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[2016] ZAGPJHC 59
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Absa Bank Limited v Kganakga (26467/2012) [2016] ZAGPJHC 59 (18 March 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
Case
number: 26467/2012
DATE:
18 MARCH 2016
In
the matter between:
ABSA BANK
LIMITED
..............................................................................................................
Plaintiff
And
KGANAKGA,
MALECIA
CONSTANCE
.............................................................................
Defendant
JUDGMENT
SATCHWELL J:
INTRODUCTION
This
judgment concerns the application of subsections 81(2)
(a) and (b) of the National Credit Act 34 of 2005
(‘the
NCA ’). Plaintiff is a bank which has claimed payment of an
amount due under a mortgage loan agreement
which defendant has
pleaded amounted to ‘reckless’ granting of
credit in terms of section 80 of the Act.
Plaintiff
made an offer to purchase immovable property in KwaZulu Natal (‘the
Elysium land’) for the sum
of R 900 000 (nine
hundred thousand rand) in July 2007 which was
accepted
[1]
.
Pursuant to the sale agreement, application was made to
ABSA for mortgage loan finance in the
amount of R
900, 000 which sum was not approved but a loan in the
amount of R 720, 000 was approved
[2]
.
Interest in the amount of 11.2% at the time of the granting of
the loan was to be levied and monthly repayments
in the
amount (as then calculated) in the amount of R 7, 935.
29 were to be made in 240 instalments.
Such
loan to defendant was to be secured by registration of a covering
mortgage loan over the Elysium property which
was so
registered in the Registrar of Deeds, Pietermaritzburg on 25
th
September 2007
[3]
.
It
is common cause that the mortgage loan agreement constitutes a
credit agreement in terms of the
National Credit Act.
[4
]
Defendant
has defaulted on the repayments to be made and plaintiff,
based on a certificate of balance
[5]
,
seeks judgment against defendant for payment of the sum of R 692,
414.48 plus interest on this sum at the rate of
7.20% per
annum as from 18
th
May 2012 plus costs of suit on the attorney client scale and
an order declaring the immoveable property specially
executable.
Defendant
has pleaded that plaintiff was obliged in terms of section
81(2)(a) of the Act to take reasonable steps
to ensure that the
Defendant had a general understanding of the risk in the credit
transaction but failed to take reasonable
steps to ensure that she
understood the risk, being the substantial difference between the
value of the property ( averred
to be not more than R 425,
000) and the loan amount of R 720,000.
Defendant has further pleaded
that plaintiff ought to have
known that defendant was purchasing the property purely for
commercial purposes but failed
to enquire, in terms of section
81(2)(b), of defendant if she understood the risk in the
credit transaction and to advise
her whether or not the credit
transaction would achieve any successful purpose. Accordingly,
it is pleaded that plaintiff
concluded the credit transaction and
loaned money to defendant recklessly.
[6]
THE ALLEGED
MANIPULATIONS OF THE SELLER AND HIS AGENTS
Although
not pleaded, the story of the misrepresentations and possible
fraud of one Cecil Uren and his assistant, Patricia,
featured
in the defendant’s case. She had been invited to
attend a presentation at the Wanderers Club
where the marvels
of investment in land in KZN were touted and the
possibilities of profits to be made through
purchase and subsequent
subdivisions and then resale were extolled. Defendant
through the services of the said Patricia
and a person known as
Debbie Mulder (apparently a bond originator) made the
offer to purchase the Elysium property
for R 900, 000.
At all times, defendant intended to acquire the land,
keep it for a short while,
subdivide it and then sell the
subdivisions on. She saw this as an investment opportunity.
Debbie facilitated
the granting of the mortgage loan finance by
Absa. Defendant took transfer of the property.
It subsequently emerged that the immovable property is not capable
of subdivision, was never worth R 900, 000 and
is
thought to have only been worth about R 420, 000 at the time of
purchase in 2007.
Defendant
understandably feels that misrepresentations were made to her by
Cecil Uren and his compatriots. She
feels that she
wanted to make an investment and has been diddled out of hard
earned monies because that investment
was never sound and the
anticipated profits were never likely to be forthcoming.
Another
person, subject to the same experience, Ms Daisy
Mohlomi, also gave evidence
about the slick
presentation, the interactions with Patricia and
Debbie, the difference between
the purchase price
and the actual value of the land.
From
the documentation it was clear that Uren, through his company Early
Light, had purchased the property but only took
transfer at
the same time that transfer was passed to defendant. It was a
back to back transaction as commonly takes place.
There
was an attempt to make something of this but I can see no relevance
to this litigation.
Mr
Roland Pardey, a registered valuer, gave evidence as an
expert that he conducted a number of valuations of
Elysium
properties giving their values as at 2007 and 2013. He used the
comparable sales approach. Although prices
were not
easily attainable, he concluded that in 2007 the market was at
its peak but that defendant’s property
would never have
achieved the sale/purchase price of R 900,000 and no more
than R 420,000. The property
was under one hectare in
size and it would not be possible to subdivide same.
Pardey’s
evidence also resulted in handing in of a document which he
had compiled from the Deeds Register which
indicated that a
farm had been subdivided, the various portions sold on,
Cecil Uren’s company had made
purchases and then sold on
to persons such as the defendant with simultaneous and back to back
registrations resulting
in considerable profits to Cecil Uren’s
company.
Defendant
and other purchasers (such as Ms Mohlomo) approached ABSA with
their complaints about Uren and his company,
Prinsloo was instructed to investigate. Uren had
dealt with the bond originator and not directly with the bank.
Debbie Mulder works for B.A. Betterbond/Bettabond.
Prinsloo looked for irregularities but found
no wrongdoing or fraud
or irregularities within ABSA. Both defendant and
Mohlomi were indignant about the role
of ABSA whom they obviously
felt had not investigated sufficiently, had not engaged with
them personally in processing
the bond application and
registration, had not reported back to them.
The
relevance of all this evidence is difficult to ascertain in the
precise context of this litigation. The question is
whether or
not any portion of this sad tale has any bearing on the provisions
of
section 80
and
81
of the
National Credit Act.
Defendant
is an adult woman with a Ph.D qualification.
She never visited the Elysium property
nor conducted any
inspection in regard thereto. She
accepted everything she was told by Cecil Uren
and Patricia and
Debbie. Her intention was to make an investment
and, in due course, make a profit
from this land.
Her dreams came to naught.
Neither
Cecil Uren nor Patricia have any connection with ABSA and plaintiff
cannot be held liable for any misrepresentations they
may have
made. Debbie Mulder is not an employee of ABSA but is a bond
originator (apparently working for another entity)
who approaches
banks to obtain loan finance for persons such as the defendant.
Plaintiff cannot be held liable for
any misrepresentations which she
may have made.
THE NATIONAL
CREDIT ACT
Prohibition of
granting of ‘reckless credit’
The
preamble to the NCA describes its purpose,
inter
alia
, as to provide for the general
regulation of consumer credit and improved standards of consumer
information,
the prohibition of unfair credit and
credit marketing practices, promotion of responsible credit
granting and use
and prohibition of reckless credit
granting. Section 3 of the Act confirms these
purposes.
Section
80(1) of the NCA states that a credit agreement is “reckless”
if, at the time the agreement was
made, (a) the credit
provider failed to conduct an assessment required by section
81(2) or,
(b) having conducted such required
assessment, entered into the credit agreement with the
consumer despite the fact
that the preponderance of
information available to the credit provider indicated
that (i) the consumer did
not generally understand or appreciate the
consumer’s risks, costs or obligations under the proposed
credit agreement
or (ii) entering into the credit agreement
would make the consumer over-indebted.
The
assessment to be conducted in terms of section 81
require the credit provider to take reasonable steps to
assess (a) the proposed consumer’s (i)
general understanding and appreciation of the risks and costs
of the
proposed credit and of the rights and obligations of a consumer
under a credit agreement (ii) debt repayment
history as
a consumer under credit agreements (iii) existing
financial means, prospects and obligations
and (b)
whether there is a reasonable basis to conclude that any commercial
purpose may prove to be successful, if a consumer
has such a
purpose applying for that credit agreement.
Regulation of
credit not other interactions
The
overarching context of this legislation is regulation of consumer
credit, promotion of responsible credit
granting and
prohibition of reckless credit granting. The only
interactions and agreements which are
regulated are those
which pertain to credit - marketing, granting and
receiving, terms and implementation.
Section 80
deals with the circumstances within which “a
credit agreement is reckless”.
It
deals with no other interactions whether they be offers to
purchase, agreements of sale, lease agreements,
subdivision agreements and resulting applications,
partnership agreements, company memoranda or
shareholders
agreements, deeds of trust.
The legislation is not concerned with other commercial
engagements between persons or entities. The NCA confines
itself to ‘credit agreements’.
It
must be remembered that not all credit agreements involve or are
mortgage loan agreements. Mortgage loan agreements are
only
one class of credit agreement. The provisions of sections 80 and 81
apply to multiplicities of credit agreements where
there is no
registration of mortgage bonds over immovable property.
Accordingly,
the assessment which is to be conducted in order to comply
with section 81 (2) and (3) specifically
deals with
prohibition of entering into “a credit agreement”
in certain circumstances. This is when reasonable
steps have
not been taken to assess both the position of the consumer
in terms of subsection (a) and the reasonable
basis of
success of “any commercial purpose”
in “applying for that credit
agreement” in terms
of subsection (b).
Section 81(2)(a)
- the consumer
Insofar
as the consumer is concerned, the assessment must
cover three issues. I do not propose to
set out
any
numerus clausus
of examples of how those issues are to be covered but
merely, by illustration of some, to assist
in
determining whether or not plaintiff, in this case, did meet
the requirements of section 81 (2) (a).
Firstly,
the consumer’s state of mind as it relates to the
consumer’s understanding and appreciation
of the risks
and costs of the proposed credit and her rights and obligations
under a credit agreement. The understanding
of the
consumer pertains only to risks and costs of the credit which
is sought not to the risks of that which is to be
acquired
with the credit or for which the credit will be utilised.
What springs
to mind is that the credit granter must take reasonable
steps to assess that the proposed consumer understands and
appreciates
what is meant by credit, by a loan,
what it means to pay in instalments, what the penalties are
for failure
to make payment of an instalment, what is
the concept of interest and that it may be calculated on the full
amount
of credit which remains and how it is calculated and at what
rate. The credit granter should ensure that the
proposed consumer understands that there are risks associated
with failure to pay interest or capital or an instalment
at
all or timeously. The credit granter should
see that the proposed consumer understands that
the written
document holds primacy over any spoken discussions.
The credit granter should
ensure that the proposed consumer
understands that payment of an amount which is less than the
agreed monthly instalment
will mean that both capital and
interest are not paid and that the total amount owed may increase
notwithstanding that
the smaller payments have been made.
The consumer should know what she has to do and
what the bank
has to do each month and throughout the duration of
the credit agreement. Where the loan is secured by any
security,
the credit granter must see that the
prospective consumer understands what is meant by and how such
security is used in relation
to credit, what purpose is
achieved thereby, that immovable property may be at risk
if the instalments are
not paid.
Second,
is the consumers previous experience and behaviour as a consumer
under credit agreements.
The consumer should
be asked to disclose her own history insofar as she has previously
utilised credit and the manner in which
that was handled.
There should be disclosure (if required by the credit granter)
of any civil judgments
in money taken against the
consumer.
Third,
the finances of the proposed consumer at the time of
application need be disclosed to ensure that she
can afford to pay
the instalments in terms of the credit agreement. Future
prospects should be taken into account.
So should those other
expenses and obligations of the consumer which must be
met before any credit instalments can
be repaid.
In
sum, the credit granter must take reasonable steps to
assess that the proposed consumer understands and appreciates
what
she is getting herself into, what it means to have
entered into certain obligations and what rights she has
in relation
to the credit granter, what the risks are of borrowing
too much or failing to pay full or any instalments;
the credit granter must do the arithmetic on income and
expenses, other assets, prospective income and
expenses;
the credit granter must see whether or not the
prospective consumer is a good or bad risk insofar as previous
borrowings
and repayments are concerned.
This
entire assessment pertains to the “proposed credit”,
the “credit agreement” in
particular and earlier
“credit agreements”. This
assessment does not pertain
to any other interactions or agreements
with third parties except insofar as such are themselves “credit
agreements”.
Section 81(2)(b)
- The purpose of applying for credit
Insofar
as the credit agreement itself is concerned, there are
numerous provisions in the NCA which regulate the content
thereof.
However, section 81(2) (b) deals with only one aspect
thereof. That is the possible success
or otherwise of
‘any commercial purpose’ if that is the
purpose of applying ‘for that credit agreement’.
The
commercial purpose does not pertain to any other or underlying
agreement with other persons. It pertains
only to
the purpose of applying for the credit.
‘
Commercial’
is defined in the Shorter Oxford English Dictionary as “trading”
, “of and related to
trade” and
“viewed as a matter of profit and loss”. There is
no definition in the NCA.
‘Commercial purpose’
in the obtaining of credit would be where the credit itself is to be
used for trading
– running a business, paying off debtors of a
business, leasing business premises, acquiring
equipment
used in the running of a business, buying a
share in a business, funding a business through an overdraft
facility.
Clearly,
many applications for credit have no connection with and do
not touch sides with immovable property
or registrations of a
mortgage bond or mortgage loan agreements.
The
fact that there is an application for credit and it is accepted by
both credit granter and consumer that the granting
of such
credit will be secured by a mortgage bond registered over property
does not mean that the requirement of such security
will
always mean that the purpose of obtaining credit is to enable
the purchase of immovable property.
It is
quite possible that a consumer could apply for credit to fund the
education of children at university, to pay
out partners
in a business enterprise, to purchase equipment for use
in a business enterprise, to
fund expenses ranging
from medical treatment to expensive travel to renovations to
other immovable property, to provide
a pool of funds to enable
casino gambling or investing on the Johannesburg Stock
Exchange.
The registration of
a mortgage bond means no more than that the credit granter requires
more than the promise
to repay by a consumer
who wishes to borrow money and that the credit granter has
decided that immovable property
is the most secure and best risk
available to the credit granter.
Accordingly,
the purpose of applying for credit may vary notwithstanding
that a mortgage bond over immovable
property is offered as
security. Where a prospective consumer makes a
‘mortgage bond application’
[7]
and (i) an offer to purchase property which has been
accepted by a seller is produced
[8]
and (ii) the mortgage loan agreement states that
the proceedings of the credit granted are to be paid to the
‘seller’
of the immovable property
[9]
and (iii) there is reference in the mortgage loan agreement to the
“property which the Borrower is buying”
[10]
and the “purchase price” – then it is
safe to assume that everyone knows that the purpose
for which the
credit is sought is for the purpose of acquiring immovable
property.
In
and of itself, the mere acquisition of immovable
property is not a “commercial purpose”.
The hope or expectation of profit from the eventual sale of
immovable property is not trade or commercial enterprise.
It is the making of an investment which has had favourable
results. Such may happen by chance if a purchaser of
immovable property acquires a residential property,
lives there for forty years and then sells the property
in order to downsize.
Such
may happen by design if a purchaser of immovable property
acquires land or a dwelling or an office block and
sells
same on at a profit within a shorter or longer time. If the
making of profit was the primary intention and
the buying and
selling of the property was a trading
activity or mercantile enterprise, then
SARS may well
conclude that this was a ‘commercial enterprise’ in
respect of which tax (other than capital
gains tax) should be
levied on such business dealings. But the funds which
have been granted as credit were not granted
for a business
enterprise or a trading deal or a mercantile exchange –
the credit was made available to purchase
property not to engage in
commerce or trade.
THE FACTS OF THIS
CASE
Application
for mortgage loan finance
The
plaintiff engaged with and granted credit to a highly qualified
woman with a Ph.D who not only owns her own home in Johannesburg
but
has registered a mortgage bond over that property which she has paid
off. She has prior experience and knowledge
of obtaining
credit secured by mortgage bond over property.
Defendant
explained how Uren had told her and others that she would
purchase the land, within one year the land would
be
subdivided and her property would be subdivided and could then
be sold on as a profit. This was an area of sugar
canme farms
and the property would benefit from the development.
Defendant
made application for credit and made available her identity
document, her salary advice, her IRP 5
being her
employees tax certificate, proof of her address,
her banking details and a bank statement in respect
of her FNB
cheque account. She used the services of Debbie Mulder to
submit all the documents – Lynette Prinsloo
knew her to be a
bond originator employed by Bettabond/Betterbond an aggregator of
Exclusive Home Loans and Conveyancer
van Rensburg testified
that he knew her to be a mortgage or bond originator.
An
electronic assessment was activated as per FPZ (being
the document s at pages 32 and 33) of the Bundle.
According to Lynnette Prinsloo, a specialist investigator at
ABSA, the bank compiles a ‘credit scorecard’
based on all information furnished. The grading
contained in the scorecard assesses risk (pertaining to the
customer) and risk grade (pertaining to the purchase price etc).
Prinsloo
described how the system assesses the risk involved.
Personal details are checked, financial details
such as income
and expenditure considered, at least three month bank
statements are to be provided and bank accounts are
checked,
customer profile considered (in the present case
defendant was in fulltime employment), a credit
bureau
provides information on other commercial agreements (such as
Telkom accounts), whether there are any
outstanding
civil judgments against the applicant (none in respect of
defendant), the maximum instalment which could
be paid
based on the applicant’s disposable income after household
expenses have been paid, computation of how much
was available
to defendant to fund her payments, the amount of free residue
available to the applicant to pay. All
this information can be
extracted from pages 32 and 33 of the Bundle when read with
other documents.
In
the present case, the application for mortgage
loan finance in the amount of R 900, 000 was initially
declined by the system and then, when sent to a credit
manager, was approved in the lesser amount of
R
720,000 as per the grant (at page 34 of the bundle).
According
to Lynnette Prinsloo a valuation was performed on the Elysium
property . Valuations are done to assess if
the security
offered is suffered to underpin the loan. The valuation
does not determine the outcome of the
application for finance
but it does impact on the scorecard percentages.
Prinsloo pointed out that, if the
security was considered
insufficient, the loan could still be approved on provision of
additional security. In the
present case, the valuation
was performed by an external company – Spectrum valuers who
used F. Maartens for this
purpose. The valuation is at
page 20 of the Bundle and was conducted on 7
th
August 2007. It is not particularly informative -
the property is described as “vacant land domestic”,
deeds office information is given and purchase information.
The valuation of the land is stated to be
R 900,000.
Availibility
of advice and enquiries re the NCA requirements
Prinsloo
testified that she is aware of the NCA and that all employees do
some training thereon. However, no bank employee
makes holds
discussions re the NCA with the applicant or explains risk to the
applicant. It is the conveyancing attorney
who is
legally qualified and who explains the import of the relevant
provisions of the NCA to the purchaser or bond applicant
when the
transfer or bond documents are signed. The means
whereby the bank ensures that the conveyancer is
compliant with the
duties of the credit granter in terms of sections 80 and 81 is
to require the conveyancer’s confirmation
in a
certificate, the conveyancer being mandated to sign on behalf
of the bank.
Prinsloo
stated that there was no indication on any documentation that the
application for the home loan finance was for anything
other than
purchase of immovable property. The codes at page 32 of
the Bundle only deal with residential property.
If a loan was
required for commercial purposes then there is a different
type of loan applicable – ‘Commercial
Property Finance’
– where this was for an ‘ordinary’ home loan.
Defendant
signed the documentation pertaining to registration of transfer into
her name and registration of the mortgage bond
over the Elysium
property. At issue was whether or not defendant
ever attended at the conveyancer’s offices
where the
representative of the plaintiff bank could ever have taken the
steps to assess her understand of risk and
costs of the
credit, her rights and obligations under the credit agreement.
The
conveyancing attorney, Pieter de Wet Janse van Rensburg,
was adamant that she must have attended
at his
offices. He did not recall that he ever went to her home
although he does ‘quite often’ go to clients.
Defendant must have been attended to by one of his
conveyancing ladies to sign the documents – the transfer and
bond documents usually being signed together – it being a
process which can take some hours and which he would not personally
supervise. Where required, he would have
taken her oath and commissioned documents as indicated thereon.
He
said it did not seem ‘possible’ that these conveyancing
documents could have been signed without defendant attending
at his
offices or that Debbie Mulder alone was the only person ever to
present defendant with any documents to be signed.
Defendant
said she “does not remember” ever signing any documents
at Roodepoort – where the conveyancer’s
offices are
situate – and “doesn’t remember going to
Roodepoort” and “ I don’t remember doing
that’
ie signing documents at Van Rensburg’s offices and that “I
cannot recall going”.
Her
evidence was initially that Patricia and Debbie had come to
her home on two occasions when all documents were
signed.
Under cross-examination she said that she only signed documents “on
one occasion”. This
could not be
possible since the sequence of documents first required an
offer to purchase to be accepted, then an application
for the bond
finance, then signature of the transfer and bond registration
documents. Defendant then took the view
that Debbie and/or
Patricia must have come to her home more than twice and that she had
signed documents on more than one occasion.
She
became more certain that she had not been to conveyancer Van
Rensburg’s offices in connection
with this transaction.
When
asked who had brought the documents to her house, defendant was
careful in her answer and responded (after thinking) that
they
were brought by Debbie.
Neither
Debbie nor Patricia ever explained the contents of any of the
documents to defendant. But then defendant said that
one or
both did ‘explain the loan and the issue of repayment’.
She also understood that she had
an arrangement with Cecil Uren
that, during the first year of the bond there would be payment by
’early trading’
which apparently meant that Uren
or his company would advance funds for a period of time.
Defendant
did not remember if anyone had explained the issue of legal costs to
her or how transfer costs were calculated.
Defendant’s
evidence was that she had obtained a loan for her Kew property,
registered a bond thereover, knew
she had signed a loan
agreement to repay, knew that the bank could call up the loan
if she defaulted on her instalments,
that if she could not
pay the bond that the property could be sold. As
far as the Elysium property was concerned,
she said that her
understanding was that it was a development. She appeared not
to want to concede that she participated
in the same
transactions in respect of the Elysium property as she had
with the Kew property. In response to the
question that
this transaction was ‘the same as the Kew property’, her
answer was ‘that was not the way
it was sold to me’.
However,
she was aware of the 20 year period over which the instalments would
be paid. Because she was so
committed to the
investment and the development she said there was only going
to be one year of repayment and then the
property would be
subdivided and sold. She never thought she would keep
the property for 20 years and did not think
about the possibility
that the property could be sold to pay the indebtedness if the
loan repayments were not made.
Initially
she said that Uren had made the monthly repayments but when
presented with proof of debit order repayments debited on
her own
FNB cheque account she conceded these payments had been made by her.
Conveyancers
certificate
Van
Rensburg gave evidence that he had signed a conveyancer’s
certificate (document 66.2 of the bundle) which
includes, in paragraph 6 thereof, a statement that
“
I
hereby confirm that as required by the National Credit Act (No 34 of
2005, as amended from time to time) and in order to avoid
reckless
credit, I have explained the credit agreement(s) to the consumer
concerned (including security documents where applicable)
and
the preponderance of information at the time of conclusion thereof,
indicated that the consumer generally understood
or appreciated his
rights, costs and obligations under the proposed credit
agreement(s). In doing this I have also, amongst
other things,
specifically discussed the matters prescribed by you from time to
time.”
Under
cross-examination it became somewhat obvious that Van Rensburg did
not have deep or detailed knowledge of the NCA.
For
instance, he was unable to quote chapter and verse of the
sections.
However,
in ‘broad terms’ he was able to indicate a
number of matters on which he believed it was necessary
to satisfy
himself: that the client knows the amount she was
borrowing, the purpose of the amount borrowing
or how it is to
be spent, the authorities to pay and the guarantees
presented, the first payment explained,
the
consequences of not paying the bond. As far as the ‘reasonable
steps’ to be taken in terms of section 81
he said he would
make sure that the consumer understood the amount, the purpose, the
repayments, when repayments were due and
the consequences of not
paying. He referred to the risk of not being able to repay
which would mean that the asset
might be attached or repossessed by
the bank. Other risks would generally include risks of
insurance.
All these issues would be covered in
the process of the client signing the relevant documentation.
When
question on the purpose of obtaining the credit, Van Rensburg
indicated that the documentation being signed was
in respect
of a residential mortgage and he understand it was sufficient
to know that the loan was being taken out for
purposes of purchasing
the property. When pressed, he questioned
whether he had a duty to advise any
client who had the intention of
selling on the property.
CONCLUSION
Plaintiff
and defendant have clearly been at odds throughout in their
understanding of the import of the NCA with the bank arguing
that
the Act applies to credit agreements whilst the defendant is more
concerned with the underlying sale and purchase agreement.
I
have already commented at length on the NCA,
the purposes of the Act, that the Act is limited
to
regulation of credit agreements, that the issue of security is
not an essential part of credit agreements, that
credit
agreements cover multiplicities of interactions and agreements
where neither security nor mortgage may be
involved. Section
81(2)(a) requires an assessment of the consumer’s
understanding and appreciation
of risk, the consumers
previous experience of credit and the financial position of the
consumer.
Section
82 (1) of the NCA permits the credit provider to
determine, for itself, the evaluative mechanisms
and procedures to be used in meeting its assessment obligations
provided that such “results in a fair and objective assessment
and must not be inconsistent with the affordability assessment
regulations made by the Minister”. This subsection
confirms that the evaluation mechanisms pertain to affordability.
I
have regard to the assessment mechanism of the plaintiff as describe
by Prinsloo and Van Rensburg and as recorded in the
documentation.
There is both an electronic
computer evaluation and there is a human intervention when
thought necessary.
What is taken into account has
already been discussed in this judgment. The provision
of the information utilised
to compile this assessment has not been
in dispute. I am satisfied that reasonable steps are in place
to assess and that
such assessment did take place in regard to the
defendants debt repayment history and her
financial means,
prospects and obligations.
My
only concern is whether or not reasonable steps have been
taken to assess the defendant’s own general understand
and appreciation of the risks and costs of the credit agreement as
well as her rights and obligations under the agreement.
On
the one hand, defendant is certain that Debbie and
Patricia advised her of very little – which would
not help the
bank since these ladies did not work for plaintiff. On the
other hand, defendant was doubtful but not
absolutely certain
that she had not been to the conveyancers office and been
advised of anything. Insofar
as attendance at the
conveyancer’s offices is concerned, defendant’s
responses trouble me. On
the issue of going to the
conveyancer she did not ‘remember’ but she
was far more certain that
“I have absolutely never been
to ABSA”.
The
Conveyancer was certain that the documentation could only have
been signed at his office. His explanation
of what
needed to be explained to meet the requirements of section 81(2)(a)
of the NCA was more than sufficient.
Defendant’s
indignation at the scam to which she had been exposed
and the loss of her investment appears to
have clouded her attitude
towards the bank itself. She seems to have been
most concerned that the
bank was acting differently
than when she purchased her Kew property and had a direct
relationship with the bank.
She was also indignant
that she had been assured that, while the investigation into the
Uren transactions was underway,
her bond would be
‘ringfenced’. Finally,
both she and Ms Mohlomi felt that the
bank had not reported back to
them on the investigation into Uren which had taken place.
Defendant’s
distress in discovering that the purchase price of R 900, 000, which
did reflect her willing buyer’s
valuation of the
property, bore no relation to other sales then or
now obtainable in the area;
that the property could not
be subdivided; that there was no development is all absolutely
understandable. But those
are misrepresentations or risks
taken in respect of an agreement of sale not in relation to the
application for credit.
It
is on this point that I find I cannot assist defendant.
The difference between the value
of that which she bought at the
time that she bought it and the value which it had to and for her
versus the value of that same
merx to other persons is not a
risk for purposes of the granting of credit.
If she had bought shares
in Anglo American in 2007 with monies
loaned from the bank could she now complain that the bank did
not ascertain that
those shares would decline in value out of all
recognition? The answer is, of course, no.
The
NCA is not about the risk in the value of that which is acquired
with credit. It is about risk in ability to pay
for
credit.
The
assessment which is required to be conducted in terms of section 81
of the Act must be situate in context. Defendant
is
a highly educated woman who has previously satisfactorily entered
into a credit agreement. She
did not tell
the court that she did not understand the concept of the bond or
capital or interest or instalments or that
failure to pay
instalments could place the security at risk of attachment and sale
in execution.
Instead,
she made it clear that, although she knew all those
factors, in this particular case she had
no concern
about these issues because she intended to subdivide and sell her
property within a shorter rather than longer
period of time.
Her entire attitude to this credit agreement has been polluted
by her determination to
see this application for credit as distinct
from other applications for credit by reason of the promises
made by those
who presented her with this opportunity.
I
do not find that there was a ‘commercial purpose’
in applying for this credit. Her purpose was
to obtain
funds to purchase immovable property. Her ultimate hopes
and intentions in relation to this property
cannot be
the concern of the credit provider. If the credit provider was
to examine and assess every hope of profit
in every
acquisition of property (immovable or otherwise),
funding of studies (fine arts versus medicine)
and so on,
the credit providers would be intruding into areas which the
Legislature can never have envisaged.
There
was no business or mercantile or trade interest in the application
for credit. The acquisition of immovable
property (unless perhaps a commercial long lease or
units for rental purposes) is not a commercial undertaking.
It is the acquisition of an asset. What Cecil Uren
and Patricia and Debbie and defendant may have known or
believed –
that there would be a subdivision and development of the land,
does not necessarily make this a commercial
venture.
Even
if I were to find that the duty rested upon the credit
provider to pertinently enquire of the consumer as to
her purpose in
applying for credit, the answer would obviously have
been “to buy a piece of land”.
Does the
credit granter have to go further and ask about the
improvements to be made to the land – whether
by way of
erection of a residential dwelling, a garage, a swimming
pool, a kitchen extension, subdivision
into
two or more portions, building another dwelling or
cottage or tennis court on the new portion? I
cannot see
that this could or should be within the competency of a credit
provider. In any event, such
improvements do
not create a commercial purpose.
In
the result I cannot find that the plaintiff was ‘reckless’
as contemplated in the
National Credit Act in
its granting of
credit to defendant.
An
order is made as follows:
Defendant
is to make payment to plaintiff:
i.
of the sum of R 692, 414.48 (six
hundred and ninety two thousand, four hundred and fourteen rand and
forty eight cents);
ii.
Of interest on the aforesaid sum at the
rate of 7.20% per annum as from 18 May 2012 to date of final payment;
iii.
Costs of suit on the attorney and client
scale.
The
immovable property, Erf 160 Elysium Township,
Registration Division ET, the Province of Kwa-Zulul Natal,
Measuring 4977 Squre Metres, Held by Deed of Transfer T 6401/07, is
declared special executable.
Reasonable steps in
circumstances –
Commercial –
nobody told bank.
KS
– assessment = ability of consumer ot meet credit obligations
not value of merx.
Agued that not for
defendant to volunteer information but for bank to ask for
information. Provider to make enquiry andpose
questions.
Must enquire purpose of transaction.
Nnotihign
by Van Resnsburg that asked re commercial purpose.
= 2
nd
assessment not dealt with.
Pye – what do
with property is own business not part of credit.
Section
8
(4) (d) = mortgaged agreement or secured loan = credit agreement.
She
appeared not to want to concede that she participated in the
same transactions in respect of the Elysium property as
she had
with the Kew property. In response to the question that
this transaction was ‘the same as the Kew property’,
her
answer was ‘that was not the way it was sold to me’.
DATED
AT JOHANNESBURG 18
th
MARCH 2016
SATCHWELL
J
Counsel
for Plaintiff: Adv Pye
Attorneys
for Plaintiff Tim Du Toit & Co Inc.
Counsel
for Defendant: Adv Lesomo
Attorneys
for Defendant: Seokane Lesomo Inc
Dates
of hearing: 08, 09 and 10
th
March 2016.
Date
of judgment: 18
th
March 2016.
[1]
Document
at pages 1 – 8 of the Bundle.
[2]
Document
at page 9 – 18 of the Bundle.
[3]
Document
AB2.
[4]
Plaintiff
led evidence that there was a fire at the data storage
facility in which original documents of ABSA were
kept and
that original documents pertaining to defendant’s
loan and bond were destroyed at that time.
What has been
handed in to court have been electronic copies – but not
signed copies because they are exchanged electronically.
Correctly,
defendant did not dispute these documents and accepted that
they were the best evidence possible and available.
[5]
Page
116 of the Bundle.
[6]
See
paragraphs 7.2 a) – h) of Defendant’s plea at pages 62
to 64 of the pleadings bundle (the paragraphs themselves
not being
numbered).
[7]
Page
9 onwards of the Bundle.
[8]
Common
cause that the Offer to Purchase at page 1 of the Bundle was handed
in.
[9]
Clause
1.18 of the mortgage loan agreement.
[10]
Clause
13.1 of the mortgage loan agreement.