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[2015] ZASCA 11
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Firstrand Bank Limited v Kona and Another (20003/2014) [2015] ZASCA 11; 2015 (5) SA 237 (SCA) (13 March 2015)
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THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case
No: 20003/2014
Reportable
In
the matter between:
Firstrand
Bank
Limited
............................................................................................
Appellant
and
Raymond
Clyde
Kona
..................................................................................
First
Respondent
Amie
Gertrude
Kona
................................................................................
Second
Respondent
Neutral
Citation:
Firstrand Bank v Kona & another
20003/2014
[2015] ZASCA 11
(13 March 2015)
Coram:
Mpati P, Cachalia and Mbha JJA and Van der Merwe and Meyer AJJA
Heard:
26 February 2015
Delivered:
13 March 2015
Summary:
National Credit Act 34 of 2005
– interpretation of
s 88(3)
–
existence of debt re-arrangement order not a bar to the grant of a
sequestration order.
Court
– precedent and
stare decisis
– observance of
doctrine mandatory.
ORDER
On
appeal from:
North Gauteng High Court, Pretoria (Phatudi J
sitting as court of first instance):
(a)
The appeal succeeds with costs, which costs shall be paid out of the
joint estate of the respondents as part of the costs of
sequestration.
(b) The order of the
court a quo is set aside and replaced with:
‘
The
joint estate of the respondents is placed under final sequestration.’
JUDGMENT
Meyer
AJA (
Mpati P, Cachalia and Mbha JJA and Van der Merwe
AJA
concurring)
[1] This is an
appeal against an order of the North Gauteng High Court, Pretoria
(Phatudi J) on 7 March 2014 discharging a provisional
order of
sequestration of the joint estate of the respondents, who are married
in community of property. The appeal is with leave
of the high court.
[2]
It is common cause that the appellant has a liquidated claim against
the respondents. As at 26 August 2011 their indebtedness
to the
appellant amounted to R953 903.48 plus interest thereon at the rate
of 7.30 per cent per annum. The indebtedness arose as
a result of an
overdraft facility the appellant had granted to the respondents
pursuant to the conclusion of a written loan agreement
on 7 August
2006. The facility was subsequently increased. The moneys borrowed
from the appellant were secured by a first and a
second mortgage bond
registered in favour of the appellant over an immovable property
owned by the respondents and in which they
reside. The National
Credit Act 34 of 2005 (the NCA) applies to the loan agreement. The
appellant is a ‘credit provider’
and each respondent a
‘consumer’ as contemplated in s 1 of the NCA.
[3]
During the year 2008 the respondents applied to a registered debt
counsellor, Mr Rael Zimmerman, for a debt review in terms
of s 86(1)
of the NCA. They submitted an application, as required in terms
of reg 24(1)(a) read with Form 16 of the regulations
promulgated in
GN R489,
GG
28864, 31 May 2006 (the NCA regulations) to the
debt counsellor. The debt counsellor dispatched notices dated
25 July 2008
in accordance with s 86(4)(
b
) read with reg 24(2)
and Form 17.1 to credit bureaux and the respondents’ credit
providers that were listed in their application,
advising them that
the respondents have applied for debt review in terms of s 86 of the
NCA. He conducted an assessment in
terms of s 86(6) and
concluded that the respondents were over-indebted. He
thereafter sent further notices dated 3 September
2008 in accordance
with reg 24(10) and Form 17.2 to credit bureaux and the respondents’
credit providers advising them that
the respondents’
application for debt review had been successful and that their debt
obligations were being restructured.
[4]
The proposal which the debt counsellor made to the respondents’
credit providers, including the appellant, reflects a
substantial
monthly shortage of their income over their expenditure. The
debt counsellor recommended that the period for
payment in respect of
each credit agreement be extended and that the monthly payments be
reduced accordingly. He also recommended
that the interest
accruing on the debt owed to the appellant be reduced to a rate of 5
per cent per annum. Interest reductions
in respect of other
debts were also recommended. The appellant was one of the
credit providers which did not consent to the
debt counsellor’s
proposal.
[5]
The debt re-arrangement order proposed was put before the
Magistrate’s Court, Alberton, in terms of s 86(7), read with
ss
87 and 79 of the NCA, by means of a substantive application. BMW
Financial Services (SA) (Pty) Ltd and the appellant opposed
the
application. On 20 August 2009 the magistrates’ court issued an
order declaring the respondents to be over-indebted and
re-arranging
their obligations in accordance with the debt re-arrangement proposed
by the debt counsellor. (Whether the reduction
in contractually
agreed interest rates renders the debt re-arrangement order invalid
as contended for by the appellant is a matter
that needs not be
decided in this matter.) The respondents failed to effect proper and
punctual payment to the appellant of the
reduced monthly instalments
due to it in terms of the debt re-arrangement order.
[6]
Because the respondents were in default under the loan agreement and
with their obligations in terms of the debt re-arrangement
order, the
appellant adopted the stance that it was entitled to enforce its
rights and securities under the loan agreement and
mortgage bonds in
terms of s 88(3) of the NCA. Section 88(3) reads as follows:
‘
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 re-arrangement agreed
between the consumer and credit providers, or ordered
by a court or
the Tribunal.’
(Section
86(4)(
b
)(i) referred to in s 88(3), read with reg 24(2) and
Form 17.1, enjoins a debt counsellor to notify all credit providers
listed
in a consumer’s application that the consumer has
applied for debt review in terms of s 86 of the NCA. The references
in
s 88(3) to other provisions of the NCA are not presently
relevant.)
[7]
The appellant accordingly instituted an action against the
respondents in the North Gauteng High Court on 20 January 2011
claiming
payment of the sum of R923 911.72, interest thereon at the
rate of 7.30 per cent per annum from 1 January 2011, an order
declaring
the immovable property executable and costs on the scale as
between attorney and client. The action was defended and the
respondents successfully resisted summary judgment.
[8]
On 5 March 2012 the appellant launched an application for the
sequestration of the respondents’ joint estate. It relied
on
the outstanding indebtedness as at 26 August 2011 of R953 903.48 and
interest thereon at the rate of 7.30 per cent per annum.
The
respondents opposed the sequestration application, and answering and
replying affidavits were exchanged. On 5 August
2013 the
opposed application for the provisional sequestration of the
respondents’ joint estate was heard by Van Oosten J.
His
judgment was delivered on 8 August 2013. He issued an order
provisionally sequestrating the respondents’ joint
estate and a
rule nisi calling upon the respondents and all other interested
parties to show cause on the return day why the provisional
order
should not be confirmed.
[9]
On 19 September 2013 the respondents launched an interlocutory
application in which they sought to set aside the provisional
order.
The appellant filed an affidavit in opposition to this application. I
need not express any view on this somewhat unusual
procedure that was
adopted. It was not objected to by the appellant. On 7 March 2014
Phatudi J made an order setting aside the
provisional order,
discharged the rule nisi and ordered the appellant to pay the
respondents’ costs.
[10]
In setting aside the provisional sequestration order the high court
held that an application by a credit provider for the sequestration
of a consumer’s estate constitutes ‘other judicial
process’ in terms of s 88(3) of the NCA by which the credit
provider exercises or enforces a right under the credit agreement
between itself and the consumer. The words ‘other
judicial process’, so the high court held, mean ‘any
motion proceedings including sequestration applications’.
The high court also inferred from the appellant’s ‘papers
and submissions made’ that it ‘opted to pursue
the
recovery of the debt by way of insolvency proceedings’.
The high court further held that a debt re-arrangement
order
contemplated in s 86(7)(c)(ii) of the NCA, unless and until set aside
by a competent court, constitutes a bar to the compulsory
sequestration of a consumer’s estate.
[11]
The appellant’s purpose in applying for the sequestration of
the respondents’ estate may well have been to obtain
payment of
its debt. However, Solomon JA said this in
Estate Logie v
Priest
1926 AD 312
at 319:
‘
It
appears to me that it is perfectly legitimate for a creditor to take
insolvency proceedings against a debtor for the purpose
of obtaining
payment of his debt. In truth that is the motive by which
persons, as a rule are actuated in claiming sequestration
orders.
They are not influenced by altruistic considerations or regard for
the benefit of other creditors, who are able to
look after
themselves. What they want is payment of their debt, or as much
of it as they can get.’
A
credit provider’s motive is irrelevant to the question whether
sequestration proceedings are proceedings to ‘exercise
or
enforce by litigation or other judicial process any right or
security’ as characterized by s 88(3) of the NCA. (See
Investec Bank Ltd & another v Mutemeri & another
2010
(1) SA 265
(GSJ) paras 27-28;
Firstrand Bank Ltd v Evans
2011 (4) SA 597
(KZD) paras 23-24.)
[12]
In
Naidoo v ABSA Bank Ltd
2010 (4) SA 597
(SCA) para 4 this
court held ‘that sequestration proceedings are not in and of
themselves “legal proceedings to enforce
the agreement”
within the meaning of s 129(1)(
b
)’. In this regard
Cachalia JA said the following:
‘
Mr
Reddy's submission, as I understand it, implicitly contains a
concession that sequestration proceedings are not in and of
themselves
“legal proceedings to enforce the agreement”
within the meaning of s 129(1)(
b
). That his concession is
correct is clear from the recent judgment in
Investec Bank Ltd and
Another v Mutemeri and Another
, where Trengove AJ concluded that
an order for the sequestration of a debtor's estate is not an order
for the enforcement of the
sequestrating creditor's claim, and
sequestration is thus not a legal proceeding to enforce an
agreement. He did so after
carefully considering the
authorities which have held that – “sequestration
proceedings are instituted by a creditor
against a debtor not for the
purpose of claiming something from the latter, but for the purpose of
setting the machinery of the
law in motion to have the debtor
declared insolvent” - they are not proceedings “for the
recovery of a debt”.
The learned judge's reasoning
accords with this court's description of a sequestration order as a
species of execution, affecting
not only the rights of the two
litigants, but also of third parties, and involves the distribution
of the insolvent's property
to various creditors, while restricting
those creditors' ordinary remedies and imposing disabilities on the
insolvent - it is not
an ordinary judgment entitling a creditor to
execute against a debtor.’
(Footnotes
are omitted.)
[13]
The same reasoning, as was pointed out by Wallis J in
Evans
,
para 25-
‘
.
. . also led Trengove AJ to conclude that sequestration proceedings
are not proceedings “in respect of a credit agreement”
within the meaning of s 130(3) of the Act, or an endeavour to
exercise or enforce by litigation or other judicial process any right
or security under the credit agreement as referred to in s 88(3) of
the NCA.’
Wallis
J, bound to accept the authority and the binding force of a decision
of this court as he was, followed these conclusions
and the reasoning
by which they were arrived at and added-
‘
. . . that it
avoids what would otherwise be the very odd conclusion, that the NCA
operates to preclude credit providers from sequestrating
the estates
of their debtors, but does not prevent other creditors from doing
so. If sequestration of a person's estate,
while they are under
debt review, was to be rendered impermissible, there appears to be no
sound reason why it should be available
to creditors who are not
credit providers under the NCA. Conversely, there is no obvious
reason why credit providers should be
a class of creditor excluded
from invoking the mechanisms of the Insolvency Act.’
[14]
I conclude, therefore, that an application by a credit provider for
the sequestration of a consumer’s estate in which
it relies on
its claim in terms of a credit agreement to qualify as a creditor for
the purpose of instituting sequestration proceedings
does not
constitute ‘litigation or other judicial process’ by
which the credit provider exercises or enforces any right
or security
under the credit agreement within the meaning of s 88(3) of the NCA.
An application for the sequestration of
a consumer’s estate is
thus not precluded by the prohibition on the institution of
proceedings envisaged in s 88(3) of the
NCA.
[15]
Recognizing that the provisions of s 88(3) constitute no bar to the
institution of sequestration proceedings implies further
that the
existence or validity of a debt re-arrangement order is immaterial to
an application for sequestration of the consumer’s
estate,
unless the debt re-arrangement order is raised as a circumstance for
the court to exercise its discretion in favour of
the debtor.
(See
Evans
, paras 29-37.) Circumstances that would have
justified the high court to have exercised the discretion vested in
it in terms
of
s 12(1)
of the
Insolvency Act 24 of 1936
in favour of
the respondents are absent. There is no evidence that establishes
that the respondents’ debts would be paid
within a reasonable
time. On the contrary, the evidence shows that the respondents
did not comply with the terms of the debt
re-arrangement order and
that the payments made to the appellants in terms of that order did
not even discharge the monthly interest
accruing on the debt.
[16]
Finally, I consider it necessary to express a view on the high
court’s conclusion that a debt re-arrangement order
contemplated
in
s 86(7)(c)(ii)
of the NCA constitutes a bar to the
compulsory sequestration of a consumer’s estate, unless and
until set aside by a competent
court. That conclusion is
premised on the erroneous finding that an application for
sequestration seeks to enforce the credit
agreement, and is in
conflict with this court’s interpretation in
Naidoo
.
It misconstrues the nature and effect of a debt re-arrangement
order.
[17]
As was said by Wallis J in
Evans
, para 35-
‘
[t]he effect
of a debt re-arrangement order is to place a moratorium on credit
providers pursuing their contractual remedies, for
so long as the
debtor complies with the terms of the debt re-arrangement order. Once
it is recognised that an application for sequestration
is not the
enforcement of the credit agreement, it must follow that any
moratorium to claiming payment, under the credit agreement
that
exists by virtue of a debt re-arrangement order, is not a bar to the
grant of a sequestration order.’
[18]
The moratorium is lifted by operation of law - and accordingly
without the need to have the debt re-arrangement order set aside
-
once the consumer is in default of the relevant credit agreement and
is in default of the debt re-arrangement order. In
Firstrand
Bank Ltd v Fillis
2010 (6) SA 565
(ECP) para 16, Eksteen J, in
construing
s 88(3)
of the NCA, stated that-
‘
[i]t follows
. . . 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
to exercise and enforce, by litigation or other judicial process, any
right
or security under his credit agreement, without further
notice.’
[19]
Both the Constitutional Court in
Ferris & another v Firstrand
Bank Ltd
2014 (3) SA 39
(CC) para 16, and this court recently in
Jili v Firstrand Bank
(763/13)
[2014] ZASCA 183
(26 November
2014) para 22, cited with approval the passage in
Fillis
quoted
above. Moseneke ACJ, in delivering the unanimous judgment of
the court in
Ferris
, said the following:
‘
[14] . . .
Once the restructuring order had been breached, FirstRand was
entitled to enforce the loan without further notice. This
is clear
from the wording of the relevant sections of the Act. Section
88(3)(
b
)(ii) does not require further notice — it merely
precludes a credit provider from enforcing a debt under debt review
unless,
among other things, the debtor defaults on a
debt-restructuring order. Moreover, s 129(2) expressly stipulates
that the requirement
to send a notice under s 129(1) is not
applicable to debts subject to debt-restructuring orders.’
[20]
Leach JA in
Jili
, para 25, concluded that-
‘
. . . the
appellant’s default under the debt re-arrangement order
entitled the respondent, without further ado, to proceed
to recover
the motor vehicle in question from her.’
[21]
The decision of this court in
Naidoo
and that of the
Constitutional Court in
Ferris
were referred to in the
judgment of the high court. The legal principles enunciated in the
two decisions were binding on that court
and precluded it from
arriving at any of the three conclusions to which I have referred.
The statement of principle by Didcott
J in
Credex Finance (Pty)
Ltd v Kuhn
1977 (3) SA 482
(N) that is thus concisely summarised
in the headnote to that judgment is in point:
‘
The doctrine
of judicial precedent would be subverted if judicial officers, of
their own accord or at the instance of litigants,
were to refuse to
follow decisions binding on them in the hope that appellate tribunals
with the power to do so might be persuaded
to reverse the decisions
and thus to vindicate them
ex post facto
. Such a course
cannot be tolerated.’
[22]
The Constitutional Court, in
Camps Bay Ratepayers’ and
Residents’ Association & another v Harrison & another
2011 (4) SA 42
(CC), paras 28-30, expressed itself in no
uncertain terms about observance by courts of the maxim
stare
decisis
or the doctrine of precedent. Brand AJ, in
delivering the unanimous judgment of the court said:
‘
Considerations
underlying the doctrine were formulated extensively by Hahlo &
Kahn [Hahlo & Kahn
The South African Legal System and its
Background
(Juta), Cape Town 1968) at 214-15]. What it
boils down to, according to the authors, is: '(C)ertainty,
predictability, reliability,
equality, uniformity, convenience: these
are the principal advantages to be gained by a legal system from the
principle of
stare decisis
.' Observance of the doctrine
has been insisted upon, both by this court and by the Supreme Court
of Appeal. And I believe
rightly so. The doctrine of precedent
not only binds lower courts, but also binds courts of final
jurisdiction to their own decisions.
These courts can depart from a
previous decision of their own only when satisfied that that decision
is clearly wrong.
Stare decisis
is therefore not simply a
matter of respect for courts of higher authority. It is a
manifestation of the rule of law itself, which
in turn is a founding
value of our Constitution. To deviate from this rule is to
invite legal chaos.’
(Footnotes are
omitted.)
[23]
The formal and substantive requisites for a final sequestration order
have been established. There are no circumstances that
warrant the
exercise of a court’s discretion in favour of the respondents.
The high court should have sequestrated the joint
estate of the
respondents.
[24]
In the result the following order is made:
(a)
The appeal succeeds with costs, which costs shall be paid out of the
joint estate of the respondents as part of the costs of
sequestration.
(b)
The order of the court a quo is set aside and replaced with:
‘
The joint
estate of the respondents is placed under final sequestration.’
___________________
PA
Meyer
Acting
Judge of Appeal
APPEARANCES
For
Appellant: L Meintjes
Instructed
by: Rorich Wolmarans & Luderitz Inc, Pretoria
Symington
& De Kok, Bloemfontein
For
Respondent: SS Cohen
Instructed by:
Ledwaba Attorneys c/o Phukubye Attorneys, Pretoria
Moroka
Attorneys, Bloemfontein