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[2011] ZAGPJHC 121
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Horwood v Firstrand Bank Ltd (2010/36853) [2011] ZAGPJHC 121 (21 September 2011)
REPORTABLE
REPUBLIC
OF SOUTH AFRICA
SOUTH
GAUTENG HIGH COURT, JOHANNESBURG
Case No. 2010/36853
DATE:21/09/2011
In the matter between:
MERLE COLINETTE
HORWOOD
......................................................................
Applicant
and
FIRSTRAND BANK
LTD
.................................................................................
Respondent
JUDGMENT
MEYER, J
[1] The applicant seeks an
order that each one of five credit agreements concluded by the
respondent bank with her be declared a
reckless one in terms of s
83(1), read with s 80(1)(a) or with s 80(1)(b) of the National Credit
Act (‘the NCA’),
1
and for an order setting aside part of her rights and obligations
under each one in terms of s 83(2)(a).
[2] S 81(3) of the NCA
provides that a ‘credit provider must not enter into a reckless
credit agreement with a prospective
consumer.’ In terms of s
83(1), a court may declare a credit agreement to be reckless and, as
a consequence thereof, may
inter
alia
make an
order in terms of s 83(2) setting aside all or part of the consumer’s
rights and obligations under the credit agreement
as the court
determines just and reasonable in the circumstances.
[3] The credit agreements in
issue relate to credit that the respondent extended to the applicant
by way of two personal loans,
two credit card loans, and, most
importantly in these proceedings, a loan secured by two mortgage
bonds over an immovable property
owned by the applicant and which is
situated at the South Coast. The gravamen of the applicant’s
case in respect of each
credit agreement is that the respondent had
failed to conduct a proper assessment of her financial ability to pay
the credit that
was extended to her and that, had a proper assessment
been undertaken, a loan amount in excess of R215 000.00 would not
have been
approved in the case of the loan secured by the two
mortgage bonds and no credit in terms of the other agreements would
have been
extended to her.
[4] In the words of Ponnan,
JA, in
Desert
Star Trading 145 (Pty) Ltd and Another v No 11 Flamboyant Edleen CC
and Another
,
2
‘[t]o
determine when exactly a credit agreement is a reckless one, it is to
s 80 that one must turn, …’.
3
In terms of that section of the NCA, a credit agreement is reckless
if, ‘… at the time when that agreement was made,
or at
the time when the amount approved in terms of the agreement is
increased …’
4
the credit provider either ‘… failed to conduct an
assessment as required by s 81(2) …’, or, ‘…
having conducted an assessment as required by section 81(2), entered
into the credit agreement with the consumer despite the fact
that the
preponderance of information available to the credit provider
indicated that the … consumer did not generally understand
or
appreciate the consumer’s risks, costs or obligations under the
proposed credit agreement … or entering into the
credit
agreement would make the consumer over-indebted.’
[5] The requirement of s 81(2)
of the NCA is that the credit provider takes ‘reasonable steps
to assess’ the matters
referred to in that section before
entering into the credit agreement. S 82(1) permits a credit grantor
to ‘… determine
for itself the evaluative mechanisms or
models and procedures to be used in meeting its assessment
obligations under section 81,
provided that any such mechanism, model
or procedure results in a fair and reasonable assessment.’ The
credit provider must
accordingly take reasonable steps to assess the
relevant matters and the mechanisms, models and procedures used by it
must result
in a fair and objective assessment. Whether or not a
credit grantor has taken the required reasonable steps to meet its
assessment
obligations is in the light of the wording of these
provisions to be determined objectively on the facts and
circumstances of any
given case.
[6] S 81(1) of the NCA places
the obvious obligation upon the prospective consumer to fully and
truthfully answer any requests for
information made by the credit
provider as part of the assessment required by s 81, and it is, in
terms of s 81(4), ‘…
a complete defence to an allegation
that a credit agreement is reckless …’ if it is
established that the consumer
failed to do so and that such failure
‘… materially affected the ability of the credit
provider to make a proper assessment.’
S 81(4) contains a
requirement of materiality and it is accordingly not every failure by
a consumer to fully and truthfully answer
the credit provider’s
requests for information as part of the prescribed assessment that
entitles the credit provider to
this complete defence.
[7] I have mentioned that the
requirement of an assessment, the absence of which renders a credit
agreement reckless in terms of
s 80(1)(a), is for the credit provider
to conduct one ‘… as required by section 81 (2) …’,
which section
enjoins a credit provider not to enter into a credit
agreement ‘… without first taking reasonable steps to
assess
…’ the matters referred to in that section. In
contrast, s 80(4) affords a credit provider with ‘a complete
defence’ if a consumer’s failure ‘…to fully
and truthfully answer any requests for information made by
the credit
provider as part of the assessment …’ materially
affected the ability of the credit provider ‘…
to make a
proper assessment.’ A failure on the part of a credit provider
to take reasonable steps to assess the prescribed
matters renders the
credit agreement a reckless one and a failure on the part of a
consumer to fully and truthfully answer requests
forming part of the
compulsory assessment arms a credit grantor with a complete defence
if the consumer’s failure materially
affected the ability of
the credit provider to make a proper assessment. In my view the
correct interpretation of these provisions
is that where a credit
provider has taken the required ‘reasonable steps to assess’
the relevant matters referred to
in s 81(2), the credit agreement is
not a reckless one in terms of s 80(1), whether or not the assessment
was tainted by a consumer’s
incomplete or untruthful answers.
The complete defence provided for under s 81(4) is a defence which
may, as the respondent has
done in this matter, be raised in addition
to one that a credit provider’s assessment obligations under s
81 have been met.
[8] It is common cause that
the applicant purchased a vacant stand, which is situated at
Hibberdene on the South Coast, on 11 April
2005, for the sum of R165,
000.00 with the intention of building a dwelling thereon. Payment of
the purchase price and of the
transfer costs of about R50,000,00 was
financed by means of a loan, which the applicant obtained from the
respondent at that time.
The respondent avers that the loan amount
approved in terms of that 2005 loan agreement was the sum of R875,
00.00, which amount
also included a building loan to finance the
building of a dwelling on the vacant stand. The applicant avers in
reply that she
was unaware that the loan facility granted to her in
terms of the 2005 loan agreement was the sum of R875, 000.00.
Transfer of
the vacant stand into the applicant’s name was
registered on 25 July 2005, and the mortgage bond that was registered
over
it in favour of the respondent at the time secured an
indebtedness of R875, 000.00.
[9] The applicant, assisted by
a mortgage originator, Mr Paul Oosthuizen of Marcia G Home Loans CC,
to whom the applicant refers
as her financial advisor and also as her
consultant, made application to the respondent for additional funds
during May 2007.
It is common cause that the parties thereafter
entered into an agreement on 4 July 2007. The respondent avers that
the amount
of R875, 000.00 approved in terms of the 2005 loan
agreement was in terms of this 2007 loan agreement increased by an
amount of
R200, 000.00 to a total principal debt of R1, 075, 000.00.
The applicant avers that the agreement concluded between the parties
on 4 July 2007 constituted a new loan agreement and that the
principal loan amount approved in terms thereof is the sum of R1,
075, 000.00. The applicant’s averment in this regard is
refuted by her averment in her founding affidavit that she made
‘application for additional funds from the home loan / access
bond with the respondent in respect of the immovable property
in
question’, by the documents provided by the respondent, which
the applicant admits show that a further loan amount of
R200, 000.00
was granted to her on 4 July 2007, and by the second mortgage bond
that was registered over the property in favour
of the respondent
during 2007, which mortgage bond secures an indebtedness of R240,
000.00.
[10] The applicant contends
that the reckless credit provisions of the NCA apply to her entire
indebtedness presently under consideration
since she made ‘the
greatest majority of withdrawals’ from August 2007, which is
after the commencement of the reckless
credit provisions on 1 June
2007. There is no merit in this contention. It is clear from the
wording of s 80 of the NCA that
the relevant time for determining
whether or not a credit agreement is reckless is when it was
concluded or when the amount approved
in terms thereof was increased.
The times of withdrawal of amounts approved in terms of a credit
agreement are not relevant to
this determination. Mr A Gautschi SC,
who appeared with Mr A Bester for the respondent, correctly, in my
view, submitted that
it would be an impossibility for a credit
provider to make the prescribed assessment every time a consumer, for
instance, utilises
a credit card. The reckless credit provisions of
the NCA, in my view, accordingly only apply to the loan amount of
R200, 000.00,
which amount constitutes an increase on 4 July 2007
within the meaning of s 80(1) of the NCA of the amount approved in
terms of
the 2005 loan agreement.
[11] The applicant contends
that this credit agreement is a reckless one within the meaning of s
80(1)(a) of the NCA based on her
averment that no proper assessment
was conducted by the respondent as required by s 81(2). It is not
suggested that the applicant
had any commercial purpose for applying
for the increased credit of R200, 000.00.
5
She avers in her founding papers that she required funds during 2007
to undertake alterations at her house in Centurion. It has
also not
been established that the respondent failed to take reasonable steps
to assess the applicant’s general understanding
and
appreciation of the risks and costs of the increased credit and of
her rights and obligations as a consumer under the credit
agreement
that the respondent concluded with her on 4 July 2007.
6
The issue is whether or not the respondent took reasonable steps to
assess the applicant’s debt repayment history as a consumer
under credit agreements
7
and her financial means, prospects and obligations
8
before that credit agreement had been concluded with her.
[12] The applicant avers in
her founding affidavit that her monthly earnings at the time were
approximately R8, 000.00 and an additional
sum of R6, 000.00 from her
late husband’s pension. She further avers that she had a total
indebtedness exceeding R1,1 m
at the time pursuant to credit that had
been extended to her by a variety of other institutions. The
respondent avers that the
applicant
inter
alia
presented
to it an income compared with expenses showing a substantial monthly
net income available to her to satisfy the monthly
repayments of the
increased loan amount. The respondent avers that the applicant
showed that she had available an amount of R52,
332.99 per month to
meet the monthly debt repayments of R11, 272.29. The applicant’s
income presented to it, was according
to the respondent, in line with
her income that had previously been presented to it during 2005
before the original credit agreement
had been concluded with her.
The applicant’s debt repayment history with the respondent was
satisfactory. The expenses
which the respondent avers were presented
to it by the applicant do not disclose any debt repayments under
other credit agreements.
The applicant’s risk profile obtained
from a credit bureau, according to the respondent, showed the
applicant to be a satisfactory
credit risk.
[13] In reply the applicant
takes issue with the correctness of all the information relating to
her income and expenses upon which
the respondent alleges it relied.
She denies that she furnished incorrect information to the respondent
and she points out that
the relevant documents, which the respondent
produced as part of its answering papers, had not been signed by her.
An applicant
is entitled to adduce relevant evidence in a replying
affidavit that serves to refute the case put up in the answering
affidavit.
9
The applicant in this instance, however, elected not to disclose the
true information relating to her income and expenditure that
she had
furnished to Mr Oosthuizen, who, on her own version, represented her
in making application to the respondent for the increased
loan amount
and who conveyed information on her behalf to the respondent. She
failed to adduce the relevant primary facts or evidence
to refute the
respondent’s averments on this issue.
10
[14] The applicant contends
that the respondent was not entitled to ‘… only rely on
information provided to it by the
Applicant…’. The
applicant seems to suggest that the respondent was enjoined to verify
the information that was supplied
to the respondent on her behalf. I
find this contention untenable in the circumstances of this matter.
The applicant was an existing
client of the respondent, the credit
extended to her was merely an increase of an existing credit facility
by R200, 000.00, from
R875, 000.00 to R1, 075, 000.00, her past
repayment history of the loan granted to her by the respondent
originally was satisfactory,
her income presented to the respondent
was in line with her income that had previously been presented to it
during 2005, and she
had an acceptable credit rating. S 81(1) of the
NCA obliges a prospective consumer to fully and truthfully answer any
requests
for information made by the credit provider as part of the
assessment required by s 81. Absent indications that would
reasonably
alert a credit provider to the contrary, which has not
been established on the facts of this matter, a credit provider is,
in my
view, entitled to accept for this purpose the veracity of the
information provided to it by or on behalf of a prospective consumer.
The respondent, in my view, on the facts and circumstances of this
matter acted reasonably in accepting the correctness of the
information furnished to it on behalf of the applicant.
[15] The respondent has, in my
view, met its statutory prescribed assessment obligations at the time
when the loan amount in this
instance was increased. The credit
agreement in terms of which the amount originally approved was
increased is not a reckless
one within the meaning of s 80(1) of the
NCA. This finding and my view of the meaning of the relevant
provisions of the NCA earlier
in this judgment make it unnecessary
for me to deal with the s 81(4) defence raised by the respondent. I
should mention that an
important issue that was not raised or argued
by counsel is what test for materiality is enacted in s 81(4) of the
NCA.
11
I leave this question open.
[16] I now turn to the two
personal loan and two credit card loan agreements, which it is common
cause, the respondent concluded
with the applicant. The applicant
has not refuted the respondent’s averments relating to the
credit that was extended to
her in terms of these credit agreements.
Instead, she ‘submits’ in reply that ‘… the
crux of this matter
centres on the home loan application and credit
in excess of R900, 000.00 granted by the respondent to the applicant
and that the
balance of the credit is secondary thereto.’ The
applicant’s counsel, Mr M Mostert, did not at the hearing
persist
in seeking any relief insofar as the credit agreements
relating to the credit cards is concerned. I accordingly deal only
briefly
with the two personal loans that were granted to the
applicant.
[17] The respondent’s
averments and documents produced by it to support its averments that
the first personal loan was paid
up and that it was effectively
substituted by the second personal loan are merely baldly denied by
the applicant without any attempt
at dealing with the specific
averments made by the respondent. It is common cause that the credit
agreement in respect of the
second personal loan was concluded after
the commencement of the reckless credit provisions of the NCA. The
applicant baldly states
that no proper assessment was undertaken by
the respondent prior to the conclusion of that credit agreement.
However, the respondent’s
answer, which, in my view,
establishes
that it met its statutory prescribed assessment obligations, is not
in any way refuted by the applicant in reply.
[18] Finally, the matter of
fees for two counsel. I consider the briefing of senior and junior
counsel on behalf of the respondent
to have been a reasonable
precaution and necessary.
[19] In the result, the
following order is made:
The applicant’s
application is dismissed with costs, including the fees consequent
upon the employment of one senior and one
junior counsel.
P.A.
MEYER
JUDGE
OF THE HIGH COURT
21
September 2011
Date
of hearing:
...................................
1
June 2011
Date
of Judgment:
..............................
21
September 2011
Counsel
for the Applicant:
.................
Adv.
A Gautschi SC
…
.........................................................
Adv.
A Bester
Counsel
for the Respondent:
............
Adv.
M Mostert
Attorneys
for the Applicant: Klinkenberg Inc.
…
.........................................................
Cnr
Ontdekkers & Starling Roads
…
.........................................................
Roodepoort
…
.........................................................
C.R.
du Plessis
…
.........................................................
C/o
Harvey Nossel
…
.........................................................
126
Athol Street
…
..........................................................
Highlands
North
…
..........................................................
Johannesburg
Attorneys
for the Respondent:
..........
Glover
Inc.
…
........................................................
18
Jan Smuts Avenue
…
.........................................................
Parktown
…
.........................................................
Johannesburg
…
.........................................................
Ref.
R. Glover
1
Act No. 24 of 2005.
2
2011 (2) SA 266
(SCA).
3
Para [14].
4
The reckless credit provisions of the NCA commenced on 1 June 2007
(Proclamation 22 in GG 28824 of 11 May 2006) and do not apply
retrospectively (Schedule 3, item 4(2) read with s 172(3) of the
NCA. See also:
African Bank
Ltd v Myambo N.O. and Others
2010
(6) SA 298
(GNP)).
5
See: S 81(2)(b) of the NCA.
6
See: S 81(2)(a)(i) of the NCA.
7
See: S 81(2)(a)(ii) of the NCA.
8
See: S 81(2)(iii) read with s 80(2) of the NCA.
9
See:
Reiter v Bierberg &
Others
1938 SWA 13 at pp 14 –
15).
10
See:
Radebe and Others v
Eastern Transvaal Development Board
1988 (2) SA 785
(A) at p793D;
Swissborough
Diamond Mines v Government of the RSA
1999 (2) SA 279
(TPD)
at
p 324D – F.
11
Compare the subjective test for materiality that applied to
untrue representations made to insurers, which was introduced
by s
63(3) of the repealed Insurance Act, No. 27 of 1943 (see:
Qilingele
v South African Mutual Life Assurance Society
1993 (1) SA 69
(A), at p 75C – H; and
Theron
AA Life Assurance Association Ltd
[1995] ZASCA 61
;
1995
(4) SA 361
(A), at p 376 C – I) and re-enacted by s 59(1) of
the Long-Term Insurance Act, No. 52 of 1998, which commenced on 1
January
1999, and by the corresponding
s 53(1)
of the
Short-Term
Insurance Act, No. 53 of 1998
, which also commenced on 1 January
1999 (see:
Joubert
v ABSA Life Ltd
2001 (2) SA 322
(W), at p 326 F) and the objective test for
materiality that applied
to
cases of non-disclosure of information to insurers under the common
law (
Mutual
and Federal Insurance Co Ltd v Oudtshoorn Municipality
1985 (1) SA 419
(A),
at p435F;
President
Versekeringsmaatskappy
,
at 216D – G – I; and
Certain
Underwriters of Lloyds of London v Harrison
2004 (2) SA 446
(SCA)
,
at p 449B – C and at pp 451J – 452C), which test was
enacted in s 59 of the Long-Term Insurance Act and in
s 53
of the
Short-Term Insurance Act to
apply to cases of non-disclosure of
information and untrue representations made to insurers when these
sections were amended
by
sections 19
and
35
of the
Insurance
Amendment Act 17 of 2003
, which Act commenced on 1 August 2003.