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[2017] ZAWCHC 112
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Sansom v Mars and Others (A158/2017) [2017] ZAWCHC 112 (13 September 2017)
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IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
CASE
NO: A158/2017
REPORTABLE
In
the matter between:
LEE-ANN
SANSOM
Appellant
(NCRDC
732)
and
FELICIA
JUANITA
MARS
1
st
Respondent
[…]
(CONSUMER)
ABSA
BANK
LTD
2
nd
Respondent
EDGARS-EDCON
3
rd
Respondent
NEDBANK
4
th
Respondent
NEDBANK
LTD
5
th
Respondent
AFRICAN
BANK
LTD
6
th
Respondent
JUDGMENT:
13 SEPTEMBER 2017
ALLIE,
J:
1.
This
is an appeal against the decision of the Magistrates Court, Worcester
in which the magistrate held that the Magistrates Court
doesn’t
have the authority under the National Credit Act
[1]
(“the Act”), to grant an order in which a variation of
interest rates from the initial credit agreement is sought,
even in
circumstances where the variation of interest rates were mutually
agreed by the consumer and credit provider.
2.
This appeal is essentially concerned with questions of law. The
respondents do not oppose the appeal.
3.
The Magistrates Court had many cases on its roll in which similar
relief was sought and it was agreed that the matter
in casu
would be used as a test case to determine the fate of all the
remaining similar matters.
4.
The matter is unopposed because the applicant and respondents are
ad
idem
concerning the relief sought.
5.
The common cause facts are as follows. The consumer in this matter
has 5 credit providers, three of whom agreed to a re- arrangement
where the interest during the period of debt review would be lower
than the interest rate in the credit agreements. One credit
provider
didn’t agree to a reduction in interest rate and that agreement
remains unchanged and one credit provider held an
agreement with no
interest rate at all.
6.
The court
a quo
dismissed the application for the following
reasons:
6.1.
The Magistrates Court is a creature of statute and the National
Credit Act does not provide for a variation of interest rates;
6.2.
The
judge in the case of
Nedbank
Limited v Jones and Others
[2]
didn’t qualify his decision by saying that the decision only
applies to magistrates
mero
motu
varying interest rates nor did the judge make an exception for
cases where there is mutual agreement to vary interest rates;
6.3.
The Magistrates Court is bound by
stare decisis,
to follow the
decision of the High Court in the Division of the Western Cape.
Interpretation
of the Relevant Provisions of the National Credit Act
7.
The Act expressly vests the authority and power to re-arrange debts
in the Magistrates Courts, subject to the provisions of the
Act.
8.
The Act attempts to achieve a balance between upholding the privity
of contractual relationships between consumers and credit
providers
and necessary interference with the terms of credit agreements to
ensure that a re-arrangement that is mutually beneficial
to credit
providers and consumers can be achieved for the duration of the debt
review.
9.
The debt review process is meant to mediate the competing interests
of consumers and credit providers. Therefore the court ordering
a
re-arrangement, must consider the extent to which a proposal by a
debt counsellor achieves a mediated settlement with due regard
to the
amount of the debt, the extent of the over-indebtedness, the
financial means of the consumer and the period within which
the debt
will be amortised. Interest rates and ancillary costs form an
integral part of indebtedness and ought to be taken into
consideration when decisions are made on how payments can best be
re-arranged.
10.
The purpose of the Act has often been selectively interpreted with
emphasis on sub-paragraphs (g) and (i) of section 3. Section
3
reads as follows:
“
Purpose
of Act
The
purposes of this Act are to promote and advance the social and
economic welfare of South Africans, promote a fair, transparent,
competitive, sustainable, responsible, efficient, effective and
accessible credit market and industry, and to protect consumers,
by-
(a)
promoting the development of a credit market that is accessible to
all South Africans, and in particular to those who have historically
been unable to access credit under sustainable market conditions;
(b)
ensuring consistent treatment of different credit products and
different credit providers;
(c)
promoting responsibility in the credit market by-
(i)
encouraging responsible borrowing, avoidance of over-indebtedness and
fulfilment of financial obligations by consumers; and
(ii)
discouraging reckless credit granting by credit providers and
contractual default by consumers;
(d)
promoting equity in the credit market by balancing the respective
rights and responsibilities of credit providers
and
consumers;
(e)
addressing and correcting imbalances in negotiating power between
consumers and credit providers by-
(i)
providing consumers with education about credit and consumer rights;
(ii)
providing consumers with adequate disclosure of standardised
information in order to make informed choices; and
(iii)
providing consumers with protection from deception, and from unfair
or fraudulent conduct by credit providers and credit bureaux;
(f)
improving consumer credit information and reporting and regulation of
credit bureaux;
(g)
addressing and preventing over-indebtedness of consumers, and
providing mechanisms for resolving over-indebtedness based on
the
principle of satisfaction by the consumer of all responsible
financial obligations;
(h)
providing for a consistent and accessible system of consensual
resolution of disputes arising from credit agreements; and
(i)
providing for a consistent and harmonised system of debt
restructuring, enforcement and judgment, which places priority on the
eventual
satisfaction of all responsible consumer obligations under
credit
agreements.
11.
The purposes are expressed in the first part of the section and the
sub-paragraphs of the section list the means of achieving
the stated
purposes. Those purposes aim to provide social and economic relief
for low income consumers.
12.
I
am fortified in the above conclusion by the
Sebola
[3]
decision where the Constitutional Court held as follows:
“
A
major overhaul of previous credit legislation was essential. This was
also necessary because low-income consumers relied increasingly
on
commercial credit and many were becoming swamped with debt. Reform
came with the passage of the Act in 2005. It is weighty legislation,
both in size and impact. It consists of 173 sections, together with
three schedules and regulations. The statute ‘represents
a
clean break from the past and bears very little resemblance to its
predecessors
’ ”
13.
Section 85 of the Act is the provision that allows a court to refer a
consumer to a debt counsellor or it may declare the consumer
to
indeed be over-indebted and then proceed to make an order in terms of
section 87 to relieve the consumer’s over indebtedness.
That
section allows for early intervention by a court, even prior to a
debt counsellor having been appointed.
14.
Section 85 reads as follows:
“
85
Court may declare and relieve over-indebtedness
Despite
any provision of law or agreement to the contrary, in any court
proceedings in which a credit agreement is being considered,
if it is
alleged that the consumer under a credit agreement is over-indebted,
the court may-
(a)
refer
the matter directly to a debt counsellor with a request that the debt
counsellor evaluate the consumer's circumstances and
make a
recommendation to the court in terms of section 86 (7); or
(b)
declare that the consumer is over-indebted, as determined in
accordance with this Part, and make any order contemplated in section
87 to relieve the consumer's over-indebtedness
.
13.
The relief available to a consumer who is believed to be
over-indebted is contained in section 86(7). Section 86 (7) reads as
follows:
“
86.
Application for debt review
(1)
…
(2)
….
(3)
…
(4)
…
(5)….
(7)
If, as a result of an assessment conducted in terms of subsection
(6), a debt counsellor reasonably concludes that-
(a)
the consumer is not over-indebted, the debt counsellor must reject
the application, even if the debt counsellor has concluded
that a
particular credit agreement was reckless at the time it was entered
into;
(b)
the consumer is not over-indebted, but is nevertheless
experiencing, or likely to experience, difficulty satisfying all the
consumer's
obligations under credit agreements in a timely manner,
the debt counsellor may recommend that the consumer and the
respective
credit providers voluntarily consider and agree on a plan
of debt re-arrangement; or
(c)
the consumer is over-indebted, the debt counsellor may issue a
proposal recommending that the Magistrate's Court make either or both
of the following orders-
(i)
that one or more of the consumer's credit agreements be declared to
be reckless credit, if the debt counsellor has concluded
that those
agreements appear to be reckless; and
(ii)
that one or more of the consumer's obligations be re-arranged by-
(aa)
extending the period of the agreement and reducing the amount of each
payment due accordingly;
(bb)
postponing during a specified period the dates on which payments
are due under the agreement;
(cc)
extending the period of the agreement and postponing during a
specified period the dates on which payments are due under the
agreement;
or
(dd)
recalculating the consumer's obligations because of contraventions of
Part A or B of Chapter 5, or Part A of Chapter 6.
14.
Section 86 (8) deals expressly with circumstances in which a court is
obliged to grant orders sought by agreement between the
credit
provider and the consumer. The prerequisites contained in sub-section
8 (a) are completely different to the category of
consent orders
contemplated by section 138, the latter being orders arising out of
alternative dispute resolution, mediation or
investigation by the
National Credit Regulator to which a respondent has agreed.
15.
Section 86 (8) provides as follows:
(8)
If a debt counsellor makes a recommendation in terms of subsection
(7) (b) and-
(a)
the consumer and each credit provider concerned accept that proposal,
the debt counsellor must record the proposal in the form
of an order,
and if it is consented to by the consumer and each credit provider
concerned, file it as a consent order in terms
of section 138; or
(b)
if paragraph (a) does not apply, the debt counsellor must refer
the matter to the Magistrate's Court with the recommendation.
16.
The Magistrates Court accordingly has the power to grant orders by
agreement in the circumstances set out in the section. Admittedly
the
section also provides that those consent orders must be made in terms
of section 138, which is clearly based on a misconception
of the
purpose of section 138.
17.
The error that the legislature made in framing section 86(8) consent
orders as residing under the power to grant orders in terms
of
section 138, does not render invalid the express provision in section
86 (8) that orders by consent with the credit provider
and consumer
must be filed with court. Accordingly draft orders formulated
with the consent of credit providers and consumers,
once filed with
the court, ought to be made orders of the court.
18.
The Act provides a mechanism by which a credit provider may apply to
court to have a debt review terminated. Section 86 (10)
provides as
follows:
(10)
(a)
If a consumer is in default under a credit agreement that is being
reviewed in terms of this section, the credit provider in
respect of
that credit agreement may, at any time at least 60 business days
after the date on which the consumer applied for the
debt review,
give notice to terminate the review in the prescribed manner to-
(i)
the consumer
(ii)
the debt counsellor; and
(iii)
the National Credit Regulator; and
(b)
No credit provider may terminate an application for debt review
lodged in terms of this Act, if such application for review has
already been filed in a court or in the Tribunal
19.
The Act is patently clear about an order of re-arrangement
having application only for the duration of the debt review period. A
credit provider may apply for termination of the debt review if the
conditions contained in section 86 (10) are met. In the event
of
termination of the debt review, it follows that the re-arrangement
order would no longer apply.
20.
The re-arrangement order cannot extinguish the consumer’s
liability under the credit agreement, it merely extends the
period
within which payment is to be made. Section 3 (g) states expressly
that the method employed in restructuring ought to achieve
a result
that is “
based on the principle of satisfaction by the
consumer of all responsible financial obligations.”
Stare
decisis
and distinguishing cases with different facts in
issue
21.
The magistrate has the power in terms of section 87 of the Act to
conduct a hearing and determine whether he /she will
accept the
application for re-arranging the consumer’s obligations and if
it is accepted, then the magistrate may:
21.1.
extend the period of the agreement and reduce the amount of each
payment accordingly; and/or
21.2.
postpone dates on which payments are due for a specified period;
and/or
21.3.
combine sub-paragraphs (1 ) and (2 ) above; and/or
21.4.
recalculate the consumer’s obligations where there has been a
violation of Parts A & B of Chapter 5 and Part A of
Chapter 6 of
the Act, which relate to,
inter alia
, the concluding of
unlawful credit agreements, unlawful provisions in the credit
agreement, failure to provide a consumer
with pre-agreement
disclosures, where applicable, failure to provide the consumer with a
copy of the credit agreement, levying
a consumer who reported a lost
or stolen card with liability after having done so in circumstances
where the card wasn’t
used by the consumer.
22.
The Magistrate’s Court has a duty to take account of the
financial circumstances of the consumer, the consumer’s
obligations under the credit agreement, the credit provider’s
rights under the credit agreement, the extent to which the
consumer
is over indebted, such representations as are made on behalf of the
credit provider and consumer and the proposal made
by the debt
counsellor or consumer, if no debt counsellor is appointed.
23.
Particularly in loan agreements with financial institutions,
consumers are usually obliged to pay monthly instalments which
are
apportioned to the capital sum and to the interest portion. Each
instalment therefore has an interest component. When a magistrate
reduces the instalment, he or she consequentially also reduces the
amount apportioned to the payment of interest without necessarily
declaring a reduction in the interest rate.
24.
Indeed, if interest rates could never be reduced in re-arrangement
orders, consumers would find themselves unable to extinguish
their
indebtedness because they would be saddled with the same interest
rate during the extended period as they would had the original
credit
agreement’s instalments not been re-arranged.
25.
Clearly the initial instalments are calculated by credit providers
with due regard to the period of the agreement, the rate
of interest
payable at the time and a variation in interest rate. The extended
duration of the credit agreement would cause undue
hardship to
consumers and credit providers alike if it were not open to them to
agree a reduced rate of interest for a specified
time.
26.
The Act does not expressly impose an obligation on the Magistrate’s
Court to ensure that the reduced payment should cover
the interest
portion of the agreement. The purpose of the Act as articulated in
section 3 however requires the court to decide
the terms of
re-arrangement by embarking upon an exercise whereby the competing
interests and needs of consumers and credit providers
are mediated.
In short, the court is bound to adjudicate in a manner which will
result in achieving the purposes of the Act which
is to: “
promote
and advance the social and economic welfare of South Africans,
promote a fair, transparent, competitive, sustainable, responsible,
efficient, effective and accessible credit market and industry, and
to protect consumers.”
27.
In
Sebola
[4]
the court said the following
concerning how a court ought to give effect to the purposes of the
Act:
“
The
statute sets out the means by which these purposes must be achieved
and it must be interpreted so as to give effect to them. The
main objective is to protect consumers. But in doing so, the Act aims
to secure a credit market that is “competitive, sustainable,
responsible [and] efficient”. And the means by which it
seeks to do this embrace “balancing the respective rights
and
responsibilities of credit providers and consumers
”
28.
It is in recognition of the long term adverse consequences for both
consumers and credit providers, that the parties in this
case and in
the many other cases pending before the court
a quo
which
await the result of this appeal, have agreed a varied rate of
interest over the period of debt review.
29.
In the exercise of its power to extend the duration of the credit
agreement and to vary the amount of instalments payable by
the
consumer, the Magistrate’s Courts implicitly has the power to
vary the rate of interest payable for the duration of the
period of
debt review.
30.
The
court in Jones attempted to follow the decision
in
Nedbank
Limited v Norris and Others
[5]
.
31.
Norris
’ case concerned a decision by a magistrate to
reduce the instalments to an amount which didn’t cover the
monthly payments
for insurance cover included in the indebtedness and
to totally remove the interest by ordering that no interest was
payable. The
magistrate failed to apply his mind to all the factors
that he is required to take into consideration. Those are not the
facts
of
Jones’
case nor are they facts similar to the
facts
in casu.
32.
In
Jones’
case, the court
a quo
had made a
re-arrangement order reducing the monthly instalments and the
interest rate was fixed at 10.4 % per annum without stipulating
a
period of repayment.
33.
The applicant in that case was dissatisfied with the re-arrangement
order because the instalment didn’t cover the interest
portion
and the interest rate was fixed for an indefinite period.
34.
The Appeal Court in
Jones
found that:
34.1
the magistrate had reduced the amount of the indebtedness permanently
which is contrary to the powers of the Magistrates Court
as set out
in section 86 and 87 of the Act;
34.2
the Magistrates Court does not have jurisdiction to vary or reduce a
contractually agreed interest rate determined by a credit
agreement
and an order in those terms are null and void;
34.3
a re-arrangement proposal that contemplates a monthly instalment
which is less than the monthly interest does not meet the
purposes of
the Act and is
ultra vires
the Act and the Magistrate’s
Court has no jurisdiction to grant such an order.
35
The
court in
Jones’
case relied on sec 3 (i) of the Act as it was articulated in the case
of
Kubanya
v
Standard Bank of S.A. Limited
[6]
and more specifically to the following paragraph in that case to
determine the purpose of the Act:
“
[35]…..
It deserves re-emphasis that the purpose of the Act is not only to
protect consumers, but also to create a ‘
harmonised
system of debt restructuring, enforcement and judgment, which places
priority on the eventual
satisfaction
of all responsible consumer obligations under credit agreements’
.
“
36
As outlined earlier, section 3 (i) remains one of 9 methods of
achieving the objective of the Act and is not more paramount than
the
other sub- paragraphs in section 3.
37
As
Maya JA (as she then was) stated in the
Rossouw
[7]
case, the purpose of the Act is:
“
I
understand the legislature to have basically meant to protect the
consumer from exploitation by credit providers by, inter alia,
preventing predatory lending practices; to ameliorate the financial
harm which a consumer may suffer where unable to meet his obligations
under a credit agreement and generally to achieve equity in the
lending market by levelling the playing field between parties who
do
not have equal bargaining power.
38
In my view, the
ratio
in
Jones
is too broad and
overarching and does not admit of exceptions. The order made in
Jones’ case fails to recognise that there
are instances in
which a magistrate, after duly applying his/her mind to all the
relevant factors, will be required to vary the
duration of the credit
agreement, the instalments due and payable and interest that forms
part of the indebtedness under the credit
agreement to achieve an
equitable and fair result for the parties.
Costs
39
This appeal is supported by both applicant and respondents and is
brought to clarify the prevailing legal position, hence no
order as
to costs would be the most appropriate order concerning legal costs.
IT
IS ORDERED THAT:
1.
The appeal succeeds.
2.
The case of Nedbank v Jones
2017 (2) SA 473( WCC)
is not
authority for the Magistrate’s refusal to make the consent
orders proposed in this case and the other similar cases
held in
abeyance pending the outcome of this appeal, namely case numbers:
3094/16; 3248/16; 3249/16; 3431/16; 3499/16; 3500/16;
3532/16;
3835/16; 3836/16; 4148/16; 4149/16; 80/17; 81/17 and 82/17 enrolled
in the Worcester Magistrates Court.
3.
The application for debt review which forms the subject of this
appeal is referred back to the Magistrate
a quo
for
reconsideration and for adjudication consistent with the
ratio
set
out in this judgment.
4.
No order as to costs is made.
______________
R.
ALLIE
FORTUIN,
J:
I
agree.
______________
C.M. FORTUIN
DOLAMO,
J:
I
agree.
______________
M.J. DOLAMO
IN
THE HIGH COURT OF SOUTH AFRICA
(WESTERN
CAPE DIVISION, CAPE TOWN)
REPORTABLE
CASE
NO: A158/2017
In
the matter between:
LEE-ANN
SANSOM
Applicant
and
FELICIA
JUANITA
MARS
First
Respondent
[…]
(CONSUMER)
ABSA
BANK
Second
Respondent
EDGARS
-
EDCON
Third
Respondent
NEDBANK
LTD
Fourth
Respondent
NEDBANK
LTD
Fifth
Respondent
AFRICAN
BANK
LTD
Sixth
Respondent
Coram:
ALLIE, J et FORTUIN, J et DOLAMO, J
Judgment
by: R. ALLIE, J
For
the Applicant: Mr Paul M Taylor
Instructed
by: Vian Bester Attorneys
Worcester
For
the Respondent(s): No opposition
Date(s)
of Hearing: 25 AUGUST 2017
Judgment
delivered on: 13 SEPTEMBER 2017
[1]
The
National Credit Act 34 of 2005
[2]
2017 (2) SA 473( WCC)
[3]
Sebola
and Another v Standard Bank of South Africa Ltd and
Another 2012 (5) SA 142 (CC) at para 39
[4]
Supra
at
para 40
[5]
2016
(3) SA 568 (ECP)
[6]
2014
(3) SA 56
(CC)
at [35]
[7]
Rossouw v First Rand Bank Limited t/a FNB Home Loans ( formerly
First Rand Bank of South Africa Ltd) 2010 (6) SA 439 (SCA) at
para 32