Basson v Niemann

The appellant and respondents formerly practiced together as attorneys in partnership in Pretoria. In 1999, the appellant, as a senior partner handling litigation and commercial practice, paid deposits held in the firm's trust account to Anglo-Euro Company (Pty) Ltd without proper authorization from investors who had paid the deposits as part of a scheme to obtain foreign financial loans. Between April to August 1999, the appellant paid these deposits to Anglo-Euro without the necessary authority. Subsequently, investors instituted claims against the partnership for repayment of their deposits. The partnership was later transformed into a company in March 2000. Arbitration proceedings concerning two investors (Visscher and Du Toit) commenced in April 2004 and concluded in June 2005, with the arbitration appeal tribunal finding that written instruction from investors was a pre-condition for payment. Between January and September 2006, the respondents made various payments to settle investor claims. The appellant resigned as a director in March 2008. In December 2009, the respondents instituted action against the appellant claiming indemnification for payments made to investors, alleging negligence and breach of professional obligations. The appellant raised a special plea of prescription.

• Whether the respondents' claims had prescribed under section 12 of the Prescription Act 68 of 1969
• When prescription commenced to run - specifically when the respondents acquired knowledge of the identity of the debtor and the facts from which the debt arose as required by section 12(3) of the Prescription Act
• Whether section 12(2) of the Prescription Act applied - whether the appellant wilfully prevented the creditors from coming to know of the existence of the debt
• Whether the partnership should be regarded as having continued until 2008 when the appellant resigned as a director of the company

The appeal was upheld with costs. The order of the high court was set aside and substituted with an order that: (a) The special plea of prescription is upheld; (b) The plaintiffs' claims are dismissed with costs.

Prescription commences to run under section 12(3) of the Prescription Act 68 of 1969 when a creditor acquires knowledge of the identity of the debtor and the facts from which the debt arises, or when the creditor could have acquired such knowledge by exercising reasonable care. A creditor's passive reliance on assurances from the debtor, when faced with objective evidence contradicting those assurances (such as adverse arbitration findings and the need to make payments to third-party claimants), does not prevent prescription from running. The creditor is deemed to have knowledge of facts that could have been discovered through reasonable inquiry and diligence. The fact that a creditor later discovers they cannot obtain reimbursement from third parties is irrelevant to when their claim against the debtor arose and when prescription commenced.

The court made observations regarding the argument that the partnership continued after incorporation of the company, noting that even if the principle in Louw v Nel 2011 (2) SA 172 (SCA) were applicable (that members of a private company formed from a partnership should have a relationship of confidence and trust similar to partners), it would not mean the original partnership continued to exist. The court noted that in this case, the composition of partners changed when the company was incorporated (the fourth respondent left and Mr Jacobs joined), necessarily dissolving the previous partnership. The court also observed that a reasonable person in the respondents' position, upon learning of the unsuccessful outcome of arbitration involving claims of over R1.6 million, would not have remained 'listless and supine' but would have demanded to be fully informed, insisted on seeing the arbitrators' rulings, and ascertained whether proper written authorization existed.

This case is significant in South African law for its application of the knowledge requirement under section 12(3) of the Prescription Act 68 of 1969. It establishes that creditors cannot plead ignorance of facts when they had constructive knowledge through the exercise of reasonable care. The judgment emphasizes that creditors' indifference or delegation of matters to others does not suspend the running of prescription once material facts are known or could reasonably have been ascertained. The case also clarifies that the discovery of inability to obtain reimbursement from third parties does not affect when prescription begins to run against the actual debtor. It demonstrates the courts' strict approach to prescription defenses and the importance of creditors acting diligently once they become aware of potential claims.