Reasons for order:
DE JAGER J:
The defendant (the Namibia University of Science and Technology) raised a special plea of prescription against the plaintiff’s (Turbo Plumbing CC) damages claim against it for loss of income arising from the defendant’s alleged breach of a written service level agreement concluded between them on 12 December 2019, whereby the plaintiff would provide various facility maintenance services at the defendant’s campus from 1 October 2019 (the effective date) to 30 September 2022 (the expiry date). The parties elected to have the special plea heard without leading evidence.
On 26 February 2020 and pending further investigation regarding three of the plaintiff’s employees having been handed over to the police after being apprehended by campus control guards for theft, the defendant temporarily suspended the plaintiff’s services. On 3 April 2020, the plaintiff demanded to be reinstated. On 5 April 2020, the defendant responded that, until the matter in court has been finalised, the agreement is still in effect, that no guarantee or promise of work was agreed to, and that a pricing structure allows the defendant to use vetted contractors as per their vetted vendors list as they see fit. The summons was served on the defendant on 16 August 2024.
According to the plaintiff, the defendant breached the agreement by:
Suspending the plaintiff’s services without the terms of the agreement providing for such suspension.
Failing to monitor the availability and performance of the services rendered and products used by the plaintiff and granting it an opportunity to address the issue leading up to the immediate suspension.
Failing to request from the plaintiff an introduction of a change in the services (the vetting of contractors) and failing to extend such proposed change in writing, with due consideration to clause 6.4 of the agreement.
Failing to terminate the agreement, thus keeping the plaintiff bound to its obligations, with the resultant operational costs necessarily incurred in ensuring its compliance and availability to render the services once the suspension was lifted.
According to the plaintiff, its claim arose on 30 September 2022 when the agreement terminated by effluxion of time.
The special plea of prescription is as follows. The action is based on breach of contract that occurred on 26 February 2020 and the damages suffered as a result thereof. The plaintiff elected not to refer the dispute to arbitration. The summons was served on the defendant on 16 August 2024. The claim prescribed under section 11(d) of the Prescription Act 68 of 1969 (the Act) prior to summons being issued. The defendant prays that the claim be dismissed with costs.
The plaintiff replicated as follows.
A dispute was registered between the parties, and the parties complied with clause 14.3 of the agreement by officially referring the matter to mediation, a mandatory contractual provision. The mediation was deemed unsuccessful on 16 August 2023. Prescription was stayed during the mediation process, which ran from 24 November 2022 to 16 August 2023 (265 calendar days).
The contract further provided for the dispute to voluntarily be referred to arbitration within ten working days from completion of the mediation. The plaintiff was thus afforded another ten days to exercise that election, which calculates to 14 calendar days. Thus, the contractual stay ran until 30 August 2023.
Prescription was further stayed under the Public Health Covid-19 General Regulations for a total period of 38 days between March and May 2020.
The total days of suspension are 317 days, and the prescription of the claim would thus run for three years and 317 days.
Any damages occurring before 4 October 2020 prescribed, but the remainder has not prescribed.
If the breach occurred on ‘20’ February 2020, the claim must be reduced with N$233 314,67. If the breach occurred on 5 April 2020, as the plaintiff maintains, the claim must be reduced with N$199 983,99.
The defendant’s legal practitioner argued as follows.
The debt constitutes the loss of income arising from the defendant’s alleged breach of contract. The defendant relies on Namibia Breweries Ltd v Seelenbinder, Henning & Partners to contend that the wrongful act that underlies the damages claim is the defendant’s alleged breach by the 26 February 2020 decision to suspend the plaintiff’s services and the defendant’s failure to remedy that breach. Breach of contract is remediable through a claim for specific performance or cancellation and a claim for damages.
For the damages claim, a valid agreement must be established, and the contract already terminated when summons was issued.
The debt arose at the earliest on 26 February 2020 and at the latest within a reasonable time after the demand to lift the suspension was sent to the defendant on 3 April 2020.
The loss of income claim is connected to the suspension of the contract on 26 February 2020 and the failure to remedy the breach, and not to the contract’s termination on 30 September 2022. The plaintiff elected not to cancel the contract when the defendant failed to remedy the breach, and it continued until it was terminated by effluxion of time. At termination, the plaintiff had already sustained its alleged loss. The plaintiff’s concession in the replication that a portion of the damages that arose before 4 October 2020 prescribed is unsustainable because damages flow from a single act, the suspension of the services by the defendant. Thus, the entire claim arose prior to October 2020 and not just a portion of it and the entire claim prescribed.
The Act does not provide for interruption of prescription by mediation. In Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality it was stated that the point of departure was to consider the wording of the arbitration clause and once the parties entered upon the procedures which it lays down, they will achieve certainty about the debt and recourse to ordinary courts would be difficult if not impossible. The plaintiff pleads that it elected not to refer the matter to arbitration, and the debt was never subjected to arbitration. As a result, section 13(1)(f) of the Act does not apply.
The plaintiff’s legal practitioner argued as follows:
A dispute was registered between the parties, and they complied with clause 14.3 of the agreement by referring the matter to mediation, a mandatory contractual provision. The defendant’s literal approach to the word ‘arbitration’ does not embody the principles of Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality and Members of the Sugar Industry Central Board v Maritz and Another. Even though the plaintiff elected not to refer the dispute for arbitration following the unsuccessful compulsory mediation attempt, the plaintiff took mandatory alternative steps to recover the debt prior to instituting action.
The notice to remedy the breach delivered on 24 November 2024 under clauses 14.2 and 14.3 of the agreement was the first step in the extra-judicial mechanism to settle the dispute. The second stage was referral to private mediation, and the third stage was referral to either arbitration or institution of an action. The first and second stages were completed. The mediation was acknowledged to be unsuccessful on 16 August 2023. Thus, prescription was stayed since the notice of the dispute, throughout the mediation process (24 November 2022 to 16 August 2023, totalling 265 calendar days). The plaintiff could consider referring the dispute to arbitration within ten working days from mediation completion (calculating an additional 14 calendar days). Prescription was further stayed under the Public Health Covid-19 General Regulations for an additional 38 days from 28 March to 17 April 2020 and again from 17 April to 4 May 2020. The total suspension computes to 317 days. As a result, the plaintiff conceded that any damages claim having occurred before 4 October 2020 prescribed, but the balance did not.
While relying on Namibia Breweries Ltd v Seelenbinder, Henning & Partners where it cited Abrahamse & Sons v SA Railways and Harbours, the plaintiff contends that due to the temporary suspension of the plaintiff’s services, the plaintiff sustained a continued loss as of February 2020. The agreement remained alive until the date of termination, and as such, the damages became claimable at the date of termination and cannot be limited to the date of the wrongful act. On that basis, the entire claim did not prescribe.
The parties are ad idem that the claim is for a debt as envisaged in the Act. Under section 11(d) of the Act, the period of prescription in the instant case is three years. Section 12(1) provides that, subject to sections 12(2) and 12(3), the provisions of which are irrelevant to the instant case, prescription commences to run as soon as the debt is due.
The first question is when the debt became due. The claim is for damages suffered in loss of income due to breach of contract.
What prescribes under the Act is a ‘debt’ or a ‘claim’ or a ‘right of action’, not a ‘cause of action’.
The authorities on damages for breach of contract are divergent. Syfin Holdings Ltd v Pickering holds that a single breach of contract may give rise to different debts with the debt correlative to a right of action for a declaration of rights or nominal damages becoming due immediately on the breach, but the debt correlative to a right of action for damages not becoming due until the loss occurs. The majority of other authorities provide that a single breach of contract gives rise to a single cause of action, and prescription begins to run from the breach, whether or not the damage has become apparent. The latter position may be hard on plaintiffs, but the former position will be hard on defendants being exposed to damages claims many years after their breach, which is contrary to the general policy on prescription.
There is a difference between prescription of debts arising from contract and those arising from delict. The provisions of section 12(3) support the position that there is a difference. Section 12(3) was amended in South Africa prior to Namibian independence by the Prescription Amendment Act 11 of 1984, but that Act was not made expressly applicable to South West Africa. The amendment removed the phrase ‘which does not arise from contract’ from section 12(3). In two decisions of this court, it was assumed (without discussion) that the amended version applies in Namibia. However, in Van Straten NO & Others v Namibia Financial Institutions Supervisory Authority & Others, the Supreme Court assumed (also without discussion) that the unamended version applies. On either version, however, the prescription of debts arising from contract begins to run from the breach. The only difference between the two versions is that with the amended version, prescription only starts to run when the creditor has knowledge about the debtor’s identity and the facts from which the debt arises. In the instant case, the plaintiff knew about the defendant’s identity and the breach from 26 February 2020. From there, the plaintiff will have three years to bring his action, and if, in those three years, no damage resulted, it may bring an action for a declaration of rights. The occurrence of a loss resulting from the breach does not create a new debt with a new prescriptive period. The other logical support that there is a difference between the prescription of debts arising from contract and those arising from delict is that in delict, a person will only have a claim if it suffered a loss as a result of the delictual act complained of. In other words, if the delictual act complained of does not result in a loss, there is no claim. For claims arising from breach of contract, the loss results from the breach itself, hence prescription begins to run from the breach, whether or not the loss has become apparent.
Even if the loss occurs only later, prescription starts to run from the date of the breach, because, as stated above, the occurrence of the loss (resulting from the breach) does not create a new debt with a new prescriptive period. Based on the majority of authorities, the breach gave rise to a single cause of action and prescription runs from the date of the breach, regardless of whether the damages have become apparent. The courts apply the once and for all or single cause of action approach. A continuing loss arising from the same act does not alter that principle.
Namibia Breweries Ltd v Seelenbinder, Henning & Partners concerned a delictual claim and does not assist either of the parties’ cases.
The plaintiff further relied on Kaxuxuena v Hot Shoot Trading CC for its contention that the damages became claimable at the date of termination of the agreement and cannot be limited to the date of the breach (the wrongful act), and on that basis, the entire claim did not prescribe. Kaxuxuena v Hot Shoot Trading CC does not assist the plaintiff’s case. It dealt with whether prescription commenced to run from the date the plaintiff cancelled the contract or from the date of repudiation. The instant matter does not concern damages arising from cancellation or repudiation. It concerns damages arising from breach of the contract. The contract was never cancelled. Of course, a party can claim damages without cancelling a contract, but prescription will then begin to run on the breach and not when the contract is terminated by effluxion of time.
The court concludes that prescription started to run on 26 February 2020, the date of the alleged breach. Without any interruption, the claim would then prescribe on 26 February 2023.
The court now considers whether prescription was delayed under section 13(1)(f) of the Act.
Section 13(1)(f) stipulates that if the debt is the object of a dispute subjected to arbitration and the relevant prescription period (three years in the instant case) would, but for the provisions of section 13(1)(i), be completed before or on or within one year after the day on which the relevant impediment (the subjection to arbitration in the instant case) ceased to exist, the period of prescription shall not be completed before a year has elapsed after that day.
The plaintiff is wrong to plead and submit that the total days of suspension are 317 days and prescription of the claim would thus run for three years and 317 days. If the alleged impediment will influence the running of prescription, the period of prescription shall not be completed before a year has elapsed after the day the impediment ceases to exist. In other words, the period would not be extended by 317 days. It would be completed a year after the impediment ceased to exist.
It must, however, first be established if the alleged impediment will influence the running of prescription. That will depend on when the relevant prescription period would have been completed and when the impediment ceased to exist. The running of prescription will only be influenced if the relevant prescription period would have been completed before or on or within one year after the impediment ceased to exist. In other words, if more than a year was left of the relevant prescription period when the impediment ceased to exist, the impediment will have no effect on the running of prescription. If less than a year is left, prescription shall not be completed before a year has elapsed after the day the impediment ceased to exist. Section 13(1)(i) provides an additional requirement to the impediment concerned for the prescription period to be influenced by the impediment.
As stated above, the three-year prescription period would have been completed on 26 February 2023. According to the plaintiff, the impediment ceased to exist on 30 August 2023. However, from clause 14 of the agreement, it appears that mediation was compulsory, but arbitration was not. The mediation was deemed unsuccessful on 16 August 2023. It follows that the plaintiff is incorrect in contending that it was afforded another ten days to exercise the election to refer the matter to arbitration. As of 16 August 2023, when the compulsory mediation was unsuccessful, the plaintiff was at liberty to summons the defendant because arbitration could be employed voluntarily, it was not compulsory. Assuming, for the moment, that the mandatory mediation fell under section 13(1)(f) of the Act, the contractual stay thus only ran up to 16 August 2023. The date of 26 February 2023 (being the date when the relevant prescription period would have been completed) is thus before the date of 16 August 2023 (the date on which the impediment ceased to exist) and thus falls within the period envisaged in section 13(1)(i). If the mandatory mediation fell under section 13(1)(f), a year's lapse thereafter would mean the completion of prescription was delayed to 16 August 2024. Summons was served on the defendant on 16 August 2024. Therefore, if the debt was the object of a dispute subjected to arbitration as contemplated in section 13(1)(f), it did not prescribe.
The court now considers whether the debt was the object of a dispute subjected to arbitration as contemplated in section 13(1)(f) of the Act.
In Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality the South African appeal court touched on the meaning of the phrase ‘subjected to arbitration’ in section 13(1)(f) of the Act. The discussion went as follows. The main practical purpose for extinctive prescription is to promote certainty in the ordinary affairs of people. There are circumstances in which it would be unfair to require a creditor to institute proceedings within the time normally allowed. Section 13 of the Act makes provision for such circumstances. Part of its underlying ratio is that the creditor is already taking appropriate steps to recover his debt and should not be required to institute legal proceedings merely to interrupt the running of prescription. Although an arbitration agreement does not oust the court’s jurisdiction and a creditor may elect to institute legal proceedings, such proceedings may be met with a special plea to stay the proceedings and the court may order a stay and therefore an arbitration agreement is an impediment to recovering the debt by means of legal proceedings because it provides an alternative means of resolving disputes which carries the law’s approval. Section 13(1)(f) should be interpreted against that background.
In Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality, the question was whether the submission of the dispute to an engineer fell within the terms of section 13(1)(f) of the Act. The referral to the engineer was part of the procedure laid down in that contract. The engineer’s decision was prima facie final and binding on both parties, but if either party was dissatisfied with it, the dispute may be submitted to a mediator whose opinion was final and binding on the parties unless one of them takes the final step for the matter to be referred to a single arbitrator whose award was the final word on the matter. That court stated that once the parties entered the procedures, they would achieve certainty about the debt. The certainty will arise from the engineer’s decision, the mediator’s opinion or the arbitrator’s award. That court was loath to accept the dictionary definitions of ‘arbitration’, ‘arbitrasie’, ‘arbiter’ and ‘arbitrator’, attaching very wide meanings which the court a quo referred to as being literally applicable to section 13(1)(f). The South African appeal court stated that the ‘arbitration’ contemplated by the legislature did not necessarily encompass all procedures whereby disputes are settled extra-judicially by some person agreed to by the parties. In that matter, the court need not have decided that question, but in its view, it was unnecessary and undesirable to attempt any universally applicable definition of ‘arbitration’ in the context of section 13(1)(f), and that court limited itself to the facts of that case.
With the guidance of Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality, the court now considers whether clause 14 of the service level agreement falls under section 13(1)(f) of the Act.
Clause 14 deals with dispute resolution as follows. The dispute resolution procedure shall apply to any dispute, claim or difference between the parties arising out of or relating to the agreement. A dispute will not be deemed to be a dispute until one of the parties provides a written notice conveying the nature and scope of the dispute to the other party. All disputes shall first be referred to a mediation committee consisting of the parties’ contract managers for resolution, and an agreement reached by the mediation committee shall be reduced to writing and be binding on the parties. If the parties have been unable to resolve the dispute within ten working days of referral to the mediation committee, either party ‘may’ refer the matter to arbitration.
In Members of the Sugar Industry Central Board v Maritz and Another, the South Africa Transvaal provincial division also dealt with the phrase ‘the object of a dispute subjected to arbitration’ in section 13(1)(f) of the Act and held it must mean that there must be a reference to arbitration actually proceeding. That court referred to Murray & Roberts Construction (Cape) (Pty) Ltd v Upington Municipality and stated that the whole tenor of its remarks shows a wholehearted acceptance of the idea that the impediment comes into existence only when the creditor takes appropriate steps to recover the debt.
In Public Servants Association o.b.o Khanya v Commission For Conciliation, Mediation and Arbitration and Others relied on by the plaintiff, holding that the word ‘arbitration’ refers to the process and not the outcome, it was stated that the word is commonly used to refer to a process whereby a dispute is referred by one or all of the disputing parties to a neutral or acceptable third party who fairly hears their respective cases and makes a final binding decision.
In the instant case, steps to recover the debt would not include the referral to the mediation committee. Without considering its outcome, that process would not be akin to an arbitration. The mediation committee consists of the contract managers of the parties, not a neutral or acceptable third party. Contract managers are defined in the agreement as the parties' respective representatives, appointed and nominated from time to time, who are responsible for the liaison and contract management function in respect of the service level agreement. The referral to the mediation committee may result in a binding agreement reached by the contract managers to be reduced to writing. That process concerns resolution by agreement, not the recovery of the debt. No party can be forced to conclude any agreement. As such, engaging the referral to the medication committee will not necessarily achieve certainty about the debt. Moreover, given that following an unresolved dispute by the mediation committee, arbitration is voluntary and not compulsory, the process does not provide certainty on the debt at all.
The court therefore concludes that the dispute resolution process provided by clause 14 of the service level agreement did not stay the running of prescription and the prescription period was completed on 26 February 2023.
The only issue that remains is the impact which the Covid-19 legislation had on the running of prescription. Even if the 38 days provided thereby were added to 26 February 2023, the debt would have prescribed before summons was served on 16 August 2024.
Based on the claim’s structure, it prescribed. Once the defendant suspended the plaintiff’s services on 26 February 2020, there was a single completed wrongful act on its part which caused loss to the plaintiff and gave rise to a single cause of action against the defendant. The fact that the nature and extent of the damages ultimately sustained may only manifest later is irrelevant. Had things not been clear to the plaintiff on 26 February 2020, it must have become clear to them on 5 April 2020 when the defendant failed to lift the suspension and stated that until the matter in court had been finalised, the agreement was still in effect. The plaintiff’s right to have instituted the current action did not arise only when the contract was terminated by effluxion of time on 30 September 2022. The plaintiff had a right to institute action on 26 February 2020, alternatively, on 5 April 2020 or within a reasonable time thereafter. Furthermore, nothing prevented the plaintiff from cancelling the contract in line with the cancellation procedures prescribed in the agreement. Clause 11.2 provided that should any party commit a breach and fail or refuse to rectify it within 14 days after receipt of a written notice calling upon it to rectify the breach, the innocent party shall be entitled without prejudice to any other of his rights to forthwith cancel the agreement by written notice to the guilty party.
In those circumstances, the special plea succeeds. There is no reason why the general rule on costs should not apply. Costs follow the event.
In conclusion, it is ordered that:
The special plea of prescription is upheld.
The plaintiff’s claim is dismissed.
The plaintiff must pay the defendant’s costs.
The matter under HC-MD-CIV-ACT-CON-2024/03043 is finalised and removed from the roll. |
