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[2012] ZAGPJHC 277
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First National Bank, a Division of First Rand Bank Ltd v Fransch (17347/2011) [2012] ZAGPJHC 277 (29 November 2012)
REPUBLIC OF SOUTH AFRICA
SOUTH GAUTENG HIGH COURT
(JOHANNESBURG)
CASE NO: 17347/2011
DATE:29/11/2012
In the
matter between:
FIRST
NATIONAL BANK, A DIVISION OF
FIRST
RAND BANK LIMITED
…
..................................
Plaintiff
and
FRANSCH,
ADRIAN ERNEST
.....................................
Defendant
JUDGMENT
Dodson
AJ
:
Introduction
This matter concerns the right of a bank to
foreclose on a mortgage bond in circumstances where the loan has
been subject to a
debt rearrangement ordered by a magistrate’s
court in terms of section 87(1)(b)(ii) of the National Credit Act
No. 34 of
2004 (“the NCA”)
1
and the consumer has defaulted on his obligations
in terms of the rearrangement.
Factual background
The facts in this matter are essentially common
cause. In 2002, 2004 and 2005, mortgage bonds were passed over the
immovable property
of the defendant, being sectional title unit No.
69, Elspark, Klippoortje, Ekurhuleni. The amounts advanced were
R192 000,
R120 000 and R204 000 respectively.
The defendant ran into financial difficulty and
defaulted on his bond repayments for the first time on 25 February
2008. At around
the same time, the defendant approached the National
Credit Regulator established in terms of section 12 of the NCA. The
National
Credit Regulator referred the defendant to a debt
counsellor registered in terms of section 44 of the NCA, being Ms
Octavia Hlatshwayo
of Mzansi Debt Counselling. The defendant then
applied in terms of section 86(1) to the debt counsellor to be
declared over-indebted.
2
The debt counsellor determined that the defendant
appeared to be over-indebted as contemplated in section 86(6)(a)
3
of the NCA and accordingly issued a proposal that
the magistrate’s court make an order rearranging the
defendant’s
obligations in respect of his creditors in terms
of section 86(7)(c)(ii)
4
of the NCA.
From
February 2008
until April 2008, the defendant made no repayments. From 5 June 2008
the defendant recommenced payments, but in
a substantially reduced
amount. Details in this regard are provided below.
The debt counsellor’s proposal seemingly did not find favour
with the credit providers concerned. Accordingly, on 14 April
2009
the debt counsellor launched an application referring her
recommendation to the magistrate’s court, Germiston.
On 16 March 2010, the magistrate’s court made an order
rearranging the defendant’s obligations in terms of section
87(1)(b)(ii) of the NCA. As far as the plaintiff’s debt is
concerned, that order requires the defendant to pay instalments
of
R2 051.16 per month until June 2017. After that, a substantial
additional contribution of R4 302.49 per month over
and above
the R2 051.16 per month is to be paid until October 2025.
On 6 May 2010, and apparently unaware of the
order in the magistrate’s court, the plaintiff purported to
address a notice
to the defendant, the National Credit Regulator and
the debt counsellor terminating the debt relief process under
section 86.
Consequent upon that notice, the plaintiff issued
summons on 9 July 2010 claiming the full amount due under the three
mortgage
bonds, along with an order declaring the property
executable. The action was defended.
The plaintiff then brought an application for summary judgment which
was set down for hearing on 21 September 2010. At this point
the
defendant resisted summary judgment on the grounds that the
magistrate’s court had made a rearrangement order. Upon
being
confronted with opposition to the summary judgment application on
this basis, the plaintiff agreed to remove the matter
from the roll.
According to the defendant (and this was not
placed in dispute by the plaintiff),
as a
consequence of his having to secure legal representation in
defending the plaintiff’s action he became liable to pay
his
legal representatives their fees. The debt counsellor accordingly
diverted the greater portion of the amounts which were
hitherto
being paid to the plaintiff, towards the settlement of the
defendant’s legal expenses. The day after the first
reduced
payment of R220,97 was made to the plaintiff on 7 October 2010, the
debt counsellor addressed a letter to the plaintiff
which read as
follows:
“
We refer to … the on-going
litigation in regard to the 3000005103147 account. We have defended
the matter and the matter
is subject to litigation which is costing
our client a fortune in legal fees, which our client cannot afford.
The bank is well aware of our client’s financial position,
however intent on litigating in this matter (sic), notwithstanding
the fact that you are receiving payments in respect of the
outstanding amount each and every month as per the repayment
proposal.
Having regard to the above, and having regard
to the fact that our client has been forced to incur unnecessary
legal expenses …
and you are unwilling or unable to deal with
the debt review process, we have instructed our client to cease all
payments in regard
to the debt due to you until such time as the
legal costs have been settled in full and accordingly we will
instruct our client
not to pay for the next few months and thereafter
to resume payment to your account as per the repayment proposals.
Unfortunately
we have
no other alternative as our client is not in possession of additional
funds in which (sic) to fund the litigation and we
believe that you
are taking advantage of the situation by unnecessarily litigating.
Please note that this letter will be brought
to the attention of the
necessary courts and we reserve our client’s rights.”
On 25 March 2011, the plaintiff purported to
address a “
notice of default in
terms of debt re-arrangement in terms of a court order in accordance
with section 86(10) and/or read with
section 88(3) of the National
Credit Act
”
to the defendant,
the debt counsellor and the National Credit Regulator. The letter
pointed out that the defendant had failed
to make payments in
accordance with the order of the magistrate’s court. It
referred to section 88(3) of the NCA and gave
notice of the
plaintiff’s intention to proceed with legal action. The letter
also purported, once again, to “
terminate
the debt review with immediate effect
”
in
terms of section 88(1) of the NCA. It demanded repayment of the then
outstanding balance of R114 125,96 within 10 business
days,
failing which legal proceedings were to be commenced.
Following upon this, on 6 May 2011, and without
withdrawing the earlier summons, a second summons was issued for the
same relief.
On 9 November 2011, the defendant’s
indebtedness in respect of legal expenses having been settled,
payments to the plaintiff
at the amount required in terms of the
debt rearrangement order resumed at the required monthly amount.
From 9 November 2011 until the present time, the defendant has
maintained his monthly payments to the plaintiff at the level
required by the rearrangement order.
The trial was heard before me on 3 and 4 October
2012. Reference was made during cross-examination of the plaintiff’s
witness
on the first day to the earlier proceedings based on the
first summons. This resulted in the relevant file being located
overnight
and on the morning of the second day of the trial, the
plaintiff filed a notice of withdrawal of that action, excluding any
tender
of costs, in order to pre-empt a threatened plea of
lis
pendens
.
The issues
The plaintiff relies on section 88(3) of the NCA.
It provides -
“
Subject to section 86(9) and (10), a
credit provider who receives notice of court proceedings contemplated
in section 83 or 85,
or notice in terms of section 86(4)(b)(i), may
not exercise or enforce by litigation or other judicial process any
right or security
under that credit agreement until-
(a) the consumer is in default under the credit agreement; and
(b) one of the following has occurred:
(i) an event contemplated in subsection (1)(a) through (c); or
(ii) the consumer defaults on any obligation in terms of a
rearrangement agreed between the consumer and credit providers, or
ordered
by a court or Tribunal.”
An event as referred to in section 88(3)(b)(i) means, in essence,
the entering into by a consumer of a further credit agreement
after
filing an application for debt review in terms of section 86(1),
which triggers the forfeiture by the consumer of the protections
afforded by part D of Chapter 4 of the NCA against over-indebtedness
and reckless credit. It is not relevant in these proceedings.
Instead, the plaintiff relies on
–
the defendant’s being in default under the
credit agreement as contemplated in section 88(3)(a); and
the defendant’s default in paying the
amounts due in terms of the rearrangement order
as
contemplated in section 88(3)(b)(ii).
The consequence of these defaults, argues the
plaintiff, is that the prohibition on commencement of legal
proceedings to enforce
a credit agreement in section 88(3) falls
away and the plaintiff may commence legal proceedings without
further notice to the
defendant.
The defendant raised a number of defences:
The defendant adopted the stance that there is an order of the
magistrate’s court in place. The grant of the relief sought
by
the plaintiff would be in conflict with that order. The
rearrangement order would therefore have to be rescinded or varied
before the plaintiff could bring legal proceedings against the
defendant.
The defendant contends that notice is required before commencement
of legal proceedings in these circumstances. In this regard,
the
defendant contends that the registered mail receipts and internet
tracking printouts pertaining to the notice dated 25 March
2011 do
not reflect successful delivery to the defendant’s post
office. Moreover, the defendant testified that he never
received
this notice.
The defendant contends that this court has the
discretion in terms of section 85 of the NCA to afford further debt
relief to the
defendant, either itself or through a referral of a
matter to a debt counsellor.
The defendant contests the plaintiff’s
reliance on the certificate of balance on which it relies for proof
of the amount
payable.
The defendant relies on his right to adequate housing in terms of
section 26 of the Constitution and contends that upon the exercise
of this court’s discretion required thereby before a property
is declared executable, it should be found that it would
be
inappropriate to declare his property as such.
Rescission first?
The defendant argues that it is self-evident that
before proceedings can be commenced where a
rearrangement
order in terms of section 87 is in place, it has to be rescinded.
The plaintiff contests this and argues that all
it need do is ensure
that it complies with section 88(3) of the NCA.
The primary function of section 88(3) is to place
a prohibition on litigation in order to allow a debt-review or debt
restructuring
5
process to take place free of the pressure of
pending litigation.
Once the debt-review process has been completed,
it may culminate in an order under section 87,
6
or a voluntary rearrangement under sections
86(7)(b) or 86(8)(a). If it does, the outcome is an amended credit
transaction between
parties.
7
That amended credit transaction also requires
protection from litigation because even if the consumer complies
with its terms,
under the original credit transaction the consumer
is still in default. Hence section 88(3) extends the prohibition on
litigation
until
“
the consumer
defaults on any obligation in terms of a re-arrangement agreed
between the consumer and credit providers, or ordered
by a court or
the Tribunal”
. That, however, is
as far as the protection from litigation extends. On the clear
wording of section 88(3), that protection ends
at the point of
default under the rearrangement order.
It cannot, in my view, be said that the need for
a rescission of the rearrangement order before commencing legal
proceedings is
“
self-evident”
.
A rearrangement order only amends the repayment terms of the credit
transaction. The order itself does not prohibit legal proceedings
against the consumer. Thus legal proceedings consequent upon a
default under a rearrangement order do not conflict with or seek
to
amend the rearrangement order. On the contrary, they deal with the
consequences of its breach. It is the consumer that breaches
the
rearrangement order when he or she defaults, not the credit provider
when it brings proceedings consequent upon the consumer’s
default.
A similar argument to that raised by the
defendant was rejected in
FirstRand
Bank Ltd v Fillis and Another
.
8
The court held as follows:
“
[17]On behalf of the defendants, it is
argued that because the application for a rearrangement order in
terms of section 86(7)(c)
is an application governed by the Rules of
the Magistrates’ Courts, a credit provider cannot proceed to
enforce its rights
until it has first moved to rescind the
rearrangement order, in accordance with the provisions of
s 36
of the
Magistrates’ Courts Act 32 of 1944
. The provision of
s
88(3)
, so it is argued, simply give the plaintiff the right to now
apply for a rescission of the rearrangement order. This, it is
contended,
is so, because orders of court do not automatically fall
away, unless specifically authorised by an Act.
[18] In my view, the restraint placed upon a
credit provider, in consequence of a credit review process and a
rearrangement order,
does, in this instance, fall away on the express
authority of s 88(3). This interpretation accords too with the
provisions of s
129(2) of the Act.”
9
The defendant referred to two unreported
judgments which he argued had come to a different conclusion from
that arrived at in
the
Fillis
case. The first was
FirstRand
Bank Ltd v Britz and another.
10
That case dealt with a summary judgment
application. There, the defendants had defaulted on the
rearrangement order in that there
was a short payment in one month
which the defendant had later attempted to remedy. In addition,
payments had not always been
timeous. In refusing summary judgment,
the court had regard to the fact that it did not appear on the facts
that the defendants
were still in arrears. The court also took into
account that the defendants had demonstrated their willingness and
ability to
comply with the restructured debt commitment. The court
had regard to the purposes of the Act as being to promote a fair and
transparent credit market and to protect consumers. Because the
matter fell within the purview of the NCA, the court considered
that
the matter ought to be decided on the basis of the purpose of the
legislation.
11
This reasoning is at odds with that in the
Fillis
case. The decision does not however refer to the
provisions of section 88(3) of the NCA. It is therefore of
relatively little
assistance for present purposes. The case is also
distinguishable from the present one on the grounds that it was a
summary judgment
application and further that in this case it is
common cause that the defendant is in default under the
rearrangement order.
The decision is also not binding on me.
The other decision relied on by the defendant was
The Standard Bank of SA v Daya NO and
others
.
12
That case also concerned an application for
summary judgment in circumstances where the third defendant was
alleged to have failed
to make the payments due under a debt
rearrangement order of the Port Elizabeth Magistrates Court.
The court accepted the decision in
FirstRand
Bank v Fillis
as being correct.
13
It referred to section 88(3) of the NCA and
recognised that enforcement proceedings could be commenced if the
consumer was in
default under the credit agreement and in addition
had defaulted on a rearrangement order or agreement.
14
Summary judgment was however refused because it
was not clear that the defendant had defaulted under the
rearrangement order.
Nowhere is it suggested in the judgment that a
rescission of the rearrangement order was required before legal
proceedings could
be commenced.
I am thus of the view that
it
was not incumbent upon the plaintiff to seek the rescission of the
rearrangement order before commencing the present proceedings.
Was
prior
notice required?
The defendant argues that the plaintiff was
obliged to give notice in writing to the defendant before commencing
the current proceedings.
He relies for his contention on sections
86(10), 123 and 129 of the NCA.
The notice requirements of section 129 are
contained in section 129(1).
15
However section 129(2) provides as follows:
“
Subsection (1) does not apply to a
credit agreement that is subject to a debt restructuring order, or to
proceedings in a court
that could result in such an order.”
Given that we are concerned in this instance with a credit agreement
that is indeed subject to a debt rearrangement order, there
cannot
be a notice requirement based on section 129(1).
Section 86(10) is a provision which allows a credit provider to
terminate the debt review process under section 86 once 60 days
have
run since the date when the consumer applied for debt-review in
terms of section 86(1). It provides as follows:
“
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 give notice
to terminate the review in the prescribed manner to -
(a) the consumer;
(b) the debt counsellor; and
(c) the National Credit Regulator,
at any time at least 60 business days after the date on which the
consumer applied for the debt review.”
That provision has been the subject matter of a
number of reported cases in the context of whether or not such
notice terminating
the debt review process may be sent after either
the debt counsellor or the consumer has applied to the magistrate’s
court
for a debt rearrangement order, but before such an order is
made. The conflicting views of the various high courts on that
matter
were addressed by the Supreme Court of Appeal in the matter
of
Collett v FirstRand Bank Ltd
(National Credit Regulator as amicus curiae).
16
Although the decision dealt with the situation
before and not after the rearrangement order of the magistrate’s
court, it
is helpful in identifying precisely when the debt review
process is complete. This aspect is relevant to the present matter
because
it could not be expected of a credit provider to give notice
of termination of the debt review process if that process was
already
complete.
The Supreme Court of Appeal described the debt review process as
follows:
“
[11]The debt counsellor is charged to
determine whether the consumer ‘appears’ to be
over-indebted, and must issue a
proposal recommending any or all of
the orders set out in section 86(7)(c). The debt counsellor’s
involvement in the debt
review is no end in itself but part of an
on-going process
culminating in
the order of the Magistrate’s Court under section 87 (or a
voluntary rearrangement under sections 86(7)(b)
and 86(8)(a). Only
then can the debt review be said to be complete
.”
(emphasis
added)
Applying this judgment,
the
debt review process in the present matter was completed on 16 March
2010 when the magistrate’s court made its rearrangement
order.
The debt review process having been completed, there could not have
been any need, or obligation cast upon the plaintiff,
to terminate
the debt review process by way of a notice in terms of section
86(10) of the NCA.
The other provision relied on by the defendant
was section 123. Section 123 deals with “
termination
of agreement by credit provider
”
.
The only express provision requiring notice in section 123 is in
section 123(3)(b), which requires 10 days’ written notice
before a
“
credit facility”
is closed. A
“
credit
facility”
is described in
section 8(3) and does not cover the agreement we are concerned with
here.
Section 123(2) provides –
“
If a consumer is in default under a
credit agreement, the credit provider may take the steps set out in
part C of chapter 6 to
enforce and terminate that agreement.”
The notice provisions of part C of chapter 6 are
those contained in section 129(1) which, as pointed out above, does
not apply
in the present instance because of the provisions of
section 129(2).
Accordingly I do not
consider section 123 to impose any obligation to give notice on the
defendant.
In
FirstRand Bank v
Fillis
,
17
the court held as follows:
“
[14]… The Act provides very
extensive protection to a consumer who has become over-indebted,
whether it be of his or her
own making or through circumstances
beyond his or her control. Not only does a rearrangement afford him
or her alleviation from
the onerous monthly obligations that he or
she has in all seriousness undertaken to his or her credit providers,
but he or she
also enjoys the protection of s 103(5) against the
ravaging effect of escalating interest whilst he or she remains in
default
under the credit arrangement. If, however, he or she fails to
embrace this opportunity, or he or she is, notwithstanding this very
considerable assistance, unable to comply with his or her
restructured debt commitment, the Act permits the common law to run
its course.”
[15] …
[16] It follows, in my view, as a matter of
interpretation, that once the jurisdictional requirement set out in
s 88(3)(a)
co-exists with any one of the jurisdictional
requirements set out in s 88(3)(b), the credit provider is at
liberty to proceed
and exercise and enforce, by litigation or other
judicial process, any right or security under his credit agreement,
without further notice
.”
(emphasis
added)
This decision was followed by Musi JP in
FirstRand Bank Ltd v Grobler
18
where the court dealt with the question of
whether or not prior notice was required to be given in terms of
either section 129(1)
or section 86(10) of the NCA after default
under a rearrangement order. The court held that it was not.
19
In the circumstances, I am satisfied that it was
not incumbent upon the plaintiff in this matter to give notice to
the defendant
before commencing proceedings. It is therefore
unnecessary to deal with the consequences of the fact that, as was
shown in the
evidence, the plaintiff’s notice dated 25 March
2011 failed to reach the defendant. The failure to give effective
notice
has no bearing on the matter.
20
Can the defendant rely
on s 85?
The defendant asks that I exercise my discretion in terms of section
85 of the NCA to provide further debt relief to the defendant
and on
that basis dismiss the claim brought by the plaintiff. Section 85
provides 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)
; o
r
b)
declare
that the consumer is over-indebted, as determined in
accordance
with this Part, and make any order contemplated in
section
87
to r
elieve
the consumer’s over-indebtedness.”
I will assume in favour of the defendant that that remedy is
potentially available to him, notwithstanding that he has already
been through a debt-review process in terms of section 86 of the
NCA.
In
Standard Bank of
SA Ltd v Panayiotts
21
Masipa J held as follows in the context of a
defence of over-indebtedness based on section 85:
“
[8] A party (the consumer) who raises a
defence of over-indebtedness
must
plead and prove the defence
,
which includes proving that he is over-indebted as envisaged in s 79
of the NCA.
[9] Having regard to the wording of s 79, such
proof must inevitably involve details of, inter alia, the consumer’s
financial
means, prospects and obligations. financial means would
include not only income and expenses but also assets and liabilities.
Prospects
would include prospects of improving the consumer’s
financial position, such as increases, and, even, liquidating
assets.”
22
(emphasis
added)
In the pleadings in the present matter, there is
no reference whatsoever to section 85. On that basis alone, the
defence must
fail. Moreover, there has been no attempt in these
proceedings to present any detailed evidence regarding the
defendant’s
financial means, prospects and obligations. It is
so that the magistrate’s court made an order in terms of
section 87 on
the basis that the defendant was over-indebted, but
that is not a sufficient evidentiary basis for a similar order in
these proceedings
at this time.
In the circumstances, there is no basis for me to make an order as
contemplated in section 85(a) or (b) of the NCA.
Does the defendant’s
right to housing preclude relief?
In
Jaftha v Schoeman
and others; Van Rooyen v Stoltz and others
23
the Constitutional Court provided the following
guidance regarding the exercise by a court of the requisite
discretion before
allowing execution to proceed against immovable
property as follows:
“
[56]…If there are other
reasonable ways in which the debt can be paid an order permitting a
sale in execution would ordinarily
be undesirable. If the
requirements of the Rules have been complied with and if there is no
other reasonable way by which the debt
may be satisfied, an order
authorising the sale in execution may ordinarily be appropriate
unless the ordering of that sale in
the circumstances of the case
would be grossly disproportionate. This would be so if the interests
of the judgment creditor in
obtaining payment are significantly less
than the interests of the judgment debtor in security of tenure in
his or her home, particularly
if the sale of the home is likely to
render the judgment debtor and his or her family completely homeless.
[57] It is for this reason that the size of the debt will be a
relevant factor for the court to consider. It might be quite
unjustifiable
for a person to lose his or her access to housing where
the debt involved is trifling in amount and significance to the
judgment
creditor. However this will depend on the circumstances of
the case. … In this regard, it is important too to bear in
mind
that there is widely recognised legal and social value that must
be acknowledged in debtors meeting the debts that they incur.
[58] Another factor of great importance will be the circumstances
in which the debt arose. If the judgment debtor willingly put his
or
her house up in some or other manner as security for the debt, a sale
in execution should ordinarily be permitted where there
has not been
an abuse of court procedure. The need to ensure homes may be used by
people to raise capital is an important aspect
of the value of a home
which courts must be careful to acknowledge.
[59] A final consideration will be the availability of
alternatives which might allow for the recovery of debt but do not
require
the sale in execution of the debtor’s home. …
The balancing should not be seen as an all or nothing process. It
should
not be that the execution is either granted or the creditor
does not recover the money owed. Every effort should be made to find
creative alternatives which allow for debt recovery but which use
execution only as a last resort.
[60] In summing up, factors that a court might
consider, but to which a court is not limited, are: The circumstances
in which the
debt was incurred; any attempts made by the debtor to
pay off the debt; the financial situation of the parties; the amount
of the
debt; whether the debtor is employed or has a source of income
to pay off the debt and any other factor relevant to the particular
facts of the case before the court.”
In
Gundwana v Steko
Development and others
24
the Constitutional Court dealt with the
application of the discretion required to be exercised by the
Jaftha
decision in the context of foreclosure on a
mortgage bond and declaring of the property to be specially
executable. The court
held as follows :
“
[48]
An
agreement to put one’s property at risk as security in a
mortgage bond does not equate to a licence for the mortgagee
to
enforce execution in bad faith.
[49] I conclude that the willingness of mortgagors to put their
homes forward as security for the loans they acquire is not by itself
sufficient to put those cases beyond the reach of
Jaftha
. An
evaluation of the facts of each case is necessary in order to
determine whether a declaration, that hypothecated property
constituting a person’s home is specially executable, may be
made. …
[50] …
[53] Some further cautionary remarks are called for.
[C]onstitutional considerations … do not challenge the
principle that
a judgment creditor is entitled to execute upon the
assets of a judgment debtor in satisfaction of a judgment debt
sounding in
money. What it does is to caution courts that, in
allowing execution against immovable property, due regard should be
taken of
the impact that this may have on judgment debtors who are
poor and at risk of losing their homes. If the judgment debt can be
satisfied
in a reasonable manner, without involving those drastic
consequences, that alternative course should be judicially considered
before
granting execution orders.
[54] … It must be accepted that execution in itself is not
an odious thing. It is part and parcel of normal economic life.
It is
only when there is disproportionality between the means used in the
execution process to exact payment of the judgment debt,
compared to
other available means to attain the same purpose, that alarm bells
should start ringing. If there are no other proportionate
means to
attain the same end, execution may not be avoided.”
Applying these decisions to the present matter, one is dealing here
with neither a trifling debt nor an indigent defendant. On
three
separate occasions, the defendant elected to put up his house for
security for his debt against the risk of forfeiture
of the family
home in the event of non-payment of his debt. Both the defendant and
his wife are employed although the latter
at an airline which is in
some financial difficulty. They have a young child. The home is
indeed their primary residence. It
is in a middle class but not an
affluent part of the city. The effect of execution against the
property is unlikely to be homelessness.
The defendant testified
that he would have an amount of R3 000 per month available for
purposes of rental.
The circumstances relevant to the exercise of my discretion are
however intimately bound up with the circumstances preceding,
during
and following the debt review. As pointed out above, it is common
cause that the defendant’s reduction of his repayments
to the
plaintiff in terms of the rearrangement order, was the consequence
of the plaintiff’s having had to defend the earlier
proceedings. The defendant’s contention is that those
proceedings were brought in breach of the prohibition on legal
proceedings in section 88(3) of the NCA and that the plaintiff
should not be able to benefit from its own wrong in this regard.
Having regard to the emphasis placed on examining whether there was
an abuse of court process in the
Jaftha
case and the
relevance of bad faith on the part of the party seeking execution in
Gundwana
25
I am inclined to agree with this argument, provided that it has been
shown by the defendant that the earlier proceedings were
indeed
brought in breach of section 88(3) of the NCA.
This requires an examination of the circumstances preceding the
issuing of the first summons. In this regard, included in the
plaintiff’s trial bundle was a complete set of statements of
account reflecting all of the debits and credits on the defendant’s
mortgage loan account for the period of its duration (“the
statement of account”). The statement of account was not
contested and was indeed relied upon by the defendant in relation to
his challenge to the certificate of balance, to which I
will refer
below.
What the statement of account shows is that the defendant first
defaulted on his monthly instalments, then in an amount of R5
186.86, on 25 February 2008. Similar defaults followed immediately
thereafter. These were attributed in evidence to the
over-indebtedness
of the defendant, the need to pay the debt
counsellor’s initial statutory fee and other expenses related
to the debt review
process.
The restructured debt repayment plan proposed by the debt counsellor
envisaged adjusted monthly instalments of R2 051,16 commencing
from
June 2008. Apparently in response to this, and notwithstanding that
the debt counsellor’s proposal had yet to be agreed
upon or
made an order of the magistrate’s court, the defendant
recommenced payments from 5 June 2008. These were monthly
payments
of just over R2 000, which were just short of the amount of
R2 051.16 provided for in the debt counsellor’s
repayment
plan.
After the launch of the application to the magistrate’s court
in terms of section 86(8)(b) of the NCA on 14 April 2009,
the
payments remained at this level.
26
However, on 12 October 2009, the payment dropped to an amount of
R1 835.83, on 6 November 2009 to an amount of R1 694.06,
on 23 December 2009 to an amount of R1 884.18, on 4 February
2010 to an amount of R1 725.42 and on 11 March 2010 to
an
amount of R1 712.85. Accordingly, by the time of the
rearrangement order on 16 March 2010, the payments had dropped to
some R300 less than the repayments required by what was now an order
of the magistrate’s court.
On 6 April 2010, being the first payment due under the amended terms
of the credit agreement determined by the magistrate’s
court,
a repayment of only R1 536.90 was made, being more than R500
less than the amount required in terms of the court
order just made.
On 6 May 2010, an amount of R1 694 was paid, again falling
significantly short of the amount required in
terms of the court
order. On 2 June 2010, an amount of R1 890.80 was paid, again
short of the amount due in terms of the
court order. This was the
position when the plaintiff issued the first summons on 9 July 2010.
For the following three months, payments were made in the amount of
R2 121 per month, in excess of the amount of R2 051.16
required by the rearrangement order. However, as explained above,
from 7 October 2010 the repayments were drastically reduced
on
account of the need to pay legal fees. From 9 November 2011,
payments at or slightly above the level required by the
rearrangement
order were resumed and have apparently persisted.
The upshot of this is that when the plaintiff issued the first
summons the defendant was in fact in default of his obligations
in
terms of the rearrangement order. Thus the commencement of those
proceedings was not in breach of section 88(3) of the NCA.
In these
circumstances it is not possible, in my view, to hold that the
commencement of those proceedings amounted to an abuse
of the court
process as envisaged in
Jaftha
or to an act of bad faith on
the part of the plaintiff.
One would have expected that the defendant, having received the
second chance afforded him by the rearrangement order, to seize
the
opportunity with both hands and to ensure scrupulous compliance with
its terms. Yet, after the making of that order and before
any legal
proceedings, the payments were in fact reduced from those which he
had hitherto been making. This suggests that the
defendant in
incurring the legal costs associated with defending the first
summons must to a significant degree be considered
to have been the
author of his own misfortune. In those circumstances, one would have
expected the adoption of a less confrontational
attitude than that
reflected in the letter addressed by the debt counsellor to the
plaintiff on 8 October 2010, announcing the
unilateral reduction in
repayments in breach of the rearrangement order. A proper approach,
in my view, required an application
to the magistrate’s court
to vary the rearrangement order before the unilateral reduction in
payments. At the very least
one would have expected the letter to
the plaintiff to have sought the plaintiff’s consent to the
reduction before its
unilateral implementation.
I also take into account that, whilst the defendant is currently
meeting the amount required in respect of his monthly repayments,
there was no evidence on his part as to how he intended to make up
the arrears which have accumulated under the restructured
debt. The
defendant’s patchy record in relation to repayment does not
bode well for future compliance with the rearrangement
order,
particularly once he becomes obliged to make the “additional
contribution” of R4 302.49 per month.
In all the circumstances, I am not satisfied that refusal of the
relief sought by the plaintiff is justified on the grounds of
any
breach of the defendant’s right to adequate housing in terms
of section 26(1) of the Constitution and his right not
to be
subjected to eviction in contravention of section 26(3) of the
Constitution.
Certificate of balance
Each of the mortgage bonds contains a clause 16 which provides as
follows:
“
16
CERTIFICATE
OF AMOUNT OWING
A certificate purporting to be signed on behalf of the Bank shall
be proof until the contrary is proved of the balance owing and
the
fact that it is due and payable, and the authority of the signatory
and the validity of the signature need not to be proved.
The
certificate shall be valid as a liquid document for the purposes of
obtaining provisional sentence, summary judgment or default
judgment.”
The plaintiff sought to rely on a certificate of balance purportedly
signed by one Amelia Du Buisson, the Manager: Collections,
which
read as follows:
“
CERTIFICATE OF BALANCE
ATTORNEY: STRAUSS DALY ATTORNEYS
ACCOUNT NO:3000-005-103-147
I hereby certify that the Home Loans account
balance standing to the Debit of
FRANSH
A
in the books of this Branch on the
evening of
15 APRIL 2011
amounted to R541,623,36 (five hundred and forty
one thousand, six hundred and twenty-three rand thirty-six cents).
Interest is accrued
at a rate of
7.50
%
calculated daily and compounded monthly from
25
MARCH 2011
.”
In support of this certificate, the plaintiff led the evidence of
its attorney who on a weekly basis witnesses the signing by
Ms Du
Buisson of the said certificates of balance. Under
cross-examination, it became apparent that he was not, however, able
specifically to recall the occasion of the signing of the particular
certificate in question. Nonetheless his evidence that the
signature
was indeed that of Amelia Du Buisson was not challenged.
The certificate was challenged by the defendant on three separate
bases. The first was that the second sentence in clause 16,
quoted
above, confines the use of the certificate to the particular forms
of legal proceeding there mentioned, namely provisional
sentence,
summary judgment or default judgment.
A similar argument was rejected by the Supreme
Court of Appeal in the matter of
Senekal
v Trust Bank of Africa Ltd
27
where the court held as follows:
“
[Counsel] sought to attach a limiting or
exclusionary meaning and purpose to the words ‘to such an
extent that the bank may
obtain provisional sentence …’.
It appears to me, however, that the purpose of adding the words at
the end of the
certificate clause was to extend rather than to limit
the scope of applicability of the fundamental provision that such a
certificate
was to constitute prima facie evidence of the amount of
the debt owed to the bank by the principal debtor. Whenever a bank
claims
payment of money said to be owing to it by a customer who
enjoys overdraft facilities on a current account which fluctuates,
possibly
from day to day, it must needs rely on its books of account
and other records of transactions in order to establish the amount
due to it. To prove every one of the many entries in the books, which
may have been made from time to time by a large number of
different
employees, might for obvious reasons sometimes be extremely
difficult. … The main purpose of the certificate clause
was
clearly to facilitate proof of the amount of the principal debtor’s
indebtedness to the bank at any given time. …
We are not now
concerned, however, with the questions whether the certificate
itself, read with the deed of suretyship, would have
rendered the
claim sufficiently liquid to entitle the respondent to provisional
sentence, but with the question whether such a
certificate can have
value in the sense of constituting prima facie evidence of the amount
of the indebtedness in proceedings such
as were instituted by
respondent, and to that question the answer appears to me, on
construction of the agreement, to be ‘Yes’.”
For the same reasons I am of the view in this
matter that the effect of the second sentence of the clause is to
extend rather
than to narrow the range of proceedings in which such
a certificate would be admissible as
prima
facie
proof of the balance owing and
the fact that it is due and payable.
The second challenge to the certificate was that
the witness who testified as to its authenticity was not able to
recall the specific
occasion on which the certificate of balance was
signed in front of him. In my view this argument is met by the
wording of the
clause itself where it is provided that
“
the
authority of the signatory and the validity of the signature need
not be proved.”
The evidence of
the attorney was accordingly superfluous in this regard. In any
event the testimony that the signature was indeed
that of Ms Du
Buisson was not challenged.
The third challenge to the certificate pertains
to items debited to the defendant’s statement of account in
respect of “
legal fees”
between the period 9 July 2010 and 13 August
2012. It was put to the plaintiff’s witness in
cross-examination that these
must pertain to legal fees in respect
of the first summons issued on 9 July 2010 and subsequent
proceedings as well as the current
pending proceedings. It was
further put to him in cross-examination that these amounts were
wrongly debited in the absence of
any costs order having been
granted against the defendant in favour of the plaintiff. Because
the plaintiff’s sole witness
had no personal knowledge of the
entries on the bank statement he was not able to shed any light on
these items.
It was argued on behalf of the plaintiff that the
effect of the certificate of balance was such as to place the
evidentiary burden
on the defendant to prove that these amounts were
in fact amounts wrongly debited in respect of legal costs for these
proceedings
and the earlier proceedings.
It was argued on behalf of the defendant that,
the plaintiff having discovered and included the statement of
account in its trial
bundle, the debits having been identified in
the way which they were in the statement and having corresponded
precisely with
the period during which the defendant had been
subject to legal proceedings at the instance of the plaintiff, no
reliance could
be placed on the certificate of balance and that the
plaintiff’s claim should be dismissed.
The first of the legal fees reflected as a debit
on the statement of account coincides precisely with the date of
issue of the
first summons, being 9 July 2010. Amounts have been
debited at regular intervals since that time with the final debit
reflected
as having been made on 13 August 2012.
In my view, the coincidence is too significant to
ignore. The plaintiff included the statement of account in its trial
bundle.
It was conceded by the plaintiff’s witness that the
statement of account formed the basis upon which the certificate of
balance was prepared because the statement reflects the balance
between 12 and 19 April 2011 as being R541 623.36 which is the
amount reflected in the certificate of balance as being due at 15
April 2011. The plaintiff’s sole witness could not refute
the
assertion put to him that these payments, totalling R7 709.23 as at
15 April 2011, could pertain to the costs associated
with the
issuing of the two summonses.
28
This is significant because the plaintiff has
withdrawn the first summons and the defendant is
prima
facie
entitled to a costs order in his
favour consequent upon such withdrawal. Were I to order the
defendant to pay the sum reflected
in the certificate of balance,
absent a proper explanation for those debits, there is a risk of the
defendant paying the costs
of the earlier proceedings when the
plaintiff has withdrawn them and the issue of the costs of those
proceedings has yet to be
decided.
What is the consequence of this flaw? The
defendant argues that the plaintiff has, in the circumstances,
failed to prove its case
and that its claim therefore stands to be
dismissed. The plaintiff relies on
Senekal
v Trust Bank
29
to argue that reliance may be placed on a
certificate of balance notwithstanding there being some
imperfections in it. There it
was held as follows :
“
Mr du Toit’s contention was, in
effect, that once such a certificate is shown to be suspect as to its
accuracy or reliability
in any respect whatever, it has no evidential
value and must be entirely disregarded. I have no doubt that that
broad contention
must be rejected. There might be several items to
which such certificate relates, some of which may appear to be
unassailable while
others may either be shown to be inaccurate or
appear to be of dubious reliability, or might require some
modification or adjustment.
I can find no reason why in such
circumstances the certificate is to be entirely disregarded merely
because it is found or thought
to be inaccurate or unreliable in
certain respects.”
30
Applying this judgment to the circumstances of
the present matter, I am satisfied that the certificate of balance
does constitute
adequate evidence in respect of that part of the
balance which is unaffected by the debits in respect of legal fees.
The amount
debited in respect of legal fees as at the date of the
certificate of balance is easily ascertainable and can be deducted
from
the amount claimed.
31
Accordingly, the amount claimed should simply be
subject to modification along the lines suggested in
Senekal
v Trust Bank
. It is so that interest
will have been charged on the amounts debited in respect of legal
fees. In my view, appropriate provision
can and will be made in this
court’s order to ensure that in this respect, too, an
appropriate modification is made.
32
In the circumstances, I am satisfied that the plaintiff has proven
its claim on a balance of probabilities in respect of a lesser
amount. In relation to the amount of R7 709.23 charged in respect of
legal fees, the plaintiff has failed to prove its claim
and
absolution from the instance should be granted.
I grant absolution from the instance in respect of the amount of R7
709.23.
I grant judgment in favour of the plaintiff against the defendant
for-
Payment of the sum of R533 914.13, less the
interest charged on the amounts debited in respect of “legal
fees”
on the defendant’s statement of account between
9 July 2010 and 15 April 2011;
Interest on the net amount referred to in paragraph (a) at the
rate of 7,50% per annum calculated and capitalised monthly
in
arrears from 25 March 2011 to date of payment, both days
inclusive;
An order declaring to be executable the immovable property
described as –
“
A unit consisting of-
Section No. 69 as shown and more fully described on Sectional
Plan No. SS33/2001 in the scheme known as Elspark Villas in respect
of the land and building or buildings situated at Klippoortje
Agricultural Lots Township, local authority: Ekurhuleni Metropolitan
Municipality of which section the floor area, according to the said
sectional plan, is 70 square metres in extent; and
An undivided share in the common property in the scheme
apportioned to the said section in accordance with the participation
quota
as endorsed on the said sectional plan.
Held by Deed of Transfer No. ST30734/2002.”
Costs of suit on the scale as between attorney and client.
___________________
AC DODSON AJ
COUNSEL FOR THE PLAINTIFF: JF VAN DEVENTER
INSTRUCTED BY: STRAUSS DALY INC,
GROUND FLOOR, BLOCK A,
GRAYSTON RIDGE OFFICE PARK,
CNR KATHERINE STREET / GRAYSTON DRIVE,
SANDTON
COUNSEL FOR THE DEFENDANT: ATTORNEY ZIMMERMAN
TAITZ & SKIKNE ATTORNEYS,
46 CACHET ROAD,
LAMBTON,
GERMISTON
HEARD: 3 AND 4 OCTOBER 2012
JUDGMENT
DELIVERED: 29 November 2012
1
Section
87(1)(b)(ii) reads –
(1)If a debt counsellor makes a proposal to the
Magistrate’s Court in terms of section 86(8)(b), or a consumer
applies to
the Magistrate’s Court in terms of section 86(9),
the Magistrate’s Court must conduct a hearing and, having
regard
to the proposal and information before it and the consumer’s
financial means, prospects and obligations, may-
a)
…
b)
make-
i)
…
ii)
an order re-arranging the consumer’s
obligations in any manner contemplated in section 86(7)(c)(ii).”
2
Section
86(1) reads-
“
A
consumer
may
apply to a debt counsellor in the
prescribed
manner
and form to
have
the consumer declared over-indebted.”
3
Section
86(6)(a)
“
A debt counsellor who has
accepted an application in terms of this section must determine, in
the prescribed manner and within
the prescribed time-
a)
whether the consumer appears to be over-indebted.”
4
Section
86(7)(c)(ii) reads -
“
(7) If, as a result of an
assessment conducted in terms of subsection (6), a debt counsellor
reasonably conclused that –
(a) …
(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)…
(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.”
-
5
Whether
in terms of sections 83, 85 or 86 of the
NCA.
6
Read,
where appropriate with section 83(3)(b)(ii) or 85(b).
7
See
Collett v FirstRand Bank Ltd (National
Credit Regulator as amicus curiae
)
[2011] 3 All SA 585
(SCA) at p593 para 11.
8
2010
(6) SA 565
(ECP)
9
S
129(2) is dealt with below.
10
(5243/2011)
[2012] ZAFSHC 13
(9 February 2012).
11
At
paras 24 – 25.
12
(540/2012)
[2012] ZAECPEHC 33 (24 May 2012).
13
At
para 7 and fn 3.
14
At
para 7.
15
The
relevant provision reads as follows:
“
129. Required procedures before debt
enforcement
If the consumer is in default under a credit agreement, the
credit provider-
may draw the default to the notice of the consumer in writing
and propose that the consumer refer the credit agreement to a debt
counsellor, alternative dispute resolution agent, consumer court or
ombud with jurisdiction, with the intent that the parties
resolve
any dispute under the agreement or develop and agree on a plan to
bring the payments under the agreement up to date;
and
subject to s 130(2), may not commence any legal proceedings to
enforce the agreement before-
first providing notice to the consumer, as contemplated in
paragraph (a), or in section 86(10), as the case may be, and
meeting the further requirements set out in section 130.”
16
[2011]
3 All SA 585
(SCA).
17
See
footnote 8 above.
18
(6446/2010)
[2011] ZAFSCHC 58 (17 March 2011).
19
See
paras 7 – 10.
20
Contrast
Sebola v Standard Bank of SA Ltd
2012
(5) SA 142
(CC).
21
2009
(3) SA 363
(W).
22
See
also
FirstRand Bank Ltd v Olivier
2009
(3) SA 353
(SECLD) and
Andrews v
Nedbank
2012 (3) SA 82
(ECG) at paras
13 – 24 where a similar approach was adopted.
23
[2004] ZACC 25
;
2005
(2) SA 140
(CC) at paras 56 – 59.
24
2011
(3) SA 608
(CC).
25
At
para [44](c), for example.
26
More
precisely, the payments in the months immediately after 14 April
2009 were
R2026.47 per month (ie R24,69 short of the payments
under the debt counsellor’s plan).
27
1978
(3) SA 375
(A) at 381F – 382F.
28
The
subsequent debits for legal fees on the statement of account may be
ignored because the amount claimed in the declaration
is based on
the certificate of balance dated 15 April 2011.
29
See
para 68 above.
30
At
382 F-G.
31
The
amount claimed is R541 623.36. This amount is reduced to
R533
914.13 after the deduction of the amount of R7 709.23.
32
The
parties were invited at the conclusion of the trial to provide me
with this amount. I was belatedly provided with a spreadsheet
from
which I was not able to discern it.