This blog was co-authored by: Bwanika Lwanga, Candidate Attorney
In June 2022, the High Court held that a claim by a provident fund for interest on late-paid contributions had prescribed.
The parties signed an acknowledgement of debt on 26 November 2013 for a total of R12 488 219. 04 owed by an employer to the Fund for outstanding provident fund contributions which were payable. The agreement provided that the outstanding amount was to be paid in monthly instalments commencing on 07 February 2014 until 07 January 2017. The acknowledgement also recorded that in terms of Regulation 33(7) of the regulations to the Pension Funds Act, compound interest on late payments was to be calculated and paid in addition to the principal debt.
In terms of Sections 10, 11, 12(1) and 14 of the Prescription Act of 1969, a principal and any subsidiary debt is extinguished by prescription after a period of 3 years. However, payment of any amount after the period of prescription is regarded as valid payment of the debt. In addition, prescription is interrupted by the express or tacit acknowledgement of liability by a debtor. In the present case, the Applicants had only acknowledged liability in terms of the acknowledgement of debt signed in 2013. Similarly, the Fund had not initiated any action against the parties for the interest in question, thus there was no interruption to the running of prescription.
The court held that even with reference to the statutory obligation to pay interest on outstanding amounts under Section 13A(7) of the Pension Funds Act, the claim prescribes after a period of 3 years.
Whilst funds can rely on the provisions of the Pension Fund Act to claim interest, this judgment highlights that such reliance cannot exist in isolation of prescription principles. Funds need to specifically cater for interest when dealing with late payments of contributions and take steps to recover the interest expeditiously so as to avoid prescription being raised and losing the right to claim interest.
Private Security Sector Provident Fund v Isidingo Security Services (t/a Unitrade (Pty) Ltd): Kwa-Zulu Natal Division of the High Court Pietermaritzburg, Case No 3048/2021P
