johannesburg ordering repayment by AFS to Comair was upheld.

For purposes of section 12(3) of the Prescription Act 68 of 1969, a creditor's knowledge of the facts from which a debt arises (or constructive knowledge through reasonable care) must be assessed according to what would reasonably alert the creditor to the debtor's liability in the actual circumstances of their relationship. A creditor's separate obligations under other statutes (such as tax compliance obligations) cannot be automatically transposed into the standard of reasonable care required by section 12(3) of the Prescription Act. Where a principal entrusts procedures and payments to an agent, and receives reasonable indicators that the agent has performed its obligations (such as release of goods and successful tax refund claims), the principal exercises reasonable care by relying on those indicators and is not deemed to have constructive knowledge of misappropriation merely because the principal may have failed to ensure possession of certain documents required by other legislation. Prescription does not begin to run until the creditor either has actual knowledge of the facts giving rise to the debt or, by exercising reasonable care in the circumstances, should have discovered those facts.

The Court noted at paragraph 15 that in light of its conclusion on the application of section 12(3), it was unnecessary to deal with an alternative argument for Comair based on section 12(2) of the Prescription Act. The Court also stated at paragraph 6 that 'On the record there can be no other conclusion than that AFS wrongfully appropriated the amount which it ought to have paid to SARS on Comair's behalf', though this was not ultimately in dispute. At paragraph 13, the Court stated 'It may be assumed for present purposes, in favour of AFS, that AFS was not Comair's importation agent and therefore that possession by AFS of the original bill of entry and the tax receipt did not assist Comair to comply with s 16(2)(d) of the VAT Act. But that is beside the point' – indicating the Court did not need to definitively determine AFS's status as importation agent.

This case is significant for its interpretation of section 12(3) of the Prescription Act 68 of 1969, particularly the proviso regarding constructive knowledge through the exercise of reasonable care. The judgment clarifies that the standard of 'reasonable care' under the Prescription Act must be assessed in the context of the creditor's actual circumstances and relationship with the debtor, not by reference to the creditor's separate statutory obligations under other legislation (in this case, the VAT Act). The case establishes that where a principal reasonably entrusts an agent with specific tasks and receives indicators that those tasks have been performed (such as release of goods and receipt of tax refunds), the principal is entitled to rely on those indicators and is not deemed to have constructive knowledge of the agent's misappropriation merely because the principal may have failed to ensure strict compliance with separate statutory record-keeping requirements. The case also serves as authority on the wrongfulness of misappropriation by an agent of funds entrusted to it for payment to third parties on the principal's behalf.